Before You Dig Deeper Into Blockchain

There are many things related to Blockchain that you need to be familiar with before we get our hands dirty and start coding later on in this series. Most importantly the following concepts.

DeFi is a financial service ecosystem based on blockchain infrastructure. The applications (dApps - see below) in this ecosystem serve peer-to-peer transactions without the permission of any party. Crypto-currencies in DeFi can be programmed to flow through the blockchain network based on certain conditions. For example, a Bitcoin can be programmed to require multiple signatures before it can be released (automatically).

Side Note:
Bitcoins are programmed through a simple language called “Script”. While Ethereum (another crypto-currency) has another more powerful language called “Solidity” that is used to do accomplish more complex operations.

It is an application built on top of the blockchain network and manages a collateral (i.e. reserved amount of money) based on certain condition(s). The money in a dApp cannot be retrieved once it is there.

A dApp application is made up of smaller components (applications / services) called “Smart Contracts” with a frontend UI that people use to interact with those smart contracts in the backend.

It is a function that returns a number (aka hash) which is the unique digital fingerprint of the function’s input. No matter how many times this function runs, it will always return the same hash for the same input.

There are many kinds of hash functions, most notably is the Secure Hash Algorithm (SHA 256), which is popular in the crypto space.
The SHA 256 hash number is 32 bytes in size and it is made up of 64 hexadecimal digits.

Side Note:
A hexadecimal digit takes any of the 16 values between 0 to 9 and A to F.

It is worth mentioning that it is not possible to deduce the input of the hash function through the outputted hash. So, hashing is a one-way process, from input to output.

To ensure secure communication over a public unsecured network, we use the combination of both public and private keys that are numbers with many uses in cryptography like the following:

In Bitcoin, a wallet application creates a single unique private key, and from that number it creates a public key.
The wallet then uses that public key to create your Bitcoin address(es).

The Bitcoin address is used to send/receive funds just like the public key is used to send/receive messages.
So, when you send Bitcoin(s), the wallet uses your private key to create a digital signature for the transaction and sends it together with your Bitcoin’s address. This is important for the receiver to validate (using mathematics) that this transaction belongs to you.

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