Basics of DLTs

 

Distributed Ledger Technologies

This page will be in a continual state of development.

The first and most important thing to remember that a Blockchain is not a distributed ledger technology. It is a distributed Journal technology. The importance of this cannot be underestimated.

A Journal is a time-sequenced list of transaction messages in accounting systems. The Ledger is the consolidated set of accounts, transactions and running, cumulative balance in each account.

The Ledge, which was invented in the late 15th century provides organisations with a valuable resource to manage their business in ways that the Journal cannot.

1.  Sources

1.1.              General introduction

These  links  provide a clear introduction to how DLT systems work.

This link is to a short history of Blockchain and some important consequences that arise as a result of the technologies involved. https://youtu.be/Ju3rWyD_wrA for an mp4 video and https://derby.cloud.panopto.eu/Panopto/Pages/Viewer.aspx?id=7a308188-2dc9-4d14-9ffa-a8bd00a6f654 for a Panopto version of the talk

https://www.linkedin.com/pulse/nist-issues-blockchain-technology-report-deb-dobson/  and https://csrc.nist.gov/CSRC/media/Publications/nistir/8202/draft/documents/nistir8202-draft.pdf

https://gendal.me/2016/11/08/on-distributed-databases-and-distributed-ledgers/

TheMerkle site is a good source of up-to-date analyses and news. (It takes its name from the Merkel Tree which forms the  basis of the hash function used as the basis for the immutability of the Blocks in some of the DLT schemas.)

https://themerkle.com/

All blockchains use some form of consensus protocol to solve the problem of trust in the data and smart contracts and to ensure the immutability of the chains. This is to solve the Byzantine Generals’ Problem, see http://pages.cs.wisc.edu/~sschang/OS-Qual/reliability/byzantine.htm

See also https://medium.com/@DebrajG/how-the-byzantine-general-sacked-the-castle-a-look-into-blockchain-370fe637502c

A good starter guide to many of the consensus protocols can be found here https://www.persistent.com/blockchain/

This tutorial about DLT is fascinating and vital reading, https://hackernoon.com/the-missing-blockchain-user-guide-1b5f53ab69e0

This is an excellent starter guide to Blockchain technologies and compares a range of the more popular enterprise varieties https://101blockchains.com/enterprise-blockchain/

 

 

1.2.              Ethereum

Ethereum is a very different type of system to the type of blockchain that underpins many of the crypto-currencies like Bitcoin. Ethereum is designed to be the basis for what are called Smart Contracts. It includes its own Ether currency as the basis for transaction charging, although the Ether does have an external value as a trading and investment currency.

http://ethdocs.org/en/latest/introduction/what-is-ethereum.html

This is an excellent introduction to how the Ethereum Smart Contract system works and the strengths and limitations of what can be achieved.

https://www.techrepublic.com/article/ethereum-a-cheat-sheet-for-professionals/

This TechRepublic document provides a clear outline of the Ethereum Platform and its capabilities

https://github.com/ethereum/wiki/wiki/Ethereum-Development-Tutorial

It is important to note the limitation on the complexity of the programming of smart contracts: “Roughly, a good heuristic to use is that you will not be able to do anything on the EVM that you cannot do on a smartphone from 1999” and they were not very smart!

1.3.              Finance – R3 – Corda

R3 is a world-wide consortium with the objective “To establish the architecture for an open, enterprise-grade, shared platform for the immutable recording of financial events and execution of logic”.

https://en.wikipedia.org/wiki/R3 (company)

https://www.r3.com/

“Corda is a distributed ledger platform designed and built from the ground up for the recording and automation of legal agreements between identifiable parties. It is heavily influenced by the requirements of the financial industry but we believe the community will find the underlying architecture will lend itself to a broad range of applications.”

https://gendal.me/2016/10/25/r3-corda-what-makes-it-different/

1.4.              Chain

Chain provides a platform  based on DLT called Sequence which is a cloud-based ledger service for managing balances in financial and commerce applications like wallet apps, lending platforms, marketplaces, exchanges, and more.

https://chain.com/

https://blog.chain.com/introducing-sequence-e14ff70b730

1.5.              BigchainDB

This claims to be a database product with added blockchain capabilities.

“With high throughput, sub-second latency and powerful functionality to automate business processes, BigchainDB looks, acts and feels like a database with added blockchain characteristics.”

“I think framing Ethereum as logic, IPFS as disk and BigchainDB as database – a direct parallel to the web stack – is nothing short of genius and really points the way to the future of this industry and, shortly, the web itself.” ( Vinay Gupta, Ethereum Foundation & Consensys )

https://www.bigchaindb.com/features/

1.6.              Hyperledger Project

“Hyperledger is an open source collaborative effort created to advance cross-industry blockchain technologies. It is a global collaboration, hosted by The Linux Foundation, including leaders in finance, banking, Internet of Things, supply chains, manufacturing and Technology.” As at Feb 2018 there are 180+ organisations supporting the projects.

https://hyperledger.org/

Hyperledger provides a range of frameworks and tools

https://hyperledger.org/projects

2.  Analyses

Taking blockchain live:
The 20 questions that must be answered to move beyond proofs of concept

This analysis by Deloitte, identifies some of the critical issues that must be solved before Blockchains can be used safely and securely.

https://www2.deloitte.com/content/dam/Deloitte/us/Documents/financial-services/us-fsi-taking-blockchain-live.pdf

Blockchain Transaction Performance Evaluated

This report reviews some of the latest thinking on some of the issues about how fast transactions can be processed into the necessary blocks.

In most business sectors there are minimum transaction through put rates that are necessary. Mostly, they dramatically exceed the typical rates of blockchains such as BitCoin which is limited to about 60 per second. Indeed, it is likely that if BitCoin becomes only a little more popular, say by a factor of as little as 10, it might well struggle to cope.

https://medium.com/corda/dlt-performance-considerations-7e1a2cc964b0

Does Transaction Speed Matter?

See https://blog.apla.io/blockchain-and-transaction-speed-why-does-it-matter-9e4e43ee09e6 for some information about the importance of transaction speeds, using several metrics, however it misses out the most critical one which is “speed of transaction confirmation”

 

Capabilities and limitations of Smart Contracts

This analysis by Thomas Hingley helps to understand the nature and simplicity of smart contracts and some of the potential opportunities and significant limitations.

There is a valuable table at the end of some of the claimed opportunities and limitations. There are two notable aspects in this table.

1) The certainty of the code compared to the ambiguity of words

2) The view that a Blockchain is sufficient as a record of all activity.

Certainty of code is not necessarily the case. It is theoretically in-computable to verify that code always delivers the correct answer in all situations.

As any accountant knows, the journal is only a list of all the transactions. There will always be a need for the actual accounts (ledger)which consolidate all relevant transactions to the running balance. It is infeasible for this to be calculated on the fly from the Blockchain journal. This resulting in a continuing need for standard systems.

No business could operate their inventory management systems purely on the basis of the journal of stock movements into and out of the relevant stock accounts. Their inventory management and resource scheduling systems need conventional ERP style systems and databases to work efficiently.

https://www.freshfields.com/en-gb/our-thinking/campaigns/digital/fintech/blockchain-and-smart-contracts/

The use of Smart Contracts relies on absolute trust in the accuracy and completeness of the code that comprises the Contract. However, we have significant problems with the idea that code can ever be proven to be complete and accurate and error free. The case of the Distributed Autonomous Organisation (The DAO) is instructive, see https://en.wikipedia.org/wiki/The_DAO_(organization) for tale of woe.

Critical Issues and Questions

In order to avoid falling for the Hype about Blockchain, CIOs need to ask themselves at least three important questions about what it will do for their business. This short presentation by Martha Bennet of Forrester Research identifies three of the most important questions.

https://www.techrepublic.com/videos/3-things-all-cios-need-to-know-about-blockchain/

One of the  most significant issues with Blockchain at present is the question of Identity Management for both people and things. Users need separate digital identities for every application that they use. If you lose one of your private keys, you cannot recover it by talking to the system administrator.

https://www.techrepublic.com/videos/video-why-identity-management-is-one-of-the-biggest-challenges-for-blockchain/

 

3.  Use Cases

Cotton Farmers in Haiti http://www.smallholderfarmersalliance.org/home/2018/1/19/haitian-smallholder-farmers-set-to-benefit-from-blockchain-t.html  (see PDF link for report)

Disrupting Banking? https://www.cbinsights.com/research/blockchain-disrupting-banking/

This page from Persistent provides some interesting thoughts https://www.persistent.com/blockchain/

This example for the Know your Customer (KYC) demonstrates one of the limitations in that the Blockchain only guarantees that the transactions are securely validaterd and stored. It does not actually provide the guarantee for the data and documents used in the process, this is still the manual process, see top left of the diagram. https://www.persistent.com/blockchain/know-your-customer/

Blockchain has the potential to provide some solutions to the public collection of IoT sensor data in tamper resistant datasets.

https://www.ibm.com/internet-of-things/spotlight/blockchain

https://www.technologyreview.com/s/609932/combining-iot-and-blockchain-toward-new-levels-of-trust/

The Xage offering is claimed to offer some form of security in smart meters. https://techcrunch.com/2017/12/14/xage-emerges-from-stealth-with-a-blockchain-based-iot-security-solution/

Opportunities and challenges https://www.i-scoop.eu/blockchain-distributed-ledger-technology/blockchain-iot/

4.  Security and Fraud

The fundamental impact of Blockchain on security will be based on the demonstrated integrity of transactions on the blockchain as a result of the inherent cryptography that underpins the validation process and the fact that there are many copies of the ledger.

We also need to remember that most forms of encryption are potentially not resistant to Quantum computing developments.

https://www.sas.com/en_id/insights/articles/risk-fraud/data-privacy-virtual-currencies.html

https://themerkle.com/category/news/security-news/

https://hackernoon.com/the-solution-to-iot-is-blockchain-security-3e52a8dd812f

A Blockchain 3.0 development, see https://nexusearth.com/ may begin to address some of the problems with Hashing and Encryption problems.

5.  Blockchain Analytics

https://blogs.sas.com/content/sascom/2017/12/15/practical-approach-blockchain-analytics/

 

 

 

 

 

 

 

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