Bitcoin, Ethereum and smart contracts
The magic behind the magical internet money
This is a first in a series of posts about cryptocurrencies, smart contracts and blockchain technology. Some context behind why i’m writing these posts is provided here.
For someone to understand bitcoin and cryptocurrencies in general, it’s important to understand what a blockchain is. Below are a few links that can get you started on understanding more about cryptocurrencies and blockchain technology.
- A simple intro on blockchain is written in the link here.
- Abstract of the Bitcoin white paper, written by Satoshi Nakamoto, reproduced below:
A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution. Digital signatures provide part of the solution, but the main benefits are lost if a trusted third party is still required to prevent double-spending. We propose a solution to the double-spending problem using a peer-to-peer network. The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work. The longest chain not only serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of CPU power. As long as a majority of CPU power is controlled by nodes that are not cooperating to attack the network, they’ll generate the longest chain and outpace attackers. The network itself requires minimal structure. Messages are broadcast on a best effort basis, and nodes can leave and rejoin the network at will, accepting the longest proof-of-work chain as proof of what happened while they were gone.
This was one of the most difficult and foundational problems that Satoshi solved i.e. the double spending problem, and the magic is how its solved in a decentralised and peer-to-peer manner.
- A talk on Ethereum by Vitalik Buterin, founder of Ethereum:
- The consensus mechanism i.e. the mechanism for agreeing on the state of the network, both for Bitcoin and Ethereum are currently the same. However, Ethereum will be moving to a proof of stake consensus mechanism (Expected by the end of 2021). Both mechanisms are described in a video by Nuggets News below:
- Blockchain Trilemma: https://medium.com/@aakash_13214/the-scalability-trilemma-in-blockchain-75fb57f646df
- Smart contracts on a blockchain:
- Ethereum 2.0:
- Many people have been complaining since a while about high Ethereum fees for conducting transactions. Finematics explains the logic behind the high Ethereum gas.
- A very special thanks to Finematics and their youtube channel — do subscribe to their channel and like their videos as they have some amazing content! If you’ve got other feedback or ideas on what aspects are missing in this article, let me know in the comments below! :)