Lesson 2: Blockchains and Cryptocurrencies

Welcome to the second lesson in Kriptomat Academy’s Blockchain Fundamentals course. In this lesson, we’ll focus on how blockchains record transaction data.

As a general rule, each blockchain maintains transaction records for just one cryptocurrency

• The blockchain records the amount to be transferred and the addresses of the sender and recipient, but it doesn’t specify which type of cryptocurrency.
  
• It doesn’t have to. The Bitcoin blockchain records Bitcoin transactions. The Dogecoin blockchain records Dogecoin transactions. And so on.
  
• Each blockchain defines its own structure for blocks and tokens, and each blockchain has its own rules for validating transactions and creating tokens.

There are exceptions. For example, Ethereum and a handful of Ethereum-compatible blockchains are capable of hosting multiple currencies

• This means that the tokens and projects run on Ethereum or on Ethereum-compatible “sidechains.”
  
• Projects based on sidechains can interact with Ethereum and take advantage of widespread tools and industry knowledge about the platform.
  
• Most blockchain apps and NFTs are based on Ethereum. More about those in a moment!

Cryptocurrency blockchains keep users anonymous

• A crypto blockchain tracks how much crypto was sent from one blockchain address to another.
  
• However, the blockchain does not keep track of who owns the addresses.

• Ownership can sometimes be deduced from publicly available information, but the blockchain itself is anonymous.

Bitcoin’s creator chose blockchain technology for Bitcoin because he was trying to create a trust-free economic system

• When you sell your home, you don’t know the buyers and you have no reason to trust them.
  
• That’s why a bank – which is trusted by both the buyer and the seller – is necessary. It handles funds in transit and ensures the deed is not delivered to the buyer until the money is received by the seller.
  
• Satoshi Nakamoto wanted to eliminate the need for trusted middlemen – including banks and governments – with the new currency he was creating. He found a way to make blockchain databases support verifiable trust-free transactions.

So – what have we learned?

• In general, each blockchain maintains records for just one cryptocurrency.
• Ethereum is an exception. Many other tokens run on Ethereum because of its flexibility and capabilities.
• Blockchain technology works for cryptocurrency because it can eliminate the need for trusted middlemen like bankers.

That’s the end of this lesson! Test your understanding and earn points toward a Kriptomat Academy certificate of achievement by taking the test!

What special features distinguish Ethereum from Bitcoin and other cryptocurrencies?

Only Ethereum collects charges for performing transactions.

Ethereum runs smart contracts, hosts most NFTs, and serves as the foundation for many “Ethereum-based” crypto tokens.

Ethereum is the fastest blockchain for making transactions.

The computer code for Ethereum contains Ethereum Foundation trade secrets and is not shared with the public.

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What user information is recorded on the blockchain?

Login details, IP address, browser name and version number, the time when the session begins, the duration of the online session.

The user name of the sender and receiver for each transaction, along with the amount of crypto to be sent.

Only the blockchain addresses of the sender and the receiver.

It depends on the blockchain. Some require full KYC verification to process transactions.

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Which of these statements about blockchains is true?

Satoshi Nakamoto defined the block structure that all blockchains must use to support cryptocurrency.

Blockchains give users tools for undoing transactions made in error.

Data stored on the blockchain is audited by banks and government regulators.

Blockchains used for cryptocurrency are primarily concerned with recording transfers of tokens from one user address to another.

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What is the role of trust in financial relationships?

Before cryptocurrency, strangers needed trusted intermediaries when making transactions.

Trust is essential among the nodes that carry copies of the blockchain ledger to ensure that all the copies are identical.

Since blockchain data is encrypted, users must trust that transactions are recorded faithfully.

The crypto world relies on trusted crypto exchanges to set and enforce the relative value of all cryptocurrencies.

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Why do most blockchains host just one cryptocurrency?

Transaction traffic jams would slow the validation process to a halt if a single blockchain tried to handle all transactions.

Each blockchain has unique definitions and protocols for how blocks are structured and added to the blockchain.

Different blockchains are written in incompatible programming languages.

If multiple cryptos were on the same node, it would be impossible to know which crypto to reward nodes with when they are selected to add a block to the chain.

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