Blockchain Infrastructure Requirements: What Really Matters.
Abstract:
Blockchain technology is a decentralized system for storing and transmitting data, typically in the form of digital currency transactions. The technology is based on a distributed ledger system, where multiple copies of the same database are spread across a network of computers. This distributed ledger is called a “blockchain,” and each block in the chain contains a set of transactions that have been verified and added to the chain by the network’s users.
One of the key advantages of blockchain technology is its ability to facilitate trustless transactions, meaning that two parties can transact directly with each other without the need for a third-party intermediary. This is achieved through the use of digital signatures and cryptographic techniques, which ensure that only the parties involved in a transaction can access and validate the information.
The decentralized nature of the blockchain concept also makes it more secure and transparent than traditional centralized systems. Any changes to the data on a blockchain must be confirmed by a consensus of users on the network, which makes it difficult for any one user or group to manipulate or corrupt the data. In addition, the copies of the database are spread across multiple computers, so even if one copy is lost or corrupted, the others can be used to restore the data.
The most well-known example of blockchain technology is the Bitcoin network, which uses it to facilitate the transfer of digital currency between users. But it has a wide range of potential use cases in industries such as finance, supply chain management, and voting systems, among others.
Blockchain Infrastructure Overview:
Distributed ledger systems are the foundation of blockchain technology. It is a database that is spread across multiple computers, rather than being stored in a central location. Each copy of the database is called a “node,” and all of the nodes work together to maintain the integrity of the database and validate new transactions.
When a new transaction is added to the blockchain, it is broadcasted to all the nodes on the network. The nodes then work together to validate the transaction using consensus algorithms such as Proof of Work (PoW) or Proof of Stake (PoS). Once the transaction is validated, it is added to a new block, which is then added to the blockchain.
The distributed nature of the database ensures that there is no single point of failure, as the data is stored across multiple computers. Even if one node goes offline or is compromised, the other nodes can still access and validate the data. This makes the blockchain more resilient and secure than traditional centralized systems.
The distributed ledger is also transparent, as all the nodes can access and validate the data stored on the blockchain. This makes it easy for users to view the history of transactions and ensure that they are valid. This is also the reason why many blockchain projects are transparent, as all the data is stored on the blockchain and can be auditable.
Consensus To Make the Blockchain Work:
Consensus is a crucial aspect of blockchain technology, as it ensures that the distributed ledger is accurate and up-to-date. It is the process by which the nodes on a blockchain network reach agreement on the state of the ledger to ensure a true record of transactions.
There are several methods of consensus, each with its own advantages and disadvantages. Some of the most commonly used methods include:
Proof of Work (PoW):
This is the original consensus algorithm used by the Bitcoin network. In PoW, nodes compete to solve a complex mathematical puzzle, and the first node to solve it is rewarded with the right to add the next block to the blockchain. The advantage of PoW is that it is highly secure and resistant to Sybil attacks, but it can be energy-intensive and slow.
Proof of Stake (PoS):
In PoS, nodes are chosen to validate transactions based on the amount of stake they have in the network. The more stake a node has, the more likely it is to be chosen to validate a block. PoS is more energy-efficient than PoW, but it can be vulnerable to centralization if a small number of nodes hold a large amount of stake.
Delegated Proof of Stake (DPoS):
In DPoS, nodes are chosen to validate transactions based on the number of votes they receive from other nodes. The advantage of DPoS is that it is more energy-efficient than PoW and more resistant to centralization than PoS if DPoS validators are on a timed rotation. Usually, there’s a very special type of software is required for operating a validation node on a DPoS chain.
Practical Byzantine Fault Tolerance (PBFT):
In PBFT, nodes come to a consensus by communicating with each other and reaching an agreement on the state of the ledger. PBFT is highly secure and efficient, but it can be vulnerable to network partitions, thus, there are not many building a blockchain using this system.
Other Methods Include:
Proof of Elapsed Time (PoET), Proof of Importance (PoI), and Proof of Activity (PoA)
It’s important to note that different blockchains can use different consensus algorithms, and each algorithm has its own trade-offs in terms of security, scalability, and energy efficiency. Some projects are also experimenting with hybrid consensus algorithms that combine elements of multiple methods.
Scalability of a Blockchain Platform:
Scalability is one of the key challenges facing blockchain technology for it to compete with legacy centralized service providers. The current implementation of blockchain infrastructure of many existing blockchain projects is not able to handle a large number of transactions per second. Here are some blockchain engineering ideas to increase scalability:
Sharding:
Sharding is a method of splitting the blockchain into smaller, more manageable pieces called “shards.” Each shard can process its own set of transactions, which can significantly increase the number of transactions that can be processed per second.
Off-chain Transactions:
Off-chain transactions are transactions that occur outside of the blockchain, usually on a traditional server, but are still recorded on the blockchain. This can reduce the number of transactions that need to be processed on the blockchain, which can increase scalability.
State Channels:
State channels are a type of off-chain transaction that allows parties to transact directly with each other without the need for a third-party intermediary. This can significantly increase the number of transactions that can be processed per second when it’s CPU to CPU with a good internet connection.
Plasma:
Plasma is a scaling solution that allows for the creation of child chains that can handle a large number of transactions, while still being able to secure by the main chain.
Sidechains:
A sidechain is a separate blockchain that is connected to the main blockchain. Transactions can occur on the sidechain, which can then be recorded on the main blockchain. This can increase scalability by reducing the number of transactions that need to be processed on the main blockchain.
Proof of Stake (PoS):
PoS is an alternative consensus mechanism that allows the network to reach an agreement on the state of the ledger by selecting the validator based on the stake they hold in the network. It is more energy-efficient than Proof of Work (PoW)
Multi-chain systems:
Multi-chain systems allow for different chains to be connected together, which can increase scalability by allowing transactions to occur on multiple chains. Cosmos (ATOM) and PolkaDot (DOT) are two projects seeking to execute a multi-chain environment with a common foundational platform for seamless communication and transactions between blockchain participants.
Optimizing consensus algorithms:
Optimizing consensus algorithms such as by reducing the block size, adjusting the block time, or increasing the number of validators can help to increase scalability.
Layer-2 blockchain solutions, also known as “second-layer” solutions, are a way to increase scalability by moving some of the transactions and processing off the main blockchain and onto a separate layer. This can help to reduce the number of transactions that need to be processed on the main blockchain, which can increase scalability.
The Lightning Network:
The Lightning Network is a layer-2 blockchain application solution for the Bitcoin network that allows for faster and cheaper transactions. It uses a network of payment channels, that utilizes cryptography, and can be used to make transactions off-chain and then settled on the main public blockchain.
Requirements of Blockchain Interoperability:
Modular blockchains refer to blockchain systems that are composed of different modules or components that can be customized and combined in various ways to meet the needs of different applications and use cases. This allows for greater flexibility and scalability in the design and development of blockchain systems.
Interoperability, on the other hand, refers to the ability of different blockchain systems to communicate and work together seamlessly. This is important for several reasons, including enabling the transfer of value and data across different blockchain networks and facilitating the development of decentralized applications that can run on multiple blockchain systems.
One way to achieve interoperability is through the use of “sidechains”, which allow for the transfer of assets and data between different blockchain networks. Another way is through the use of “cross-chain communication protocols” which allow different blockchain networks to communicate with each other and exchange information.
Modular blockchain infrastructure and interoperability are key to the evolution of blockchain technology, as they help to overcome the limitations of traditional blockchain systems and enable new use cases and applications. Implications of blockchain interoperability will bring more use cases for the technology and it will enhance the communication between different blockchain networks and users, making the technology more accessible and inclusive. In addition, it will also increase the potential of decentralized applications, as they will be able to access a wider range of data and resources.
Bridges:
Bridges, are forms of an “interoperability protocol,” and are an important component of blockchain infrastructure that enables communication and data transfer between different blockchain networks. These bridges allow for the transfer of assets and data between different blockchain networks, making it possible for users to take advantage of the unique features and capabilities of each network.
Having bridges between different blockchain networks allows for increased scalability, as it enables the sharing of resources and processing power across different networks. This can also lead to more efficient and cost-effective solutions as different blockchain networks can be optimized for different use cases.
Security is also an important consideration when it comes to bridges between blockchains. These bridges need to be secure enough to prevent unauthorized access and protect the integrity of the data being transferred. This can include the use of cryptographic techniques such as digital signatures, as well as secure protocols for data transfer and validation.
One of the key benefits of having bridges between different blockchain networks is that it allows for the creation of decentralized applications that can run on multiple blockchain networks. This increases the potential of decentralized applications, as they will be able to access a wider range of data and resources. With the right security measures in place, bridges can be a secure way to transfer and validate data between different blockchain networks.
Trustless Transactions on the Public Blockchain:
Trustless transactions are a key feature of blockchain technology that enables parties to transact directly with each other without the need for a third-party intermediary. This is achieved through the use of digital signatures and cryptographic techniques, which ensure that only the parties involved in a transaction can access and validate the information.
Traditionally, transactions between parties require a trusted intermediary, such as a bank, to validate and facilitate the transaction. This intermediary acts as a middleman, and this requires trust in them to correctly and honestly perform their role. In contrast, blockchain gives an opportunity to work with trustless transactions, parties can transact directly with each other without the need for an intermediary. This eliminates the need for trust in a third party, as the transaction is validated by the network of nodes on the blockchain.
Trustless transactions are essential because they enable greater security and transparency in transactions. They also allow new use cases and applications, such as decentralized finance (DeFi) and non-fungible tokens (NFTs).
Decentralized finance (DeFi) is a rapidly growing sector of blockchain technology that enables trustless transactions for financial services such as lending, borrowing, and trading. In DeFi, users can access financial services directly from other users without the need for a traditional financial intermediary. This allows for greater access to financial services, particularly for individuals who are underbanked or unbanked.
Non-fungible tokens (NFTs) are a type of digital asset that represents ownership of a unique item or piece of content. NFTs can be used to represent anything from digital art to virtual real estate, and the trustless transactions enabled by blockchain technology make it easy for users to buy, sell, and trade these assets.
The bottom line, transactions on the blockchain should never incorporate middlemen, rent-seekers, or traditional intermediaries into the core infrastructure of the blockchain operations. A requirement for a trusted third party should never be a part of the blockchain, as 2022 taught us well.
Bitcoin Infrastructure Requirements:
Bitcoin, the original cryptocurrency network, has been a revolutionary technology since its creation, but it still has room for improvement to achieve its potential use cases. Some of the key areas that need to be addressed to improve the Bitcoin network infrastructure requirements include scalability, privacy, and miner energy efficiency.
Scalability:
The Bitcoin network currently has a limited capacity for the number of transactions that can be processed at a time. This can lead to long confirmation times and high transaction fees. Since it was originally slated as an electronic cash system, improving scalability would allow for more transactions to be processed at a time, making the network more useful for a wider range of use cases.
Privacy:
The Bitcoin network is currently not very private, as all transactions are publicly visible on the blockchain. Improving privacy would enable more use cases for the network, such as financial transactions that need to be kept confidential.
Energy Efficiency:
The proof-of-work consensus algorithm used by the Bitcoin network is energy-intensive, which can lead to high costs and environmental concerns. Improving energy efficiency would make the network more sustainable and reduce costs.
Interoperability:
The current version of the Bitcoin network is not interoperable with other blockchain networks, which limits its potential to interact with other decentralized systems. Improving interoperability would allow the Bitcoin network to interact with other decentralized systems and enable new use cases.
Security:
The security of the Bitcoin network is one of its strengths, but it is important to continue to improve it to protect the network from new attack vectors and vulnerabilities. More nodes will help, meaning that anyone with a computer as small as a Raspberry Pi could contribute to the security of bitcoin.
Improving these areas of the Bitcoin network and cryptocurrencies like bitcoin would allow for more use cases and greater adoption of the technology. Some projects are working in this area, for example, the Lightning Network, is a second-layer scalability solution for the Bitcoin network, which allows for faster and cheaper transactions. Additionally, projects like Mimblewimble and Coinjoin are working on improving privacy on the Bitcoin network.
Blockchains “smart contracts”:
Smart contracts are self-executing contracts with the terms of the agreement written directly into code. They are a key component of blockchain tech infrastructure and have the potential to enable a wide range of new use cases and applications. However, the infrastructure needs to be improved in several areas to fully realize their potential.
Scalability:
Smart contracts are often used in decentralized applications (dApps) that have a high volume of transactions. Improving scalability would allow for more transactions to be processed at a time, making the dApps more useful for a wider range of use cases.
Interoperability:
Smart contracts are often deployed on a specific blockchain network, which limits their ability to interact with other decentralized systems. Improving interoperability would allow smart contracts to interact with other decentralized systems and enable new use cases.
Security:
Smart contracts are self-executing, which means that once they are deployed on a blockchain network, they cannot be altered or deleted. This can make them vulnerable to bugs and vulnerabilities. Improving security would protect smart contracts from new attack vectors and vulnerabilities.
Development Tools and Frameworks:
To enable the development of more complex and powerful smart contracts, more sophisticated development tools and frameworks are needed. This includes tools for testing, debugging, and deploying smart contracts, as well as libraries and frameworks for writing and executing smart contracts.
Standardization:
To foster the development and adoption of smart contracts, it is important to have a set of standards and guidelines to ensure interoperability and compatibility between different smart contracts and decentralized applications.
In summary, smart contracts have the potential to enable a wide range of new use cases and applications, but to fully realize their potential, the infrastructure needs to be improved in several areas such as scalability, interoperability, security, development tools, and frameworks & standardization.
Decentralized Applications (dApps):
Similar to the apps you find in the Google Playstore or Apple’s App store for Web2 apps built onto the Android or iOS platform, decentralized applications (dApps), are based on blockchain protocols. To reach their full potential in gaming and finance, several key pieces of infrastructure must be in place:
Scalability:
Gaming and finance dApps often have a high volume of transactions, so the infrastructure must be able to handle a large number of transactions per second. Scaling solutions such as sharding and off-chain transactions can help to improve the number of transactions per day.
Interoperability:
Gaming and finance dApps often need to interact with other decentralized systems, such as other dApps or smart contracts. Interoperability solutions such as cross-chain communication protocols and sidechains can help to enable this interaction.
Security:
Gaming and finance dApps handle sensitive user data and financial assets, so it is crucial that the infrastructure is secure. This includes blockchain security measures such as secure key management, data encryption, and fraud detection.
User Experience:
For dApps to be successful in gaming and finance, they must provide a seamless and user-friendly experience. This includes features such as easy onboarding, intuitive navigation, and fast transaction speeds.
Compliance:
In the financial sector, dApps must comply with regulatory requirements such as anti-money laundering (AML) and know-your-customer (KYC) laws. The infrastructure must include tools and solutions for compliance, such as identity verification and transaction monitoring.
Liquidity:
In the finance sector, dApps need to provide liquidity to their users to enable them to buy and sell assets easily, this can be achieved by connecting with centralized exchanges, or through decentralized exchanges (DEX) and Automated market makers (AMM).
Data Management:
Gaming and finance dApps require a lot of data to function, such as game state and financial transactions. The infrastructure must include solutions for data management such as off-chain data storage, data privacy, and data governance to ensure that the data is secure, accurate and accessible to the right parties.
Ensuring that these infrastructure needs are met will help to enable a seamless and secure user experience, and enable the growth and adoption of dApps in these sectors.
Decentralization Via Validators:
When it comes to onboarding new dApps and educating teams building on the blockchain, the need for a trusted validator plays a crucial role. They can help onboard new dApps by providing technical guidance and support to the development teams. They can also help educate teams on the best practices for building and deploying dApps on the blockchain.
Validators help ensure dApps are built in a way that is compliant with the rules of the blockchain protocol. They can provide guidance on how to optimize the performance of dApps and that they are secure and reliable. In addition, validators can also help provide transparency and accountability for dApp development teams. They help teams follow best practices and are transparent about their progress and development.
Validators play a crucial role in maintaining the integrity and security of a blockchain network. They are responsible for verifying transactions, maintaining the distributed ledger, and participating in the consensus process to reach an agreement on the current state of the blockchain. Quality validators are essential for maintaining the trust and reliability of the network and are typically chosen based on their reputation, technical expertise, and commitment to maintaining the network.
Having a diverse set of validators with adaquet computing power, from different backgrounds and locations can also help to enhance the resilience and security of the network, as it reduces the risk of any single point of failure. Additionally, it is important that validators are incentivized to act in the best interest of the network, as this will ensure that they are accountable and motivated to maintain the integrity of the blockchain.
It is important to note that the selection and operation of validators should be transparent, verifiable, and open to the public to increase network decentralization and not be controlled by a few actors.
To achieve this, the blockchain network should have a mechanism for selecting, removing, or penalizing validators that are found acting maliciously or not following the protocols. The infrastructure of a blockchain network must have a robust system for selecting and maintaining validators to ensure that the network is secure, reliable, and able to operate effectively.
Infrastructure of Non-Token Enterprise Working on Blockchain:
- Hyperledger: An open-source collaborative effort created to advance cross-industry blockchain technologies on an enterprise level. Hyperledger provides a variety of tools and frameworks for building enterprise-grade blockchain systems, similar to data center infrastructure. Hyperledger is used for public and private blockchains.
- EOS.io: A decentralized network for building and deploying dApps, EOS.io aims to provide fast and free transactions while also addressing scalability issues through its use of a delegated proof-of-stake (DPoS) consensus algorithm.
- Corda: A private blockchain developed by R3, Corda is a permissioned blockchain platform designed specifically for use in the financial industry, with a focus on privacy and security.
- REMIX: The software platform Remix IDE is a browser-based Blockchain tool used for the creation and deployment of smart contracts.
- Metamask: The leading crypto wallet that supports multiple cryptocurrencies from various blockchain platforms, from Ethereum Virtual Machine to Cronos Mainnet.
- Parity: It’s a management tool that offers mission-critical compute usage. Parity use Rust programing language which helps recruit more developers who program outside the Ethereum blockchain. Another great feature of this tool is that it provides an infrastructure that boasts speedy and reliable service, which meets the requirements of blockchain developers for blockchain data.
To summarize, using blockchain technology has the potential to transform a variety of sectors and applications; but in order to fully realize this potential, a strong and secure infrastructure will need to be deployed. Building a platform that can host decentralized applications, designing user-friendly interfaces, providing a solid networking infrastructure, and improving security and analytics capabilities are all part of this. It’s also critical to design a decentralized governance system, deploy scalability solutions, meet compliance and regulatory needs, form partnerships and collaborations, and continuously monitor and analyze the robustness of the system. By engaging in these acts, blockchain technology can be deployed effectively and realize the myriad benefits it promises, such as trustless transactions, security, transparency, and decentralization.