The report Blockchain 101 brings together some general ‘descriptions’ of simple and widely used terms in the industry especially related to ‘Blockchain’ or ‘Distributed Ledger Technologies’. It provides an explanatory approach to simple terms that are easy to understand, painting a clear picture of a typical DLT function structure and operations of consensuses.
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Blockchain 101 - Blockchain Explained
1. B L O C K C H A I N
1 0 1
N O V . 2 0 1 9
B L A C K C H A I N .
G U R U
2. B L A C K C H A I N .
G U R U
WE HAVE COME A
LONG WAY....
We have seen it all – from the 1st introduction of Bitcoin whitepaper in 2009 to introduction of other
utility based crypto tokens to real world media coverage and hype, and now a fusion of funding and
evolving finance with blockchain or, in a broader sense, DLTs. With the help of Blockchain, two parties
with no trust in each other can enable themselves to exchange digital data on a peer-to-peer basis
with fewer or no third parties or intermediaries. ‘Data’ is in the broader sense, but anything that can
be translated into a digital
form, e.g. insurance policies, contracts, money, birth and marriage certificates, buying and selling
goods and services, land titles, medical and educational records etc. The potential of blockchain to
engender wide-ranging changes in the economy, industry and society – both now and tomorrow – is
currently being explored across sectors and by a variety of organizations.
The report Blockchain 101 brings together some general ‘descriptions’ of simple and widely used terms
in the industry especially related to ‘Blockchain’ or ‘Distributed Ledger Technologies’. It provides an
explanatory approach to simple terms that are easy to understand, painting a clear picture of a typical
DLT function structure and operations of consensuses.
Our hope is that this explanation will help the readers to understand and eliminate common
misconceptions about Blockchain and Distributed Ledger Technologies. As always, we recognize that
our ability to produce high quality research is highly dependent on the cooperation of industry
initiatives and entities and we extend our thanks to those that have contributed information and data
to the co-authors of this document.
3. B L A C K C H A I N .
G U R U
misconceptions
We witness a different set of terms being spread
around the industry that, depending upon the
conferee, may mean the same thing or maybe is just
referring to completely different concepts. We also
witness some definitions regarding “distributed
ledger” or a “blockchain” that are absolutely not only
conflicting but also somewhat misleading - giving
way for unnecessary confusions and
misunderstandings. In this document, we have
repeatedly suggested more of a generic term -
distributed ledger technology (DLT) systems, we can
see that both the terms “blockchain” and “DLT” are
being used interchangeably as they have
established themselves as umbrella terms.
DLT systems are generally systems that are made up
of multiple independent components (e.g.
computers), communicating with each other.
These computers or nodes exchange data between
each other without the need of a central server as
they are often based on a peer-to-peer (P2P)
architecture.
Storing and processing of data by these distributed
systems is done with the help of multiple nodes, but
are owned or controlled by a single entity. These
nodes reach agreement over the state of the system,
that too without the need of a central authority and
that’s what sets DLT apart. These systems are
specifically designed to operate even in the
presence of unreliable components such as
hardware and connections related issues and also
some bad actors who are trying to beat the system.
4. SHARED
RECORDS
MULTI-PARTY
CONSENSUS
INDEPENDENT
VALIDATION
TAMPER
RESISTANCE
TAMPER
EVIDENCE
Shared record: enable multiple separate entities to provide data inputs and participate in the creation of
new records.
Multi-party consensus: require multiple separate entities to collectively reach agreement over the
ordering of transactions in the absence of a central authority.
Independent validation: enable each participant to independently verify the state of their transactions
and the integrity of the system. This also involves detecting unauthorised changes applied to records in a
trivial way.
Tamper evidence: allow each participant to detect on-consensual changes applied to records trivially.
Tamper resistance: make it hard for a single party to unilaterally change past records (i.e. transaction
history).
A DLT system needs to be capable of ensuring the following five properties:
B L A C K C H A I N .
G U R U
Distributed Ledger Technology (DLT)
Source - University of Cambridge Judge Business School
5. B L O C K C H A I N
E L I M I N A T E S T H E
N E E D O F C E N T R A L
A U T H O R I T Y
These nodes reach agreement over the state of
the system, that too without the need of a
central authority and that’s what sets DLT
apart
6. DISTRIBUTED LEDGER
TECHNOLOGIES - PRIVATE AND
PUBLIC
Distributed Ledger Technologies are constantly evolving
and are dynamic. The on-going transformation on a
continuous basis may affect the characteristics of the
system and even potentially affect its base properties. We
will see, some ‘Distributed Ledger Technology systems’
operating currently in closed and safe environments with
no adversarial dynamics for a variety of reasons.
These systems can be permissionless and are made public
i.e. these systems enables anyone free to join, operate and
leave the network as well as take part in the consensus of
the network without the need of permission. This is
because these systems have dynamic membership and
generally rely on a combination of incentives that are
economically based via their native token and game theory
to make these systems secure and function properly.
DLT systems can also be permissioned and private i.e. only
some limited number of participants have access to the
network, courtesy of a gatekeeper. Network participants are
assigned with different level of permissions such as the
right to participate in the consensus of the network. With
the help of fixed membership, identification of all the
participants can be done, establishment of contractual
agreements can also be done between them to penalize
any misconduct.
7. B L A C K C H A I N .
G U R U
WHAT IS
CONSENSUS?
The notion of 'consensus’ in the crypto sphere
lacks a clear and concise meaning about the
nature of the agreement. What consensus is
reached over? Below are the concept of Social
Consensus and Network Consensus that are
related, but of distinct types.
There are some rulesets that the stakeholders and network participants need to agree
on (expressed in the protocol via the consensus rules). The system and the adequate
process for applying changes to the rules is governed by these rulesets. The concept
actually goes beyond mere governance of the system : the concept enables an
agreement between the stakeholders over the associated characteristics of the
system. Whether involved directly or indirectly, with varying degrees of influence,
anybody can play a role in the social consensus
Once an agreement has been established on the nature of the system, between the
stakeholders, the network participants need to work to establish an agreement over
the content itself (over the records produced by the system). Network consensus refers
to the process of resolving potential conflicts within the boundaries of the P2P
network that may arise from multiple valid, but conflicting ledger entries.
This type of consensus usually operates within the mutually-agreed ruleset by the
block producers and is limited to the ordering of transactions.
SOCIAL CONSENSUS
NETWORK CONSENSUS
8. B L A C K C H A I N .
G U R U
While different, both consensus types are closely
linked. Social consensus implicitly includes network
consensus, as the latter produces the latest system
state that is universally accepted byall network
participants and external stakeholders. It is, thus,
important to point out that social consensus can
always override network consensus, because changes
to the rules can invalidatetransaction ordering
decisions taken by block producers such as miners.
A functional DLT system should have an appropriate
system of checks and balances that prevents a single
entity or colluding group of actors from dominating
either social or network consensus, as this would
create a single point of trust - and, thus, also failure.
For instance, block producers are put in check by
fully-validating nodes (auditors) that threaten to
reject mined blocks that do not comply with protocol
rules.
On a short note
Social consensus: Reaching agreement over what
actually constitutes the system (incl. consensus
rules, how network consensus is reached, etc.)
Network consensus: Reaching agreement over
the system state (i.e. latest ledger version) within
the universally-accepted consensus rules
9. Known as the youngest and most influential Blockchain expert in the field. She is
an Italian-American who first started out as a startupper in the AI and IT business,
while still finishing her Economics and Management studies in Bocconi. Eloisa is
a renowned author, public speaker, and biz-dev, catering startups and
companies wanting to innovate. Currently being the Chapter
Director of Bocconi University Startup Grind Chapter, she made valuable
connections and became a part of some of the main blockchain associations
around the world, namely The Blockchain Council and The NYC Women in
Blockchain. She will be featured in the Forbes Italy 30 Under 30 most influential
entrepreneurs in 2020.
Giovanni Casagrande
A known name in the world of cryptocurrency. He has been in the marketing
industry for well over 20 years and have switched to the cryptocurrency industry
in 2014. He’s a writer, public speaker, investor and Marketing / Growth Hacking
advisor in more than 100 successfully projects. His specialty was Economics in
the University of Bologna and the knowledge, experience gathered from there
has helped him to manage/help many businesses in the industry. 4 years ago he
founded Black Marketing Guru, a successfully Growth Hacking startup in Italy.
Giacomo Arcaro
He has 15 years’ experience in growth hacking, digital strategy, startup and
business development. He has advised over 150 startups and has 50 managed
employees into a XII Century Church in Italy for the European biggest growth
hacking company. He holds the title of ‘Amazon Best Seller Author’ and is been
known to be one of the ‘Most Influencial Blockchain Evangelist’ with +200
conferences all over the world.
Eloisa Marchesoni
'The Most Influential Fintech Advisor' 'European Best Growth Hacker'
'Number 1 ICO Advisor Worldwide
Award'
'An influential Personality in the
Blockchain Space'
'Number 1 token model architect for
ICOs'
'Top 100 Fintech Leaders and Influencers
in Italy'