BlockShots: Blockchain Simplified

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.