Blockchain: Mining, Ethereum, and Solana

Blockchain Ecosystem Overview

• Lecture focuses on Blockchain Architecture Part 1, mining rewards, and the Ethereum and Solana ecosystems.
• Topics covered include mining, chain rules, mining incentives, Proof of Stake (PoS), Ethereum, The Merge, and Solana.

Mining, Chain Rules, and PoW Consensus

• Proof of Work (PoW) uses hash puzzles to maintain network difficulty.
• A node proposing a block must find a nonce so that H(nonce || previous hash || Tx...) < Threshold value.
• The target value for a valid block is based on the mining difficulty.
• The process maintains an average block mining rate of 10 minutes.
• Nodes follow the longest chain rule in cases where two blocks are mined simultaneously.
• Nodes immediately switch to the longest chain if one chain gets longer at some later stage in history.
• The longest chain rule protects blocks already mined.
• It resolves disagreements when two blocks are mined simultaneously.

Solo vs Pool Mining

• Solo mining involves an individual miner completing proof of work for the chance to claim the entire block reward.
• Pool mining involves miners combining resources to increase their odds of mining a block, sharing rewards proportionally.
• With regards to Reward Distribution, solo mining yields infrequent but larger rewards, and pool mining provides smaller, regular payouts.
• With regards to Computational Power Requirements, solo mining is resource-intensive, whereas pool mining is more accessible.

Bitcoin Mining Incentives & Halving

• Total incentive earned by a Bitcoin miner includes block reward + transaction fees.
• Block Reward is a fixed amount of bitcoins, and halves every four years (Bitcoin halving).
• Total Transaction Fees represents the sum of all transaction fees in a block.
• The formula for transaction fee: sum(inputs) - sum(outputs).
• Factors affecting transaction fees: network congestion, miner preferences, changes to protocol
• Bitcoin implements "halving," reducing mining rewards by half approximately every four years.
• Halving is built into Bitcoin's protocol by Satoshi Nakamoto to control the issuance of new bitcoins, thus mimicking scarcity and reducing inflation.
• Halving reduces the rate at which new bitcoins are created, slowing down the increase in supply.
• The Bitcoin halving process is expected to continue around the year 2140.
• After that, miners are expected to be incentivized primarily through transaction fees.

Proof of Stake (PoS) & Virtual Mining

• Proof of Stake (PoS) is also known as virtual mining.
• Pos was proposed in Peercoin (August 2012).
• EOS, NxT, Steem, Ethereum 2.0, Polkadot, & Tezos use PoS algorithms.
• With PoS, a "stake" is the number of coins in the consensus protocol staked by a participant.
• The key idea of PoS: someone with stake in the system will not try to sabotage the system.
• A PoS miner is called a validator/minter/stakeholder.
• PoS mechanisms select a validator and grants appropriate rights to it based on its staked assets.
• Stake calculation may depend on balance, unused deposit value, or voting among validators.
• Once stake is calculated and a validator is selected, the block is readily accepted.
• Selection probability increases with a higher stake.
• PoS variations: Chain-based, Committee-based, Delegated, PoA, etc.

PoW vs PoS

• PoW depends on computational power; PoS relies on the stake in the network.
• Miners receive rewards when solving a puzzle, while validators collect transaction fees.
• PoW attackers need >51% computational power; PoS attackers need >51% of the cryptocurrency.

Ethereum Architecture Overview

• In 2015, Vitalik Buterin released Ethereum as a next-generation, open-source blockchain for Decentralized Applications (DApps).
• Ethereum is powered by Smart contracts and the Ether (ETH) cryptocurrency.
• Etheruem focuses on smart contracts and complex systems such as Dapps and DAOs.
• Key features of the Ethereum blockchain include:
  • Currency: ETH
  • Founder: Vitalik Buterin & Team
  • Smallest Unit: 1 Wei = 0.000000000000000001 ETH
  • Supply: No Fixed Supply

Ethereum Architecture Details

• Ethereum is described as a "transaction-driven state machine."
• It has a P2P Ethereum Network.
• Geth Ethereum Client connects to P2P Net to carry out Mining and Account Management
• The Private Ethereum Network uses Proof of Authority (PoA).
• Ethereum client uses a EVM.
• Run time environment for Eth smart contracts
• Each full node locally stores/updates the blockchain state.
• Ethereum Smart contract developers use JSON RPC to allow for easy use.

Ethereum Key Components

• The key components of Ethereum include:
  • EVM and Smart contracts, DApps and DAO
  • Accounts, Wallets, Gas and Fees
  • Consensus and Block Difficulty.

EVM & Smart Contracts

• Ethereum Virtual Machine (EVM) is a computing stack embedded within Full Ethereum nodes.
• Ethereum's EVM executes Smart contract byte codes.
• Smart contracts self-execute based on "if…else" conditions.
• Smart contracts are written in Solidity, then compiled into byte codes for EVM.

Ethereum Accounts

• The main building blocks of Ethereum blockchain are accounts.
• Accounts are defined by private and public key pairs.
• The public address is to share with others to receive funds.
• The private key is used to sign transactions and prove ownership of the account.
• Ethereum accounts' send and receive transactions in the network.
• An account represents an entity with an Ether (ETH) balance for transacting.
• EOA: Externally Owned Accounts represent any user-owned account address, with an ETH balance encrypted with private key.

Etheruem Wallets

• Wallets manage and access Ethereum accounts.
• Wallets display balance, transaction history and also provides the ability to send and recive ether and tokens.
• Accounts can be accessed from different wallets with a private key or seed phrase.
• Wallets generate a seed phrase for initial setup.

Gas & Fees

• Gas is a unit (in Wei) required to be paid for every operation performed on Ethereum's blockchain.
• Gas is charged in three scenarios: computation, increase in memory use, or contract/ transaction.
• 1 Wei = 10-18 ETH, and 1 Gwei = 1 Giga Wei.
• If a transaction is included in one block a fee is paid.
• Fee = (base_fee + priority_fee) * gas_used - Base_fee: value determined by protocol - Priority_fee: paid to block proposer

PoW Consensus: Bitcoin vs Ethereum

• Block time in Ethereum is 13 -15 seconds compared to Bitcoin which is ~10 mins.
• Diffculty adjustmemt is Dynamic in Ethereum compared to Bitcoins which is static every 2016 blocks.
• Goals is dapp and quick transacitons in Ethereum and a secure store of value in Bitcoin.
• Rewards are given to uncles and No rewards ar given and become stale blocks in Ethereum.
• GHOST Protocol for security instead of the longest chain rule used by Bitcoin.

Ethereum Block Details Post "The Merge"

• Post "The Merge", Ethereum relies in PoS consensus.
• Validation method is Stake-based selection over Crytographic puzzles used by blockchain.
• 1/32 of valadators attest o a block created during each slot In-protocol rewards: transaction + priority fee

Solana Architecture

• Solana is a high-performance blockchain known for fast transaction processing.
• Solana uses a hybrid of Proof of History (PoH) and Proof of Stake (PoS).
• Designed to support scalable decentralized applications without compromising security.

Solana Consensus

• It is a hybrid system combining Proof of History (PoH) and Proof of Stake (PoS) algorithms.
• There are messages sent by users and ordered output sent to replicator nodes of the algorithm.

Comparison of Cryptocurrency Technologies

• Bitcoin
  • Launch Year: 2009
  • Primary Purpose: Digital Currency
  • Consensus Mechanism: Proof of Work (PoW)
  • Transaciton Speed ~3-7 transactions per second
• Ethereum
  • Launch Year: 2015
  • Primary Purpose: Smart Contracts & DApps
  • Consensus Mechanism: PoW transitioned to PoS -Transaciton Speed ~15-45 transactions per second
• Solana
  • Launch Year: 2020
  • Primary Purpose: High-Speed Transactions & DApps
  • Consensus Mechanism: Proof of History (PoH) combined with PoS -Transaciton Speed ~50000+ transactions per second