BlockShots: Blockchain Simplified

Episode 105 - What is Data Sharding? Dec 04, 2023

Sharding in blockchain is of two types — execution sharding and data sharding. There could be other types in the future, the crypto space evolves quickly.

In episode 41, what I explained was primarily execution sharding. Where the transaction execution is divided across several sub-chains for faster throughput.

https://episodes.blockshots.fm/p/episode-41-blockchain-sharding#details

However, Ethereum has moved away from the execution sharding roadmap and is now moving towards data sharding.

In data sharding, the validators form smaller subnets (shards) to verify and validate chunks of data posted by the rollups. Hence data sharding is a way to scale and improve data availability on Ethereum. Not every validator has to download all the data chunks, they only have to download and verify on a subnet level. Hence, data is sharded across several shards (logically).

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 104 - Data Availability Sampling Nov 27, 2023

To scale blockchains, we need scalability solutions like rollups. To make sure that the rollups are doing the right thing, we need data availability. And to ensure that data availability is done right, we need data availability sampling.

This episode explains data availability sampling at a high level and tries to paint a bigger picture on how some of the above mentioned concepts are connected.

For details, I encourage to check out the article linked below:

https://www.paradigm.xyz/2022/08/das

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 103 - What are Validiums? Nov 20, 2023

Validiums are L2 scaling solutions similar to ZK Rollups with a basic difference that they use a separate data availability layer instead of posting rollup data on the execution layer (Ethereum mainnet).

Validiums also use ZK proofs to prove state transition validity to the L1. Similar to ZK Rollups, Validiums post the validity proof on the Ethereum mainnet (execution layer). However, unlike ZK Rollups, they don’t post the rollup transaction data on Ethereum mainnet. Instead, they post the data on a separate data availability layer.

This allows validiums to scale more than ZK Rollups, because they are not limited by data availability bandwidth of Ethereum. However, it also makes them relatively less secure because the user withdrawls from L1 could be restricted if data is not properly made available by the external offchain data availability layer.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 102 - What is Blobspace? Nov 13, 2023

There is a new term in the crypto land — blobspace.

Before understanding blobspace, let’s first do a quick refresher on data availability. Check out Episode 88 of the podcast.

https://episodes.blockshots.fm/p/episode-88-what-is-data-availability#details

Data availability is about making the L2 block data available on the L1s. For Optimistic rollups — to build fraud proofs. For ZK Rollups — to know the state transitions.

How do we make data available? By posting it on the L1 chain. Currently it is being posted as a hack — utilising the CALLDATA field in Ethereum transaction format. But that is inefficient and expensive.

To improve data availability on Ethereum, an update is planned to introduce posting of data blobs on the L1. This would make data availability cheaper and more efficient for rollups.

The data blobs posted by L2s with their transaction data have their own dedicated space inside the blocks. This space is logically separate from the L1 transaction data and is informally called as blobspace.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 101 - What is Blockspace? Nov 06, 2023

Just a couple of days ago, in a work call, someone asked me the difference between blockchain and blockspace.

Blockspace is a bit of a abstract concept. The capacity to fit transactions in a block.

Check out episode 44 for a overview of block limits.

https://episodes.blockshots.fm/p/episode-44-block-gas-limit-block#details

Blockspace is a higher lever concept that refers to the overall capacity of the blockchain to process transactions and data, per block.

When we evaluate blockchains, looking from the blockspace perspective can be useful.

If the blockspace is secure, that means a blockchain has strong security and decentralization properties. There are less chances for hacks or exploits.

If the blockspace is highly available, that means the blockchain has more capacity and throughput to process more transactions.

https://www.generalist.com/briefing/blockspace

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 100 - Summary of Bitcoin Whitepaper Oct 30, 2023

In this 100th episode we do something special. We look at the Bitcoin whitepaper and summarize the key points. We understand what are the design goals and the problems to solve for Bitcoin.

You can read the full Bitcoin whitepaper here - https://bitcoin.org/bitcoin.pdf.

Thank you for your support till 100 episodes.

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 99 - Latency Vs. Throughput Oct 23, 2023

In this episode we understand what is latency in blockchains and how it relates to throughput. We also look at various factors and variables impacting the latency and throughput in blockchains.

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 98 - Intents Vs. Transactions Oct 16, 2023

In this episode we understand what are Intents in blockchains and how they are different from transactions. We also understand the different usage and needs of intent based approach in designing blockchain applications.

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 97 - What are ASICs? Oct 09, 2023

In this episode we understand what are ASICs (Application Specific Integrated Circuits) and why they are used in Bitcoin and other crypto mining. We also understand their relation with the hash power based proof of work systems.

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 96 - UTXO Vs. Accounts Model Oct 02, 2023

In this episode, we understand the two state models in blockchains - UTXO and Accounts based. Bitcoin uses the UTXO model while Ethereum uses the accounts model. Let’s understand what these are and what are the differences between them.

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 95 - Tradeoffs With Block Finality Sep 25, 2023

In this episode, we do one more dive into the topic of block finality and discuss the various tradeoffs associated with achieving fast finality. We also discuss some factors impacting finality, and how they further impact our applications.

For more details, check out the blog post here - https://www.gautamdhameja.com/instant-finality-feature-or-bug/

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 94 - Probabilistic Vs. Deterministic Finality Sep 18, 2023

In this episode we continue the discussion on block finality and understand two different types of finality - Probabilistic Vs. Deterministic. We also look at how these two are applicable in different kind of consensus systems.

For more details, check out the blog post here - https://www.gautamdhameja.com/instant-finality-feature-or-bug/

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 93 - What Is Block Finality? Sep 11, 2023

In this episode, we understand what is finality in blockchains and why is it needed. We look at a few scenarios where the concept of finality plays an important role in determining the state of the blockchain.

For more details, check out the blog post here - https://www.gautamdhameja.com/instant-finality-feature-or-bug/

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 92 - Delegated Proof of Stake (DPoS) Sep 04, 2023

In this episode, we understand what is Delegated Proof of Stake (DPoS) consensus mechanism and how it is different from normal Proof of Stake. Check out episode 22 first to get the best out of this one.

https://episodes.blockshots.fm/p/episode-22-proof-of-stake-492

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 91 - Account Abstraction Aug 28, 2023

In this episode, we understand what is Account Abstraction and how it can make user experience much more simpler and easier.

To get the best out of this episode, it is encouraged that you check out the following two episodes first.

https://episodes.blockshots.fm/p/episode-8-accounts-and-keys-15d

https://episodes.blockshots.fm/p/episode-63-not-your-keys-not-your

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 90 - Decentralized Social Networks Aug 21, 2023

In this episode, we learn about what are Decentralized Social Networks and how they work. We also understand the issues with current centralized social networks and how decentralization solves some of them.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 89 - Fractional NFTs Aug 14, 2023

In this episode, the topic is Fractional NFTs. Fractionalization of NFTs allows low barrier partial ownership of NFTs. The episode goes into explaining what is partial ownership and how do Fractional NFTs enable it.

Previous episodes about NFTs:

https://episodes.blockshots.fm/p/episode-31-non-fungible-tokens-nfts#details

https://episodes.blockshots.fm/p/episode-69-how-nfts-work#details

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 88 - What is Data Availability? Aug 07, 2023

This episode covers the famous data availability problem in blockchains and how it impacts the security and verifiability among different kinds of scaling and synchronization techniques. This one is slightly more technical. It is recommended that you check out the Light Clients and Rollups episodes before listening to this one.

https://episodes.blockshots.fm/p/episode-49-light-clients#details

https://episodes.blockshots.fm/p/episode-46-rollups#details

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 87 - BRC20 Tokens on Bitcoin Jul 31, 2023

In this episode, we understand what are BRC20 tokens and how they work. They are based on the Bitcoin ordinals and it is recommended that you listen to the Ordinals episode before listening to this one.

https://episodes.blockshots.fm/p/episode-78-bitcoin-ordinals#details

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 86 - ERC20 and Token Standards Jul 24, 2023

This episode covers blockchain token standards, how they came up, and what do they solve.

It also covers what are ERC20 tokens and why they are so popular.

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 85 - Multiparty Compute (MPC) Jul 17, 2023

In this episode, the topic is Multiparty Compute (MPC). We go into some basic explanation of what MPC is, how it works, and how it is used as a security measure for crypto wallets.

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 84 - Unstoppable Applications Jul 10, 2023

In this episode, the topic is Unstoppable Applications. We understand how applications dependent on others’ platforms and infrastructure can be stopped and how decentralized systems make them unstoppable.

To learn how to build Unstoppable Applications and blockchains and the core concepts behind them, do check out Polkadot Blockchain Academy. See more information at the following links.

https://linktr.ee/polkadotblockchainacademy

https://polkadot.network/development/academy/

https://www.youtube.com/@polkadotblockchainacademy

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 83 - AppChains Jul 03, 2023

This episode is about AppChains - blockchains designed and built for specific application needs. Understand how AppChains are different from smart contract platforms and what problems they solve.

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 82 - Smart Contracts Development: How is it different? Jun 26, 2023

In this episode, we do a slightly tangential topic about how smart contracts development is different from conventional software development. This stems from the last few episodes covering virtual machines and blockchain attacks. These create special conditions for execution of smart contacts. Let’s understand that.

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 81 - MEV Boost Jun 19, 2023

In this episode, we understand MEV Boost - a protocol to reduce the bad effects of MEV. The episode goes a bit deep into how MEV boost works and how it distributes the MEV opportunities and value among all parties. This one is a bit more deep into tech.

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 80 - How MEV Works Jun 12, 2023

In this episode we do a double click on how MEV works and who gets to make the profit when there is an opportunity. The episode also covers behind-the-scenes components of MEV with clear explanation of the entire process flow.

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 79 - What's a 51% Attack? Jun 05, 2023

In this episode, the topic is another one of blockchain attacks - the 51% Attack. The episode covers what is this attack, how it effects the blockchain consensus systems, and what is the effect on users and applications.

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 78 - Bitcoin Ordinals May 29, 2023

In this episode the topic is the newly famous Bitcoin ordinals. We understand what are ordinals and how they enable NFTs on the Bitcoin blockchain. We also understand the basics around the ordinal theory.

You can also read more about the ordinal theory here - https://docs.ordinals.com/

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 77 - What's a DDoS Attack? May 22, 2023

In this episode, we understand what is a distributed denial-of-service (DDoS) attack and how it is relevant in context of blockchains. We also understand how DDoS attacks have negative impact on the functioning of blockchains.

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 76 - What is EVM? May 15, 2023

In this episode, we understand what is the Ethereum Virtual Machine (EVM) and how it works in the Ethereum blockchain. We also look at how the EVM makes sure all nodes reach consensus while running on different kinds of hardware.

It is recommended that you listen to the previous episode about virtual machines to better grasp the concepts in this episode.

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 75 - Virtual Machines and Blockchains May 08, 2023

In this episode, we understand what are virtual machines and how they are relevant in terms of blockchains, decentralized systems and consensus mechanisms. This will help build a foundation to understand other related concepts like EVM in later episodes.

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 74 - Staking vs. Yield Farming May 01, 2023

In this episode, we clarify what are Staking and Yield Farming, and how they are different from each other.

Staking — Generally related to Proof of Stake systems. The block rewards get distributed to the stakers. If the block producer don’t follow the rules, stakers risk losing the stake and the rewards.

Yield Farming — Generally related to DeFi. Users provide liquidity to pools and exchanges, and they get returns. These returns come from a share in the exchange fee, interest from loans, etc.

In staking, you risk losing your stake if you or the block producer you are backing does something bad. In yield farming, there is no such risk. On the other hand, staking rewards are generated regularly while yield farming happens when users use liquidity pools.

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 73 - How AMMs Work Apr 24, 2023

In this episode, let’s find out how AMMs work, how the price and formulae for liquidity is determined, and what happens when the liquidity changes.

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 72 - A Refresher on AMMs Apr 17, 2023

Initially, I wanted to do a double click on AMMs and how they work. But first I thought I should do a bit of a refresher with my new understanding of AMMs. In this episode, I have explained them with some new examples too.

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 71 - What is Tokengating? Apr 10, 2023

These days the term ‘Tokengating’ has been going around quite a bit. In this episode, let’s understand what tokengating is and how it works.

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 70 - 5 NFT Use-cases Apr 03, 2023

In the last episode, we understood how NFTs work. In this one, let’s explore top five use-cases of NFTs. From gaming to identity to real estate, let’s understand how NFTs could be used to represent several things on blockchains with full transparency.

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 69 - How NFTs Work Mar 27, 2023

In this episode, let’s understand how NFTs work and how different components come together to create them. There is a lot going behind the scenes from where the assets are stored to how they are linked with their token identity.

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 68 - Use-cases of Zero Knowledge Proofs Mar 20, 2023

In the last episode, we learned about how zero knowledge proofs work. In this episode, let’s go a step further and explore some of their use-cases.

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 67 - How Zero Knowledge Proofs Work Mar 13, 2023

In this episode, let’s do a double click on Zero Knowledge Proofs. Let’s understand how they work and how they are implemented for blockchains. This episode goes slightly deeper into the ZK stuff, but still in a easy to understand language.

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 66 - Fraud Proofs and Validity Proofs Mar 06, 2023

In the last episode, we touched on how rollups work. In this episode, we go a step further. Let’s understand what are Fraud and Validity proofs and how they are used in rollups.

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 65 - How Blockchain Rollups Work Feb 27, 2023

In the episode 46 of Block Shots, we did a brief introduction of blockchain rollups. In this episode, we go a bit deeper into how rollups work and what components are involved in the block production and verification of rollup blocks.

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 64 - What's a Metaverse Feb 20, 2023

You must have heard about the term Metaverse quite a bit in the last few months, ever since NFTs became famous. In this episode, let’s try to explore the most basic understanding of Metaverse and how does blockchain come into the picture.

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 63 - Not your Keys, Not your Crypto! Feb 13, 2023

You must have heard this phrase quite a few times — Not your keys, not your crypto. Let’s find out, in this episode, what it actually means and how it effects you and your crypto currency holdings.

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 62 - How Smart Contracts Work Feb 06, 2023

Smart contracts are simply code stored and executed on a blockchain. But how do they work? What happens when a user sends a transaction to deploy or execute a smart contract? Let’s find out in this episode.

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 61 - Blockchain Gaming Jan 30, 2023

Most of us are fans of computer or online gaming. In this episode, we discuss how blockchains make gaming more fun and fulfilling. They also allow different revenue streams though novel economic models in the world of gaming. Let’s explore.

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 60 - Soul Bound Tokens Jan 23, 2023

In this episode, the topic is Soul Bound Tokens. In the most basic sense, they are just non transferable NFTs. However, SBTs open up quite a few interesting use-case cases for blockchains. Listen to the episode to learn more about what are Soul Bound Tokens and how they could be used in several blockchain applications.

Vitalik’s blog post about SBTs - https://vitalik.ca/general/2022/01/26/soulbound.html

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 59 - Directed Acyclic Graph (DAG) Jan 16, 2023

In this episode, we cover Directed Acyclic Graph or DAG.

In blockchain, we have blocks as collection of transactions and the current block references the previous one, and a chain is formed.

In DAG, we don’t have any blocks. Transactions directly reference previous transactions. The nodes verify the previous transactions by referencing them in new transactions.

When a new transaction is submitted to a DAG, some previous transactions are referenced in it.

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 58 - IPFS and Decentralized File Storage Jan 09, 2023

In this episode, we cover Inter-planetary File System (IPFS) and decentralized file storage protocols in general. We also take a slightly deeper look into how IPFS works.

* NFT storage. Metadata storage of on-chain assets.

* Distributed, cannot be controlled by single organization.

* Censorship resistant.

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 57 - Verifiable Credentials Jan 02, 2023

In this episode, we cover Verifiable credentials. These are a standard to represent digital credentials that could be issued for an identity by an identity, and could be verified cryptographically.

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 56 - Decentralized Identifiers (DID) Dec 19, 2022

We need a standard for representing identity on decentralized systems to use our decentralized identity across several applications.

Decentralized Identifiers or DIDs allow users and applications to represent and use identity related information in a reusable and app or platform agnostic manner.

DIDs are described in a DID document. So, the main identifier is the DID, and the associated metadata is stored in the DID document.

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 55 - Self Sovereign Identity Dec 12, 2022

Self-sovereign Identity paradigm refers to identities owned by people themselves without depending on centralized systems or organizations.

Facebook, Twitter, LinkedIn, GitHub are all centralized identity platforms. Identities created by these platforms are not exportable or usable across apps. Not in user’s control.

Self-sovereign Identity (SSI) is about getting users the control on their identity using decentralized systems.

Users create and own their identities on blockchains. They prove ownership using cryptographic signatures. They hold private and PII data in their identity wallets. They could use their identity across several app without copying or creating them again and again. At any time, they could stop sharing their data.

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 54 - Automated Market Makers (AMM) Dec 05, 2022

In this episode, we cover Automated Market Makers or AMMs.

Traditionally exchanges are based on order books. Buyers and sellers are matched with quantity and price in their orders.

AMMs are different. They use a conversion formula for trades. They use decentralized liquidity pools for liquidity.

Any user can send one asset and get another asset from AMM, as long as there is a liquidity pool with enough liquidity in it.

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 53 - Front-running Nov 28, 2022

In this episode, we discuss Front-running of transactions in blockchains. It is the most common type of MEV. We also touch on Back-running and Sandwich attacks.

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 52 - Maximal Extractable Value (MEV) Nov 21, 2022

In this episode, we cover Maximal Extractable Value (MEV) and how it works.

Miners or Validators are responsible for selecting and including the transactions in a block. They are free to choose any transactions from the mempool. Miners can choose not to select certain transactions. They can also manipulate the order of transactions. This leads to MEV.

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 51 - Censorship Resistance Nov 14, 2022

In this episode, we cover what makes Blockchains and decentralized systems censorship resistant.

Centralized systems are owned or controlled by organizations. They could limit the usage of some actors depending on local laws.

Decentralized systems are not controlled by any single party. They are made equal for everyone, based on the rules of the network. No local laws apply.

Users could send their transaction to several nodes, and one of them would include it in a block. No user is disallowed to use the system.

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 50 - Zero Knowledge Proofs Nov 07, 2022

Blockchains are built for transparency and verifiability. Most of the data on a blockchain is publicly verifiable. For example, all transactions sent to bitcoin are public and anyone could query the balance of any account. Generally, this is not an issue because blockchain accounts are random strings and it is not easy to link an account to a human. This property of blockchains is also called pseudo anonymity.

However, sometimes we need privacy on blockchains for some use cases. For example, let’s say two supply chain participants want to transact over a blockchain and they don’t want to disclose their vendor costs to other participants who could be their competitors. In such a scenario, we need a way to hide data on the blockchain. Zero-knowledge proofs are one way of doing it.

Zero-knowledge proofs allow a prover to prove that they have some data without disclosing the actual data itself.

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 49 - Light Clients Oct 31, 2022

In the episode 3 of the podcast, I covered different kind of blockchain nodes and one of them is light client. In this episode, I’ll cover light clients in a bit more detail.

Light clients are special in the sense that they allow more decentralization. Unlike full nodes, light clients do not process all the transactions and blocks. They only synchronize block headers and are much light in terms of resource usage. Any user could run a light client without using any specialized hardware or servers.

Music: https://www.purple-planet.com

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Episode 48 - Blockchain Bridges Oct 24, 2022

There are different blockchains built to serve different kind of users and use-cases. Bitcoin is for peer to peer transfer of currency while Ethereum is a smart contracts platform. Flow is for NFTs while ZCash is for private transactions. What if applications and users on these blockchains need to interact or integrate with each other?

Imagine a use-case where a smart contract on Ethereum, on successful execution, needs to transfer some bitcoin from one account to another on the Bitcoin blockchain.

This is where blockchain bridges come into the picture. Bridge allow message passing between two blockchains. Using a bridge, a user on one blockchain could move their assets or token to an account on a different blockchain. The way it works is by locking or burning assets on the source chain and then minting them on the destination chain. The communication to mint the assets on the destination chain is done via messages sent over bridges.

Simply put, bridges deploy smart contracts on both source and destination chains and have message relayer software in between the two chains. The user takes action on the source chain smart contract which emits an event. Based on the event the message relayer relays a message to the destination chain. The smart contract on the destination chain then executes the logic on the destination chain based on the message received.

Bridges have different kinds of security models. Trusted and trustless. In trusted bridges, some third parties operate relayer nodes and bridging smart contracts on either side. The users and DApps have to rely on the honesty of these third parties. In trustless bridges, the state of either side (chains) is verified using smart contracts and the dependency on third parties is minimal.

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Episode 47 - Lifecycle of a Block Oct 17, 2022

A block is a collection of transactions and some metadata. Let’s take a look at how a block is produced. Let’s just assume that according to the algorithm we already have the node (validator or miner) selected to produce the next block.

The first thing that this block producer node would do is to choose which block to build on. Remember blockchain is a chain of blocks. For each new block we need to refer to the hash of the previous block. Hence, the node would first choose or select which block to build on. Recall that all nodes in a blockchain store all the data about the state of the blockchain. So, the node would just pick the hash of the latest block from its local state.

Next, the node would pick the transactions waiting in its transaction queue or mem-pool and create a new block by ordering and packaging them together. This process is call block building. The output would be a block — a data object with metadata and a list of included transactions.

Once the block is built, it is then broadcasted on the peer-to-peer network for other nodes to download and verify it. The details of broadcast and propagation are depend on the specific implementation of networking protocol for different blockchains. Each node in the network then verifies the block by executing all the transactions in it. If they find everything ok, they update their local state based on the transactions in the block. And the block is added to the chain.

This is how a fully decentralized network of nodes updates the state of a distributed ledger.

The next block is the built on top of this block, and the process continues.

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Episode 46 - Rollups Oct 10, 2022

Rollups are layer 2 blockchain scalability solutions where the execution of transactions is moved off the main blockchain. Basically, the layer 1 chain is used for keeping the ledger state and providing consensus, while the off-chain layer 2 framework — rollup-is used to execute the transactions and submit the updated state to layer 1.

This approach decouples the work to store the ledger state and execute transactions between the layer 1 and layer 2 respectively. The way it helps achieve scalability is by executing many more transactions within the same block period.

The users send transactions to the rollup. The rollup gets the previous state of the ledger from the layer 1, executes multiple transactions based on this state, and then submits the updated state to the layer 1. The rollup also “rolls up” or bundles all the transaction data and stores it on layer 1 so that any other verifier or rollup node could check the correctness of execution.

There are two kinds of rollups — optimistic rollups and Zero Knowledge (ZK) rollups. In optimistic rollups the transaction execution is verified by other verifiers and they could submit a fraud proof if they find anything wrong with it. While in ZK rollups a cryptographic proof of correct execution of transactions is also submitted along with the updated state and transaction data. Optimistic rollups are hence less secure than ZK rollups, while ZK rollups are slower because of additional proof generation.

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Episode 45 - Layer 1, Layer 2, and Scalability Oct 02, 2022

Initially, there were only one kind of blockchain networks where ledger storage and execution of transactions both happened on-chain. These blockchains were not scalable because of the topics and reasons mentioned in some of the previous episodes.

To achieve scalability and throughput, some solutions try to decouple or divide this work across on-chain and off-chain systems. Some solutions move the execution of tractions outside the chain while keeping the ledger state on the chain. Some other solutions delegate the work to smaller blockchains outside the main chain.

All the these solutions, broadly, come under the umbrella of layer 2 scalability solutions. The main chain where the ledger state and security comes from is the referred to as layer 1.

The basic concept is to scale layer 1 blockchains, we offload or delegate some of the execution to layer 2 solutions. The security comes from layer 1 while the scalability comes from layer 2.

For example, Ethereum and Bitcoin are layer 1 blockchains and plasma and lightning network are layer 2 solutions.

There is one more layer — layer 0. Layer 0 blockchains connect and secure layer 1 blockchains. This is more in terms of blockchain sharding. When we have multiple layer 1 blockchain shards and when we need to verify and connect them all, we use a layer 0 chain. An example of a layer 0 blockchain is Polkadot.

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Episode 44 - Block Gas Limit, Block Period, and Blockchain Scalability Sep 26, 2022

When we talk about blockchain scalability — which has been the theme for some of the current episodes — we must understand how the block gas limit plays an important role in the scalability discussion.

In general, for any public smart contracts blockchain, it is important to measure and charge for the resource usage while executing smart contract logic. For this, we have gas. The concept of gas makes sure the user pays for the logic they want to execute on the chain. This discourages several kinds of attacks on the blockchain.

Now let’s understand what block gas limit is. A blockchain block is basically a collection of transactions along with some metadata. A transaction is a packet of data that represents a message from a user to a blockchain. So, in totality, a block is just a bigger packet of data. Another thing is blockchains are peer to peer networks. Which means nodes propagate blocks to their peers during the consensus process. There is also a concept of block time which is the period between the production of two blocks.

When we want to propagate a packet of data (a block) across several nodes of a network (blockchain) within a time limit (block period), we need to make sure the size of the data packet is not too large. This allows the block to propagate to maximum number of nodes so that it could be verified in a fully decentralized manner. Hence we need to put a limit on the size of the block.

How do we limit the size of the block? By limiting the number of transactions in it. And how do we measure the size and complexity of transactions? Gas. Hence, the block gas limit is the maximum amount of gas which could be used by transactions in that block.

If we increase the block gas limit, we will have to increase the block period as well. And if we increase the block period, we will have to wait longer for the transactions to be executed by the blockchains. This is how the block gas limit and block period impacts the blockchain scalability.

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Episode 43 - The Ethereum Merge Sep 19, 2022

Since its beginning, the Ethereum network has been using the Proof-of-Work consensus mechanism. As we know, PoW consumes a lot of energy. Now the Ethereum network is moving to Proof-of-Stake consensus mechanism.

The merge is when the switch from PoW to PoS is going to happen.

Since the December of 2020, there has been a PoS network running in parallel, called the beacon chain. The existing PoW network (main net) and the beacon chain would merge into one and the block production would happen via PoS mechanism. That’s the merge.

All accounts, balances, and smart contracts history of the current Ethereum network would remain intact and only the block production mechanism would change. Before merge — PoW blocks. After merge — PoS blocks.

Read more about the merge here — https://ethereum.org/en/upgrades/merge/

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Episode 42 - Blockchain Performance vs. Scalability Sep 12, 2022

When it comes to blockchains, we use the terms performance, scalability, transactions per second (TPS) many times interchangeably. But these are all very different things. I recently read an article on a16z crypto where all these terms were nicely explained and clarified. I encourage you to read this article.

https://a16zcrypto.com/why-blockchain-performance-is-hard-to-measure/

In this episode of the podcast, I am sharing my understanding, mainly after reading this article, of blockchain performance and scalability and how they are different from each other.

Basically, performance is about the current throughput of a blockchain while scalability is about the capability of a system to increase performance by taking certain measures.

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Episode 41 - Blockchain Execution Sharding Sep 05, 2022

In the last episode I spoke about blockchain scalability and how sharding is one of the ways to achieve that. In this episode, let’s do a double click on blockchain execution sharding.

Sharding, in general, is a term associated with traditional databases. When a database grows too big, it could be divided into smaller databases across several servers based on some property of data. For example, a database with all the names of people in an organization could be divided into 26 servers, each having the names starting with one letter of English alphabet. Each of these servers would be shards of the database. So this is about sharding of databases.

Now let’s consider sharding in blockchains. We know blockchains don’t scale much because all the nodes have to verify all the blocks. Sharding in blockchains is about dividing a blockchain into smaller sub-blockchains and each of these sub-blockchains maintains and verifies their own state. The blocks of these sub-blockchains are produced, validated, and verified by only a subset of nodes. This allows the work to be distributed and not all the nodes have to do all the work. Which, in turn, allows for more scalability and performance.

Sharding in blockchains is being implemented in several ways. Some blockchain platforms have several sub-chains running in parallel and users could use any of these chains for their smart contracts. These sub-chains are also interconnected so that the smart contract and DApps could call each other across different chains.

Some other platforms go a step further to make things more secure by validating the blocks produced by sub-chains using a top-level chain. This allows more security and decentralization while achieving scalability.

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Episode 40 - Blockchain Scalability Aug 22, 2022

Some of you must have seen on the internet that how Bitcoin and Ethereum and much slower than Visa and other centralized financial systems. The reason is blockchain scalability trilemma. Bitcoin and Ethereum have chose to be more secure and decentralized, and hence they have to give up scalability.

In the last episode, I spoke about the Blockchain Trilemma. About how blockchain could have only two of decentralization, security, and scalability at a time. I also mentioned that there are some approaches and solutions being implemented and researched to circumvent the trilemma. The main purpose of these solutions is to make the blockchains scalable while keeping them decentralized and secure enough.

Most of these solutions fall into the broader category of blockchain scalability solutions. In this episode, we’ll briefly take a look at some of these.

Sharding: The first of the blockchain scalability solutions is sharding. Basically sharding is about distributing the production and verification of blocks into a subsets of nodes so that all the nodes don’t have to do all the work for all blocks. To achieve scalability, we distribute the workload among the nodes using sharding.

Layer 2 Scalability: Layer 2 solutions are about offloading the computation and execution of transactions outside of the main blockchain. The blockchain is used for verification and state updates only. This way the heavy work of computation is not done by the nodes of the blockchain. There are several layer 2 solutions — rollups, side-chains, etc.

On a broader level, these are the two main categories of blockchain scalability solution. However, there are several sub-categories of with different approaches towards sharding and layer 2 solutions.

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Episode 39 - Blockchain Trilemma Aug 18, 2022

Blockchains are decentralized networks where all the data is stored and verified by all nodes. To make blockchains usable for real world use cases, they should process large amounts of data. But when all nodes have to process all the data for each block, it is not easy to process a lot of transactions quickly. Blockchains are also public and permission-less networks, hence it is critical that they stay secure.

The blockchain trilemma says that blockchains could have any two of decentralization, security, and scalability at a time.

For blockchains to be decentralized, they should be able to run on commodity hardware so that many users could run the nodes.

Security, in context of blockchains, means that they can continue to work correctly and honestly, even if large number of nodes are byzantine. See last episode for byzantine faults.

Scalability is simply processing large number of transactions per unit of time.

If a blockchain has smaller number of nodes verifying the data, it is not decentralized enough. However, it could process more transactions and could still be secure if these nodes don’t collude.

If a blockchain has many nodes processing all the data, then it would be decentralized and secure. But it won’t scale much.

If a blockchain has nodes running on large servers only, then it could be secure and could process more transactions, but it is not decentralized enough.

There are several approaches being used or researched to circumvent the blockchain trilemma. Stay tuned for next episodes to learn about them.

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Episode 38 - Byzantine Fault Tolerance Aug 08, 2022

Blockchains are basically peer to peer networks of nodes. The chain progresses when majority of the nodes or peers agree on the state of the blockchain and the validity of the next block. What happens when these nodes don’t agree or when they misbehave?

In a network of nodes, there could be a situation that some of the nodes are either offline, or under an attack, or just not functioning as expected. Also, these nodes are connected with each other using usual networking technology. It could also happen that the network doesn’t work properly between some of the nodes for some interval of time. All of these cases could result in a situation when one or more of the nodes don’t operate as per the rules. Such a situation is called a byzantine fault.

Blockchains, in general, can tolerate byzantine faults up to a certain extent. For example, a network can continue to produce blocks and function normally even if some of the nodes are byzantine. For example, the Bitcoin blockchain can continue to produce blocks even if 1/3 of the miners become byzantine.

The ability to tolerate byzantine faults comes from the consensus algorithms used by blockchain networks. Most of the well known consensus algorithms are designed with assumptions about potential byzantine faults and their impacts on the functioning of the network. Tolerating byzantine faults is one of the most basic requirements for public permission-less decentralized networks.

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Episode 37 - Lifecycle of a Blockchain Transaction Aug 02, 2022

The user or DApp composes a transaction with information like input parameters, cryptographic signature, and some metadata about the blockchain network and a serialized data object is created out of it. All of this happens outside the blockchain using Wallets or DApps.

Transaction Submission

This serialized transaction data is then sent to one of the blockchain nodes using the RPC API.

Transaction Queue

Once the transaction is submitted to the node, some initial validation checks are run on it. If it is found valid, it is placed in the transaction queue of the node. At this time, it is also broadcasted to other nodes connected as peers to this node. Other nodes also run validations on the transaction.

Block Proposal

The transaction, along with other transactions, is then picked up by one of the nodes (assuming it has reached that node’s transaction queue) to be included in the next block they propose. Which node creates the next block is part of the consensus and block production algorithm. This could be different in different blockchain protocols. One thing that influences the inclusion of transactions in the block is the transaction fee paid by the user. The transactions are generally prioritized according to the fee.

Consensus

Once one of the nodes proposes a block, it is then propagated to other nodes in the network. All other nodes verify the block by executing all transactions included in it. Once majority of the nodes successfully verify the block, they reach consensus.

Commitment

Once the network agrees on the new block’s validity, all the nodes update their local state of the blockchain by executing all transaction in the block and committing that state. The next block would be built on top of this new state.

At this time, the effects of the transaction are visible because the state of the blockchain is updated across all nodes.

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Episode 36 - Anatomy of a Blockchain Node Jul 25, 2022

Blockchains are peer to peer network of nodes. These nodes connect with each other and come to consensus on the state of the blockchain. All these nodes are basically computers running the blockchain node software. Let’s look at all the components of a blockchain node that come together to make it all possible.

* Storage: This is the most basic component of the blockchain node. This is where the state of the blockchain is stored. In general, this is simply a database optimized for blockchain use-cases. All the Merkle tree logic and related functions are implemented in the storage component of the blockchain node.

* Networking: Using the networking component, the nodes connect with each other and pass messages. Without the networking component, there would be no network, and there would be no consensus. This component is mainly comprised of two sub-components — discovery and message passing. Using discovery, the nodes find and connect with their close peers, and using messaging they pass information required for sharing state and voting on consensus.

* Consensus: The consensus engine is responsible for getting agreement on the state of the blockchain among all the nodes. All the logic about PoW, PoS, etc. is implemented in the consensus algorithm. In general, the consensus algorithm is responsible for finding which node would produce the next block of whose block would be accepted, and getting the votes from all peers on the validity of the block.

* Transaction Queue: When a user submits a transaction to a blockchain node, and before this transaction is included in a block, it is temporarily stored in the transaction queue on the node for initial validation checks. The nodes also share these transactions with other nodes, so that any node could propose them in the next block as per the rules. Transaction queue is also knows as the mem-pool.

* Node API: The node API is the user facing API that is used by users and applications to interact with the blockchain nodes. When the users submit a transaction, they use this API. The API is also used for several other purposes like reading the state, etc. Without an API, the users and apps won’t be able to interact with the blockchain.

* State Transition Function (STF): The STF of a blockchain is the most important component and it represents the core business logic of the blockchain. In the STF, all the rules about processing of transactions and their execution are implemented. The state of the blockchain is updated based on these rules written in the STF. For example, in the Bitcoin blockchain, the STF implements the logic about transfer of bitcoins from one account to other(s) when the users submit transactions.

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Episode 35 - Oracles Jul 18, 2022

Blockchains form consensus when all the nodes agree on the data they process. This depends on the condition that the computation at each node should be deterministic. That means each node should arrive at the same output, for a particular set of inputs, no matter what hardware they are using.

The deterministic nature of blockchain logic ensures strong consensus. For this reason, blockchains work on the data that is already on the chain or supplied by the transactions from the users as input. By design, blockchain don’t depend on external data sources when executing transaction logic.

However, in several use cases, external data is needed to be supplied to smart contracts to execute the end to end logic. Let’s take an example. Let’s say we have an insurance use-case implemented using smart contracts on a blockchain. The insurance amount is held in the smart contract as an escrow, and it would be paid to the user/customer only when certain conditions are met. The data about these conditions and their status is in an off-chain database. How would the smart contract know if the condition is met?

This is where oracles come in. An oracle is a service that provides external data to the blockchains. Using oracles blockchains can query data from external services or databases for consuming in the on chain logic. In the example I shared about, if an oracle is used, it would provide the data about the insurance payout conditions to the smart contract, and based on that the amount would transferred to the recipient.

Oracles generally work in an asynchronous manner. That means they are not directly called by the smart contract just like any other code. Instead, oracles are configured to listen to specific events from the smart contracts. When the smart contracts need data from the off-chain databases, they emit certain events and the oracle is triggered to fetch the data. Once the oracle gets that data from the data source, it then submits it to the smart contract as a transaction input.

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Episode 34 - On-Chain vs. Off-Chain Data Jul 11, 2022

Blockchains are decentralized systems and are relatively slower than the centralized distributed systems. This is because decentralized systems have each node processing all the data so that they could not be hacked or influenced by a single point of control or failure. Processing all the data by all the nodes also makes things slow.

In order to still make use of blockchains and decentralized systems in real world use-cases, where millions of users could use them in spite of their low throughput, we have to follow certain best practices. One of these best practice is about what kind of data should be stored on and processed by the blockchains.

This definitely depends on the use-case we are using blockchains for, but it is an important design decision to make blockchains scale. For example, in use-cases like supply chain and data reconciliation among several parties, we should only put that data on blockchain which is critical for verification and consensus. All other data should be off the chain.

By off the chain data or off-chain data, I mean to say the data that could be stored or processed by conventional services and databases, outside the blockchain network. And the data that must go on the blockchain for consensus is generally referred to as on-chain data.

When a blockchain-based application or solution stores and sends less data to the blockchain, it performs more efficiently. This is directly related to the fact that if we put less data on the chain, the nodes of the blockchain network have do less work in getting consensus and the system performs faster as a whole.

In most cases, to make sure blockchains perform efficiently, they are used as verification machines and not as databases. The data is stored on conventional distributed databases, but it is verified on the blockchain.

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Episode 33 - Distributed vs. Decentralized Systems Jul 04, 2022

Decentralized systems are fundamentally different from distributed systems. While in distributed systems we can add more servers to handle more load, we cannot do that in decentralized systems. Also, because distributed systems have a single point of control and failure because they process the data only at a single node. Decentralized systems don’t have that shortcoming because all nodes in the network verify the data. This makes decentralized systems much more secure.

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Episode 32 - Decentralized Autonomous Organizations (DAOs) Jun 27, 2022

Blockchains allow seamless and transparent distribution of tokens and these tokens can represent pretty much anything. It can be something of a financial value, identity, or right to vote that can be tokenized on the blockchain.

Recall that to update the state of a blockchain, users send signed transactions, and based on the validity of these transactions the updates are applied to the blockchain. When an update requires multiple users to approve it, we use multi-signature transactions and wallets.

Now let’s combine these two concepts and imagine an organization’s entire governance based on a blockchain, where users have the right to vote by sending transactions. We can design an organization by programming the decision-making logic in the smart contracts. This logic can then be used to govern the finances, strategy, and other important aspects of an organization in a fully transparent and decentralized manner.

Users can have voting rights based on the tokens they own. The voting can be done using any of the popular approaches — a majority, supermajority, delegation, etc. The decisions made using this process can be applied automatically by distributing funds in specific account, or approving strategy and in many other ways.

These organizations that could function autonomously based on the business logic or governance rules programmed in blockchains are called Decentralized Autonomous Organizations (DAOs).

It is also worth pointing out that while the governance process of DAOs is more inclusive and transparent, it is still a challenge to apply the decisions made by a DAO in the outside world in a legal and enforceable manner.

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Episode 31 - Non-Fungible Tokens (NFTs) Jun 20, 2022

If we look at the dictionary definition of the term fungible, it says “being of such nature or kind as to be freely exchangeable or replaceable, in whole or in part, for another of like nature or kind.”

https://www.dictionary.com/browse/fungible

Let’s take an example. If you have a 1 dollar bill, you can exchange it for another 1 dollar bill. When we deposit cash in a bank and then withdraw some or all of it, we don’t get back the same currency notes that we deposited. But we still accept that money because these notes have the same total value. Hence, fiat currencies are fungible.

The same applies to cryptocurrencies, a bitcoin can be easily exchanged for another bitcoin because all bitcoins have the same value.

Non-fungible would then mean that something cannot be exchanged for another thing of the same kind. Let’s take an example — an original painting from a painter cannot be exchanged for another painting of the same kind because there is only one original and it has it’s value. Think Mona Lisa. You cannot exchange one Mona Lisa with another because another doesn’t exist.

The same concept applies to Non-Fungible Tokens. NFTs are used to represent unique assets on the blockchain. These unique assets could be anything — a painting, a gif, a piece of land, etc. This is important to note that NFTs are only representing physical or digital assets on a blockchain. Just like we represent the ownership of a piece of land using registry papers, we can represent the ownership of something unique by using an NFT.

NFTs make sense because they represent assets that have some specific context associated with them. This context makes these assets unique and hence non-fungible. Examples of such context are — a particular art by a specific artist, a piece of land with coordinates on Earth or Mars or Moon, the original manuscript of a particular book, etc.

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Episode 30 - Crypto Exchanges Jun 13, 2022

Exchanges allow users to buy, sell, and exchange cryptocurrencies. Just like we have stock and forex exchanges for buying and selling shares and foreign currencies, similarly we have exchanges for cryptocurrencies.

In general, crypto exchanges allow buying and selling of cryptocurrencies using fiat currencies or stablecoins or other cryptocurrencies. For example, you can buy bitcoin using USD and sell bitcoin for USD. You can also convert bitcoin into ether and vice versa, using a crypto exchange.

Crypto exchanges are of two kinds — centralized and decentralized.

Centralized exchanges are basically order book based platforms that manage keys for the users, and make blockchain transactions on behalf of the user. All trades go through a central server. They allow exchange of crypto with fiat and accept fiat payments and withdrawals. Centralized exchanges generally provide custody services to users for their purchased tokens. This means the users don’t have control on their wallets when transacting using centralized exchanges.

Decentralized exchanges are implemented using smart contracts (or logic on a blockchain) and allow users to directly make trades on the blockchain. They are more secure and allow full control of keys to the users, but they only work within the blockchain network and do not allow exchange with fiat currencies. The smart contract logic acts as automated market maker and matches the demand-supply for making token swaps. The market making and swapping of tokens is based on liquidity pools.

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Episode 29 - Stablecoins Jun 06, 2022

Cryptocurrencies are generally volatile. There are several reasons for that — low liquidity, speculation, and several other factors. There could be more reasons, but generally speaking, cryptocurrencies have been relatively more volatile compared to fiat currencies.

This volatility does not help with the value transfer use cases of cryptocurrencies. If the price is not stable, the value transferred or committed may not represent the services provided in return. For example, if a buyer and seller agree to transact using a cryptocurrency for a service or product, and by the time it is delivered if the value of that cryptocurrency changes too much then the entire trade could be unfair or undervalued, or overvalued.

To avoid these volatility issues and to still use the features of cryptocurrencies (decentralization, middlemen-less transfers, security, etc.), stablecoins are used.

Stablecoins are cryptocurrencies backed by or pegged to other currencies or commodities that have relatively stable prices. Generally, stablecoins are pegged to fiat currencies (USD, EUR, etc.), precious metals (Gold, etc.), and a combination of other cryptocurrencies.

Stablecoins are of two types — reserve-based and algorithm-based. Reserve-based stablecoins are minted based on the off-chain reserve maintained by the issuer. For example, if an issuer maintains a reserve of X USD in a bank then they can mint the same quantity of USD pegged stable coin on a blockchain. Algorithm-based stablecoins are less popular and work based on an algorithm that mints and burns coins based on the demand and supply, maintaining the stability of the price.

While providing a stable price, stablecoins also provide most of the benefits of cryptocurrencies like secure and trust-less transfers, pseudo-anonymity, etc. Hence, they are preferred as a value transfer mechanism.

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Episode 28 - Central Bank Digital Currency (CBDC) May 30, 2022

Central bank digital currencies broadly refer to the digital versions of fiat currencies.

The fiat currencies are issued by the central banks of respective countries. These currencies are issued based on the economic conditions and needs for trade and commerce in a country. Previously, the fiat currencies were issued based on gold reserves. The process of minting and maintaining these currencies requires quite a bit of work in terms of printing, logistics, transfers, reserves, etc. There is a lot of paperwork and many of layers of bureaucratic processes in currency management at the central bank level.

On the other hand, digital/crypto currencies like bitcoin are issued on a decentralized network and are relatively easy to manage considering they are governed via code and consensus rather than via bureaucratic processes. This brings in a ton of efficiency.

Inspired by the idea of crypto currencies, some of the fiat currency issuers have been experimenting with the idea of issuing digital versions of fiat currencies using decentralized systems. This could allow more liquidity, more security, and faster digital payments while simplifying processes and overheads.

CBDCs would also allow increased efficiency in cross-border payment settlements where the processes take quite a bit of time at in the current system.

How open and transparent CBDCs would be? Would they all follow the same practices and would they all have their blockchain? Would they even use blockchain or just be a sufficiently efficient centralized digital payment system? These and many more questions are still unanswered while the idea of CBDCs is still in the exploratory stage.

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 27 - Liquidity Pools, Swaps, and Yield Farming May 23, 2022

Financial services are generally based on transfer of funds between parties. For example, when we borrow money from banks that money is deposited by someone. They earn interest for depositing their money, and we pay interest on the loan. The money moves between the depositor and borrower through the bank. On a larger scale, many people deposit money at the bank and the bank then lends that money to potentially many borrowers.

This involves the bank to manage large amount of currency, which, in turn, allows the bank to provide several financial services (forex, etc.). The bank basically pools money from many depositors to create a liquidity pool. The bank is also a centralized service provider.

Now let’s try to apply the same concept to decentralized systems. To provide financial services using decentralized applications — also known as DeFi or Decentralized Finance — users deposit (lock) their tokens in smart contracts to help create liquidity pools. Borrowers then borrow these tokens as loans and pay interest. Depositors earn interest for locking their tokens.

Liquidity pools are the basic building blocks and enablers for financial services in the DeFi space. In addition to simple lending, liquidity pools are also used in decentralized exchanges for token swaps. In such setting, the pools are maintained in token pairs so that users can easily swap or exchange their tokens with other tokens. The fee charged for the swap is (partly) distributed among the pool contributors/depositors.

The term for earning from contributing to liquidity pools is called Yield Farming. Users lock their tokens or token pairs in DeFi smart contracts and, in return, earn tokens. These could be some percentage of the same tokens and/or DeFi app specific tokens. Several DeFi apps provide features and strategies for users to maximize their yield by locking their tokens in multiple pools.

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 26 - Decentralized Finance (DeFi) May 16, 2022

Decentralized Finance is more of a field comprising platforms, standards, and applications focused on providing financial services using decentralized technologies.

Generally, when it comes to traditional financial services, we deposit savings, borrow money, buy insurance, etc. Most of the time we interface with financial institutions that govern the terms and and conditions of these services. The process is like a black box, too opaque considering money matters. We, as users, do not have a lot of control over how our money is being used by financial institutions.

Also, there are too many steps involved in the processes of applying for and receiving these services from traditional financial institutions.

What if these financial services became more transparent so that we have full visibility about your money? Also, what if you don’t have to fill a lot of forms just to get a small loan?

This is what DeFi intends to solve. It allows you to have visibility about your money, gives you a right to say where your money goes, makes many things possible without too much paperwork, and so on.

In simple terms, DeFi applications comprise value-bearing tokens, governance tokens, financial equations, and terms programmed in smart contracts. Using these smart contracts and DApps based on them, some users deposit their tokens in liquidity pools and others borrow them and pay interest. Similarly, other financial services like insurance are built on top of these smart contracts.

Music: https://www.purple-planet.com

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 25 - Multi-Signature Wallets (MultiSigs) Sep 21, 2020

Every transaction in a blockchain is signed by the sender. The signing of transactions is done using cryptographic signing algorithms, as described in episode 6 of the podcast.

In some scenarios, to perform an operation on the blockchain, there is a need to have more than one signatures on a transaction. Think of bank accounts with joint holders. Similarly, blockchain wallets could also be owned jointly by a group of accounts. These wallets are called multi-signature wallets or multi-sigs.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 24 - Initial Coin Offering (ICO) Sep 14, 2020

One way of doing crowdfunding for software projects is an Initial Coin Offering, better called ICO. In blockchain applications, the developers create tokens so that their users can spend them to use the application. Selling these tokens is a way for the developers to get paid for their work.

Let’s understand more in this episode.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 23 - Tokens Sep 07, 2020

Tokens are digital assets representing a user’s right to use a system/service/application or to participate in a process based on blockchain.

Tokens are similar to cryptocurrencies in terms of issuance and distribution, but they are different in terms of value. A cryptocurrency can be used as a medium of exchange, while a token has only utility or security value.

Let’s understand more in this episode.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 22 - Proof of Stake Aug 31, 2020

In this episode, we understand what is proof of stack consensus and how it compares with proof of work.

Proof of Stake (PoS) is a blockchain consensus algorithm where the nodes put an economic value on stake to participate in block production. The problem domain is the same — to find out who should produce the next block for the blockchain.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 21 - Proof of Work Aug 24, 2020

In this episode, we understand what is proof of work and what it solves. We also understand how and why it is used in blockchains.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 20 - What is a Double Spend? Aug 17, 2020

In this episode, we understand the problem of double spend in digital currencies and how it impacts blockchains too. We also look into how blockchains solve double spending.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 19 - Blockchain Transaction Fee Aug 10, 2020

In blockchains, the transaction fee is the fee paid to blockchain nodes to include the transaction in a block. Generally, the transaction fee is paid in the native cryptocurrency of the blockchain.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 18 - Blockchain Economics: Part 2 (Rewards) Aug 03, 2020

In this episode, we continue understanding the blockchain economics concepts and dive a bit deeper into the crypto-economic rewards. Let’s understand what node operators and validators get in return of their services and why.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 17 - Blockchain Economics: Part 1 Jul 27, 2020

In this episode, we cover the most basic aspects of blockchain economics. From the need for cryptocurrencies to incentives to stakeholders, let’s explore it all, in brief.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 16 - Blockchain is NOT (just) Bitcoin Jul 20, 2020

In this episode, we take a slightly tangential topic to understand how is blockchain technology not just bitcoin. Considering bitcoin came first and later blockchain became popular, let’s get clarity on the two.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 15 - What is Block Finality? Jul 13, 2020

The finality of a block means that the majority of the nodes in a blockchain network have verified and accepted that block and their state has been updated accordingly. Finality assures that the transactions included in a block will not become invalid because of any reason.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 14 - What is a Blockchain Fork? Jul 06, 2020

In this episode, we discuss blockchain forks - what they are and what causes them.

For multiple parties to reach consensus, they must follow some rules. Rules regarding how to decide who would produce blocks and when, the interval between blocks, how big or small the blocks could be, and so on. These rules are together part of the consensus algorithm of the chain.

When some of the nodes decide not to update to the new rules, then a fork happens on the chain. Forks are of two types — soft and hard.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 13 - Blockchain Governance Jul 02, 2020

Blockchains are decentralized systems. There is no single point of control or administration. In contrast to other IT systems, there is no admin in a blockchain. Instead, blockchains are governed.

To make updates to the rules of a blockchain, every participant must agree directly or indirectly. Blockchain governance comprises the processes to coordinate this agreement.

In this episode, we understand different ways of doing blockchain governance.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 12 - Public & Private Blockchains Jun 29, 2020

In this episode, we understand types of blockchain networks depending on who can read the state and who can participate in block production (updating the state).

In a permission-less blockchain, anyone can participate in the block production process, while in a permissioned blockchain, only selected nodes can produce blocks.

In a public blockchain, anyone can read the state (data), while in a private blockchain, only the intended users or nodes can read the data.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 11 - What are Decentralised Apps (DApps)? Jun 25, 2020

Blockchains, just by themselves, are a collection of nodes sharing data and agreeing on its state. To make blockchains useful for the end-users, applications are built on top of them. Simply put, applications which use a decentralized backend (like a blockchain), are called Decentralized Applications or DApps.

A simple example of a DApp is software wallet applications that allow the user to query and transfer balance on a blockchain while interacting with a familiar user-interface.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 10 - What are Smart Contracts? Jun 22, 2020

Smart Contracts allow users to extend the business logic of blockchains. Just the transfer of bitcoin and ether might only help with a subset of financial use cases and cryptocurrencies.

For blockchains to be useful in more scenarios, they should be able to execute any kind of business logic and not just transfer of cryptocurrency. This is exactly what smart contracts provide — execution of any kind of business logic on the chain.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 9 - What is Blockchain Wallet? Jun 18, 2020

In contrast to the physical wallet in which we keep currency notes, a digital or blockchain wallet does not hold digital currency. Instead, the wallet holds the cryptographic keys so that they could be used in a convenient manner.

A more widely accepted definition of a blockchain wallet is a software program or a hardware device that could be used to store cryptographic keys associated with one or more blockchain accounts.

In this episode, we explore wallets and how they work.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 8 - Accounts and Keys Jun 15, 2020

Accounts are a way of representing users on the blockchain. Just like we have accounts in banks, generally represented by account numbers, we have accounts in blockchains too. In a blockchain, accounts are generally a representation of a users’ cryptographic public key.

In this episode, we cover accounts and cryptographic keys - public key cryptography and its application in blockchains.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 7 - Block Production and Mining Jun 11, 2020

Block Production is the process of proposing and appending new blocks to the blockchain so that the state of the chain could be updated. The state update happens when the transactions included in the blocks are executed on the chain by all the nodes.

In this episode we go into the details of how blocks are produced in blockchains and what is mining.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 6 - What is Signing? Jun 08, 2020

Signing is the process of associating user’s identity with information that is originating from the user.

In this episode, we discuss digital and cryptographic signing and how it is used in blockchains.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 5 - What is Hashing? Jun 04, 2020

Hashing is the process of deriving fixed-length strings from arbitrary-length data. It is generally used to represent data in a more compact and consistent format. In this episode we discuss the process of cryptographic hashing, hash functions and their characteristics. We also discuss the usage of hashing in blockchains and merkle trees.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 4 - Transactions and Blocks Jun 01, 2020

Transactions are small bundles of information that are used to propose updates to the state of the blockchain. Users sign and submit transactions to one or more nodes, and based on their validity, they are executed by all other nodes to update the state of the blockchain.

Transactions are grouped into blocks. Blocks are then processed one-at-a-time to execute all included transactions together.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 3 - Blockchain Node & Network May 28, 2020

A blockchain has several core functions like storage, networking, consensus, etc. All these are coded and packaged together in the blockchain node software. This software is then distributed to the users willing to participate in the blockchain validation or mining process.

Blockchain node software running on a physical or virtual machine and accepting connections is a blockchain node.

When several nodes connect with each other and exchange information like blocks and transactions, we get a blockchain network. So, in essence, a network is a collection of interconnected nodes.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 2 - Consensus May 25, 2020

In the context of blockchains, consensus is the agreement on the state of the blockchain among all the nodes in a network. The main area where consensus is needed is the order of transactions, within a block. If all nodes could agree on the order in which the transactions happened, then they would individually arrive at the same state after processing the respective blocks.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

Episode 1 - What is Blockchain? May 21, 2020

Welcome to BlockShots! In this first episode, the topic is introduction to blockchain with a basic example.

Blockchain is a system that allows two or more mutually unknown parties to reach an agreement without middlemen. The agreement could be on the state of any kind of data: Fintech — accounts and balances (like in Bitcoin). There is no single point of control and failure in a blockchain.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit episodes.blockshots.fm

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