BLOCKCHAIN TECHNOLOGY THEN, NOW AND THE FUTURE
My second article on the series covering the 1H 2018 Global Blockchain Industry Strategic Overview by Huobi Pro will focus on blockchain technology and its prospects. I will go over the evolution of blockchain technology, the limitation of current technology and what the future holds for blockchain technology. The complete report will be unveiled first at Blockchain Festival Vietnam, so if you can be able to attend do not miss this amazing opportunity to learn more about your favorite projects
Blockchain has developed significantly in about a decade of existence. Interestingly, Bitcoin’s blockchain was not the first successful distributed network project. Important phases of the story so far being distributed communication networks, distributed ledgers and decentralized and open economic ecosystems.
Distributed communication network(Layer 1)
Examples: Bittorrent, Napster
Interestingly decentralized networks have been around for a while. The only difference with today’s blockchain being files were the commodity of the sharing economy. Bittorrent and Napster are the best examples where anyone could download a movie, song, file etc. Bitcoin was the application of that distributed network to money.
A broad definition of the above is distributed network for peer-to-peer communications and transmissions. Governed by a consensus algorithm, agreement across multiple nodes is reached using a defined protocol under a circumstance that each could initiate, interact and broadcast information.
Distributed Ledger(Layer 2)
Examples: Bitcoin, Litecoin
It is not enough to merely be able to send files in a decentralized way, when it comes to money it is important to be able to record transactions in a trustless manner. In addition to transferring value, the ability to record those transactions in a decentralized and immutable way is what makes Bitcoin valuable.
In more technical jargon, Bitcoin is an open, distributed ledger that records transactions in a cryptographic, distributed way. The system is run by a predetermined set of rules governed by code that remove third party, enabling anyone to be part of the network to verify and record transactions. Nodes running the code replace the validation role of centralized custodians creating a trustless system; and are rewarded with Bitcoins for their efforts
Decentralized and Open Economic System(Layer 3)
Where current blockchain technology is. In broad terms, the implementation of blockchain technology to other fields for optimizing processes through removing ‘middlemen’ and restoring trust.
Participants(think miners in Bitcoin network) are incentivized through a flexible ‘action-reward’ relationship. As long as they fulfill a set of predertemined rules e.g contributing hashpower, uploading content, they can receive compensation from various sources of the network.
A good number of cryptocurrency projects fall in this category, for instance Golem where participants earn golem tokens by lending their processing power, or Siacoin for file storage.
To be able to realize massive real world uses, blockchain technology needs to overcome some technical inherent limitations.
A common topic in the blockchain conversation, scalability refers to transaction throughput and latency. The current benchmark to measure scalability is VISA(24,000tps), one of the technologies that blockchain seeks to usurp. A highly competitive feature among different blockchain projects some of the registered transaction processing speeds stand at: Ripple(1500tps), Ethereum(20tps) and Bitcoin(7tps)
There are various approaches to scaling solution adopted by different blockchain projects. I will look at two:
· Scaling solutions focused on consensus mechanisms(distributed network level) and
· Transaction verification mechanisms(distributed ledger level).
Consensus mechanisms reduce the number of nodes on the network but not too little to still ensure decentralization of the network.
In broad terms, instead of computing power carrying out the solution of hash puzzles, new coins are rewarded to owners who ‘stake’(hold) in their wallets after voting or leasing to particular nodes. This enables transactions to be recorded quicker. Proposals to scale transaction speeds include:
Users who own coins in their wallets are rewarded new coins commensurately, distributed by leasers who act as nodes for the network
Examples: Cosmos, Cardano Ouroboros, Algorand, Thunderella
Examples: Bitshares, Steemit, EOS
Here, delegates are chosen through voting to validate transactions, rewards are distributed to the voters by the delegate on a predetermined basis. Usually a single vote can cost one token to be able to start earning rewards
Practical Byzantine Fault Tolerant
Examples: Hyperledger, NEO,
These are mostly used in consortium blockchains under trustless environments
More on consortium blockchains a few paragraphs below.
Transaction verification mechanisms
Here the number of transactions that are recorded on the main chain are delegated or distributed in order to reduce the load on the network.
Currently some of the solutions proposed in this space include the following.
1. Side chains and state channels
Examples: Lightning Network for Bitcoin, Raiden Network for Ethereum, Trinity for NEO
Transaction processing or smart contracts are run off-chain. The main chain acts as a settlement layer to record the final state or to arbiter in the case of dispute
This lowers burden on main chain, and lowers cost of small-to-medium payments and smart contracts.
Exploring: Rchain, Emotiq, Zilliqa and Ethereum
The blockchain is divided into independent areas, ‘shards’, and each shard is maintained on assignment to a group of nodes.
Transaction sharding- assigning different transactions to different shards, enabling parallel processing and high transaction throughput.
State sharding-assigning data storage of portions of the blockchain network to different nodes.
3. Sub-chain and Layered Structure
Examples: MOAC, Ontology, Nuls, Cardano
A ‘mother-child’ hierarchy is adopted, a main chain and corresponding sub-chains. Main chain takes care of transaction clearing while the sub-chain takes care of the smart contract. Note, the sub-chain can define their own consensus mechanisms, has unique execution modules, and is independent leading to parallel processing.
PRIVACY SOLUTION DEVELOPMENTS
Bitcoin’s blockchain openness and transparency has been criticized as the only Achilles’ heel of the technology. Users of the network are pseudonymous, not completely anonymous. Solutions that promise the benefits of blockchain technology coupled with privacy of transaction information include:
Multiple payments from multiple spenders are aggregated into one transaction. Masternodes are protected from attack by chaining and blinding
2. Ring Signature
No centralized nodes. When a transaction is initiated, the signer is combined with non-signers masking the transaction origin
Stealth address technology creating one time addresses for every transaction
3. Zero-Knowledge Proof
Uses zero knowledge proof technology. Users have full control of their own transactions because they own the private keys
4. Invisible Internet Project
User information such as IP address, is concealed through the Onion Router and Invisible Internet
Emerging projects which aim to utilize privacy technology include Mainframe, Nucypher and Keep Network.
INTEROPERABILITY ISSUE SOLUTION DEVELOPMENTS
Blockchain systems are broadly categorized into private blockchain, consortium blockchain and public blockchain.
Examples: Bitcoin, Ethereum
Anyone can download the blockchain and essentially read the data but security is still there
Semi-public and partially decentralized
Available only to pre-approved nodes, for any block to be recorded more than half of the nodes have to consent(sign)
All permissions are centralized for instance an institution’s blockchain
Applications include: database management and auditing
Enterprises prefer private and consortium blockchains. The downside is that assets cannot be freely transferred between the two freely. In addition, in public blockchains, communication is limited within a single ecosystem and cross-chain interoperability is hard and costly.
Proposed cross-chain schemes include:
1. Notary schemes
The Ripple Interledger Protocol adopts cryptographic algorithms that are able to connect different ledgers and enable users transmit currencies freely using third-party connectors or validators.
2. Relay technology
Example: Cosmos, Polkadot
3. Sidechain Technology
Sidechain is a blockchain that runs in parallel(with all the functionalities of the main chain) to the main blockchain.
4. Hash locking Technology
Examples: Lightning Network, Raiden Network
Establishing off-chain payment channels between different blockchains. Majority of cross-chain lightening networks exist between Litecoin and Bitcoin.
5. Distributed Private Key Management
Examples: Wanchain, Fusion
Fusion uses distributed private key generation and management technology to map various crypto assets onto Fusion public blockchain, a process called lock-in. Then, those crypto assets could interact with each other, which realizes mortgages, loans, and insurance applications through Fusion smart contracts
Wanchain uses secure multi-party computation, ring signature schemes, and achieves cross-chain transactions as well as interoperability of multiple blockchains
FUTURE? AWAY FROM BLOCKCHAINS ALTOGETHER?
Distributed ledger systems beyond blockchains are:
1. Directed Acrylic Graph(DAG)
Examples: IOTA, Byteball, Nano, Cybervein, Trustnote
Instead of confirming, recording data in blocks and chaining blocks one by one, in DAG network, each node confirms the data unit by themselves. Different units are correlated through tx hashes, forming a data structure in one direction without cycles
Distributed ledger technology and data structure patented by Swirds company
Each node sends their own transaction message to neighboring nodes and passes transaction messages from neighboring nodes to others. Each transaction message sent in the network includes the hash value of the transaction received from the former node and the hash value of the new transaction made by the current node.
In this way, each node in the network knows the message that his former node holds, thus knowing how his former node would vote. As the result, when the last node receives his message, the network reaches a consensus and confirms the transactions automatically, a process called Virtual Voting. By adopting such mechanism, hashgraph solves the complexity of sending message and latency of confirming transactions under BFT consensus. This protocol is popularly known as the Gossip about Gossip protocol
BLOCKCHAIN FESTIVAL VIETNAM
To learn more about your favorite blockchain projects, make sure to visit the official website of Blockchain Festival Vietnam and book your tickets to the event. The complete 1H 2018 Global Blockchain Industry Strategic Overview by Huobi and other incentives will be made available to attendees. You can get your ticket at a 50% discount by writing the discount code WRITE50 during purchase.
Blockchain Festival Vietnam: www.blockchainfestival.com
Huobi website: www.huobi.pro