9 - Distributed Ledger Technology

Question 1

Distributed Ledger Technology

Answer 1

Distributed Ledger Technology (DLT) enables the realization and operation of distributed ledgers , where benign nodes, through a shared consensus mechanism , agree on an (almost) immutable record of transactions in the presence of Byzantine failures and eventually achieve consistency.

Question 2

Relational Databases

Answer 2

• Clearly defined tables
• Dependencies between those tables
• Four Operations (CRUD): Create, Read, Update, Delete

Question 3

Centralized databases

Answer 3

• reside on a single storage device

- Better and easier to maintain but less availability

Question 4

Decentralized databases

Answer 4

• no central storage; data are simply stored on multiple storage devices connected with one another
• organized in a hierarchical structure with a set of
  nodes communicating with a particular node,
  which can be a node of a superordinate set of nodes
• incorporate multiple, hierarchically organized, centralized databases

Question 5

Distributed Database

Answer 5

A distributed database is a type of database where data are replicated across multiple storage devices (nodes) with equal rights

• increasing availability and avoiding performance issues
• allows requests to be distributed across the storage devices and be processed in parallel
• To achieve consistency between all the nodes, the stored data need to be identical on each of the distributed database replications (complex)

Question 6

consensus mechanism

Answer 6

A consensus mechanism is designed to achieve an agreement on a single state of a data value (e.g., the replication of stored data) among nodes of a distributed database under consideration of network failures.

Question 7

Which two consensus mechanisms are there?

Answer 7

• Probabilistic consensus mechanism: current state is assumed and can be changed post hoc
• Finality preserving consensus mechanism: nodes agree on particular state which cannot be reverted

Question 8

Byzantine fault

Answer 8

A Byzantine fault is a condition of a particularly distributed computer system, where components may fail and there is imperfect information on whether a component has failed.

Question 9

Forms of Byzantine faults (3)

Answer 9

1) A node can be determined as crashed or not reachable over the network as the node does not respond anymore
2) A monitoring system may not be able to determine the status of a certain node, which can occur when the node crashes or network failures result in inconclusive responses from the node.
3) Nodes may follow malicious intentions such as trying to store incorrect data into the distributed database

Question 10

Distributed ledger

Answer 10

A distributed ledger is a type of distributed database that assumes the presence of nodes, which have malicious intentions. A distributed ledger incorporates multiple replications of a ledger, where data can only be appended or read

-> Anyone can contribute to the distributed ledger and assure that stored data is not corrupted!

Question 11

Blockchain 1.0 (2008) features (3)

Answer 11

• Bitcoin Blockchain
• Solution of the Double Spending problem
• Focus on digital currencies

Question 12

Blockchain 2.0 features (3)

Answer 12

• Turing complete smart contracts
• Additional flexibility
• Initial coin offerings (ICOs) are possible

Question 13

Blockchain 3.0 features (3)

Answer 13

• Use of directed, acyclic graphs (DAG)
• Improvements in performance, security, and confidentiality
• Development of applications on DLT

Question 14

Blockchain as a service

Answer 14

DLT designs provided as a cloud service
(SAP Leonardo, IBM Watson IoT, Microsoft Azure,
HyperLedger Fabric)

Question 15

DLT concept

Answer 15

provides description of the architecture of a DLT and the organization of transactions
- Block-based directed acyclic graphs (blockDAG)
- Transaction-based directed acyclic graphs (TDAG)
Example: Bitcoin and Ethereum employ the DLT concept blockchain

Question 16

DLT design

Answer 16

is the concrete implementation of a DLT concept

Question 17

DLT property

Answer 17

forms a group of related DLT characteristics, which is featured by all DLT designs

Question 18

DLT characteristic

Answer 18

is a granular component of a DLT property, which can be used to define application requirements for DLT

Question 19

DLT Properties (7)

Answer 19

Community
Flexibility
Law & Regulation
Transparency
Performance
Security
Usability

Question 20

Public Permissioned DLT design

Answer 20

• Public network
• Only few trusted nodes validate transactions
• Anybody can join the DLT design

Question 21

Public Permissionless DLT design

Answer 21

• Public network
• Anybody can join the DLT design
• Anybody can participate in mining, and validation

Question 22

Private Permissioned DLT design

Answer 22

• Private network
• Foreign parties cannot access the DLT design
• Only few trusted nodes validate transactions

Question 23

Private Permissionless DLT design

Answer 23

• Private network

- Any included device is allowed to access (read, write), and validate transactions

Question 24

Hash functions

Answer 24

injective functions used to map data blocks of an arbitrary size to data of a defined, fixed size
- enable the use of digital signatures and the verifying of data integrity
- deterministic: hash function produces never differ in respect of a specific input
- Hash functions must not reveal the original data
h = hash(d) reconstructing the data value d has to be extremely difficult

Question 25

Merkle Tree

Answer 25

* used for the efficient verification of data blocks’ integrity * parentnode: labeled with the hash value, which is the hashed concatenation of its childrens’ hash values * root hash: can be used to verify the integrity of multiple data blocks and large data structures * main used in peer-to-peer networks, such as Bitcoin and Tor

Question 26

Public Key Infrastructure (PKI)

Answer 26

- comprises hardware, software, policies, procedures, and roles that are used for the secure electronic transfer of data over an insecure network such as the Internet - uses a public and a private key

Question 27

PKI Certification Authority

Answer 27

- CA signs the issued digital certificates digitally by using a private key - CA’s public key is mandatory to verify all the digital certificates that it has signed

Question 28

PKI Registration authority

Answer 28

- only permitted to issue digital certificates for specific uses

Question 29

PKI Repositories

Answer 29

a database of digital certificates; save requests for digital certificates, as well as already issued and revoked digital certificates

Question 30

Encryption

Answer 30

- data are encrypted using the data receiver’s public key | - encrypted data can only be decrypted by using the private key matching the public key

Question 31

Consensus Mechanism: Proof of Work (PoW)

Answer 31

• node must solve a computationally difficult challenge before new transactions can be included in the ledger. • reward is given to the node that first solves the particular challenge and contributes computational power (coins) • Fork: two nodes issue blocks almost simultaneously, allowing the network nodes to accept different blocks as the correct successor of the last block • Fork resolution rule (for Bitcoin): keeps the version of the distributed ledger that required the most work and replicates it on all nodes • energy consuming/bad performance

Question 32

Consensus Mechanism: Proof of Stake (PoS)

Answer 32

• requires much less computational power in terms of mining • likelihood of a node mining the next block is closely linked to the balance of the miner’s held tokens • In Cryptocurrencys: various combinations of random selection and the stake’s wealth or age • randomized block selection: lowest hash value, in combination with the size of the stake that a particular node holds, predicts the next block miner • Coin-age-based selection: combines randomized block selection with the "coin age" concept • Delegated PoS: the system uses a limited number of nodes to propose and validate blocks to be appended to the blockchain

Question 33

Practical Byzantine Fault Tolerance (PBFT)

Answer 33

- Is used in private, permissioned DLT designs (unlike PoW and PoS) - Enables the implementation of high-performance Byzantine fault-tolerant replicated state machines (RSM) - Handles f Byzantine faults in a system with 3f+1 nodes - all nodes in the PBFT model are arranged in order, with one node called the primary node p, and the others backup nodes

Question 34

The Bitcoin Blockchain

Answer 34

Blockchain is a DLT concept comprising a chain of cryptographically linked, chronologically ordered, ‘blocks’ containing batched transactions

Question 35

Bitcoin architecture

Answer 35

- accounts with a unique Bitcoin address, which are used to define a receiver of transactions (produced by each user’s public key) - digital keys in a user’s wallet are completely independent of the Bitcoin protocol - While miners store a full replication of the distributed ledger, wallets are predominantly light nodes that only store transactions related to the relevant user - Bitcoin is based on a public peer-to-peer network (each node maintaining a list of a few other Bitcoin nodes (neighbored nodes))

Question 36

Bitcoin blockchain process

Answer 36

1. When users initiate a new transaction, their wallets send the transaction to the distributed ledger 2. When a node receives a new transaction, it validates the transaction 3. Validated transaction is broadcasted to ledger network and included to storage 4. Include transaction into new block 5. Mining: Generation of a nonce, which in concotenation with the block data generates a hash value less than t 6. Node generated a new block, which is broadcasted to the ledger network and added to the local ledger

Question 37

Smart Contracts

Answer 37

computer programs in which a business logic is formalized; they therefore allow secure transaction issuance without the need for third parties

Question 38

Applications of DLT

Answer 38

1. Payments - Cryptocurrencies 2. Health Care - MedRec is a decentralized record management system that handles Electronic Health Records (EHRs) by means of blockchain technology and aims to reduce the efforts required to obtain a full representation of a particular patient’s EHR to ensure the best possible treatment - patients are in control of who views their data 3. Supply Chain Management Product Tracking via Digital Twins - more transparency in supply chains - Assigning a digital twin unambiguously to a real-world entity