Blockchain

Permissioned vs permisionless

TODO: Focus on consensus (POW, POS, POH) as a lesson for the book purposes

TPS (transactions per second)

A permissioneless blockchain as a solution to BFT¹

Blockchain network (also called cluster) is p2p network of nodes (called validators in Solana) exchanging with a copy of a ledger (blockchain). Typically 10 - 50 validators totaling 1000-2000 nodes²

• distributed state transition requires consensus

Replicated state machine, a batch of state transitions (transactions) is recorded as a block. The first state is the genesis block. State transition is done via applying a transaction. Several state transitions (i.e. transactions) are usually combined into a single block for time and space efficiency. When several competing chains exist, we need to choose one (called canonical chain) via a consensus mechanism (PoW, PoS, PoA). Notion of finality.

Smart contracts are run on VM (Sealevel for Solana, EVM for Ethereum)

Client is a program communicating with a cluster via transactions (composed of several intructions in terms of solana).

Transactions are signed by the client by means of Public Key cryptography.

dApp -decentralized app is a UI (typically writen in some Javascript flavor) client

Node which appends new transaction to the ledger is an elected leader.

Token is a unit of payments for computing resources of the cluster (running smart contract or validating its output). You can invest some tokens (delegate a stake) into validator gain a reward. Validator takes some fee (commission) for their services (in bitcoin by including a transaction with 25 BTC out of nowhere³. Growing validators can offer lower commission. It favors large validators to become even larger because lower fee insentives investors to delegate their stakes at a lower commission⁴.

If validator behaves maliciously, you los e your delegated tokens and also validator loses its delegated power and cannot earn more or even as before.

You can use a wallet which is a client allowing you to operate on your token account (send and receive). To make stakes usually separate stake accounts are used. Solana: Tokens on the stake account can only be invested in the one validator the whole amount at one time. To invest to several validators simultaneously you should use several stake accounts.

How do you get your initial tokens to start? Crypto exchanges (like Binance) allow you to buy some tokens in exchange for a usual currency like US dollars.

Account is typically identified by public key.

Validators advertised their public key.

Bitcoin core can be used to build dApps

• with bitcoin scripting
• with some metaprotocols requiring to use trusted nodes Or you should invent your own blockchain

Buterin suggested EVM to

Classical consenus requires all nodes to participates which prevents scalability. So either some nodes (called validators) are selected to validate transactions or another way of consensus is suggested (probabilistic consensus of Bitcoin called Nakamoto consensus, probabilistic Avalanche consensus). Or the topology of network is changed

• it is sharded by feature (DeFi blockchain, smart contracts etc) (Cosmos blockchain)
• centralization - when there is central network to validate (Polkadot)
• L2 (layer 2, also called sidechains) A Foray Into Blockchain Scalability

In case of validators pool with classic consensus we need some voting mechanism to allow for more even participation (quadratic voting, https://wiki.polkadot.network/docs/learn-phragmen)

Byzantine Fault Tolerance (BFT, Tendermint) and Byzantine Agreement-based (Algorand) => limit the number of validators

POW and POS tend to created concentrated pools which contradicts to decentralization

There are several proposed decentralization indices like Nakamoto Index or Edinburgh Decentralisation Index. We will not delve deeply into specific methodologies but will name a few common subsystems being considered.

• (full) nodes distribution by geography and ownership, cloud providers and data centers
• hardware distribution (by geography, vendor, architecture)
• value owners distribution (by accounts, geography, amount of wealth)
• codebase diversity⁵
• exhanges support
• number of autonomous systems (AS)
• wallets developers distribution
• juridistiction contraints (e.g. ban on mining)
• governance
• code repository diversity (usually only GitHub)

Any of such subsystems can become a bootleneck effectively reducing decentralization to very low level (actually the Nakamoto index measures the minimum number of parties to control 51% of the resources in any subsystem⁶). 51% attacks are real https://www.crypto51.app/

Permisionneless (public) blockchains

• Ethereum POS (POW earlier)
• Bitcoin POW
• Solana POH
• Cosmos Tendermint
• Avalanche ???

Permissioned blockchains to create CBDC (Cetral Bank Digital Currency, Interbanking communication - like SWIFT traditionally does) (not about decentralization)

• HyperledgerFabric by IBM/Linux Foundation
• Corda by R3
• atop Ethereum https://github.com/Consensys/quorum
• with Polkadot Substrate
• with Avalanche Evergreen

Problem - grows of the blockchain data⁷ in terms of hundreds of GBs. Notion of the succint blockchain (example of Mina)

Blockchain Trilemma by Vitalik Buterin - choose 2:

• Security (how easily a node can join the network)
• Decentralization (how many nodes are participating in the consensus)
• Scalability (how many transactions per second (TPS) can the network handle)

DePINs (decentralized physical infrastructure)

Finality is a probabilistic property even for deterministic protocols as there always exists a chance for a hard fork (consensus can be coordinated off-chain like in the DAO hack case)