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Blockchain Interview Questions and Answers for 2024

Statista data shows that the Blockchain industry is set to hit $1.2 trillion by 2030. There has been a roaring interest across the board in adopting this novel technology that started with the advent of Bitcoin in 2008. So, are you planning a role in the blockchain domain? Hunting for some Blockchain interview questions and their answers? Well, you have reached the right place. Blockchain technology has taken the world by storm. And while you are at it, exploring some Blockchain Professional Certification courses is worthwhile. Currently, the industry is booming, and there is an acute shortage of resources across all profiles like 1. Smart contract developer 2. Full stack developer 3. Frontend developer 4. Token economist 5. DeFi analyst 6. Community Manager 7. Social media manager 8. Sales and marketing manager 9. Blockchain lawyer 10. UI/UX designer 11. Product manager etc. Through these blockchain technology interview questions, you can prepare yourself for a role in top companies like: 1. Polygon 2. Solana 3. IBM 4. Accenture 5. Deloitte 6. ConsenSys 7. Chain

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Beginner

Security policy is the formal documented plan of an organization that defines its goals, policies, objectives, and procedures for information security.

Once the company achieves scale, it is essential to devise this document as it will serve as a handbook in case of security breaches and the most critical elements to take note of.

This policy varies from business to business as some businesses are data-heavy by nature, and security plays a vital role in their success. In fact, with the increasing influence of GDPR, some companies have also been asked to pay hefty penalties in the event of failure to protect customer data

This is a frequently asked question in Blockchain interview questions.  

Blockchain technology differs from traditional databases in several ways. 

  • One key difference is that a blockchain is decentralized, meaning a single entity does not control it. This makes it more resilient to tampering, as there is no single point of failure.   
  • Additionally, a blockchain is an immutable ledger, meaning that once a transaction is recorded, it cannot be altered or deleted.   
  • On the other hand, traditional databases can be edited and deleted by authorized users.  
  • Another difference is that a blockchain utilizes cryptography to secure transactions, whereas traditional databases rely on user permissions and passwords.  
  • Finally, blockchains operate on a consensus mechanism, meaning that multiple parties must agree on the validity of a transaction before it can be recorded on the blockchain. Traditional databases do not have this requirement. 

The best part about Blockchain technology is its genesis. Although it uses multiple existing technologies like cryptography, distributed ledger technology, and proof-of-work, it puts all the technologies together to create immutability and trust within the system is truly fascinating.

Above that, this is the first instance of technology that is truly censorship resistant. Even if someone wants to, they cannot stop the likes of Bitcoin as a single individual does not control it.

For the first time, we now have a technology that can enable trust by design between the parties and not rely on a third party. Therefore, I see a promising future for this space in general.

Expect to come across this popular question in Blockchain developer interview questions.  

Innovative asset lifecycle management helps organizations store and access data at any point. This incorporates the governance, issuance, maintenance, and withdrawal of smart assets from a system. This brilliant asset could take any shape and form, ranging from currency. Loyalty points to even transactional status. 

Stages of the asset lifecycle include:

  • Planning 
  • Acquisition 
  • Use 
  • Maintenance 
  • Disposal

In the context of a Blockchain, this entire cycle can be done entirely on Blockchain without the use of an intermediary. Blockchains are designed in a way to take care of all the functions of an intelligent asset automatically without needing a middleman.

A lot of people confuse anonymous and pseudonymous. Blockchains are not anonymous. In fact, all the transactions that have ever happened on a public ledger like Bitcoin or Ethereum are available for the public to view.

But then, these transactions are done by some wallet address. The identity behind that wallet address is hidden until you choose to reveal it.

Of course, authorities could come to know about your identity by tracking your IP or checking out the transactions with a centralized exchange (which usually runs with KYC). On top of these, the concept of Soul bound tokens (SBTs) is getting traction nowadays. These basically would be the" blockchain way" to represent traits, features, and achievements that make up a person or entity. 

This semi-anonymity of Blockchains is called pseudonymity.

A must-know for anyone heading into a Blockchain interview, this question is frequently asked in interview questions for Blockchain developer.  

A hardware wallet is what stores your private keys in a USB stick-like-looking device. So far, it has been considered the most popular way to store your crypto as it does not even connect to the internet and is immune to online hackers.

This makes it highly secure and safe when it comes to the self-custody of your digital assets. E.g. Ledger wallet, trezor wallet, etc.

The current ecosystem of Blockchain technology is not at par with its web2 counterparts. The first concern of Blockchains is around scalability. There has to be a tradeoff between security, decentralization, and scale. This is popularly known as the Blockchain trilemma.

Secondly, blockchains are more of a social experiment than a tech experiment. Say even if you create a trustless system between different parties, it will still demand those parties to use it. Otherwise, it is as good as nothing.

There are also risks associated with the 51% attack. As quantum computing kicks in, there is a possibility that some nodes can gather 51% of the computational power and compromise with the system.

Although some of these concerns have been addressed through major structural updates of many chains, like the recent Ethereum merge, there is still a lot of work to be done.

Currently, over 50% of the world is connected online. This makes it a hotbed for the scammers to come up with newer ways to siphon off money from innocent folks.

This can take the shape of extortion, ransomware, identity theft, and sabotage.

The information is shared on a network between its participants. Before transmitting this information over a network, it needs to be changed into formats that can fit the standards of the channels (Every channel has a set of rules for communicating with each other).

Converting the information at both the sender and receiver end is regarded as information processing. The biggest challenge to information processing is securing it during that time. Another challenge is processing bulk information can impose a limit on performance

Blockchains can be easily explained with a simple analogous of a kitty party. A kitty party includes a group of people who come together and create a pool of funds with manageable monthly installments. One winner is chosen at random from everyone who gets the entire amount for that month. Essentially, depending on when your name is picked, you get access to a lump sum amount by depositing small amounts of cash.

Now, this system is highly transparent, and each participant in the network knows who has already received the money, who is yet to win, who all are regularly paying, etc.

If anyone decides to fraud the system, they will have to convince at least 51% of the people, if not all.

Blockchains are very similar in nature. They are distributed public ledgers where participants validate the transactions, and no single authority can make changes at will.

It's no surprise that this one pops up often in Blockchain basic interview questions.  

Blockchain is a digital ledger that is managed by a group of nodes or computers operating on that Blockchain. What this means is that it is a database that is not owned by a single central authority. 

A transaction can be entered into the Blockchain only if 51% of the total nodes agree on it. 

Since these nodes can be set up anywhere in the world (distributed), it is virtually impossible to influence them for a malicious attack against the network.

On top of that, since no single authority can make independent decisions, blockchain is an immutable source of data storage, i.e., data cannot be changed once stored.

This makes Blockchains a powerful tool to run and manage a system where two transacting parties lack trust.  

A common question in Blockchain interview questions, don't miss this one.  

As mentioned earlier, for a transaction to enter into the Blockchain, at least 51% of the nodes should agree on it. But then, how do these nodes agree with each other? This is through something called a consensus mechanism. While there are multiple consensus mechanisms out there, let me explain through the example of Bitcoin, which uses a proof-of-work consensus mechanism.

In a proof-of-work consensus mechanism, it is transmitted to all the nodes whenever a transaction is done. Each of these nodes has a copy of the Blockchain and hence tries to check if the transaction that is happening is valid or not.

To prove the validity of this transaction, these nodes solve a complicated mathematical problem. The first node to solve this problem is rewarded with Bitcoin (in the case of Bitcoin Blockchain), while others simply confirm whether the solution is correct.

Once the consensus is reached, this transaction is appended to the block, and this block joins the previous blocks.

Some of the most popular Blockchain platforms are as follows:

Blockchain Platform
Consensus Mechanism

Ethereum 

Proof-of-stake 

Solana 

Proof-of-history 

Hyperledger Fabric 

Customizable 

Ripple 

Centralized 

Neo 

Delegated Byzantine Fault Tolerance 

R3 Corda 

Asynchronous Delegated Byzantine Fault Tolerance 

Tezos 

Liquid Proof-of-stake 

Polygon 

Proof-of-stake 

Trustlessness can be defined as the state where the two transacting parties do not have to trust each other before getting into a deal. For example, usually, this trust is based on personal experience. Whenever the parties interact at scale, this trust is often outsourced to a third party, like banks or insurance companies.

However, Blockchains instill this trust without relying on third parties. This trust is by the design of the Blockchains. Let us make it real. Imagine you are selling property. You would involve legal authorities that will validate the purchase, banks that would finance the transaction, and law enforcement agencies that will make sure that bank transfers and ownership transfers happen simultaneously.

Blockchains can overcome this process by writing a smart contract that will lock in the ownership representation from the seller and money from the buyer and swap it without fail each time.

Apart from that, blockchains can be trusted because of the following: 

  • Blockchains are highly compatible with other business applications due to their open-source nature.  
  • Since it is an immutable data ledger, anything on Blockchain can be proven at any time.  
  • It also improves efficiency and speed.  
  • It is safe and hack resistant.

One of the most frequently posed Blockchain technology interview questions, be ready for it.  

You can think of a block as a digital safe. This safe is capable of storing all forms of data. This can be text, image, video, GIF, or transactional data. Then this block is connected to the other blocks, thus forming a chain called the blockchain. 

Blocks can be recognized in a Blockchain using the block height as an identifier.

You see, blocks cannot be defined using a time period because, depending on the number of transactions, each block takes a different time to get validated and added to the chain.

In the previous Blockchain interview questions, we have often quoted a chain that connects different blocks together. Wondering what this chain is all about? 

It turns out that each of these blocks has three types of data points. 

  • Hash pointer 

Think of it as a unique identifier of a Block. A fingerprint, for that matter. This number is cryptographically generated, and therefore we call them cryptocurrencies.

Now, this number is also mentioned in the next block to connect one block to another.

So if someone tries to change the hash number of one of the blocks (the hash number changes if the data is changed), the entire chain is changed, and fraud is immediately caught.

  • Timestamp 

Timestamp simply puts a date and time on the block. Although Blockchains are self-auditing, this can be important in case someone wants to check transaction sequence externally. 

  • List of Transactions

And, of course, there are transactional data in the block. This is what miners would end up validating by solving the complicated mathematical puzzle.

No. Blockchains are immutable forms of data. Any change in the database would lead to a change in the hash string; hence, the entire copy of Blockchain would look different from everyone else's. As a result, there is no merit in trying to change the Blockchain data.

A staple in interview questions for Blockchain, be prepared to answer this one.  

There are two types of records that are available on the blockchain. They can be categorized as follows:

  • Transactional Records

This is made up of transactional data showcasing what kind of transactions happened, which wallet addresses, and at what time. This is one of the core purposes of a database.

  • Block Records:

Block records include the data pertaining to the information about a block. This can include a timestamp, block number, hash number, etc.

  • Nonce

Nonce stands for the 'number used only once. 'It is a 32-bit random number that is used as a base by miners for their hash calculations. Essentially, the validators are trying to calculate a nonce that, when run through a hash function, yields a number that starts with 3 zeroes (in Bitcoin Blockchain) 

Depending on the blockchain, blocks can be of different sizes. As a result, multiple items can be stored on these blocks. These can vary as follows:

  • Transactional data of financial information.  
  • Identity information of an individual 
  • Organizational events (keeping track of the history of key decisions) 
  • Management activities (logging in, logging out, etc.) 
  • Documentation 
  • Records of medical transactions 

Yes. Immutability does not mean you cannot filter out specific data instances. You can easily use a portion of a block or a few blocks within a transaction for your analysis.

This question is a regular feature in Blockchain interview questions for freshers, be ready to tackle it.  

This is one of the blockchain basic interview questions. Depending on the control and nodes, Blockchains can be divided into the following categories:

  • Public Blockchain

These blockchains are open for everyone to join. Basically, there are no restrictions when it comes to participants. More so, anyone can see the ledger and take part in the consensus process. For instance, if you wish to deposit cash in a bank, you need to have a bank account with them. Then, you need to visit the bank to deposit it. The bank has the sole discretion of accepting or rejecting your account opening process or deposits/withdrawals.

This is not the case with Blockchains. Most public Blockchains like Bitcoin and Ethereum require no KYC/regulations for one to operate on them. You can buy ether, send it to your friend and even encash it without any subjectivity involved in the process.

  • Private Blockchain

Private blockchains are the complete opposite of public blockchains. They are privately run by an individual or an organization that aims to solve trust-related problems within its ecosystem. This Blockchain is completely under the control of the owner and hence is not decentralized.

  • Consortium Blockchain

In this Blockchain, the admin gives the rights to individuals to read/write on the Blockchain. Once again, this is not decentralized. 

A ledger is a continuous record of transactions happening in the system. You go to a restaurant, and the staff on the door notes your name, number, and time of entry. That is exactly a ledger. Similarly, if you do a physical bank transaction, an officer makes a note of the details of that transaction. That is, again, a ledger.

Now this ledger can be digital, wherein the entire data is input via keyboard and stored on the local storage or cloud. Or, it could be a physical ledger where registers are used to enter the data using a pen.

Depending on the control, ledgers can be divided into three key categories:

  • Centralized ledgers

These ledgers are owned and run by centralized authorities like banks, social media companies, s, and Aadhar, etc. Because these ledgers are under the direct influence of a central authority, they can change or manipulate the data without revealing it to the general public. I am not saying they would, but they can!

  • Decentralized Ledgers

These ledgers are not owned by anyone and, therefore, are a safe haven for any form of data. However, storing the data in a decentralized ledger isn't always the best option, especially in cases where trust isn't a concern. For example, if your organization keeps all your employee data in a centralized server, there isn't a problem.

  • Distributed Ledgers

The owners of this ledger are spread across different geography, and it is difficult to manipulate this data.  

This could be explained via a simple web2 analogy. The public key is like your email ID. If anyone wishes to share data (or crypto) with you, you can share your public key with them. On the other hand, a private key is like your password. You use it to access the emails and decide which email goes out to whom.

Public keys are meant for identification purposes, while private keys are used to sign transactions with your encryption key.

This is a frequently asked question in Blockchain engineer interview questions.  

Interview questions on Blockchain technology are incomplete without this one. Every aspirant of having a role in Blockchain should know this. The major features of Blockchain are as mentioned below:

  • Decentralized

It is not owned by any single central authority. Therefore decisions can't be made by a single person/organization on the data stored on Blockchain. 

  • Faster settlement

Blockchains skip the intermediary. As a result, there are a lot of processes that simply cut down, and the settlements are instant. Consider this, when you buy a stock on the market, it usually takes two days for that stock to be credited to your Demat account. With Blockchains, the dream of real-time settlement has come true.  

  • Immutability

Blockchains are immutable by nature. Consider it as a database wherein there is no update record function. Depending on the use cases, this could be a really powerful proposition to prove the ownership of something.

  • Unanimous

All the nodes or participants on the network agree on the transaction before they are appended onto the blockchain. When a node wants to add a block to the blockchain, it has to gain consensus from at least 51% of the nodes before doing that. Therefore, making blockchains are unanimous in decision-making.  

Blocks are ordered in reverse order within the Blockchain. This means the last block would contain the hash pointer of the previous block and so on. So if at all someone wants to trace the transactions, they can do so by starting from the last block.

BIP and EIP stand for Bitcoin Improvement proposal and Ethereum Improvement Proposal, respectively. Now you cannot upgrade the blockchains by releasing an update on the play store like you would do with web2 applications.

In the case of Blockchains, if an upgrade is rolled out, all the nodes have to agree with it unanimously.

Therefore, an improvement proposal is floated in the community before any upgrade.

Expect to come across this popular question in Blockchain interview questions.  

A blockchain node is a computer connected to the network and participates in verifying transactions. Nodes can be either full nodes, which store a complete copy of the blockchain, or light nodes, which only store a partial copy. 

Moreover, a blockchain defines the requirement for becoming a node. For example, Bitcoin nodes require computational power to solve complicated mathematical puzzles. Similarly, Ethereum requires the user to stake 64 ETH before becoming a node.

A must-know for anyone heading into a Blockchain interview, this question is frequently asked in interview questions on Blockchain.  

A smart contract is a self-executing contract with the terms of the agreement between buyer and seller being directly written into lines of code. The code and the agreements contained therein are stored on the blockchain.

One may argue that this is not very different from a traditional code. But then the immutability of it makes it superior. This means code is the law in the Blockchain regime. If a condition is defined, it will execute, without subjectivity, when it is met.

A hash function is a mathematical function that takes an input of any size and produces an output of a fixed size. In the context of blockchain, hash functions are used to create a unique code, or "hash," for each block in the chain.

Think of a hash function as a black box. This box takes input from one end (can be a number, image, video, etc.) and gives an alphanumeric output from the other side. The output cannot be traced back to the input in any way, but the same input will always generate the same output.

Intermediate

A mining node in blockchain technology is a node that participates in the process of verifying and adding new transactions to the chain. Mining nodes use powerful computers to solve complex mathematical problems, validate transactions, and earn rewards.

A mining node would deploy computational power to reach the solution fastest. This computation power costs electricity, and the expenditure for running a node is borne by the mining rewards earned by the miner upon solving this problem.

A private blockchain is a blockchain owned and operated by a single organization or group of organizations. Private blockchains are often used for internal record-keeping and can be more efficient and secure than traditional databases.

Unlike a traditional public blockchain, a private blockchain is not decentralized, i.e., a single node can control the database. However, in that case, blockchains are used for their programmability, distributed nature, and composability.

A DEX is a platform that allows users to buy and sell cryptocurrencies directly without the need for a centralized exchange. This allows for more secure and private transactions.

Traditional exchanges maintain an order book mechanism. This means whenever you need to sell an asset, you place a sell order with your desired price and quantity. It comes along a buyer, and when this quantity and price are agreed upon, the trade executes.  

But since blockchains operate in a decentralized fashion, no central authority maintains this order book. Therefore, decentralized exchanges that run on automatic market makers came into existence.

A hot wallet is a cryptocurrency wallet connected to the internet and used for frequent transactions. A cold wallet is a cryptocurrency wallet that is not connected to the internet and is used for long-term storage.

Some examples of hot wallets would be MetaMask, and Trust wallet. Since these wallets sit as browser extensions in your system, they are always connected to the internet. On the other hand, cold wallets like a ledger and trezor remain offline.

A cryptocurrency wallet is a digital wallet that stores a user's keys. It consists of a private key, used to sign transactions, and a public key used to receive transactions.

A common misconception is that your cryptocurrency is stored in your wallet. In reality, a wallet only stores the user's private key to sign the transactions. Cryptocurrency is stored on Blockchain.

A cryptocurrency is a digital asset that uses cryptography for secure financial transactions. It allows for the transfer of value without the need for a central authority or intermediaries.

Cryptocurrencies can fast-track smart asset lifecycle management. This means that the process of issuing, swapping, and burning cryptocurrencies can be done without any intermediary in the system.

A database is a centralized system that stores data and is controlled by a single entity. A blockchain is a decentralized system that stores data in a distributed ledger and is not controlled by any single entity.

A blockchain can act as a database if only one node controls the data. However, a database can never be a Blockchain.

A DApp is a decentralized application that runs on a blockchain and is not controlled by any single entity. DApps are used to create decentralized systems that are transparent, secure, and resistant to censorship.

For example, currently, all your data on social media is controlled by a handful of companies. If tomorrow these companies were to shut down, you would lose your data. On the other hand, dApps are built by keeping your data on a blockchain. Therefore, you truly own your creations.

A 51% attack is when a group of miners controlling more than 50% of the computing power on a blockchain network attempt to manipulate the network by reversing transactions or blocking new ones. This can be prevented by having a large and decentralized network of miners.

Miners are responsible for verifying transactions and adding them to the blockchain. They do this by solving complex mathematical problems requiring a lot of computing power.

Miners ensure that the blockchain is actually decentralized. Consider this. If the number of miners was limited to 10, it would only take 6  to manipulate the system. But then, if this number were larger, the probability of a 51% attack would reduce significantly.

A node is a computer or device that is connected to a blockchain network and is responsible for validating and forwarding transactions.

A fork happens when the blockchain splits into two different blockchains. This usually happens during the upgradation activity when the updated chain and the old chain split into two, and miners continue the activity on the upgraded chain while abandoning the older one.  

Forks can be further divided into soft forks and hard forks. A soft fork is one where the nodes that do not upgrade themselves are still able to mine on the newer chain. At the same time, hard fork means that upgradation is mandatory for mining on the new chain.  

Apart from that, forks can also be voluntary or controversial. If someone does not align with the vision of the existing blockchain, they can fork it and create a new blockchain. For example, Litecoin is a fork of Bitcoin.

Encryption adds security to data by converting it into an encrypted version that is not decipherable by humans. The encrypted texts can be converted back to human-readable format by using the encryption key. This means that only the receiver or sender of the message can read the original contents. 

As an example, WhatsApp heavily promotes end-to-end encryption of its user chats. This means the messages sent by you can only be read by the intended recipient and no one else.

In a blockchain, encryption is used to add more to the overall security and authenticity of blocks and keeps them secure.

Multiple consensus algorithms for different blockchains can exist depending on how the nodes reach a consensus. For example, Bitcoin uses proof-of-work. Some other examples include:

  • Proof-of-Capacity (PoC) 
  • Proof-of-Activity (PoA) 
  • Delegated Proof-of-Stake(DPoS) 
  • Proof-of-Stake(PoS) 
  • Proof-of-Authority 
  • Proof-of-Trust 
  • Proof-of-Burn  
  • Unique Node Lists  
  • Proof-of-Weight  
  • Proof-of-History 
  • Proof-of-Elapsed Time 
  • SIEVE 
  • Byzantine Fault Tolerance

Bitcoin uses the SHA-256 algorithm for hashing. This hash function has some interesting properties as follows:

  1. Deterministic: This means it will always yield the same output for exactly the same input. No matter what.  
  2. Avalanche Effect: The output changes drastically for the slightest change in the input. This means the output will change completely even if you have added a comma in the document.  
  3.  One-Sided: The output can never be traced back to its input.   

The core components of Blockchain architecture are as follows: 

  • NodeA user/computer that maintains the network 
  • Transaction: The smallest building block of a blockchain. Transactions → Blocks → Blockchain.  
  • Block: A digital vault that stores data within the blockchain. This data can be images, text, video, etc.  
  • Chain: A sequence of blocks 
  • Miners: Specific nodes that validate the transactions in return for rewards.  
  • Consensus Protocol: A mechanism by which all the nodes agree on a transaction's legitimacy.  

There are no network-specific conditions for employing blockchain. But, the network must enable peer-to-peer networks under specific protocols.

Blockchain accommodates the new blocks easily and helps organizations to keep up the pace without investing in third-party applications.

Data-related risk management is getting critical by the day in these times. Therefore, just like any other domain, blockchain risk management can be done using the following techniques.

  • Identification of threats and vulnerabilities in the system. This also involves mapping these threats as per the severity of the data attached.  
  • The second approach is to have a backup plan.  
  • Finally, one can consider investing in risk management software.

In a decentralized application or dApp, the entire user activity will not happen on Blockchain. This is because it will unnecessarily clog the blockchain and cost the customer a gas fee. Therefore, only critical transactions that need to be immutable and trustless are uploaded on the blockchain.

All such transactions in a local database are called off-chain transactions, and all the transactions uploaded on a Blockchain are called on-chain transactions.

Follow the below stages to implement a blockchain project. 

  • Choose your platform 
  • Initialize the blockchain 
  • Select the right consensus protocol for your project 
  • Code your first smart contract 
  • Debug and scale 

Advanced

Unlike real life, the internet has everything in abundance. If you like a photo, you can download it and share it with your friends. If you like a movie, you often torrent it.

Now apply this concept to money. If our money is completely digital, anyone could copy and paste it multiple times to get rich overnight. But if everyone starts doing this, it will make no sense whatsoever.

Therefore, double spending can be defined as the problem of spending the same money twice by cloning it. Bitcoin solves this problem by waiting for confirmations after the block has been created. This usually takes 60 minutes, after which the transaction becomes immutable.

Now blockchain transactions are transparent and open to all. In other words, any transaction that has ever happened on Bitcoin or Ethereum can be found with a single click of a button. 

However, this may not be desirable for certain use cases. Therefore, a blind signature hides the transactional data before it is signed. It is used in privacy protocols like Monero and Zcash.

The following are some of the principles that can help in eliminating security threats in a blockchain: 

  • Continuity planning to ensure that the system is safeguarded against downfalls.  
  • Auditing to ensure that security checks are in place. 
  • Securing testing and similar approaches. Testing always ensures that the system is in place in case of non-happy paths.  
  • Database security to ensure the quality of the database.  
  • Securing applications to make sure that application-level threats do not impact the base system.  
  • Digital workforce training. 

It all started with a Proof-of-work consensus algorithm. In the Bitcoin blockchain, the miners compete with each other to validate the transaction. And the one which validates it at the earliest wins to race and gets the mining rewards.

Now there is a problem here. This is because all the miners are deploying electricity (computational power) for each block, but only one of them wins. Hence it is a wasteful consensus mechanism.

To curb this problem, some blockchains came up with proof-of-stake consensus algorithms. In this algorithm, only one validator (analogous to a miner) validates the transaction.

The way system's sanity is ensured by forcing them to stake a minimum quantity of cryptocurrency. This ensures skin in the game while ensuring no energy is wasted.

The Ethereum network recently has moved from a Proof of Work to a Proof of Stake consensus algorithm.

People often confuse this with Coinbase, one of the world's largest cryptocurrency exchanges. 

A Coinbase transaction is a peculiar type of bitcoin transaction that miners create. It is the first transaction in the new block.

The miners use it to collect the block reward for their work. Any transaction fees collected by the miners are also sent in this transaction

Merkle trees provide a digital footprint of all the transactions in a block by using a mathematical data structure. To create a Merkle tree, every transaction is hashed and converted into one until the last hash remains. This hash is called the Merkle root.

Since hash functions change entirely, even with the smallest change in the input data, Merkle trees act as a great source to verify large forms of data. With this, even the slightest change in any data point (data nodes in the image) will impact the Merkle root ultimately.

The secret sauce of Blockchain security is the way these blocks are linked to each other. Even if a malicious player tries to make changes to the past data, they will change that block's hash number. And since blocks are connected to each other through the previous block's hash number, it will change the entire blockchain completely.

Apart from this, there are some other factors that make blockchains a safe haven for your data.  

  • The data is protected by cryptography. That means only the intended recipient can decipher it.  
  • Secondly, each participant has their own private and public key. No transactions can go through unless the private key is used to sign that transaction.  
  • Signatures become invalid as soon as the records are altered.

Secret sharing is one of the ways to provide data security in blockchains. Through this approach, the secure data is segregated, broken into segments, and then shared with participants in the network.

Executive accounting refers to the enterprise-level accounting demands of a business. It is a special type of accounting that enables businesses to offer services to the people. In executive accounting, there is no upper limit to the number of clients, people, and services that can be managed by a business.

Blockchains support executive accounting through specially designed algorithms. In fact, its unique structure also cuts down problems in traditional executive accounting.

Trapdoor functions are very similar to hash functions, with one major difference. Hash functions are strictly one-way, and there is no way output can be used to generate the input. Trapdoor functions, on the other hand, are different. While it is easy to generate the one-way output, it is difficult to generate the input from that output (but not impossible).

This opposite function can work if you possess a special type of information. 

The idea of a public key, private key, and address is rooted in the trapdoor functions.

Tokens are the incentive layer of the Blockchain. The user must pay a gas fee whenever transactions happen on a blockchain. This fee is used to incentivize the miners/validators who have deployed electricity/capital to safeguard the network.

This incentive layer is what makes the network decentralized. As an organization, one could set up a blockchain and do away with all the nodes so that no one has to validate the transactions. Such a system would exist without tokens, but then it won't be decentralized because the single node can conduct a 51% attack.

  • Decentralization: No central authority or third-party intermediary is needed to validate transactions. 
  • Immutability: Once a transaction is recorded on the blockchain, it cannot be altered. 
  • Security: Blockchain technology uses cryptography to secure its records. 
  • Efficiency: Blockchain technology can streamline processes and reduce the need for intermediaries. 
  • Transparency: All parties have access to the same records, and the system's transparency can be configured according to the users' needs. 

DeFi, or decentralized finance, is the emerging use case of Blockchain technology that aims to transform traditional finance by removing inefficiencies and intermediaries from the ecosystem.

Currently, the traditional banking system is plagued by bureaucracies and a lack of trust. Decentralized finance aims to establish a regime where smart contracts become the new law, thus eliminating subjectivity from the rules and regulations.

Nonce is the short form of "Number only used once". It is a random number generated for each block in a Blockchain and is used to differentiate one block from another. Think of it like a fingerprint but for a block. The nonce is included in the block's hash and then added to the Blockchain. Miners try different nonce values, and the first one to produce a valid hash is rewarded with a block reward.

The double-spend problem occurs when a user tries to spend the same digital asset more than once. This is a potential issue in digital currencies because digital assets can be easily duplicated, unlike physical assets.

In a blockchain, the double-spend problem is solved through the use of a distributed ledger and consensus mechanism. Each transaction is recorded on the ledger and verified by multiple nodes in the network using the consensus mechanism.

This ensures that a digital asset can only be spent once because any attempt to spend it again would be rejected by the network.

Smart contracts are self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code. They are executed automatically when certain conditions are met.

In a blockchain network, smart contracts are implemented using code on the blockchain. They can be used to automate a wide range of processes, such as supply chain management, insurance, and financial transactions.

When a triggering event occurs, the smart contract is automatically executed, and the terms of the contract are enforced by the network.

Blockchain technology has the potential to revolutionize supply chain management by providing a secure, transparent, and immutable record of transactions.

With a distributed ledger, all parties in the supply chain can access a shared record of transactions, which can help to increase efficiency and reduce the risk of fraud.

Smart contracts can automate the process of ordering, tracking, and paying for goods, and sensors and other IoT devices can provide real-time tracking and monitoring of goods as they move through the supply chain.

Overall, the use of blockchain technology in supply chain management can help to improve transparency, reduce costs, and increase the efficiency of the entire process.

Scalability refers to a blockchain network's ability to handle large transactions without experiencing delays or performance issues. 

As a blockchain network grows, achieving consensus among all the nodes in the network becomes more challenging, which can lead to scalability issues.

On the other hand, if a blockchain network is not scaled correctly, it may be more susceptible to attacks such as a 51% attack, where a single entity or group of entities controls a majority of the network's computing power and can potentially reverse transactions or double-spending.

Zero-knowledge proofs are cryptographic technique that allows one party (the prover) to prove to another party (the verifier) that they possess a certain piece of information without revealing the actual information.

In a blockchain context, zero-knowledge proofs can be used to enable privacy-preserving transactions where the details of the transaction are not visible on the blockchain.

Instead, the blockchain only stores proof that the transaction is valid without revealing sensitive information about it.

Sharding is a technique that can be used to improve the scalability of a blockchain network.

In a sharded blockchain, the network is divided into smaller sub-networks, or shards, each of which processes a portion of the network's transactions.

This can allow a blockchain network to process more transactions in parallel, increasing its overall throughput. However, implementing sharding can also introduce additional complexity to the network and may require changes to the consensus mechanism.