Blockchain

Evolution &
Challenges

Blockchain
 Outline
● Blockchain Versions
● Technical Challenges
● Policy and System Challenges
● Platform Challenges
● Consensus Algorithm Challenges
 Blockchain Versions
● Blockchain 1.0: Currency
● Blockchain 2.0: Smart Contracts
● Blockchain 3.0: DApps
● Blockchain 4.0: Blockchain for Industry
 Blockchain 1.0: Currency
● The implementation of distributed ledger technology
(DLT) led to its first and obvious application:
cryptocurrencies.
● This allows financial transactions based on blockchain
technology or DLT to be executed with Bitcoin being the
most prominent example in this segment.
● It is being used as “cash for the Internet”, a digital
payment system and can be seen as the enabler of an
“Internet of Money”
 Blockchain 2.0: Smart Contract
● Smart Contracts are the small computer programs that
“live” in the blockchain.
● They are autonomous computer programs that execute
automatically and conditions defined beforehand such as
the facilitation, verification or enforcement of the
performance of a contract.
● One big advantage this technology offers, is the blockchain
making it impossible to tamper or hack Smart Contracts.
● Smart Contracts reduce the cost of verification, execution,
arbitration and fraud prevention and allow transparent
contract definition.
Ethereum Smart Contract Wizard
 Blockchain 3.0: DApps
● DApp is an abbreviated form for decentralized application
avoiding centralized infrastructure.
● It uses decentralized storage and decentralized
communication, so most DApps have their backend code
running on a decentralized peer-to-peer network, i.e. a
blockchain.
● In contrast, a traditional app has its backend code running on
centralized servers.
● A DApp can have frontend code and user interfaces written in
any language that can make calls to its backend, like a
traditional App.
Apps vs. DApps
Blockchain 4.0: Blockchain for Industry
● Blockchain 4.0 describes solutions and approaches that
make blockchain technology usable to Industry 4.0
demands.
● Industry 4.0 includes short terms automation, enterprise
resource planning, and integration of different execution
systems.
● Industrial 4.0 demands an increasing degree of trust and
privacy protection — this is where blockchain is extremely
useful by allowing business integration, cross-system
business processes, etc.
● Blockchain 4.0 means, making Blockchain 3.0 usable in
Industry Revolutions
 Blockchain Challenges
● Technical Challenges
● Policy and System Challenges
● Platform Challenges
● Consensus Algorithm Challenges
 Technical Challenges: Blockchain
Technology
● Blockchain Technology:
○ Does not refer to a specific technology or system
○ It is a hazy marketing concept to describe a set of
solutions based on the distributed trust.
○ Refers to a set of solutions based on public ledger and
consensus algorithms to establish a distributed trusted
system of assets.
○ Main Characteristics: Provenance, Immutability,
Consensus
○ Requires skill set of multiple domains and
unconventional technologies
 Technical Challenges: Performance
Metrics
● Scalability
○ Size of the Blockchain over time.
○ Number of Nodes.
● Speed
○ Block Latency: Time to add a Block to ledger.
○ Consensus Latency: Time to reach consensus on a new
Block.
○ Throughput: Peak Number of Transactions per second.
● Processing
○ Computational requirements of the solution to add
blocks to the ledger.
 Policy and System Challenges
● Cultural Adoption
● Integration Concerns & Initial Cost
● Uncertain Regulatory and Compliance
Status
● Identity, Security and Privacy
● Standardization
 Policy and System Challenges:
Cultural Adoption
● Blockchain is a disruptive technology that moves
Trust & Authority from a centralized authority to a
distributed network
● Impact on business processes, organizational structure,
governance model.
● Acceptability or Resistance to the new approach from
the users and operators in an organization or
ecosystem.
 Policy and System Challenges:
Integration Concerns and Initial Cost
● Transition to a disruptive technology means significant
changes or complete replacement of existing system.
● Heavy initial cost for organizations to transition from
centralized trusted framework to distributed trusted
framework
● Organizations need to strategize and do cost-benefit
analysis before adopting new trust model
 Policy and System Challenges:
Uncertain Regulatory and Compliance
Status
● Uncertain regulatory and compliance status has been
the biggest concerns especially for cryptocurrencies
like Bitcoin.
● Blockchain applications in an ecosystem need to work
within its existing well-defined regulatory framework:
○ Ecosystems adopting Blockchain technology needs
to understand the implications. For instance in case
of breach-should the accountability be shared?
● Compliance needs to move from the reporting system
to a consensus model.
 Policy and System Challenges:
Identity, Security and Privacy
● Anonymity & Security need differ across
applications/ecosystems:
○ Cryptocurrencies like Bitcoin offered limited
anonymity-transactions are tied to wallet rather
than to individuals.
○ Smart Contract applications may require contacts
and transactions to be linked to known identities.
○ Health industry requires HIPAA standard
compliance for protecting sensitive patient data.
○ Financial industry needs support for PCI-DSS
 Policy and System Challenges:
Standardization
● Lack of generally accepted definitions and standards
● Every ecosystem needs to standardize a common
approach to meet its specific needs:
○ Use Case Identification
○ Block Data Format & Structure
○ Security and Privacy requirements of dataset:
■ For instance anonymity needs of health industry
is going to be different than say financial
industry.
● Consensus Algorithm
 Platform Challenges
● Cryptocurrency based Blockchain:
○ Ethereum or Bitcoin
● Non-Cryptocurrency based Blockchain:
○ Hyperledger and Fabric
 Platform Challenges: Ethereum
● Ethereum is an open source Blockchain based
distributed computing platform
● Ethereum Wallet allows users to hold and secure ether
(cryptocurrency) and other crypto-assets built on the
Ethereum Blockchain platform, as well as write,
deploy and use smart contracts.
● Users can also design and issue their own
cryptocurrency/traceable token.
 Platform Challenges: Hyperledger &
Fabric
● Hyperledger is an open source global collaboration
hosted by The Linux Foundation to advance cross-
industry Blockchain technologies.
● Some business Blockchain frameworks hosted with
Hyperledger:
○ Hyperledger Fabric: Blockchain technology
implementation intended to facilitate development
of Blockchain applications or solutions.
○ Hyperledger Iroha: distributed ledger for simple
and easy incorporation into infrastructural projects.
 Consensus Algorithm Challenges
● Proof of Work (PoW) Algorithm
○ PoW is a piece of data which is difficult to produce
but easy for others to verify and which satisfies
certain requirements
● Proof of Stake (PoS) Algorithm
○ Asks miners to prove ownership of certain amount
of cryptocurrency
● Byzantine Fault-Tolerant Algorithms
○ Database replication protocol used in closed
blockchain with limited number of nodes
 Consensus Algorithm Challenges:
Performance
● Limitations of PoW approach as used in Bitcoin
○ Consensus latency upto 1 hour (10 minutes for each
block)
○ Throughput up to 7 transactions per second peak
throughput with smallest 200-250 bytes
transactions
○ Heavy power consumption-0.1 -10 GW (2014
figure).
● As a comparison, leading global credit card companies
can serve up to
 Consensus Algorithm Challenges:
Tradeoffs
● PoW
○ Low Throughput, Higher latency, Large Power
Consumption
○ Large & Open Network
○ Suitable for Cryptocurrency-based applications
● PoS
○ Similar to PoW but Power Consumption Efficient
○ Complex to implement however could be made faster
● BFT Variants
○ High Throughput and Lower Latency
○ Works best in Closed Network
 Reference Book
Bitcoin and Cryptocurrency Technologies
Authors: Arvind Narayanan, Joseph Bonneau,
Edward Felten, Andrew Miller, Steven Goldfeder

Publisher: Princeton University Press