Blockchain & Smart Contracts Explained | Part 1 of 2 | Blog Post 9

Blockchain & Smart Contracts Explained | Blog Post 9 | Part 1 of 2

1 What is a Blockchain

1.1 General Overview

1.2 Is a centralized blockchain not really a blockchain?

1.3 What is the ledger and how is it implemented?

1.4 Are nodes just like apps running on a server?

2 What is a Smart Contract

2.1 General Overview

2.2 What are some real world examples of smart contracts?

2.3 How are smart contracts used to produce cryptocurrency tokens?

2.4 How does a token differ from a fully fledged cryptocurrency like Bitcoin?

2.5 Is Bitcoin a smart contract?

2.6 What mechanisms does bitcoin use to manage its business logic?

3 What are DAPPS

3.1 General Overview

3.2 How are DAPPS implemented?

4 What's next in Part 2?

5 Links

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1 What is a Blockchain

1.1 General overview

A blockchain is a decentralized, distributed ledger that is used to record transactions across many computers in a secure and tamper-evident way. Each block in the chain contains a cryptographic hash of the previous block, a timestamp, and transaction data. By design, a blockchain is resistant to modification of its data, which makes it an excellent tool for recording transactions in a secure and transparent manner.

The security of a blockchain comes from its distributed nature, which means that there is no central authority or single point of failure. Instead, every node in the network holds a copy of the entire blockchain and participates in the validation and verification of new transactions. In order to add a new block to the chain, a consensus mechanism is used to ensure that all nodes in the network agree on its validity. This consensus mechanism often involves complex cryptographic algorithms and incentivizes participants to act honestly by rewarding them with cryptocurrency or other tokens.

While a blockchain can be thought of as a distributed database, it has several unique features that set it apart. First, as mentioned earlier, it is decentralized and does not rely on a central authority to maintain its integrity. Second, it is immutable, which means that once a block is added to the chain, it cannot be modified or deleted. Third, it is transparent, meaning that anyone can view the entire history of transactions on the blockchain. Finally, it is secure due to the cryptographic algorithms and consensus mechanisms used to validate new transactions and add them to the chain.

1.2 Is a centralized blockchain not really a blockchain?

There is debate among experts about whether a centralized blockchain can be considered a true blockchain or not. The fundamental characteristic of a blockchain is that it is a decentralized, distributed ledger that does not rely on a central authority or single point of failure.

In a centralized blockchain, there is typically a single entity or group that controls the network and makes decisions about which transactions are added to the ledger. This entity or group may have the ability to modify or delete transactions, which goes against the immutability principle of a true blockchain.

Centralized blockchains can still offer benefits such as improved transparency, security, and efficiency over traditional databases, but they may not provide the same level of decentralization and immutability as a true blockchain. Ultimately, the question of whether a centralized blockchain can be considered a true blockchain depends on how strictly one defines the term and what characteristics are considered essential for a blockchain to possess.

1.3 What is the ledger and how is it implemented?

A ledger is a record-keeping system that tracks and stores financial or other types of data. In the context of blockchain technology, a ledger refers to a distributed, decentralized database that records transactions in a secure and tamper-evident way. The ledger is implemented using a blockchain, which is a chain of blocks that contains transaction data.

When a new transaction is initiated, it is broadcast to all nodes on the blockchain network. Each node validates the transaction using a consensus mechanism, such as proof of work or proof of stake. Once a consensus is reached that the transaction is valid, it is added to a block along with other transactions.

Each block contains a cryptographic hash of the previous block, which creates a chain of blocks that are linked together in a specific order. This makes it extremely difficult for anyone to modify a transaction, as any changes made to one block would invalidate the entire chain.

The ledger is implemented on a peer-to-peer network of nodes that collectively maintain a copy of the entire blockchain. This distributed nature of the ledger means that there is no central point of failure, and the ledger is highly resistant to tampering or manipulation. Each node on the network has a copy of the ledger, which is continuously updated as new blocks are added to the chain. This creates a highly secure and transparent system for recording transactions, without the need for a central authority or intermediary.

1.4 Are nodes just like apps running on a server?

Nodes in a blockchain network are not exactly like apps on a server, but there are some similarities between the two.

In a blockchain network, a node is a computer or device that participates in the network by running blockchain software and maintaining a copy of the entire blockchain ledger. Each node validates new transactions and helps to secure the network by participating in consensus mechanisms and verifying the integrity of the blockchain.

Similarly, in a server environment, an app can be thought of as a program or software that runs on a server and performs a specific function, such as serving web pages, processing data, or managing network traffic. These apps can communicate with each other and with other devices on the network to perform complex tasks and provide services.

However, there are also some important differences between nodes in a blockchain network and apps on a server. One key difference is that nodes in a blockchain network are typically decentralized, meaning that there is no central authority or single point of control. This is in contrast to server environments, which are often centralized and controlled by a single entity or organization.

Additionally, nodes in a blockchain network often have specific roles and responsibilities, such as validating transactions, maintaining the integrity of the ledger, and participating in consensus mechanisms. In contrast, apps on a server may perform a wide range of functions and may not have a specific role in the overall system.

1.5 How do nodes run and how are they connected to the network?

Nodes in a blockchain network are typically run by individuals or organizations that want to participate in the network and help maintain its integrity. Running a node involves installing blockchain software on a computer or server and connecting it to the network.

There are several ways to connect to a blockchain network, but the most common method is through a peer-to-peer network protocol. Each node in the network maintains a list of other nodes that it is connected to, and these nodes communicate with each other to propagate new transactions and blocks across the network.

To connect to the network, a new node typically needs to first download a copy of the entire blockchain ledger. This can be a time-consuming process, as the blockchain ledger can be quite large and continue to grow over time. Once the ledger is downloaded, the node can begin participating in the network by validating new transactions and helping to secure the blockchain.

Nodes can be run on a variety of hardware and software configurations, ranging from personal computers to dedicated servers. Some blockchain networks may have specific hardware or software requirements for nodes, depending on the consensus mechanism used and the level of network security required.

Overall, running a node on a blockchain network requires a certain level of technical expertise and resources, but it can be an important way to support the network and help ensure its integrity.

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2 What is a Smart Contract

2.1 General Overview

Smart contracts are self-executing programs that are designed to automatically enforce the terms of a contract. They are typically built on a blockchain network, which provides a decentralized platform for executing the contract code.

A smart contract contains a set of rules that define the terms and conditions of an agreement between two or more parties. The contract is written in code, and is stored on a blockchain, which provides a tamper-proof and transparent ledger of all transactions.

Once the terms of the contract are agreed upon and coded into the smart contract, it is automatically executed when certain predetermined conditions are met. These conditions can include the passage of time, the receipt of payment, or the completion of a certain task.

Smart contracts can be used to automate a wide range of transactions and agreements, from financial derivatives to real estate transactions. They offer numerous benefits over traditional contract methods, including greater efficiency, transparency, and security.

2.2 What are some real world examples of smart contracts?

There are many real-world examples of smart contracts in use today. Here are a few:

Supply Chain Management: Smart contracts can be used to automate the tracking and verification of products as they move through the supply chain. For example, a smart contract could be programmed to verify the authenticity of a product and ensure that it has not been tampered with during transit.
Real Estate Transactions: Smart contracts can be used to automate the process of buying and selling real estate. The contract can be programmed to automatically transfer ownership of the property to the buyer once all the conditions of the contract have been met, such as the payment of the agreed-upon purchase price.
Insurance: Smart contracts can be used to automate the claims process for insurance policies. For example, a smart contract could be programmed to automatically pay out a claim to a policyholder if certain conditions are met, such as the occurrence of a covered event.
Crowdfunding: Smart contracts can be used to automate the process of crowdfunding. The contract can be programmed to automatically release funds to a project once it reaches a certain funding threshold, or to refund backers if the project does not meet its funding goal.
Digital Identity: Smart contracts can be used to create and manage digital identities. For example, a smart contract could be programmed to verify a person's identity and grant them access to certain services or resources based on that verification.

These are just a few examples of the many ways in which smart contracts are being used to automate and streamline various transactions and agreements.

2.3 How are smart contracts used to produce cryptocurrency tokens?

Smart contracts are often used to create and manage cryptocurrency tokens. This is typically done using a platform such as Ethereum, which supports the creation and execution of smart contracts.

To create a new cryptocurrency token, a developer would create a new smart contract that defines the rules and conditions for the token. This contract would typically include details such as the token's name, symbol, supply, and distribution.

Once the smart contract has been written, it is deployed to the Ethereum blockchain. This creates a new "token contract" on the blockchain that can be interacted with by users.

Users can then interact with the token contract to buy, sell, and transfer the new cryptocurrency token. The smart contract automatically enforces the rules and conditions of the token, ensuring that transactions are executed correctly and transparently.

This approach allows for the creation of new cryptocurrencies without the need for a centralized authority, such as a government or financial institution. It also allows for the creation of highly customizable tokens with a wide range of possible use cases, from digital currencies to loyalty points and more.

2.4 How does a token differ from a fully fledged cryptocurrency like Bitcoin?

A token is a type of cryptocurrency, but there are some important differences between tokens and fully fledged cryptocurrencies like Bitcoin.

Firstly, tokens are typically created and managed on an existing blockchain platform, such as Ethereum, whereas cryptocurrencies like Bitcoin have their own dedicated blockchain. This means that tokens inherit the features and limitations of the underlying blockchain, and can only be traded within that ecosystem.

Secondly, tokens are often used to represent specific assets or utilities, whereas cryptocurrencies like Bitcoin are primarily used as a store of value or a medium of exchange. For example, a token might represent a share in a company, a voting right, or a digital asset such as a piece of artwork.

Finally, tokens are often created as part of an initial coin offering (ICO) or token sale, whereas cryptocurrencies like Bitcoin are usually mined or traded on an open market. This means that the initial supply of tokens is often pre-determined and distributed through a crowdsale, whereas the supply of cryptocurrencies like Bitcoin is determined by the mining process and market demand.

In summary, tokens are a type of cryptocurrency that are typically created and managed on an existing blockchain platform, and are often used to represent specific assets or utilities. While they share some similarities with fully fledged cryptocurrencies like Bitcoin, there are also some important differences in terms of their functionality and use cases.

2.5 Is Bitcoin a smart contract?

Bitcoin is not a smart contract. Bitcoin is a decentralized digital currency that operates on a public blockchain, which is a distributed ledger that records all Bitcoin transactions.

Bitcoin transactions are validated and added to the blockchain through a process called mining, which involves solving complex mathematical problems in exchange for newly minted bitcoins and transaction fees.

While Bitcoin transactions can include some programmable logic, such as multi-signature transactions that require multiple parties to authorize a transaction, they do not involve the use of smart contracts.

Smart contracts are self-executing programs that automatically enforce the terms of a contract. They are typically built on a blockchain network, which provides a decentralized platform for executing the contract code.

While Bitcoin and smart contracts both operate on blockchains, they serve different purposes and use different mechanisms for achieving their respective goals.

2.6 What mechanisms does bitcoin use to manage its business logic?

Bitcoin uses a set of consensus rules to manage its business logic. These rules are collectively known as the Bitcoin protocol, and they define the way that transactions are validated and added to the blockchain.

The Bitcoin protocol is implemented by a decentralized network of nodes that operate according to the same set of rules. When a transaction is broadcast to the network, each node verifies that the transaction meets the requirements of the protocol before adding it to their copy of the blockchain.

The rules of the Bitcoin protocol include things like the maximum number of bitcoins that can ever be created, the way that transactions are signed and validated, and the difficulty of the mathematical problems that must be solved in order to mine new bitcoins.

While the Bitcoin protocol does not include the programmable logic of a smart contract, it does allow for some limited flexibility in the way that transactions are processed. For example, the use of multi-signature transactions allows for more complex spending conditions that require the approval of multiple parties.

Overall, the Bitcoin protocol is designed to provide a secure, decentralized, and censorship-resistant platform for the transfer of digital currency. While it does not provide the same level of flexibility as a smart contract platform, it is well-suited to its specific use case as a decentralized digital currency.

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3 What are DAPPs?

3.1 General Overview

A DAPP, or decentralized application, is an application that operates on a decentralized blockchain network. Unlike traditional applications, which are typically hosted on centralized servers and controlled by a single entity, DAPPs are run on a peer-to-peer network of computers that collectively maintain the application's state.

DAPPs typically use smart contracts to enforce the rules and logic of the application, allowing for trustless and transparent operation without the need for a central authority. This makes DAPPs resistant to censorship and provides users with greater control over their data and assets.

Some examples of DAPPs include decentralized marketplaces, prediction markets, and social networks. These applications are typically built on top of an existing blockchain platform, such as Ethereum or EOS, and are accessed using a web browser or dedicated software client.

Overall, DAPPs represent an exciting new frontier in software development, offering the potential for more open, transparent, and democratic systems that empower users and promote innovation.

3.2 How are DAPPS implemented?

DAPPs are typically implemented using a combination of blockchain technology, smart contracts, and decentralized storage solutions.

To begin building a DAPP, developers first choose a blockchain platform that meets their needs in terms of performance, security, and functionality. Popular choices include Ethereum, EOS, and Tron, among others.

Once a blockchain platform has been selected, developers can create smart contracts that define the rules and logic of the application. Smart contracts are self-executing programs that run on the blockchain, enforcing the rules of the DAPP and managing the flow of data and assets.

To interact with the DAPP, users typically access a web interface that connects to the underlying blockchain network. This interface allows users to submit transactions, interact with the smart contracts, and view the state of the DAPP.

Decentralized storage solutions, such as IPFS (InterPlanetary File System), are often used to store and retrieve data associated with the DAPP, such as user profiles, images, and other content.

Overall, the implementation of a DAPP involves a combination of blockchain technology, smart contracts, decentralized storage solutions, and user interfaces that work together to create a decentralized and trustless application that can operate without a central authority.

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4 What’s next in Part 2?

In part two we will take a look at Ethereum Smart Contracts, Cardano Smart Contracts, BNB Smart Contracts and Solano Smart Contracts, how they differ, how to implement them and some code examples!

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