Block Chain & Crypto-Currencies (CY-702 (B)) - Important Questions

Explain in detail how mining works in Bitcoin. Describe the Proof-of-Work mechanism, the role of the nonce, target/difficulty, and how miners find a valid block hash. Discuss how mining secures the network and prevents double-spending. Use appropriate block header field names such as $version$, $previous\_block\_hash$, $Merkle\ root$, $timestamp$, $difficulty\ target$ and $nonce$ in your answer.

Describe the structure of a Bitcoin block. List and explain the purpose of each field in the block header and the block body (transactions). Explain how the block header fields contribute to immutability and chain linking.

Explain how Merkle trees are constructed for a set of transactions and how they are used to verify transaction inclusion in a block. Describe the process of generating a Merkle proof and how a light client (SPV client) verifies a transaction using the $Merkle\ root$ and sibling hashes.

Compare Proof-of-Work (PoW) and Proof-of-Stake (PoS) consensus algorithms. Discuss differences in security assumptions, energy and resource usage, typical attack vectors (for example, 51% attack vs nothing-at-stake), and implications for decentralization.

Explain block propagation, forks and orphaned blocks in a blockchain network. Define transaction/ block confirmations and discuss the impact of network latency and block propagation delays on fork probability and transaction finality.

Describe the Bitcoin difficulty adjustment mechanism. Show and explain the formula used to adjust the mining target and explain the bounding limits applied to prevent extreme changes. For example, express the new target in terms of the previous target and the ratio of actual to expected time using $$new\_target = old\_target \times \left( \frac{actual\_time}{expected\_time} \right)$$ and explain limits placed on the multiplier.

Explain mining incentives in blockchain systems. Discuss block rewards, transaction fees, the effect of scheduled halving (or reward reduction), and how incentives align miner behaviour with network security. Mention uncle/ommer rewards where applicable (e.g., Ethereum).

Describe the architecture of smart contracts on platforms like Ethereum. Explain the role of the Ethereum Virtual Machine (EVM), the concept of gas, contract deployment and execution flow, and how state transitions occur when transactions invoke contracts.

Discuss common smart contract vulnerabilities including reentrancy, integer overflow/underflow, improper access control, and front-running. For each vulnerability explain the root cause and give at least one mitigation technique or secure coding practice.

Explain the Merkle Patricia Trie used in Ethereum. Describe its node types, how keys are encoded (nibble/hex prefix), how it provides efficient key-value lookup and state commitment, and contrast it with a simple binary Merkle tree used for transaction inclusion.

Given a leaf hash $H_L$ and an ordered list of sibling hashes required for a Merkle proof, explain the algorithm to compute the Merkle root and verify inclusion. Illustrate the step-by-step hashing order and how left/right positions affect the computation.

Explain the selfish mining attack. Describe how a selfish mining pool can gain more than its proportional share of rewards, the conditions under which the attack is profitable, and countermeasures to reduce its effectiveness.