Learn Ethereum.: A practical guide to help developers set up and run decentralized applications with Ethereum 2.0

BIRMINGHAM—MUMBAI

Learn Ethereum

Copyright © 2023 Packt Publishing

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First published: September 2019

Second edition: September 2023

Production reference: 2230823

Published by Packt Publishing Ltd.

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Birmingham

B3 1RB, UK.

ISBN 978-1-80461-651-2

www.packtpub.com

Contributors

About the authors

Xun (Brian) Wu is a senior blockchain architect and consultant. With over 20 years of hands-on experience across various technologies, including Blockchain, big data, AI, systems, and infrastructure, Brian has worked on more than 50 projects in his career.

He has authored nine books, which have been published by O’Reilly, Packt, and Apress, focusing on popular fields within the Blockchain industry. The titles of his books include: Learn Ethereum (First Edition), Learn Ethereum (Second Edition), Blockchain for Teens, Hands-On Smart Contract Development with Hyperledger Fabric V2, Hyperledger Cookbook, Blockchain Quick Start Guide, Security Tokens and Stablecoins Quick Start Guide, Blockchain by Example, and Seven NoSQL Databases in a Week.

I would like to thank my family and friends for their patience and support throughout this endeavor.

Zhihong Zou is an innovative technology leader with over 20 years of experience delivering cutting-edge enterprise solutions. He has led transformative solutions in telecommunications, healthcare, and government that leverage blockchain, AI/ML, and modern cloud architectures to solve complex business challenges. As an insightful visionary and trusted advisor, Zhihong is passionate about driving digital transformation and future-proofing organizations. He holds an M.Sc degree in computational mathematics and an M.Sc in computer science.

Zhihong has authored multiple papers on numerical computing and two popular editions of the book Learn Ethereum. In his free time, Zhihong enjoys sharing his blockchain expertise as an advocate and writer.

I would like to thank my family for their understanding, encouragement, support and patience throughout this journey.

Dongying Song has been a noteworthy leader in Blockchain, Ethereum, big data, ML, data science, and the cloud application development space for over 8 years. As an experienced software engineer and data scientist, she has worked for top-tier banks and pharmaceutical and technology companies. Dongying holds a master's degree in statistics from Columbia University and majored in mathematics during her undergraduate years. Her recent activities focus on Blockchain, Ethereum, and smart contract developments.

About the reviewer

Mayukh Mukhopadhyay is a technology consultant with more than a decade of experience in designing business continuity solutions amidst of complex digital transformation programs. He did his M.Eng from Jadavpur University and MBA from IIT Kharagpur. He is currently pursuing Ph.D. (industry track) from IIM Indore. He has authored the book Ethereum Smart Contract Development and also served as the technical reviewer of the Ethereum Cookbook. In his leisure time, he peer-reviews various blockchain and business research papers for Scopus-indexed journals and IEEE conferences.

I am perennially indebted to my daughter Abriti and spouse Mrittika for making sacrifices in every walk of life to support my academic endeavors.

Table of Contents

Preface

Part 1: Blockchain and Ethereum Basics

1

Blockchain and Cryptocurrency

Technical requirements

Introducing blockchain technology

Decentralized P2P networks

How does blockchain work?

Rehashing cryptography

Public-key cryptography

Cryptographic hash function

Digital signatures

Anatomizing a blockchain consensus mechanism

What is consensus?

Proof-of-work

Proof-of-stake

Forking

Understanding Bitcoin and cryptocurrency

Bitcoin basics

What is a wallet?

Transactions, UTXO, and account balances

Genesis block and coin supply

How does Bitcoin payment work?

Limitations in Bitcoin

Altcoins

Overview of blockchain use cases in the industry and government

Financial services

Healthcare

Blockchain use cases led by government

Ushering in the world of Ethereum

Smart contract

EVM

Account

Summary

2

Ethereum Architecture and Ecosystem

Technical requirements

Introducing the Eth1 Architecture

Ethereum – the world computer

Web 2.0, Web3, to the Metaverse

DApps

Diving deep into Eth1

Accounts

Two types of accounts

EOAs

CAs

Transactions and messages

Smart contracts

Ether and gas

The EVM

Addresses and wallets

Examining mining in Eth 1.0

Mining and the consensus protocol

Ethereum transactions and block structure

Transaction validation and block verification

Understanding scaling challenges in Ethereum

The blockchain scalability trilemma

Modular blockchain architecture

Ethereum scaling solutions

Introducing Beacon Chains and Eth2

PoS in Eth2

How the beacon chain works

Benefits from the transition to PoS

Merging Eth1 and Eth2

Merging Eth1 data into Eth2

Scaling Ethereum with rollups

Optimistic rollups

ZK rollups

Summary

3

Decentralized Finance

Technical requirements

Introducing decentralized finance

Mastering Ethereum token standards

Definition of cryptocurrency

Crypto funding mechanism

Ethereum token standards

Analyzing stablecoins and MakerDAO Dai

Understanding DeFi protocols

Basic DeFi constructs

Lending and borrowing

Decentralized exchanges

Decentralized derivatives and insurance

Yield farming and DeFi continuum

Making sense of cryptoeconomics

DeFi after the collapse of FTX

Summary

4

EVM-Compatible Blockchain Networks

Technical requirements

Understanding EVM blockchain ecosystems

Introducing BSC

Consensus mechanism in BSC

Block creation and finality

BNB governance

BNB ecosystem and roadmap

Scaling Ethereum with Polygon chains

How Polygon PoS and Plasma work

Block production and checkpoints

Consensus mechanism in Polygon PoS

Multi-chain solutions with Polygon Edge

Polygon ecosystem and roadmap

Diving deep into high-performance Avalanche chains

Avalanche blockchain architecture overview

Avalanche consensus mechanism

Subnets and enterprise blockchains

Governance in Avalanche chains

Avalanche ecosystem

Bridging interoperability gaps between blockchains

Cross-chain integration challenges

Common cross-chain bridge designs

Trustless bridge solutions using Polkadot

Generalized bridge solutions with Cosmos

Decentralized oracle as a bridge

Glancing over non-EVM blockchain networks

TRON blockchain overview

Introduction to Solana

Summary

5

Deep Research and the Latest Developments in Ethereum

Technical requirements

Understanding the challenges in distributed systems

The CAP theorem

Horizontal scaling versus vertical scaling

Scaling Ethereum

Making sense of the Ethereum roadmap

Pivotal to rollup-centric

Overview of the post-merge Ethereum roadmap

Sharding and data availability sampling

Data availability sampling

Discovering MEV and PBS

Overview of MEV

MEV implementation in Ethereum

Proposer builder separation

zkEVM and EVM improvements

Overview of zk-SNARK

Types of zkEVM implementations

Workings of zkEVM

Smart contract wallets and account abstraction

Account abstraction and EIP 4337

How a smart contract wallet works

DAOs

Introduction to DAOs

DAO governance case study using Uniswap

NFTs, Web3, and Metaverse

Introduction to a world of NFTs, Web3, and Metaverse

The current state of NFTs

Web3 and the future of the internet

The Metaverse, virtual reality, and future interactions

Summary

Part 2: Ethereum Development Fundamentals

6

Fundamentals of Solidity

Technical requirements

Introducing Solidity

Tools for the Solidity development environment

Learning about the fundamental programming structure in Solidity

The layout of a Solidity source file

State variables

Built-in data types

User-defined data types

Functions

The pure, view, and payable functions

Constructor and destructor functions

Fallback function

Function overloading

Function modifiers

Events

Global variables, contextual variables, and functions

Enabling the contracts library

Understanding inheritance, abstract contracts, and interfaces

Interface

Abstract contract

Inheritance

Multiple inheritance and the diamond problem

Function overriding

Examining smart contract execution under the hood

Mastering advanced programming concepts in Solidity

Smart contract security

Keeping contracts simple and modular

Use the checks-effects-interactions pattern

DoS with block gas limit

Handling errors in external calls

Best practices in smart contracts

Writing upgradable smart contracts

Economic consideration of smart contract execution

Types of smart contract

Putting it all together – rental property leasing

Summary

7

Web3 API Fundamentals

Technical requirements

Introducing Web 3.0

Setting up an Ethereum environment

Installing Geth

Setting up a private Ethereum network

Generating and configuring the genesis file

Initializing the chain instance

Starting a Geth node

Connecting to Ethereum networks

Learning the fundamentals of web3.js – the Ethereum JavaScript API

web3.js project setup

web3.js Account

web3.js ABI

Web3 providers

Setting up the Ethereum testnet environment

The web3.js Transaction API

Getting started with web3.py

Prerequisites

Introducing Web3j – Web3 Java Ethereum DApp API

Setting up a simple Spring Boot application

Checking the balances of Ethereum accounts

solc and the Web3j CLI

Deploying smart contracts using Web3j

Transacting with a smart contract

Querying the state of a smart contract

Summary

8

Developing Your Own Cryptocurrency

Technical requirements

Understanding token standards

ERC-1155

Batch transfers

Batch balance

Batch approval

ERC-1155’s TokenReceiver

Setting up an Ethereum development environment

Working with Truffle

Creating an ERC-20 token – MyERC20Token

Creating basic token information

Defining and implementing the ERC-20 interface

Assigning an admin role

Working with the whitelist function

Locking and unlocking an account

The mint and burn tokens

Creating an ERC-721 token – DigitalArtERC721Token

Designing the decentralized digital art marketplace

Setting up the DigitalArtERC721Token project

Creating the basic token information

Defining and implementing the ERC-721 standard

Defining the art and art transaction struct

Creating a non-fungible digital art token

Implementing the buyArt() function

Implementing the resellArt() function

Implementing the findArt() function

Implementing the findMyArts() function

Implementing the findAllPendingArt() function

Getting all art transactions through getArtAllTxn()

Creating an ERC-1155 token – ERC1155NFTToken

Uploading NFT images

Writing the ERC-1155 NFT token contract

ERC-1155

Summary

Part 3: Ethereum Development Fundamentals

9

Smart Contract Development and Test Fundamentals

Technical requirements

Understanding Remix development fundamentals

Working with the Solidity Compiler

Testing

Deploying and running transactions

Debugging

Understanding development using Truffle and unit testing

The Truffle console and development features

Running a Truffle migration

Truffle unit testing

Truffle Box

Understanding Hardhat development and unit testing

Hardhat Runner

Hardhat Network

Project structure

Installation and environment setup

Hardhat project setup

Creating and compiling the ERC1155 contract

Testing the contract

Deploying the contract

Security testing

Static and dynamic analysis

Working with a linter

Summary

10

Writing a Frontend to Build the NFT Marketplace DApp

Technical requirements

Understanding DApps

Creating your first NFT

Set up a wallet

Obtain Ether (ETH)

Visit OpenSea

Create NFT item

Working with the Web3 JavaScript API

Setting up a DApp development environment

Installing Ganache desktop

Creating a development workspace

Setting up the project for our DApp

Deploying a smart contract

Installing MetaMask and connecting to Ganache

Setting MetaMask Ganache accounts

Building frontend UI components

Setting up project dependencies

Getting the instance of a deployed contract

Building a navigation bar

Running the digital art market DApp

Publishing your art (the first account)

Publishing your art (the second account)

Summary

11

Ethereum Tools and Frameworks

Technical requirements

Understanding the Ethereum development tools and framework

Layer 1 node connections

Working with Infura

Working with the Infura Ethereum API

Using Remix with Infura

Introducing Alchemy

Testing tools

The Ethereum client API

Working with Ethereum storage

Working with Swarm

Getting to know the popular smart contract libraries

Working with OpenZeppelin

Setting up a dev environment

Access control

Programming languages and integrated development environments

Vyper

Summary

Part 4: Production and Deployment

12

Setting Up Ethereum Private Chain

Technical requirements

Understanding private Ethereum networks

Setting up a local private network

Prerequisites

Installation on MacOS with Homebrew

Creating a private Ethash network using Besu

Private enterprise Ethereum in production use

Hyperledger

Hyperledger Fabric

Hyperledger Sawtooth

Corda

Quorum

Resources for private enterprise Ethereum development

Ethereum node services

Ethereum clients

Summary

13

Deployment of Your DApps

A brief introduction to test networks

Deploying a smart contract to a test network using Truffle

Installing Truffle

Deploying a smart contract to the Goerli testnet using Truffle

Deploying a smart contract to the Sepolia testnet

Deploying a smart contract to a test network using Hardhat

Installing Hardhat

Deploying a smart contract to the Goerli testnet using Hardhat

Summary

14

Building Ethereum Wallets

Technical requirements

Understanding the wallet technology

Understanding non-deterministic and deterministic wallets

Mnemonic code words (BIP-39)

Generating a private key in Ethereum

Multiparty signature wallets

Stealth addresses

Basic stealth address protocol

ISAP

Dual-Key stealth address protocol

Confidential transactions

Creating an Ethereum wallet

Creating a non-deterministic wallet

Viewing the Keystore file generated by the geth command

Creating a non-deterministic wallet with MyCrypto

Creating an HD wallet

Working with third-party Ethereum wallets

Wallets on different platforms

Smart contract wallets

Hot and cold wallets

Transferring funds between wallets

Summary

15

Oracles, Technology, and Layer 2 in Practice

Technical requirements

Understanding oracles

Examples of blockchain oracles

Event data for prediction markets

Blockchain network

Types of oracles

Working with oracles

Introduction to Chainlink

Chainlink VRF DiceRollGame

Diving deep into cross-chain technology

How does a cross-chain bridge work?

Vulnerabilities in a cross-chain bridge

Popular cross-chain bridges

Cross-chain in practice

Bridge tokens from Ethereum to Avalanche

Bridging ETH from Ethereum to Polygon (MATIC)