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Distributed Consensus Protocols

Blockchain technology is the greatest computational advancement we have seen in the past 5 years. In terms of available information, real-time market effects, network effects, sentiment, research, feedback loops for price, volume, transaction levels; there is currently nothing as open and riveting. It is a new distributed database that can potentially be the foundation for an unlimited range of decentralized applications.

How can a decentralized database be that disruptive and what enterprise problems does it solve?

The more you look at blockchain technology, the more you learn about all of the adjacent fields needed to get a full understanding of what the technology actually is. It could be learning law, cryptography, economics, finance, psychology the list goes on. It is really profound that I am reading  or even rereading whitepapers now to understand or get to the bottom level of a certain blockchain application. Even reading through a piece of legislation and commenting on what cybersecurity and auditing concerns could be actually be addressed through using the blockchain. 

So before I go any further, what is the blockchain?

A blockchain is a timestamped transaction ledger. What this means is it is a record of a chronological series of transactions that a network of nodes distribute to each other. The first instance of a blockchain was Bitcoin. A bitcoin unit in a blockchain represents an unspent transaction output that is written to a globally distributed, replicated, undeletable, timestamped database. It simply means that anyone in the world gets the same answer when querying the system. The value in this technology is that anything can be etched into this type of ledger to create a distributed consensus protocol. This could be money, title, copyright, notarization, real-time triple entry accounting, data storage, stocks, votes, digital or tokenized physical assets; it’s essentially creating a distributed proof of ownership that is logically centralized and organizationally decentralized. Before the blockchain, there was no sort of computational system that enabled this.

 Organizationally centralized Organizationally decentralized
Logically centralized eg Paypal Blockchains (Bitcoin)
Logically decentralized eg Excel eg e-mail

Chart Source: (http://continuations.com/post/105272022635/bitcoin-clarifying-the-foundational-innovation-of)

  • A decentralized transaction network
  • A store of value
  • A callable global ledger

This ledger can be referred to by people and machines enabling p2p, b2b, and m2m transactions from a decentralized global distributed consensus protocol.

Let’s take a look at the different Distributed Consensus Protocols:

Bitcoin and Blockstream

Let’s start with Blockstream, the Bitcoin blockchain and sidechains. Blockstream is a company which aims to create pegged sidechains. This would ultimately make Bitcoin the global reserve currency of all of the other cryptochains. Sidechains would enable a way to transfer value between chains for faster confirmation times, different unit accounts and different specific use cases. The value of the coin would be transferred from the bitcoin blockchain to the sidechain creating a stasis of the original coin. The coin now on the sidechain can move to other sidechains and transverse back to the Bitcoin blockchain activating the original coin again on the Bitcoin blockchain. No separate platform, just multiple blockchains interconnected with the Bitcoin blockchain and each other.

Counterparty and Hyperledger

Counterparty and Hyperledger are both enabling users to create and issue their own assets.

Counterparty is a platform and wallet built on top of the Bitcoin blockchain that enables user created assets through tokenization. Counterparty has it’s own coin called XCP.  The currency is used on the platform to create assets and users can also create smart contracts on the Counterparty platform that execute through a fee of XCP. These assets are divisible and callable. This means that once tokenized, the asset can be sold in division down to 8 decimal places and called back at a certain price of XCP at a certain point in time established when the asset is orginally issued. The asset can be sent from one users address to the others in many different ways such as a bet, a CFD, a dividend, an order, creating a situation where the counterparty risk is avoided.

Hyperledger is an open source project that is creating a decentralized ledger platform that represents assets. It registers the ownership of the asset through a network of distributed  nodes creating a callable and cryptographically secure ledger. Each asset has its own ledger. The ledger can be a public international ledger or a private ledger with a limited number number of users. The main difference with Hyperledger is there is no native currency, no blockchain, and the confirmation time is a few seconds. When a message is sent over the platform, nodes relay the transaction. If 2/3 of the nodes agree upon the validity of the transaction is it confirmed. The platform allows users to engage in p2p transfers of ownership whether it be a user created currency, a financial instrument, or the rights to a physical assets.

Ethereum and Eris

Eris and Ethereum are both platforms that enable the creation of various types of decentralized distributed applications.

Ethereum is a scripting platform that enables distributed applications and smart contracts. The Ethereum platform has its native currency, ether, which is used as a primary liquidity  layer and for transaction fees to execute the code in the smart contracts. This cryptofuel to the platform is used in Turing-complete scripts that enable the transfer of any type of  programmable asset  or arbitrary consensus-based application. The logic is written in code and embedded in the platform creating a state transition system based upon met or unmet value inputs and outputs from outside data sources or other contracts. Any imaginable contract, application, organization, or protocol that can be expressed logically in code can be built on top of Ethereum.

Eris is a framework that aims to enable the creation and effective use of server-less distributed web applications. Each application uses a distributed blockchain created on the Ethereum network as the server to achieve a shared consensus state that can be referred to. The application’s user interface is built using html, css, and javascript; essentially any sort of existing web application can be recreated on the Eris platform. A forum, a crowdfunding website, a social network, a marketplace. Within each application, Ethereum smart contract models are built and reused to manage the reputation of users and enable levels of functionality based upon the user’s activity and contributions to the application. The contracts are executed on the application’s blockchain using ether creating an organization that can function autonomously and facilitate decentralized decision making.

In conclusion:

Asset creation built from the Bitcoin blockchain = Sidechains

Asset creation built off the Bitcoin blockchain = Counterparty

Asset ledger creation built on distributed nodes = Hyperledger

Application and smart contract creation = Ethereum

Application framework built on top of Ethereum = Eris

Maybe I am still a little evangelical; it’s the foundation for a new age of computing, a shift in the paradigm for database security, the emergence of distributed consensus protocols.

Sources:

http://hyperledger.com/

https://bitcoin.org/bitcoin.pdf

https://eris.projectdouglas.org/

https://www.ethereum.org/

http://www.blockstream.com/sidechains.pdf

http://counterparty.io/docs/protocol/

A simple model to make sense of the proliferation of distributed ledger, smart contract and cryptocurrency projects

http://unenumerated.blogspot.co.uk/2014/12/the-dawn-of-trustworthy-computing.html

http://continuations.com/post/105272022635/bitcoin-clarifying-the-foundational-innovation-of

http://joel.mn/post/103546215249/the-blockchain-application-stack

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