15 Commonly Asked Blockchain Interview Questions & Answers

Blockchain is the backbone Technology of Digital Crypto Currency Bitcoin. The blockchain is a distributed database of records of all transactions or digital events that have been executed and shared among participating parties. Each transaction verified by the majority of participants of the system. It contains every single record of each transaction. Bitcoin is the most popular cryptocurrency an example of the blockchain      .

Blockchain technology first came to light when a person or group of individuals name ‘Satoshi Nakamoto’ published a white paper on “BitCoin: A peer-to-peer electronic cash system” in 2008. Blockchain Technology Records Transaction in Digital Ledger which is distributed over the network thus making it incorruptible. Anything of value like Land Assets, Cars, etc. can be recorded on Blockchain as a Transaction.

1. How would you explain the concept of Blockchain to a layman?

Blockchain is a decentralized technology. It is a distributed database where data is stored in blocks. These blocks are connected with each other forming a chain where each block contains a timestamp and links to the previous block. Every node in the blockchain network gets a copy of the whole database and there is no central authority holding all the data.

2. What are the features provided by Blockchain?

• Decentralized: Blockchain is a decentralized technology. There is no central governing authority that manages the network. Rather every node has a copy of the ledger and each node contribute to maintaining the Blockchain network.
• Immutable: Data stored in a blockchain cannot be altered or manipulated. Once a transaction is added to the ledger, it resides there permanently.
• Security: Blockchain provides security to the data as it is not easy to hack and by this, we mean that it is actually very tough because the data block is added to the chain only after it is validated by more than half of the participating nodes. It uses a strong encryption algorithm like SHA-256 which ensures another layer of security.
• Open Ledger: The ledger is the record of transactions done and because it is visible to everyone, therefore is called an open ledger. Every node in the network has a copy of the ledger. So there is trust among participants as they can clearly check what is happening in the network.
• Consensus Mechanism: Blockchain works on some consensus protocols. A consensus algorithm is a procedure through which all the nodes of the Blockchain network reach a common agreement about the present state of the distributed ledger.

3. What is the Consensus mechanism in Blockchain?

Consensus is basically a set of protocols that regulate the blockchain network. It ensures no duplicate block is added to the chain and the block is added only after it is agreed upon by all other nodes in the network. It helps to achieve reliability and trust among the peer nodes.

There are different consensus algorithms:

• Proof of Work (PoW)
• Proof of Stake (PoS)
• Proof of Elapsed Time
• Proof of Capacity
• Proof of Burn

4. What is the difference between Ethereum and Bitcoin?

Bitcoin	Ethereum
Bitcoin was introduced by Satoshi Nakamoto in 2008	Ethereum was introduced in the year 2013 by Vitalik Buterin
Bitcoin is a cryptocurrency	Ethereum is also a cryptocurrency but it contains executable codes and smart contract that are used for making DApps
The average block time is 10 min	The average block time is 10-15 sec
Bitcoin is Turing incomplete	Ethereum is Turing complete
It uses Proof of Work (PoW)	Although, Ethereum used to work on PoW, it transitioned to Proof of Stake (PoS) in September 2022
Its native cryptocurrency is Bitcoin (BTC)	Its native cryptocurrency is Ether (ETH)

5. Explain the difference between Proof-of-Work and Proof-of-Stake.

Proof of Work: PoW is a consensus algorithm in which a puzzle or problem is given. The node that solves the given puzzle first, gets the reward. And the block is added to the network after broadcast. It verifies the transaction. Any malicious user would need to have 51% of computation power to solve the problem and thereby add the wrong block.

Proof of Stake: Proof of Stake is a consensus algorithm in which the new block is validated by the node having the highest stake or highest coins. There is no reward system instead the validator collects the network fee. Any malicious user would need to have 51% of the total money on the network to add a wrong block. 

6. What are some different types of Blockchain?

• Public Blockchain: A public blockchain is an open network where anyone can join the network and make transactions. Example- Bitcoin, Ethereum, Litecoin.
• Private Blockchain: A private blockchain is permissioned blockchain that enforces some restrictions on users. It does not allow everyone to join the network. Also, the ledger is visible to only permissioned users of the organization. Example- Hyperledger, Multichain.
• Consortium Blockchain: It is like a private or permissioned blockchain where instead of a single organization, more than one organization governs the network. Example- Quorum, Corda.
• Hybrid Blockchain: It is a combination of both public and private blockchain. It provides control as well as freedom by using features of both types of blockchain. Example- Dragonchain.

7. What are Smart Contracts and why they are useful?

Smart Contracts are self-executable lines of code in blockchain. They define the rules of how a transaction has to be processed between the parties under specific conditions. It is basically a digital contract for a blockchain network that facilitates implementing new functionalities using the blockchain allowing them to use in real world applications.

8. What is a dApp and how it is different from Smart Contract?

• Decentralised Applications (DApps) are used to interact with a blockchain network using smart contract and implement certain functionality that has some purpose.
• Smart contracts on the other hand, define rules for the transaction to be done between two peers. They self execute when the specified condition is met.

9. How blocks are added to a Blockchain?

Blocks are added to the blockchain through the process of mining. When a transaction is made, the corresponding block is created which needs to be first validated by more than half (51% at least) of the nodes on the network. Once validated, the block is broadcasted to the whole network and then added to the blockchain.

10. What is Merkle Trees? Explain their concept.

Merkle trees data structure is also called a binary hash tree. It helps to verify whether a transaction can be added to a block or not. Every transaction is hashed through the proper algorithms. Each leaf node is a hash of the transaction and the non-leaf node is a hash of its previous hashes (child hashes). The hash generated at the end (or top of the tree) is called the Merkle Root.

This Merkle root is stored in the block header. Thus, a block header contains Merkle Root, Hash of the previous block, Timestamp, and Nonce. All of them help to make the block tamper-proof and maintain the integrity of the data.

This Merkle Tree structure is used by both Bitcoin and Ethereum.

11. What is the difference between a Blockchain and a database?

Blockchain	Database
Blockchain is a decentralized network with no central authority.	The database is centralized because there is an admin who manages the whole database.
Blockchain is slow in terms of data processing	Database is fast
More secure and tamperproof	Less secure and prone to hacks
Blockchain provides history to trace back to any transaction	The database does not provide any tracing back feature

12. What is Double Spending? 

The scenario where one digital token is spent multiple times because the token generally consists of a digital file that can easily be cloned is known as double-spending. It simply leads to inflation and organizations must bear a huge loss as the same coins could be spent twice by its owner. Blockchain prevents double-spending by confirming a transaction by multiple parties before the actual transaction is written to the ledger. This confirmation serves as the governing factor in terms of security as well.

13. Give real-life use case of blockchain.

• Supply chain management: Blockchain can provide reduced cost and risk across the supply chain. It can also provide increased supply chain transparency.
• Healthcare: To keep a record of patient’s data. The ledger technology manages the medicine supply chain, facilitates the secure transfer of patient medical records.
• Digital voting: The token-based system created using blockchain technology will ensure the system of ‘one unchangeable vote per person.
• Real Estate: Ownership and title details are stored on the blockchain, thereby making it easier to transfer ownership and trace ownership.
• Media: Blockchain can maintain data integrity, allowing advertising agencies to target the right customers, and musicians to receive proper royalties for original works.
• Cyber Security: Once the data is inputted on blockchain, its immutable. It can’t be modified making it tamper proof. Blockchain can further be used for digital identity management.

14. What are the components of a blockchain architecture?

• Node: User/computer within the blockchain architecture.
• Hashing: It is a term used to refer to the process of converting any input values into a fixed-size random string which is called a hash. Hashes are used to link each block by one another, forming a chain.
• Transaction: It is the smallest building block of the blockchain system.
• Block: It is used for maintaining a set of transactions that are distributed to all the nodes in the network.
• Chain: The sequence of blocks.
• Miners: Specific nodes that perform a block verification process before adding to the blockchain structure.
• Consensus Protocol: Set of rules to carry out blockchain operations.

15. What is a 51% attack?

It is the situation where malicious miners/attackers are present in the majority of a blockchain network i.e., more than 50%. They try to prevent new transactions from gaining confirmations and are also capable of reversing transactions that are completed; it means they could double-spend coins.