Blockchain Fundamentals and Consensus Mechanisms

Study Notes

A blockchain is a decentralized digital ledger that records transactions in blocks, chained together chronologically.
Blocks contain data, timestamp, and a cryptographic hash (unique identifier) of the previous block.
The first block in a chain is called the Genesis Block, serving as the foundation.
Nodes are devices on the network, each maintaining a copy of the blockchain, ensuring data integrity.
Distributed Ledger Technology (DLT) refers to digital systems recording data spread across multiple nodes for increased security and transparency.

Consensus enables network agreement on transaction validity.
Proof of Work (PoW) requires miners to solve complex puzzles to validate transactions (e.g., Bitcoin).
Proof of Stake (PoS) selects validators based on the amount of cryptocurrency they hold, earning them rewards for validating transactions.
Delegated Proof of Stake (DPoS) allows stakeholders to elect delegates (validators) to participate in consensus.
Practical Byzantine Fault Tolerance (PBFT) is a consensus mechanism designed to handle potentially malicious nodes (Byzantine faults).

Hash functions convert data into unique fixed-length strings (hashes) for data integrity.
Cryptographic hashes (like SHA-256) ensure data integrity by being unique for specific input data.
Public Keys are used to receive funds and are shared publicly.
Private Keys are secret keys used to sign transactions and prove ownership.
Digital Signatures use cryptography to ensure message or transaction authenticity.

Public Blockchains are open networks like Bitcoin and Ethereum, accessible to anyone.
Private Blockchains are restricted networks controlled by a specific organization.
Consortium Blockchains are semi-decentralized networks managed by a group of organizations.
Permissioned Blockchains require permission to join the network, allowing selective access.

Smart Contracts are self-executing code stored on a blockchain that automatically executes when predefined conditions are met.
Tokens are digital assets created on existing blockchains, such as ERC-20 tokens on Ethereum.
Utility Tokens provide access to products or services (e.g., Filecoin).
Security Tokens represent ownership of an asset, such as shares or real estate.
Non-Fungible Tokens (NFTs) are unique digital assets representing specific items, like artwork and collectibles.

Transactions are records of asset movements on a blockchain (like transferring cryptocurrency).
Gas Fees are paid to miners or validators to process transactions on a network (used in Ethereum).
Mining is the process of validating transactions and adding them to the blockchain (primarily in PoW networks).
Validators are responsible for verifying new transactions in PoS networks.

Layer 1 refers to the base blockchain (e.g., Bitcoin, Ethereum).
Layer 2 solutions are off-chain solutions that enhance blockchain scalability (e.g., Lightning Network, Polygon).
Forking is a split in a blockchain into two separate paths, often triggered by protocol changes, a hard fork or a soft fork.
Sharding divides the blockchain into smaller partitions (shards) to improve scalability.

DeFi refers to financial services (lending, borrowing, trading) built on public blockchains without intermediaries.
Decentralized Autonomous Organizations (DAOs) are community-driven organizations where decisions are made collectively using smart contracts.
Governance Tokens allow holders to vote on changes in a blockchain or DeFi project.