Blockchain Essentials | Assignment – 3

1. How does Ethereum Virtual Machine (EVM) work and what is its purpose in Etheum Ecosystem?

The Ethereum Virtual Machine (EVM) is a virtual machine that executes smart contracts on the Ethereum blockchain. Its purpose is to provide a runtime environment for decentralized applications (dApps) on the Ethereum network.

The EVM is a stack-based virtual machine, which means that it uses a stack to store data and perform operations. It has a built-in programming language called Solidity, which is used to write smart contracts that can be executed by the EVM.

The EVM is responsible for executing the code of smart contracts, which are self-executing contracts with the terms of the agreement written directly into code. The EVM also handles the storage and retrieval of data from the Ethereum blockchain, and it enforces the rules of the Ethereum protocol.

Overall, the EVM plays a crucial role in the Ethereum ecosystem by providing a secure and decentralized environment for dApps to run on the Ethereum blockchain, and it enables the creation of decentralized applications that can be used for a wide range of use cases.

2. Discuss a few Examples of decentralized applications currently built on Ethereum Network?

There are many decentralized applications (dApps) currently built on the Ethereum network. Here are a few examples:

Cryptocurrency exchanges: Decentralized exchanges (DEXs) like Uniswap and 0x allow users to trade cryptocurrencies without the need for a central authority. These exchanges use smart contracts on the Ethereum blockchain to execute trades.

Non-fungible tokens (NFTs): NFTs are unique digital assets that can be bought, sold, and traded on the blockchain. Ethereum is home to many NFT marketplaces such as OpenSea, Rarible and SuperRare where users can buy, sell, and trade digital art, collectibles, and more.

Decentralized finance (DeFi): DeFi is a growing ecosystem of financial applications built on the Ethereum blockchain. Examples include lending platforms like Aave and Compound, yield farming platforms like Yearn Finance, and stablecoins like DAI.

Supply Chain Management: Ethereum also provide solution for Supply Chain Management by providing transparency and immutability to the process. Example of such application is VeChain.

Gaming: Ethereum also has a few decentralized gaming platforms such as Axie Infinity, where players can buy, breed, and trade virtual creatures using cryptocurrency.

These are just a few examples of the many dApps currently built on the Ethereum network. As the Ethereum ecosystem continues to grow, it is likely that we will see more and more dApps being built on the platform, with a wide range of use cases.

3. What are the security challenges facing decentralized applications on the Ethereum network and how can they be mitigated?

Decentralized applications (dApps) on the Ethereum network face several security challenges, which include:

1. Smart contract vulnerabilities: Smart contracts are self-executing code that runs on the Ethereum blockchain. These contracts can contain bugs or vulnerabilities that can be exploited by attackers. For example, the DAO hack in 2016 resulted in the loss of millions of dollars due to a vulnerability in the smart contract.

2. Phishing and social engineering: Since dApps are accessed through web interfaces, users can be tricked into giving away their private keys or sending their cryptocurrency to the wrong address. Phishing and social engineering attacks can be mitigated by educating users on how to spot and avoid these types of attacks.

3. Front-running: Front-running refers to the practice of placing an order ahead of someone else to take advantage of the price change. This is a problem because it can be used to manipulate the market.

4. Sybil attacks: Sybil attacks are when an attacker creates multiple identities to gain control of a network. This can be a problem for decentralized applications because it can lead to a lack of trust in the system.

To mitigate these security challenges, there are several best practices that developers can follow when building dApps on the Ethereum network, such as:

1. Auditing smart contracts to identify and fix vulnerabilities before deployment.

2. Using multi-sig wallets to secure users’ funds and prevent phishing attacks.

3. Implementing anti-front-running mechanisms in smart contract

4. Using reputation systems to prevent Sybil attacks

5. Educating users about the risks of using dApps and how to protect themselves.

It is important to note that the Ethereum community is actively working on improving the security of the network and new solutions like Ethereum 2.0, which is expected to improve the scalability and security of the network, is in the development pipeline.