11. Private blockchain and Dapp

Private Blockchain

Public blockchain

Public Blockchain

• any participants can read the ledger and use it to carry out transactions, everyone can participate in the process of creating the consensus
• there is no owner in the public blockchain system
  • no central register, no trusted third party
• Code is Law
• the nodes of the network validate the choices
• operation is based on cryptoeconomics: combination of economic incentives and verification mechanisms using cryptography
• any public blockchain necessarily works with a coin or a token for incentives

 

Limit of Public Blockchain

Transaction Validators

• Financial institutes must have a control of all transactions and it cannot be delegated to the others since they have to take actions as soon as violations are detected
• But in public blockchain, there is no one can control it

Waste of Computing Power

• everyone should have a copy of a large-sized ledger -> significantly inefficient compared to the traditional centralized system
• mining (PoW) is not environment friendly

Scalability

• PoW and synchronisation btw copies of a large-sized ledger prevent the adoption of blockchain to the system requiring high-frequent transactions.

Access to Read and Write

• in public blockchain, everyone have a same access right -> there is no access control
• in the real system, access rights are precisely designed

Privacy

• in public blockchain, all transaction records are public -> information cannot be hidden in the public blockchain
• in the real system, some information must be hidden to protect their profit models and internal secrets
• there are many cryptographic techniques which enhance the privacy: zero knowledge proof, ring signatures ..
  • it still requires a lot of works and consensus to apply them to real blockchain systems

Anonymity

• the owner of an account can be anonymous because the address is only associated with someone's public key
• anonymity is not allowed in many countries and violates the financial regulations

Hacking Risk

• Mt. Gox
  • was the largest bitcoin intermediary
  • approximately 850,000 BIC were stolen and. the reason for disappearance were initially unclear
• Coincheck
  • another bitcoin exchange
  • identified and published 11 addresses who have stolen coins -> no one knows who owns the accounts due to anonymity
  • each one has been labelled with a tag -> tracking tool to automatically reject stolen funds
  • however, using ShapeShift which offers cryptocurrency trading without collecting personal data is possible

 

Private Blockchain

Private Blockchain (= permissioned Distributed ledger technology)

• A blockchain called private (or semi-private) if the consensus process can only be achived by a limited and predefined number of participants
• write access is given by organization and read permissions can be public or restricted
• consensus process is controlled by a preselected set of nodes
• doesn't use necessarily mechanisms based on cryptography
• No mining (PoW), and no incentive system are required

Advantages of Private Blockchain

• easily change the rules of a blockchain, revert transactions and modify balances
• validators are known -> risk of a 51% attack doesn't apply
• transactions are cheaper since they only need to verified by a few nodes
• nodes can be trusted to be very well-connected, and faults can quickly be fixed, allowing use of consensus algorithms which offer finality after much shorter block times
• if read permissions are restricted, private blockchains can provide a greater level of privacy

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Ripple

Ripple

Ripple

• private blockchains designed for bank settlement and networking - intrabank transactions
• neutral utility for financial institutions and systems

Ripple requires two parties for a transaction

• Gateway (such as financial institute)
  • enables users to put money into and take money out of Ripple's liquidity pool
  • accepts currency deposits from users and issues balances into Ripple's distributed ledger
• Market makers (such as heldge funds or currency trading desks)
  • provide liquidity in the currency they want to trade in
  • facilitate payments btw users where no direct trust exists, enabling exchanges across gateways

- Gateway: 다른 자산을 리플 네트워크에 넣고 빼는 역할을 하며, 이를 통해 해당 자산을 리플 네트워크에서 거래할 수 있게 합니다.

- Market Maker: 시장에 유동성을 제공하기 위해 주문을 생성하고 유지하는 역할을 하며, 다른 사용자들과의 거래를 통해 시장에 유동성을 유지합니다.

 

XRP

• native currency of the Ripple network
• used as a transaction fee -> destroy (Deflationary Currency)

Regulatory Compliance

• Ripple offers seamless integration with bank's existing systems and process such as anit-money laundering controls, fraud detection, sanction screening, and regulatory reporting

 

Ripple's Transaction and Consensus Algorithm

Transactions

• Users make payments btw each other by using transactions denominated in either fiat currencies or Ripple's internal currency (XRP)
  • XRP-denominated tx: can make use of its internal ledger
  • payments denominated in other assets: Ripple ledger only records the amounts owed, with assets represented as debt obligations
• while tx information on the ledger is public, payment information is not

Consensus Algorithm of Ripple

• Ripple is based around a shared, public database or ledger that has its contents decided on by consensus
• Ripple uses a Proof-of-Stake (PoS)
  • server determines which tx to apply based on if a tx came from a specified node in the unique node list (UNL)
  • tx that are agreed upon by a supermajority (80% of consensus) of peers are considered validted
  • if consensus failed, consensus process is again attempted by the nodes until the supermajority is reached

 

Limitations of Ripple

Trading charge impeding on scalability

• tx fee can only be paid by XRP, so if XRP becomes expensive then tx fee also increases

Centralization of XRP

• founder has 20% of XRPs - XRPs are concentrated too much for Ripple developer than the participants of the Ripple network

Centralized Consensus

• only nodes in UNL which is selected by Ripple labs are participating on consensus
• anyone can voluntarily participate as a validator, they cannot participate in the consensus and they only can monitor the validators' behavior in UNL

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Decentralized Application (Dapp)

What is a Dapp?

Decentrailized application (Dapp)

• Application that use blockchain technology to grant users more control over their data by eliminating the need for centralized intermediaries -> making the service "decentralized"
• users gain more control over their finances and personal data
• many existing dapps are slow and difficult to use, but they give a taste of the potential for decentralizd apps in the long term

 

How does a Dapp work

Dapps built on Blockchain network such as Ethereum

• users don't have to go through a third party, meaning they don't have to give up control of their data to someone else
• centralized entities have power of data -> Dapp put users back in control

Key Characteristic of Dapp

• Open source: code is public
• Decentralized: no central authority
• Blockchains: dapps use an underlying blockchain such as Ethereum to coordinate
• Smart contracts: dapps use smart contracts which automatically executes certain rules
• Global: goal is for anyone in the world to be able to publish or use these dapps

 

Types of Dapp

Financial Apps

• Dapps where money is involved
• known as DeFi applications == decentralized finance
• use blockchains to improve more complex financial applications and stable coins, alternative coins that aim to stabilize cyptocurrency prices

Semi-financial Apps

• Dapps that invovle money, but also require another piece such as data from outside the Ethereum blockchain
• using bounty with smart contract
  • bounty: reward that can only be unlocked if someone accomplishes a tasks

Other Apps

• Every other dapps developers are looking to create, including online voting and storage apps