Distributed Ledger Technologies; What's up with all these blockchains?
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A discussion of why so many different distributed ledger technologies exist today, and what makes them different from one another. It is non-technical but assumes some familiarity with blockchain and cryptocurrency concepts. Think "Blockchain 201". Originally presented to the Orlando Blockchain in Business Meetup on 12/10/18. Contact Chuck Bair on LinkedIn to schedule a live presentation of this material or other blockchain-related topics.
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Distributed Ledger Technologies; What's up with all these blockchains?
- 1. Distributed Ledger Technologies What’s up with all these different blockchains? For the Orlando Blockchain Technology and Business Meetup Presented by Chuck Bair, Partner
- 2. Tonight we will discuss these three questions: ©2018 1 Why are there so many different Distributed Ledger Technologies? 1 What makes one Distributed Ledger Technology different from another? 2 What’s Next?3
- 3. Why are there so many different Distributed Ledger Technologies? ©2018 2 1
- 4. Bitcoin led the way, proving the case for blockchain technology. ©2018 3 Tamper-Resistance Using hash signatures to tie blocks of transactions together protects data in the ledger from alteration or deletion. Transparency Anyone (with the right skill set) can verify transactions and balances in the ledger. Reliability and Resilience Nodes can come and go, but the blockchain network and all its data history continues on. Encryption as Identification Access is controlled with user-generated cryptographic keys rather than a centralized user database.
- 5. Many saw potential for the new technology beyond cryptocurrencies. ©2018 4 Smart Contracts Evaluate and execute conditional agreements or complex transaction instructions. Digital Ownership Records Track ownership of real-world assets by representing them as tokens on a blockchain. Voting Provide a highly secure, low-cost, auditable platform for voting. Potential uses include corporate governance and eventually public elections. Social Media & IoT Enable anonymized sharing of personal data while leaving individuals in control of access and use. Auditing & Compliance Provide a single high-integrity source of transaction records to enable real-time compliance and auditing capabilities. Supply Chain Improve transparency and authenticity in supply chains. Facilitate trade finance.
- 6. To meet these needs, existing DLTs have been enhanced, and new ones have been created. ©2018 5 From Scratch New DLTs can be built from the ground-up, sharing concepts but having their own unique design. Reuse A number of new DLTs were build based on existing designs or frameworks. Soft Fork Changes that are backwards compatible; nodes only need to update if they want new features. Create New DLTEnhance Existing DLT Hard Fork Changes that require nodes to update. If some nodes do not change, the DLT may split into separate networks.
- 7. What makes one Distributed Ledger Technology different from another? ©2018 6 2
- 8. New DLTs include additional or enhanced features, such as: ©2018 7 Transaction Capacity and Speed Smart Contract Capabilities Native Currency and Tokens Access Controls and Data Privacy Node Operator Incentives Intangible Factors
- 9. Transaction Capacity and Speed ©2018 8 “Left over” transactions must try again according to the same rules Newly submitted transactions wait to be included in a block How much stuff is allowed in one block? Can we make the blocks more space-efficient? This defines the maximum transaction capacity. Which transactions take priority when blocks are full? Can be based on fees, wait time, or other factors. How often will blocks be signed? This dictates the expected time to confirm transactions. Faster block timing and larger blocks provide quicker confirmations and more transaction capacity. Faster and bigger blocks make for a larger ledger over time, and may allow for wasteful or malicious transactions. If block capacity is limited, rules are applied to decide which are included
- 10. Smart Contract Capabilities ©2018 9 Where and how is contract code executed? How bad is it if someone makes a mistake? What programming languages can be used to write contract code? What functionality is available? More capability means that distributed apps for the DLT can be more complex and potentially serve broader needs. Simpler smart contract implementations may be more secure and may lower development cost and risk. Parties enter in to the contract by sending transactions to it. Contract is submitted to the blockchain Contract code is created based on the intended agreement or functionality
- 11. Native Currency and Tokens ©2018 10 Security Tokens represent ownership of an asset or investment Utility Tokens enable use of a specific decentralized application Non-Fungible Tokens are all unique from one another Including features to make token creation and management easier may encourage use of the platform. Built-in features may not cover more complex needs. In other cases, a native token may be all that is needed. Native Tokens are built in to the DLT and available to all users. Fungible Tokens are all identical and interchangeable (e.g. ERC20 tokens) App Tokens are defined by smart contracts.
- 12. Access Controls and Data Privacy ©2018 11 Anyone Restricted PublicPrivate Whocanseethedata? Who can use the DLT network? For some use solutions, control over access and data visibility is an essential requirement. Open access and public visibility enable DLT platforms to serve as a versatile public resource.
- 13. Node Operator Incentives ©2018 12 Proof of Work (Mining) Nodes “mine” for the solution to a cryptographic puzzle. Rewards are according to the amount of computing power being applied. Proof of Stake Operators “stake” (deposit) cryptocurrency on their nodes and receive rewards based on the amount. Proof of Work is the most proven node incentive system, but requires expensive hardware and electricity. Alternate incentives may avoid the power demands of mining, but may be less secure. “Proof of Node” Users must operate one or more nodes in order to access services on the DLT network. .
- 14. Intangible Factors ©2018 13 Development Organization & User Community Use Cases Promotion, Awareness, Momentum Maturity Distributed Ledger Technologies need a critical mass of users, and these intangibles can make a big difference. Beware of projects that appear to strong in these areas but do not have a viable platform available for use. (Do you really need a blockchain?)
- 16. The future for Distributed Ledger Technologies is exciting, but uncertain. ©2018 15 Early Days Things are still evolving quickly, and most current technologies are not fully ready for broad use. Be Skeptical There are lots of great ideas out there, but also lots of bad or malicious ones. Do your homework before you dive in. Embrace Uncertainty Expect to be right about some predictions & assumptions, and wrong about others. Anticipate the unexpected. Expect Resistance Not everyone wins with blockchain solutions. Middlemen and others who are impacted will actively resist change.
- 17. Chuck Bair, Partner Thanks! Icons provided by TheNounProject.com
Editor's Notes
- Focus will be on capabilities from a business value perspective rather than on how things work. Caveat: terminology can be contentious in this space. My take is that standards have not really been established yet, but I’ve done my best to use what I consider the most common terms.
- Note: DLTs are often referred to as “blockchains” or “blockchain technology”. The terms are roughly synonymous – a blockchain is the structure in which a digital ledger of transactions is maintained. Cover other definitions like “protocol” and “framework” here? We’ll have a look at these from the business capability perspective, rather than a technical one.
- When I started following crypto in~2014, the main users were a den of thieves – and that got me convinced… Silk Road story? (But the ledger won’t tell you who owns the addresses involved – you would need to find that out elsewhere.)
- Some early offshoots were just focused on making a better or different cryptocurrency. Ethereum was the first broadly used smart contract platform…
- This won’t get very technical. We’re going to focus on what these features mean from a business value perspective. That will help everyone understand what makes DLTs different from one another and the reasons behind their designs. This is not an exhaustive list, but it hits some of the most important concepts. In reality, the possible variations are infinite.
- This is where the original tinkering was done, and many of those early alternative blockchains were simply attempts to make a better or differentiated cryptocurrency versus Bitcoin. BTC targets 10 min, LTC ~2.5 min, Eth targets 10-19 seconds (with much smaller blocks) This may not seem critically important now, but capacity design may determine which DLTs are able to scale up to mainstream use. Non-functional capacity systems may leave a blockchain open to denial of service attack and might alos allow it to be overwhelmed with legitimate transactions. That is particularly a ris if use increases quickly and dramatically before the development team supporting the DLT can respond with code changes..
- Note that Bitcoin can more or less support smart contracts, but it’s not easy and not robust. More complex solutions built with smart contracts are commonly called distributed apps or dApps
- Generally created using smart contracts (but not always) Ethereum ERC-20 was the de-facto standard in the 2017 ICO rush. Many newer DLTs are meant to be superior alternatives to Ethereum for SCs and tokens as well
- Bitcoin allowed access to anyone who could set up a wallet, and all transactions were viewable – the only privacy comes in the form of hiding ownership. Note privileged Dapps can potentially live on public blockchains via smart contract authentication controls Discuss: what factors of a project would drive these decisions?
- That risk could be less critical in DLTs built for a controlled set of trusted users. Ethereum “Casper” project seeks to migrate from PoW to PoS (I don’t know of any other DLC that has made a change like that.). Cardano considering a similar change. Hybrid optios exist – like Dash Masternodes that stake to support anonymity but with blocks created via PoW Leanest option in terms of power and complexity, but only works when node operators recognize the value of being included in the network