Blockchain Interview Questions

How is Blockchain distributed ledger different from a traditional ledger?

A Blockchain distributed ledger is highly transparent as compared to a traditional ledger. Blockchain distributed ledgers are irreversible. Information registered on a distributed ledger cannot be modified whereas on a traditional ledger it is reversible. A distributed ledger is more secure. It uses cryptography and every transaction is hashed and recorded whereas in traditional ledger security can be compromised. In a distributed ledger, there is no central authority. It is a distributed system and the participants hold the authority to maintain the sanity of the network and are responsible for validating the transactions. Traditional ledgers are based on the concept of centralized control, which controls all transactions. In a distributed ledger, identities are unknown and hidden whereas in traditional ledger identities of all participants have to be known before the transactions happen. In a distributed ledger, there is no single point of failure as the data is distributed and information is shared across multiple nodes. If one node fails, the other nodes carry the same copy of the information. In comparison, traditional ledgers have a single point of failure. If a single system crashes, the entire network comes to a standstill. In a distributed ledger, data modification or change cannot be done but for a traditional ledger, it is possible. In a distributed ledger, validation is done by the participants in the network while in a traditional ledger, validation is done by a centralized authority. The copy of the ledger is shared amongst participants in a distributed ledger while in a traditional ledger, a single copy is maintained in a centralized location. It is not shared amongst the participants.

Bitcoin vs Ethereum

Bitcoin: P2P currency Proof of work SHA-256 10 minutes to process a block Optional transaction fees ETH: P2P Currency and smart contract POW/POS Ethash 12-15 seconds block mine time Fees calculated in gas

What is the difference between Blockchain and Hyperledger?

Blockchain is a decentralized technology of immutable records called blocks, which are secured using cryptography. Hyperledger is a platform or an organization that allows people to build private Blockchain. Blockchain is divided into public, private, and consortium Blockchains and Hyperledger is a private Blockchain technology with access to Blockchain data and is limited to predefined users, configurations, and programming. Wherever we talk about public Blockchain, it refers to the usage of Blockchain on the internet, and Hyperledger-based Blockchain solutions are solutions meant for usage on the intranet, within an organization.

What is meant by blocks in blockchain?

Blockchain is a distributed database of immutable records called blocks, which are secured using cryptography. Refer to the video to see the various attributes of a block. There are a previous hash, transaction details, nonce, and target hash value. A block is like a record of the transaction. Each time a block is verified, it gets recorded in chronological order in the main Blockchain. Once the data is recorded, it cannot be modified.

How do you explain Blockchain technology to someone who doesn't know it?

Blockchain technology is a distributed ledger, which stores transaction details in the form of immutable records or non-modifiable records (called blocks) which are secured using cryptography.

What is cryptography? What is its role in Blockchain?

Blockchain uses cryptography to secure users' identities and ensure transactions are done safely with a hash function. Cryptography uses public and private keys in order to encrypt and decrypt data. In the Blockchain network, a public key can be shared with all the Bitcoin users but a private key (just like a password) is kept secret with the users. Bitcoin uses SHA - 256 which is secure and provides a unique hash output for every input. The basic feature of this algorithm is whatever input you pass, it will give you a standard alphanumeric output of 64 characters. It is a one-way function from which you can derive an encrypted value from the input, but not vice-versa.

What is a Dapp and how is it different from a normal application?

Dapp: A Dapp is a decentralized application which is deployed using smart contract A Dapp has its back-end code (smart contract) which runs on a decentralized peer-to-peer network Process: Front-end Smart contract (backend code) Blockchain (P2P contract) Normal application: Normal application has a back-end code which runs on a centralized server It's a computer software application that is hosted on a central server Process: Front-end API Database (runs on the server)

What is DeFi?

DeFi is short for "decentralized finance," an umbrella term for a variety of financial applications in cryptocurrency or blockchain geared toward disrupting financial intermediaries. Direct purchases aren't the only type of transaction or contract overseen by big companies; financial applications such as loans, insurance, crowdfunding, derivatives, betting and more are also in their control. Cutting out middlemen from all kinds of transactions is one of the primary advantages of DeFi. Decentralized exchanges (DEXs): Online exchanges help users exchange currencies for other currencies, whether U.S. dollars for bitcoin or ether for DAI. DEXs are a hot type of exchange, which connects users directly so they can trade cryptocurrencies with one another without trusting an intermediary with their money. Stablecoins: A cryptocurrency that's tied to an asset outside of cryptocurrency (the dollar or euro, for example) to stabilize the price. Lending platforms: These platforms use smart contracts to replace intermediaries such as banks that manage lending in the middle. "Wrapped" bitcoins (WBTC): A way of sending bitcoin to the Ethereum network so the bitcoin can be used directly in Ethereum's DeFi system. WBTCs allow users to earn interest on the bitcoin they lend out via the decentralized lending platforms described above. Prediction markets: Markets for betting on the outcome of future events, such as elections. The goal of DeFi versions of prediction markets is to offer the same functionality but without intermediaries.

What is the Ethereum network and how many Ethereum networks are you familiar with?

Ethereum is a blockchain-based distributed computing platform featuring smart contract functionality that enables users to create and deploy their decentralized applications There are three types of networks in Ethereum: Live network (main network) - Smart contracts are deployed on the main network Test network (like Ropsten, Kovan, Rinkeby) - Allow users to run their smart contracts with no fees before deploying it on the main network Private network - Are those which are not connected to the main network. They run within the premises of the organization but carry the features of an Ethereum network.

How do you identify a block?

Every block consists of four fields - The hash value of the previous block (thereby getting linked in a blockchain) It contains details of several transaction data It has a value called the nonce. The nonce is a random value which is used to vary the value of the hash in order to generate hash value less than the target Hash of the block itself. It is the digital signature of the block and an alphanumeric value used to identify a block The hash address is the unique identification of the block. It is a hex value of 64 characters that have both letters and digits. It is obtained by using the SHA - 256 algorithms. The hash of the previous block, transaction data, and the nonce consolidate the header of the block. They are together passed through a hashing function and then the hash value is generated.

What does the gas usage in a transaction depend on and how is the transaction fee calculated?

Gas usage depends upon the amount of storage and set of instructions (codes) used in a smart contract. The transaction fee is calculated in Ether, which is given as: Ether = Tx Fees = Gas Limit * Gas Price

Name the steps that are involved in the Blockchain project implementation.

Identify the problem and goal Identify the most suitable consensus mechanism Identify the most suitable platform Account for implementation and deployment costs

What is a 51% attack?

In Blockchain, a 51% attack refers to a vulnerability where an individual or group of people controls the majority of the mining power (hash rate). This allows attackers to prevent new transactions from being confirmed. Further, they can double-spend the coins. In a 51% attack, smaller cryptocurrencies are being attacked.

What is the nonce and how is it used in mining?

In Blockchain, mining is a process to validate transactions by solving a difficult mathematical puzzle called proof of work. Now, proof of work is the process to determine a number (nonce) along with a cryptographic hash algorithm to produce a hash value lower than a predefined target. The nonce is a random value that is used to vary the value of hash so that the final hash value meets the hash conditions.

What is the fork? What are some of the types of forking?

In simple terms, updating a cryptocurrency protocol or code is called forking. Fork implies that a Blockchain splits into two branches. It can happen when the participants of the network cannot come to an agreement with regards to the consensus algorithm and new rules to validate transactions. There are three types of forking: Hard forks Soft forks Accidental forks

What happens if the execution of a smart contract costs more than the specified gas?

Initially, your transaction will be executed, but if the execution of a smart contract costs more than the specified gas, then the miners will stop validating your contract. The Blockchain will record the transaction as failed, also the user doesn't get a refund.

What is a Merkle Tree

Merkel Tree is a data structure that is used for verifying a block. It is in the form of a binary tree containing cryptographic hashes of each block. A Merkle tree is structured similarly to a binary tree where each leaf node is a hash of a block of transactional data and each non-leaf node is a hash of its leaf node. The Merkel root or hash root is the final hash root of all the transaction hashes. It encompasses all the transactions that are underlying all the non-leaf nodes.

Where do nodes run a smart contract code?

Nodes run smart contracts code on Ethereum Virtual Machine (EVM). It is a virtual machine designed to operate as a runtime environment for Ethereum-based smart contracts. EVM is operated in a sandboxed environment (isolated from the main network). This is a perfect testing environment. You can download the EVM, run your smart contract locally in an isolated manner and once you have tested and verified it, you can deploy it on the main network.

Differentiate between Proof of Work vs Proof of Stake.

Proof of Work (PoW): In Blockchain, PoW is the process of solving a complex mathematical puzzle called mining. Here, the probability of mining a block is based upon the amount of computational work done by a miner. Miners spend a lot of computing power (with hardware) for solving the cryptographic puzzle. Proof of Stake (PoS): PoS is an alternative to PoW in which the Blockchain aims to achieve distributed consensus. The probability of validating a block relies upon the number of tokens you own. The more tokens you have, the more chances you get to validate a block. It was created as a solution to minimize the use of expensive resources spent in mining.

List down some of the extensively used cryptographic algorithms.

SHA - 256 Ethash

What is a smart contract and list some of its applications?

Smart contracts are self-executing contracts which contain the terms and conditions of an agreement between the peers Some of the applications are: Transportations: Shipment of goods can be easily tracked using smart contracts Protecting copyrighted content: Smart contracts can protect ownership rights such as music or books Insurance: Smart contracts can identify false claims and prevent forgeries Employment contract: Smart contracts can be helpful to facilitate wage payments

What is a Genesis Block?

The genesis block is the first block in the Blockchain which is also known as block 0 In Blockchain, it is the only block that doesn't refer to its previous block. It defines the parameters of the Blockchain such as, level of difficulty, consensus mechanism etc. to mine blocks

How is the hash (Block signature) generated?

The process of generating a block signature involves: Passing transaction details through a one-way hash function i.e., SHA-256. Running the output value through a signature algorithm (like ECDSA) with the user's private key. Following these steps, the encrypted hash, along with other information (such as the hashing algorithm), is called the digital signature.

What are the different types of Blockchain?

There are three different types of Blockchain - Public, Private, and Consortium Blockchain. Public Blockchain ledgers are visible to all the users on the internet and any user can verify and add a block of transactions to the Blockchain. Examples, Bitcoin, and Ethereum. Private Blockchain ledgers are visible to users on the internet but only specific users in the organization can verify and add transactions. It's a permissioned blockchain, although the information is available publicly, the controllers of the information are within the organization and are predetermined. Example, Blockstack. In Consortium Blockchain, the consensus process is controlled by only specific nodes. However, ledgers are visible to all participants in the consortium Blockchain. Example, Ripple.