Blockchain is a trending technology and many among us want to learn it. There are many resources available. Still, there are some common questions people ask very often on forums or in comments. To clear up all those doubts, we'll go through the basic blockchain FAQs.
1. Why is Blockchain so difficult to understand?
Blockchain is not a new technology; however, it has received more attention recently and is getting more involved in the last few years. Blockchain is not a web technology or a programming language that can be learned easily. It is a different concept than the solutions we use in our day-to-day life.
Being a programmer, one of the major challenges of blockchain is frequent updates. Instead of just developing the things, you would need to spend most of your time in discussions, reading, and experiment. Additionally, it requires you to understand the basics of cryptography, distributed computing, network programming, etc.
Also, there is no single resource available where you can learn the blockchain technology. Well, that makes it more difficult.
2. I have heard about Bitcoin and Blockchain. Are they the same thing?
No, they are different. Bitcoin is a digital currency, whereas, blockchain is a technology that enables you to move digital currency from one individual to another individual. However, Blockchain is not just limited to that, you can create your application or receive funds for your startup and can do many other things.
3. We already have Bitcoin, then why were other cryptocurrencies created?
Typically, cryptocurrencies are being created for two reasons; when someone creates their own blockchain, they need to have something that they can give as a reward to the miners. The second reason is; anyone who wants to raise funds for their startup needs to create a new currency and start crowdfunding.
4. Why don't the governments of some countries support cryptocurrency, but they support Blockchain?
Cryptocurrency can be used both good or bad. As all the transactions are peer-to-peer; and there is no central authority; all the transactions are anonymous and that facilitates crime. Cryptocurrency can be used in tax evasion, money laundering, drug trafficking, and other illegal activities. And that’s the reason governments don’t support it.
However, some blockchains can work without cryptocurrency, and it has the potential to solve problems of trust, security, and provenance etc. which would be helpful for different sectors and because of these; ministries are supporting it.
5. I know about Bitcoin, but what is altcoin?
Altcoins are the alternative currencies of Bitcoin. Dash, Litecoin, Ripple are examples of altcoins.
6. I have read about people using Cash/Gold/Private currency after Bitcoin, what is that?
These all are different currencies created using forks from the same blockchain. Intentionally or unintentionally, forks happen on a blockchain, and as a result, the new version of the same cryptocurrency could come out. Bitcoin cash, Bitcoin gold, and others are forks of Bitcoin blockchain, each of them having their own rules.
7. How can I create my own cryptocurrency?
There are two ways to achieve that; one is you develop your own blockchain along with cryptocurrency and set a consensus mechanism, which is hard and takes a lot of effort. Another way is to use existing blockchains and create your cryptocurrency using smart contracts.
There are different standards available (for different blockchains), by just following that you can create your currency. For instance, Ethereum has ERC 20 and ERC 223 standards.
8. If I can create my own currency, I will become the richest person in the world!?
Not at all, when you create your own your currency, the valuation of your currency would be zero. The valuation then comes from people who believe in your currency and invest in it.
Let’s assume that I have created my currency called “ABC” (tokens), and the total supply of ABC currency is 25 million. Further, I’ve defined that 1 Bitcoin = 1000 ABC tokens. So, you can predict now; after selling out all of my currency I will have a 2500 Bitcoin. Pretty good calculation, but this doesn’t mean you’ll become a millionaire, because that is only your prediction. There is no guarantee someone will purchase ABC tokens.
9. Can I make money with Bitcoin or any cryptocurrency?
You should never expect to get rich with Bitcoin or any cryptocurrency. There are various ways to make money with cryptocurrency such as mining, speculation or running new businesses. All of these methods are competitive and there is no guarantee of profit. It is up to each individual to make a proper evaluation of the costs and the risks involved in any such project.
10. Will it require my bank account to purchase cryptocurrency?
Yes. Initially, you need to buy cryptocurrency using fiat currency. Later you can buy or sell other cryptocurrencies from one cryptocurrency.
11. Where can I store my cryptocurrency?
You can store cryptocurrency in your digital wallet, different blockchains having different wallets; they manage the balance and transactions history. The wallet also enables you to send and receive crypto coins.
12. What is mining in Blockchain?
Mining is the process of validating the blocks in the blockchain. In the traditional system, when you send some money from one person to another, there would be a central authority who validates that transaction. However, in blockchain, there is no such central authority, but it has the concept called consensus; in which connected nodes validate the transactions.
Validator nodes are called miners. Basically, miners have to validate the balance of sender and solves the mathematical problem using their computational power. Whoever will solve that first; will get rewarded with some incentive and a transaction fee. This process of validating transactions called mining.
13. I have heard that miner can create Bitcoin by mining, so I think that is the best thing I can work for and earn money rather doing a job.
You should never expect to get rich by mining. The process requires a lot of computational power to mine a single transaction. Good computational power comes from good hardware resources; which are quite expensive. Typically, the blockchain network changes the difficulty of the math problem depending on how fast they are being solved. So, instead of just thinking of the reward you'll be getting; you should also think of hardware cost, electricity cost, and maintenance cost. If you think of all of these; you would probably be more comfortable with your job.
14. I know that the use of Blockchain is to send cryptocurrency from one user to another, but is there any other use-case where Blockchain could be used?
Instead of just passing money from one to another, blockchain can be used in many key areas. One of the real use-cases is identity management. Currently, third-party applications are collecting and leveraging a lot of information about you, and you don't have direct access to it. If someone would hack those third-party applications, your privacy would be compromised. Blockchain can solve this issue by storing data on the decentralized network; where the user can have full access on his/her information and the third-party applications can use this information for validation or other purposes.
15. People often say Blockchain is secure! I would say data in my bank account is also secure; then what is the difference?
Data on your bank account is centralized and can be used without your permission. It's even possible that you might not be informed when someone asks for your data. That happened recently with one of the banks in India. However, this can be solved with Blockchain, as it uses a cryptographic algorithm to store user data over the decentralized network; where the user is the only owner of his/her data, which creates complete transparency.
16. Who owns Blockchain Technology?
Nobody owns the Blockchain technology, much like no one owns the technology behind email. You can use this technology and create your own product or start your business.
17. Is www.blockchain.com is an official website of Blockchain?
No, as nobody owns the blockchain technology, there is no such official thing available. (Have you found an official website for email?) www.blockchain.com is a company; they are providing various services and wallet facilitates.
18. Can I use Blockchain in my project and store all the data into it?
Storing data on a blockchain is limited by the protocol or because of the huge transaction fees. Also, its consensus mechanism makes it slower compared to the typical database management system. Hence, it is not recommended to store all the data in blockchain unless it's required, although you can develop one or more modules of your project that leverages the blockchain technology.
19. Where does the data of the Blockchain get stored?
Data on blockchain gets stored in a block over the public ledger, which means that every participant has a copy of the entire chain.
20. I heard that transactions on blockchain are publically available, where can I find this?
Different blockchains have different explorers; where you can find all the information about transactions. For example, etherscan.io is an explorer that gives real-time transaction information.
21. I have sensitive data and don't want to show it publically, in such a scenario how can we use Blockchain?
If you don't want to show the transaction detail in public ledger, you can develop your private blockchain and can use it with your application.
22. Who is using blockchain?
Major Fortune 500 companies are either evaluating use cases of blockchain or investing in the blockchain. Over 250 banks are investing in blockchain development.
23. Can Blockchain be hacked?
In a typical client-server architecture, there is one central location where all the data gets stored. Usually, attackers are targeted at that hosted location. However, blockchain doesn't have such a central server, hence the location of the attack is different; here, an attacker can attack the consensus mechanism as its key area of the blockchain.
If the attacker is able to manipulate the validation process of generating new blocks, they can easily manipulate the transactions. But to take over the network, an attacker would have to control more than 50 percent of its total computing power. To be able to initiate such an attack requires mining hardware that can compete with the rest of the network.
Recently (on Jan 9, 2019) 51% of attacks happened on Ethereum Classic, by owning the majority hash power; attackers tried to execute a "double spending" attack.
51% of Attacks on Ethereum Classic
TL;DR yes, blockchain is not 100% secure, but chances of attracts are very less. Also, by the time the majority of blockchains are improving and securing the consensus mechanism with different algorithms.
One important thing needs to note here is; smart contract with vulnerable code can also be hacked, but you cannot consider it as blockchain hack.
24. Many people say that React is better for blockchain development (for client-side) than Angular. Is there any truth to it?
It depends on your application requirement. If the requirement is to develop a single page application, you can choose from both, based on your expertise. If you're not familiar with React or Angular, you can also develop an application in any web technology available in the market. To be very clear, which web framework you choose doesn't matter; what matters is what problem you solve.
25. Do I really need to use blockchain?
Every system doesn’t require a blockchain. It is meaningless to say I’d like to use blockchain in my project because it must add value. Every technology has advantages and disadvantages and blockchain is no exception. Here are the questions you need to ask yourself before going to use any blockchain.
26. I want to learn blockchain, which one is good to start with?
There are several blockchains available to the market. Each blockchain solves a different problem; if you want to learn public blockchain and a cryptocurrency you can start with an Ethereum. To learn private or consortium blockchain, Hyperledger Fabric is a good option.
your domain, NEO and Stratis are good options.
27. Which programming languages do I need to learn in order to learn the Blockchain?
C++, JavaScript, Python, Go and C# are the most popular programming languages for blockchain. However, you can always find the right blockchain for you based on your skill set. If you're a C# developer, find blockchain that supports C# for development.
28. Is there any sandbox environment on a blockchain where I can test my smart contract?
If you’re a web developer, you're probably familiar with these terms - local, staging and production environment. Similarly, blockchain has different environments such as a local network (local-net), test network (test-net), main network (main-net). Local network and test network are to test your smart contract, you can consider it as a sandbox environment.
29. What are the different types of blockchain?
There are three types of blockchains
- Public Blockchain
- Private Blockchain
- Consortium Blockchain
Public Blockchains are permissionless and publicly available. Anyone with an Internet connection can participate and read the data or can execute a transaction. Nodes in public blockchains are operated by network participants. Bitcoin and Ethereum are examples of a public blockchain.
Private blockchain can be deployed as a private network within an organization or by an individual. The single authority has all the access to read, write and validate the transactions, hence, private blockchains are known as fully centralized blockchains. Multichain and Hyperledger Fabric are examples of a private blockchain. However, you can create your own copy of public blockchain to run on a private network; and that is also considered as a private blockchain.
Consortium Blockchain is a permissioned blockchain, meaning that, no one can participate unless they have the permission of an authority. Pre-selected nodes only can be participated and sign the transactions, and other nodes would have less permission to just read the data. It is the same as role-based access control in a web application, hence it is also known as a partially decentralized blockchain. Hyperledger Fabric is an example of a consortium blockchain.
30. What is Smart Contract?
Smart contracts are just like contracts in the real world but they are in digital form. In fact, a smart contract is a piece of code that runs over Blockchain and will be executed when some pre-programmed condition gets triggered. This is, however, a high-level definition, to make it simple; you can think of it as a plugin you would write to accomplish some specific task over a blockchain.
31. What is GAS in Blockchain?
Each operation on a blockchain has some cost, and that cost is calculated in Gas. The meaning of Gas may differ from blockchain to blockchain. In an Ethereum, for example, Gas is a unit to calculate transaction fees, but in the NEO Blockchain; Gas is a separate currency. However, Gas is used to calculate transaction fees.
32. I have deployed my smart contract, but I realized that there is some issue in my code, how can I revert and redeploy again?
No, you cannot delete or update the smart contract once you deploy it. Redeployment of a smart contract with a small change will be considered a new deployment. However, you can write an upgradable smart contract with a few blockchains, but it has always high risk.
33. I have seen three letter names such as BTC, ETH, and XRP; is it necessary to have three letter words only?
No, that is not necessary. You can choose four or more letters too. Three letter names are just standard for currencies, same as USD, EUR, JPN etc.
34. People can print duplicate fiat currency, is it possible to create duplicate cryptocurrency?
No, not possible. You cannot make Bitcoin or Ether at your home anyway!🙂
35. What is DApp in Blockchain?
DApp is an abbreviated form for decentralized application. Generally, a traditional application has two parts; front-end and the backend (server). But as DApps are running on a blockchain; the backend part running on a decentralized peer-to-peer network called "smart contract". And the front-end part is written in any language.
DApp = Frontend + Smart Contract
36. I don't want to use existing blockchain, how can I create my own?
Creating a new blockchain is more difficult than using existing ones. Also, a new blockchain is only needed when existing blockchains do not serve your purpose. However, you can always create your own blockchain from scratch or you can download and modify any open source blockchain code based on the requirement you may have.
37. What is an ICO in blockchain?
ICO (Initial Coin Offering) is the process of raising the fund for a new blockchain based startup. In an ICO initially, a startup company creates its own cryptocurrency or crypto-tokens. Interested investors will send other cryptocurrencies (e.g. Bitcoin, Ether) or fiat currency to buy crypto-tokens. And in this way startup companies will receive a huge amount of money.
The process of ICO is like an IPO (Initial Public Offering), where early investors will benefit if the value of shares increases. However, there is a huge difference between both; so, you cannot say that both are the same.
38. Is blockchain an incorruptible ledger?
Data on a blockchain is secured using cryptography and stored across the network in a distributed database. So, even a single failure would not affect the entire chain. Also, because of its immutability, no one can corrupt any unit of information. The chain can only be corrupted when a single owner owns most of the consensus nodes and mines the blocks privately; which is quite difficult, and unlikely to happen.
39. What else can I learn about blockchain?
Here are some commonly asked questions with their detailed answers:
Do you have any further question? Please ask in the comment section; I will try to clear up your doubts.
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