Forem: Hezekiah

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Hezekiah — Sat, 18 Jan 2025 11:17:26 +0000

ELI5: Decentralised Finance (DeFi)

Hezekiah — Fri, 10 Nov 2023 17:25:50 +0000

HISTORY

The term DeFi pronounced as “De-Fy”, is the short word for "decentralised finance". It technically came into use in August 2018 during a Telegram chat between Ethereum developers and entrepreneurs including Inje Yeo of Set Protocol, Blake Henderson of 0x and Brendan Forster of Dharma to denote an ecosystem of trustless and decentralized range of financial services being built on the Ethereum Blockchain. On November 9th 2021, the DeFi ecosystem hit an estimated Market Capitalisation of $173,612,419,950. By December 2nd 2021, its Total Value Locked was estimated at $182.93b with over 4m+ Users based on unique addresses.

WHY DEFI?

DeFi leverages existing blockchain technology into a decentralized micropayment platform without any intermediaries. DeFi is one of the technological concepts which has huge requirements from the banking sector as well as from those who deal with a large number of financial transactions. The most promising feature provided by blockchain technology for DeFi is a smart contract system. This system acts as a virtual medium between the two customers directly. One can send any large or small amount to another customer by calling a transfer function of this smart contract feature.

BANKS VS DEFI

The main problem with the current banking transactions is that it takes time to send money
globally and also it charges a customer service fee for every single transaction, which isn’t acceptable for all customers. Though the transaction fee for a big amount is acceptable, it isn’t that feasible for those who transfer small amounts.
The current banking system also puts a bar on the minimum amount a customer can transfer which makes the current banking system all more narrow. DeFi instead enables a user to make instant transactions globally within seconds without the need for a 3rd-party, through the use of a bunch of pseudo-codes.

KEY TERMINOLOGIES IN DEFI

1. Decentralised Application (DApp): DeFi runs on decentralised applications (DApps). These applications are distributed open-source software that runs on a peer-to-peer blockchain network. They basically provide a user interface to interact with the blockchain.

2. Total Value Locked (TVL): TVL basically denotes the total value of the assets staked in the smart contracts of a DeFi platform. It works as an indicator of the funds available throughout different DeFi platforms for transactional, borrowing, and lending capacities.

3. Automated Market Maker (AMM): An AMM is a decentralised asset trading pool that enables market participants to buy or sell cryptocurrencies. Uniswap is the first and most well-known AMM.

4. Liquidity Pool (LP): An LP is a pool of deposited funds meant to provide liquidity to a currency, network, or Smart Contract. There are
usually designed rewards or incentives given to those who provide liquidity to pools.

FEATURES OF DEFI

- Transparency: DeFi ensures that the process of every transaction is transparent. Hence, the distributed ledger contains information about all activities on
the blockchain network.

- Permissionless: With DeFi, you do not need the permission of any intermediary to carry out financial transactions. This takes away the pressure of over-dependence on centralised institutions.

- Ease of Access: DeFi provides quick access to the market and other financial transactions from any part of the world, all that is needed is an internet connection.

- Traceability: DeFi has a proper audit trail that makes it easy to identify the parties that made changes to a transaction, how the change was done and at what point it was done.

- Immutability: The utilization of cryptography and consensus algorithms make DeFi immutable. This means that it is impossible to manipulate any record on the blockchain.

- Efficiency: With the use of smart contracts under DeFi, human errors and mismanagements by third-party intermediaries and central banks are eliminated from the financial process.

CONCLUSION

DeFi bridges the gap between the banked and the unbanked. Millions of people around the globe who do not meet the requirements for opening a bank account do not usually have access to traditional banking. However, with DeFi there are no distinctions, and it allows anyone with an internet connection to access financial services conveniently.

ELI5: Account Abstraction (AA)

Hezekiah — Sun, 05 Nov 2023 08:31:35 +0000

Introduction

Account Abstraction (AA) is simply a blend of a smart contract's ability to validate its own transactions alongside offering an intuitive user experience. In Ethereum for instance, Account Abstraction enables the use of smart contract wallets without needing a private key or maintaining an ETH balance for gas fees. Account Abstraction focuses on improving both the accessibility and security of assets in a non-custodial wallet.

Reasons why this technology has been developed, includes:

- Improved security: Smart contracts can be programmed to be more secure than Externally Owned Accounts (EOAs) and can be used to implement features such as multi-signature wallets and social recovery.

- Greater flexibility: Smart contracts can be used to create new types of wallets and account management systems, with features that are not possible with EOAs.

- Reduced costs: Smart contracts can be used to optimize gas costs for transactions, and can also be used to implement features such as batching and payment splitting.

Here is a simple analogy to help you understand account abstraction:

Imagine that you are the President of the Federal Republic of Nigeria, and obviously Nigeria is endowed with a lot of money and resources. You don't want to manage all of this yourself, so you appoint Cabinet Ministers to oversee these resources and do the "dirty work" for you. The Minister of Finance, Budget & Planning would be responsible for keeping track of your money and possessions and making sure that everything is in order.

Account abstraction works in a similar way. The smart contract wallet is like a "Minister of Finance" for your Ethereum account. It manages your ETH and all of your transactions so that you don't have to worry about it.

Other benefits of account abstraction include:

- Improved user experience: Account abstraction can make it easier and more convenient for people to use dApps. For example, users could interact with dApps without having to worry about managing their private keys or gas fees.

- Increased security: Account abstraction can make it more difficult for hackers to steal users' funds. For example, users could use account abstraction to create wallets that are more resistant to phishing attacks.

- New possibilities for developers: Account abstraction can enable developers to create new and innovative types of wallets and applications. For example, developers could create wallets that allow users to pay for goods and services with multiple cryptocurrencies at once.

Some of the challenges of account abstraction are:

- Complexity: Account abstraction is quite a broad technology and it could be difficult at the initial stage to understand, for both users and developers.

- Security risks: There are some potential security risks associated with account abstraction. For example, if a smart contract that is used for account abstraction is hacked, it could give the hacker access to users' funds.

- Scalability: Account abstraction could add some overhead to a blockchain, which could make it less scalable.

ELI5: Ethereum Improvement Proposals (EIPs)

Hezekiah — Thu, 26 Oct 2023 20:45:23 +0000

Introduction

The concept of Ethereum Improvement Proposals (EIPs) was introduced in October 2015 (about 8 years ago) via a GitHub repository, as a specific method or system for including potential new features or processes for Ethereum. This is done by proposing, discussing, and implementing those changes to the network.
EIPs can range from core protocol changes to application standards.
Interestingly, anyone in the community can submit an EIP, and then various stakeholders in the community will debate to determine if it should be adopted as a standard or included in a network upgrade. If the community agrees, the EIP is implemented in the Ethereum codebase.

Here is a simple analogy:

Imagine that Ethereum is a big classroom, and the EIPs are like suggestions for how to improve the classroom. Anyone in the classroom can make a suggestion, and then the class discusses it to see if they want to implement it. If the class agrees, the suggestion is implemented.

For example, one student might suggest that the teacher move the whiteboard to a different location. Another student might suggest that the class start a new project. All of these suggestions would be considered EIPs.

EIPs are important because they allow the classroom to improve over time. The class can make changes that benefit everyone by listening to everyone's suggestions.

There are different types of EIPs, including core EIPs for low-level protocol changes that affect consensus and require a network upgrade, and ERCs for application standards.

Below are some EIPs and what their implementation has achieved:

- EIP-1559: This EIP changed the way that transaction fees are calculated and paid, making it more predictable and sustainable.
- EIP-20: This EIP created a standard for fungible tokens, which are the most common type of tokens on Ethereum.
- EIP-721: This EIP created a standard for non-fungible tokens (NFTs), which are unique digital assets that can be used to represent ownership of things like artwork, collectibles, and game items.

Blockchain Scaling Solutions and Types

Hezekiah — Sun, 08 Oct 2023 14:52:22 +0000

Introduction

With the advent of Web 3.0 and a great influx of people into the space, blockchain technology is today faced with a trilemma of satisfying security, decentralization and scalability, and it has become expedient that there'd be a need for scaling solutions. At the moment, a majority of blockchain networks only provide two of the three functions of security, decentralization and scalability, which are the core pillars of any blockchain network.
Scalability seems the most challenging and major concern for most layer 1 blockchains, hence the term "scaling solutions".
For example, Bitcoin is great in areas of decentralization and security but suffers as regards scalability.

The most popular blockchain scaling solutions (layers) we have currently include:

- Layer 0 (L0): The blockchain itself is referred to as layer zero. Internet, hardware, and other connections are required to implement blockchain technology. Layer zero blockchain is the initial stage of blockchain technology that enables blockchain networks to function. Layer 0 also facilitates cross-chain interoperability communication from the top layer to various layers. Layer 0 provides the blockchain’s fundamental infrastructure, including the protocols and standards that govern the blockchain network. The 3 main L0 Blockchains are: Cosmos, Polkadot, and Avalanche.

- Layer 1 (L1): A Layer 1 (L1) blockchain is the base layer of a blockchain network. It is responsible for the core functions of the network, such as consensus, security, and transaction execution. Layer 1 blockchains are typically designed to be scalable, secure, and decentralized.
Examples of the most popular Layer 1 blockchains include: Bitcoin, Ethereum, Solana, Cardano, etc.
Sharding is a scaling solution for layer 1 blockchains and it involves breaking down the blockchain network into smaller components to enable higher transaction speeds or throughput.

- Layer 2 (L2): Layer 2 blockchains are built on top of the existing Layer 1 infrastructure and are designed to address some of the limitations of Layer 1 blockchains.
This process offers improvements such as increased scalability, security, and efficiency, and is achieved by executing transactions off-chain to take some pressure off the main blockchain.
Some examples of Layer 2 blockchains are Polygon, Celo, X-dai, Optimism, Arbitrum, Starknet, etc.
Layer 2 blockchains have a different scaling solution from layer 1's and these include; State channels, Sidechains, and Rollups.

In addition to these layers/scaling solutions discussed above, we have two more that are currently being researched and worked on. They are:

1. Layer 3 (L3): This is mostly known as the "application layer", and hosts decentralized applications (DApps) and their protocols. The "application layer" consists of APIs, user interfaces (UI), scripts, and smart contracts.
In the L3 model, each DApp operates on its own network, and networks are designed to provide a dedicated environment for a single decentralized application, allowing it to operate independently with its own rules, governance mechanisms, and economic incentives.
'Orbs' is an example of a Layer 3 blockchain network; the protocol leverages the security provided by Layer 1 chains, the scalability offered by Layer 2, and its own smart contract deployment layer to enhance the functionality of Ethereum Virtual Machine (EVM) compliant smart contracts.
By optimizing resources for a single DApp, Layer 3 blockchains improve transaction speed, reduce fees, and enhance the overall user experience. They also provide a platform for rapid innovation, allowing developers to create specialized and user-centric applications.

2. Layer '-1' (L'-1'): This is a distinctive blockchain infrastructure and scaling solution which is being developed by the TRIAS network, and not much is known about this model at the time of this writing.
As highlighted in a previous AMA session by its core team;
"Trias functions as an intricate, multi-layered network system, with the current focus of the Trias token centred on Layer ‘-1’.
Layer ‘-1’ is not directly involved in transaction handling and necessitates the creation of a dedicated Layer 1 atop it."
The idea for this infrastructure was first proposed in a 2011 paper by its Founder. It employs the HCGraph algorithm where nodes can undergo frequent verification by their peers, thereby establishing a Web of Trust in which nodes can mutually validate each other’s integrity.
To fully leverage Layer ‘-1’s potential, it further requires advanced technology stacks which are distinct ecosystem projects within the Layer '-1' infrastructure.

What are Blockchain Layers and how do they work?

Hezekiah — Mon, 11 Sep 2023 10:14:40 +0000

INTRODUCTION

The functionality of Blockchain technology goes beyond its usage in/for peer-to-peer transactions. Every blockchain exists in stratified layers which are meant to facilitate its functionality at an optimal level. Basically, a blockchain is made up of five (5) layers and these layers play a distinct role in achieving this. Each layer is integral to assuring the security, transparency, and efficiency of transactions, and together, they make the blockchain a system that can handle all aspects of the development process, from storing and managing data to creating and deploying applications.

Join me on this exciting read as we find out more about these layers:

1. Hardware/Infrastructure layer: The hardware/infrastructure layer refers to the physical framework that supports the blockchain network, which is basically made up of the nodes that contribute to the network's computing power. These nodes communicate with each other by exchanging information about the state of the network, responsible for verifying and recording transactions on the blockchain, as well as help to maintain the security and integrity of the network.

2. Data layer: The data layer of a blockchain network is where the transaction details are stored. Each block in the blockchain contains a set of transactions, along with other information such as the hash of the previous block and the timestamp of the block. In addition to this, the public key of the recipient and the private key of the sender are also stored in each block. The public key is used to identify the recipient of the transaction, while the private key is used to sign the transaction.

3. Network layer: The network layer of a blockchain network is a complex and critical part of a blockchain network that ensures that nodes can communicate with each other and that the data on the blockchain is secure. It links nodes, broadcasts transactions, and distributes data throughout the network, to ensure that all nodes in the network are aware of any transactions that take place, and this is essential for the security and transparency of the network.

4. Consensus layer: The consensus layer of a blockchain network ensures that all nodes in the network agree on the validity of each transaction. It does this by using a consensus mechanism, such as Proof of Work (PoW) or Proof of Stake (PoS) to maintain a set of logic that the nodes in the network follow to agree on the validity of transactions.

5. Application layer: The application layer is the most topmost/visible layer of the blockchain architecture. It is where applications are built, deployed, and via which users interact with the blockchain for a variety of purposes. Smart contracts, Decentralized applications (dApps), and other software such as wallets and browsers are examples of tools that run on top of the application layer.

ELI5: Token Standards on Ethereum

Hezekiah — Tue, 05 Sep 2023 22:17:42 +0000

Introduction

On the Ethereum blockchain, a crucial component known as the ERC token standard lies as a key feature for building products/dapps within the ecosystem. ERC stands for "Ethereum Request for Comments", and this feature is a standard that provides a set of basic guidelines and specifications for creating and implementing smart contracts, tokens, and other blockchain-based applications on Ethereum.

Types of ERC Token Standards

ERC-20: This is the most common token standard on Ethereum. It defines a standard interface for fungible tokens, which means that each token is identical to another token of the same type. ERC-20 tokens are like digital coins, like Bitcoin or Solana, but do not have a seperate blockchain. They are built on the Ethereum blockchain and can be used to represent a variety of things, such as virtual currencies, utility tokens, and security tokens. For example, an ERC-20 token could be used to represent a unit of currency in a video game. Each token would be worth the same amount, and players could use them to buy items or services in the game.

To be ERC20-compliant, a token must follow certain logic programmed into its code. These logic includes:

TotalSupply – provides information about the total token supply
BalanceOf – indicates the account balance of the token owner
Transfer – executes transfers of tokens to specified addresses
TransferFrom – allows transfers from a specified address
Approve – allows spender to withdraw tokens
Allowance – returns tokens from a spender to the owner

ERC-721: This is a token standard for non-fungible tokens (NFTs). NFTs are tokens that are unique and have their own individual properties. This means that no two NFTs are exactly alike. NFTs can be used to represent a variety of assets, such as digital artworks, collectibles, and in-game items.
For example, an ERC-721 token could be used to represent a unique digital artwork. This artwork would be one of a kind, and no other token would be exactly the same.
ERC-777: This is an improvement over ERC-20 that adds some new features. One of these features is the ability to approve multiple tokens to be spent by a third party. This can be useful for things like subscription services, where the user wants to give a third party permission to charge their account automatically (recurring payments).
ERC-1155: This token standard offers a more flexible alternative to ERC-20 and ERC-721. It allows for the creation of both fungible and non-fungible tokens. This makes it a good choice for projects that need to create a variety of different types of tokens.
For example, an ERC-1155 token could be used to represent a digital game asset that can be both bought and sold. The same token could also be used to represent a unique in-game item.
ERC1400: This is a proposed standard for issuing and managing security tokens on the Ethereum blockchain. These tokens represent assets subject to securities regulation, providing transparency and compliance within the blockchain ecosystem.
Future ERC standards such as ERC1400 will contribute to the security, scalability, and utility of the Ethereum blockchain, fostering regulatory compliance and mass adoption across various industries, including subscriptions, intellectual property, tokenized real estate, gaming, NFTs, and DeFi.

In addition to these standards above, there are a number of other token standards that are being developed for Ethereum currently. These standards are designed to address specific needs or use cases. For example, the ERC-4626 token standard is designed for tokenized vaults, which are a type of DeFi product that allows users to deposit their tokens and earn interest.
The choice of which token standard to use depends on the specific needs of the project. For example, if the project is creating a virtual currency, then ERC-20 is the most appropriate standard. If the project is creating a collectible NFT, then ERC-721 is the most appropriate standard. And if the project needs to create a more flexible type of token, then ERC-1155 is the most appropriate standard.

Demystifying Blockchain Technology: Applications and Implications

Hezekiah — Sun, 27 Aug 2023 21:39:01 +0000

Introduction
In recent years, blockchain technology has emerged as one of the most transformative innovations, promising to revolutionize various industries and reshape the way we interact with digital data. Although initially associated solely with cryptocurrencies, such as Bitcoin, blockchain's potential extends far beyond financial transactions.
This article aims to demystify blockchain technology by exploring its applications and the implications it holds for various sectors.

Understanding the Basics: What is Blockchain Technology?
At its core, a blockchain is a decentralized and distributed digital ledger that records transactions in a secure, transparent, and immutable manner. Unlike traditional centralized systems where a single entity maintains control over the ledger, a blockchain operates on a network of computers (nodes) that work together to validate and record transactions. Each transaction is grouped into a "block" and linked in chronological order, forming a chain of blocks – hence the term "blockchain."
The security and immutability of blockchain are achieved through cryptographic techniques. Once a transaction is added to a block, it is cryptographically hashed and linked to the previous block. This linkage creates a tamper-resistant structure, making it extremely difficult to alter past transactions without changing all subsequent blocks. This characteristic has significant implications for various applications.

Applications of Blockchain Technology: Beyond Cryptocurrencies
1. Supply Chain Management: Blockchain technology offers unprecedented transparency and traceability in supply chains. With its ability to securely record every step of a product's journey, stakeholders can verify the origins, authenticity, and conditions of goods. This is particularly valuable in industries like food and pharmaceuticals, where ensuring product quality and preventing counterfeit items are crucial.
2. Digital Identity Verification: Traditional methods of verifying identities often involve multiple intermediaries and are prone to security breaches. Blockchain's decentralized nature can enhance digital identity verification by providing a secure and unified platform for individuals to control and share their personal information, reducing the risk of identity theft and fraud.
3. Smart Contracts: Smart contracts are self-executing contracts with the terms of the agreement directly written into code. These contracts automatically execute when predefined conditions are met, eliminating the need for intermediaries and reducing the possibility of disputes. They find applications in areas like real estate, insurance claims, and automated business processes.
4. Healthcare Data Management: Healthcare systems struggle with interoperability and secure sharing of patient data. Blockchain can enable patients to have control over their medical records while granting permission to healthcare providers as needed. This can lead to more efficient and accurate diagnoses and treatments.
5. Voting Systems: Blockchain's transparency and immutability make it a potential solution for secure and tamper-proof voting systems. It can enhance electoral transparency, reduce fraud, and increase trust in the democratic process.

Implications and Challenges
While blockchain technology holds immense promise, it also faces certain challenges and implications that need to be considered:
- Scalability: Current blockchain implementations, like the Bitcoin and Ethereum networks, face scalability issues, limiting the number of transactions they can handle per second. Efforts are ongoing to develop more scalable blockchain solutions.
- Energy Consumption: Some blockchain networks, especially those using Proof of Work (PoW) consensus mechanisms, require significant computational power, leading to concerns about their environmental impact. However, there are alternative consensus mechanisms, like Proof of Stake (PoS), that are more energy-efficient.
- Regulatory Uncertainty: As blockchain disrupts various industries, regulatory frameworks are still evolving to address legal and compliance issues related to data ownership, taxation, and cross-border transactions.
- Interoperability: For widespread adoption, different blockchain networks must be able to communicate and share data seamlessly. Interoperability standards are still in development.
- Security: While blockchain itself is considered highly secure, vulnerabilities can still arise in the applications and platforms built on top of it. Smart contract bugs and phishing attacks are examples of security risks.

Conclusion
Blockchain technology has transcended its initial association with cryptocurrencies to become a transformative force across diverse industries. Its decentralized and tamper-resistant nature opens the door to innovative applications that address longstanding challenges. From improving supply chain transparency to revolutionizing digital identity verification, the implications of blockchain are profound. However, as with any emerging technology, there are challenges that must be addressed, including scalability, energy consumption, and regulatory concerns. As the technology continues to evolve, stakeholders must collaborate to harness its potential while mitigating its limitations, paving the way for a more secure, transparent, and efficient digital future.