Blockchains & Distributed Ledger Technologies

Blockchain, the technology behind Bitcoin, is a shared, trusted, public ledger of transactions, that everyone can inspect but which no single user controls. It is a distributed database that maintains a continuously growing list of transaction data records, cryptographically secured from tampering and revision. The crypto-economic rulesets of the blockchain protocol (consensus layer) regulate the behavioural rulesets and incentive mechanism of all stakeholders in the network.

 

Types of Blockchains

The Bitcoin White Paper was published by Satoshi Nakamoto in 2008, the first Bitcoin Block was mined in 2009. Since the Bitcoin protocol is open source, anyone could take the protocol, fork it (modify the code), and start their own version of P2P money. Many so called Altcoins that tried to be a better, faster or more anonymous Bitcoin emerged. Soon the code was not only altered to create a better cryptocurrency, some projects tried to alter the idea of blockchain beyond the use case of P2P money.

The idea emerged that the Bitcoin Blockchain could be in fact used for any kind of value transaction or any kind of agreement such as P2P insurance, P2P energy trading, P2P ride sharing, etc. Colored Coins and Mastercoin tried to solve that problem based on the Bitcoin Blockchain Protocol. The Ethereum project decided to create their own blockchain, with very different properties that Bitcoin, decoupling the smart contract layer from the core blockchain protocol, offering a radical new way to create online markets and programmable transactions known as Smart Contracts.

Independent from that private institutions like banks started to realize that they could use the core idea of blockchain as a distributed ledger technology (DLT), and create a permissioned blockchain (private of federated), where the validator is a member of a consortium or separate legal entities of the same organization. The term blockchain in the context of permissioned private ledger is highly controversial and disputed. This is why the term distributed ledger technologies has emerged as a more general term.

 

# Public Blockchains

State of the art public Blockchain protocols based on proof of work (POW) consensus algorithms are open source and not permissioned, which means that everyone can be part of them and explore them. (1) Anyone can download the code and start running a public node on their local device, validating transactions in the network, thus participating in the consensus process – the process for determining what blocks get added to the chain and what the current state is. (2) Anyone in the world can send transactions through the network and expect to see them included in the blockchain if they are valid. (3) Anyone can read transaction on the public block explorer.

Examples: Bitcoin, Ethereum, Monero, Dash, Litecoin, Dodgecoin, etc.
Effects: (1) Potential to disrupt current business models through disintermediation (2) No infrastructure costs! No need to maintain servers or system admins radically reduces the costs of creating and running decentralized applications (dApps).

 

# Federated Blockchains or Consortium Blockchains

Federated Blockchains operate under the leadership of a group. As opposed to public Blockchains, they don’t allow any person with an internet connection to participate in the verification of transactions process. Federated Blockchains are faster (higher scalability) and provide more transaction privacy. Consortium blockchains are mostly used in the banking sector. The consensus process is controlled by a pre-selected set of nodes; for example, one might imagine a consortium of 15 financial institutions, each of which operates a node and of which 10 must sign every block in order for the block to be valid. The right to read the blockchain may be public, or restricted to the participants.

Example: R3 (Banks), EWF (Energy), B3i (Insurance), Corda
Effects: (1) reduces transaction costs and data redundancies and replaces legacy systems, simplifying document handling and getting rid of semi manual compliance mechanisms. (2) in that sense it can be seen as equivalent to SAP in the 1990’s: reduces costs, but not disruptive!
Note: Many would dispute that you could call it a blockchain in the first place.
Also, Blockchain is still in it’s early stages. It is unclear how the technology will pan out and will be adopted. Many argue that private or federated Blockchains might suffer the fate of Intranets in the 1990’s, when private companies built their own private LANs or WANs instead of using the public Internet and all the services, but has more or less become obsolete especially with the advent of SAAS in the Web2.

 

# Private Blockchains

Write permissions are kept centralized to one organization. Read permissions may be public or restricted to an arbitrary extent. Likely applications include database management, auditing, and more that are internal to a single company, and so public readability may in many cases not be necessary at all, though in other cases public audit ability is desired. Private blockchains are a way of taking advantage of blockchain technology by setting up groups and participants who can verify transactions internally. This puts you at the risk of security breaches just like in a centralized system, as opposed to public blockchain secured by game theoretic incentive mechanisms. However, private blockchains have their use case, especially when it comes to scalability and state compliance of data privacy rules and other regulatory issues. They have certain security advantages, and other security disadvantages (as stated before).

ExamplesMONAX, Multichain
Effects: (1) reduces transaction costs and data redundancies and replaces legacy systems, simplifying document handling and getting rid of semi manual compliance mechanisms. (2) in that sense it can be seen as equivalent to SAP in the 1990’s: reduces costs, but not disruptive!
Note: Many would dispute that you could call it a blockchain in the first place.
Also, Blockchain is still in it’s early stages. It is unclear how the technology will pan out and will be adopted. Many argue that private or federated Blockchains might suffer the fate of Intranets in the 1990’s, when private companies build their own private LANs or WANs instead of using the public Internet and all the services, but has more or less become obsolete especially with the advent of SAAS in the Web2.

 

Source: Blockchainhub.net

“Private blockchains are valuable to solve efficiency, security and fraud problems within traditional financial institutions, but only incrementally. Private blockchains will not revolutionize the financial system. Public blockchains, however, hold the potential to replace most functions of traditional financial institutions with software, fundamentally reshaping the way the financial system works.”

Ryan Charles, founder of Yours.Network

 

# An Attempt to Classify

Many people have tried to classify blockchains, but there is no consensus on how to exactly classify them.
A few selected classification schemes are listed below:
Please note that hybrid Blockchain solutions like BigchainDB (see next chapter) are hard to fit into many of these schema.

 

Source: coindesk.com, chris skinner’s blog

 

Source: https://medium.com/@pavelkravchenko/ok-i-need-a-blockchain-but-which-one-ca75c1e2100

 

 

 

# Hybrids Blockchains

State of the art public blockchains currently have a scalability issue, which means that the network can only handle a few transactions per second, which makes them unfeasible for large scale applications with high transaction volumes. Bitcoin and Ethereum can only handle less than a dozen transactions per second, yet Visa alone would require 100k transactions per second at peak times. BigchainDB for example combined the scalability power of distributed database with immutable elements of Blockchains to solve this problem on the database side.

ExamplesBigchainDB
Note:  Some people would dispute that you can call BigchainDB a blockchain. However it is an important technology in the technology stack of distributed computing and solves the big issue of scalability. We are currently redesigning data structures for the Web3, moving away from centralized computing to decentralized/distributed computing & the decentralized web. In this context, BigchainDB is an important element in the Web3 technology stack (see images below). 

 

Source: BigchainDB

Source: BigchainDB

 

 

Source: BigchainDB

Source: BigchainDB

 

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# In depth information about selected Blockchains

Each Blockchain is a world of it’s own with very different token governance rulesets determining the transaction rulesets and crypto economic aspects. Find more in depth information on selected blockchains´in the section below.

# BITCOIN

On 31 October 2008, an anonymous person or a group called Satoshi Nakamoto introduced the idea of Bitcoin. The system is peer-to-peer, and transactions take place between users directly, without an intermediary. These transactions are verified by network nodes and recorded in a public distributed ledger called the blockchain, which uses Bitcoin as its unit of exchange.

Characteristics: consensus mechanism: Proof of Work (PoW); type of blockchain: public blockchain

 

# ETHEREUM

Ethereum is an open blockchain platform which lets anyone build and use decentralized applications which run on blockchain technology. It was introduced by Vitalik Buterin in late 2013 and was formally announced on 25th January 2014. Since then Ethereum has been used as a platform for decentralized applications (dApps), decentralized autonomous organizations (DAOs) and smart contracts.

Characteristics: consensus mechanism: PoW (future plans include moving to Proof of Stake(PoS) algorithm); type of blockchain: public blockchain.

 

# DASH

Dash (Digital Cash) is a privacy-centric digital currency with instant transactions and integrated governance system. It is based on the Bitcoin software, but it runs a two-tier network which improves upon it. Dash allows you to remain anonymous while you make transactions. Dash is the first cryptocurrency to implement a system of self-funding through the blockchain.

Characteristics: consensus mechanism: PoW; type of blockchain: public blockchain

 

# LISK

Lisk is a public blockchain and sidechain application platform which aims to provide developers with the tools to deploy decentralized applications. The idea behind Lisk is that every blockchain app will run on its own sidechain, separated from the main blockchain.

Characteristics: consensus mechanism: delegated proof of stake (DPoS); type of blockchain: public blockchain

 

# STEEM

Steemit is powered by the Steem blockchain, an open source, and publicly accessible database, that records all posts and votes, and distributes rewards across the network. Steemit is designed around a relatively straightforward concept: everyone’s meaningful contribution to the community should be recognized for the value it adds. Steemit aims to support social media and online communities by returning much of its value to the people who provide valuable contributions by rewarding them with cryptocurrency.

Characteristics: consensus mechanism: PoW; type of blockchain: public blockchain

 

# RIPPLE

Ripple is a real-time gross settlement system (RTGS), currency exchange and remittance network based upon the Ripple Labs version of the blockchain. Ripple’s distributed financial technology allows for financial institutions around the world to directly transact with each other without the need for a central counterparty or correspondent. It works with any currency (dollars, euros, yen, etc.), and it settles transactions, including cross-currency transactions.

Characteristics: consensus mechanism: Ripple Protocol consensus algorithm (RPCA); blockchain type: private blockchain