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- Herausgeber: Packt Publishing
- Kategorie: Wissenschaft und neue Technologien
- Sprache: Englisch
Explore distributed ledger technology, decentralization, and smart contracts and develop real-time decentralized applications with Ethereum and Solidity
Key Features:
Get to grips with the underlying technical principles and implementations of blockchainBuild powerful applications using Ethereum to secure transactions and create smart contractsGain advanced insights into cryptography and cryptocurrencies
Book Description:
Blockchain technology is a distributed ledger with applications in industries such as finance, government, and media. This Learning Path is your guide to building blockchain networks using Ethereum, JavaScript, and Solidity. You will get started by understanding the technical foundations of blockchain technology, including distributed systems, cryptography and how this digital ledger keeps data secure. Further into the chapters, you’ll gain insights into developing applications using Ethereum and Hyperledger. As you build on your knowledge of Ether security, mining , smart contracts, and Solidity, you’ll learn how to create robust and secure applications that run exactly as programmed without being affected by fraud, censorship, or third-party interference. Toward the concluding chapters, you’ll explore how blockchain solutions can be implemented in applications such as IoT apps, in addition to its use in currencies. The Learning Path will also highlight how you can increase blockchain scalability and even discusses the future scope of this fascinating and powerful technology. By the end of this Learning Path, you'll be equipped with the skills you need to tackle pain points encountered in the blockchain life cycle and confidently design and deploy decentralized applications.
This Learning Path includes content from the following Packt products:
Mastering Blockchain - Second Edition by Imran BashirBuilding Blockchain Projects by Narayan Prusty
What you will learn:
Understand why decentralized applications are importantDiscover the mechanisms behind bitcoin and alternative cryptocurrenciesMaster how cryptography is used to secure data with the help of examplesMaintain, monitor, and manage your blockchain solutionsCreate Ethereum walletsExplore research topics and the future scope of blockchain technology
Who this book is for:
This Learning Path is designed for blockchain developers who want to build decentralized applications and smart contracts from scratch using Hyperledger. Basic familiarity with any programming language will be useful to get started with this Learning Path.
Imran Bashir has a master’s degree in information security from Royal Holloway, University of London. He has a background in software development, solution architecture, infrastructure management, and IT service management. He is also a member of the Institute of Electrical and Electronics Engineers (IEEE) and British Computer Society (BCS). Imran has an experience of sixteen years in the public and financial sectors. He worked on large-scale IT projects for public sector before moving to the financial services industry. Since then he has worked in various technical roles for different financial companies in Europe's financial capital, London. Currently, he is working for an investment bank in London. Narayan Prusty is a full-stack developer. He works as a consultant for various start-ups around the world. He has worked on various technologies and programming languages but is very passionate about JavaScript, WordPress, Ethereum, Solr, React, Cordova, MongoDB, and AWS. Apart from consulting for various start-ups, he also runs a blog titled QNimate and a video tutorial site titled QScutter, where he shares information about a lot of the technologies he works on.
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Veröffentlichungsjahr: 2019
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Advanced Blockchain Development
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First published: May 2019
Production reference: 1200519
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ISBN 978-1-83882-319-1
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Contributors
About the authors
Imran Bashir has a master’s degree in information security from Royal Holloway, University of London. He has a background in software development, solution architecture, infrastructure management, and IT service management. He is also a member of the Institute of Electrical and Electronics Engineers (IEEE) and British Computer Society (BCS). Imran has an experience of sixteen years in the public and financial sectors. He worked on large-scale IT projects for public sector before moving to the financial services industry. Since then he has worked in various technical roles for different financial companies in Europe's financial capital, London. Currently, he is working for an investment bank in London.
Narayan Prusty is a full-stack developer. He works as a consultant for various start-ups around the world. He has worked on various technologies and programming languages but is very passionate about JavaScript, WordPress, Ethereum, Solr, React, Cordova, MongoDB, and AWS. Apart from consulting for various start-ups, he also runs a blog titled QNimate (http://qnimate.com) and a video tutorial site titled QScutter (http://qscutter.com), where he shares information about a lot of the technologies he works on.
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Table of Contents
Title Page
Copyright and Credits
Advanced Blockchain Development
About Packt
Why subscribe?
Packt.com
Contributors
About the authors
Packt is searching for authors like you
Preface
Who this book is for
What this book covers
To get the most out of this book
Download the example code files
Download the color images of this book
Conventions used
Get in touch
Reviews
Blockchain 101
The growth of blockchain technology
Distributed systems
The history of blockchain and Bitcoin
Electronic cash
Blockchain
Blockchain defined
Peer-to-peer
Distributed ledger
Cryptographically-secure
Append-only
Updateable via consensus
Generic elements of a blockchain
How blockchain works
How blockchain accumulates blocks
Benefits and limitations of blockchain
Tiers of blockchain technology
Features of a blockchain
Types of blockchain
Distributed ledgers
Distributed Ledger Technology
Public blockchains
Private blockchains
Semiprivate blockchains
Sidechains
Permissioned ledger
Shared ledger
Fully private and proprietary blockchains
Tokenized blockchains
Tokenless blockchains
Consensus
Consensus mechanism
Types of consensus mechanisms
Consensus in blockchain
CAP theorem and blockchain
Summary
Decentralization
Decentralization using blockchain
Methods of decentralization
Disintermediation
Contest-driven decentralization
Routes to decentralization
How to decentralize
The decentralization framework example
Blockchain and full ecosystem decentralization
Storage
Communication
Computing power and decentralization
Smart contracts
Decentralized Organizations
Decentralized Autonomous Organizations
Decentralized Autonomous Corporations
Decentralized Autonomous Societies
Decentralized Applications (DApps)
Requirements of a Decentralized Application
Operations of a DApp
DApp examples
KYC-Chain
OpenBazaar
Lazooz
Platforms for decentralization
Ethereum
MaidSafe
Lisk
Summary
Understanding How Ethereum Works
Overview of Ethereum
Ethereum accounts
Transactions
Consensus
Timestamp
Nonce
Block time
Forking
Genesis block
Ether denominations
Ethereum virtual machine
Gas
Peer discovery
Whisper and Swarm
Geth
Installing geth
OS X
Ubuntu
Windows
JSON-RPC and JavaScript console
Sub-commands and options
Connecting to the mainnet network
Creating a private network
Creating accounts
Mining
Fast synchronization
Ethereum Wallet
Mist
Weaknesses
Sybil attack
51% attack
Serenity
Payment and state channels
Proof-of-stake and casper
Sharding
Summary
Smart Contracts
History
Definition
Ricardian contracts
Smart contract templates
Oracles
Smart Oracles
Deploying smart contracts on a blockchain
The DAO
Summary
Symmetric Cryptography
Working with the OpenSSL command line
Introduction
Mathematics
Set
Group
Field
A finite field
Order
An abelian group
Prime fields
Ring
A cyclic group
Modular arithmetic
Cryptography
Confidentiality
Integrity
Authentication
Entity authentication
Data origin authentication
Non-repudiation
Accountability
Cryptographic primitives
Symmetric cryptography
Stream ciphers
Block ciphers
Block encryption mode
Electronic Code Book
Cipher Block Chaining
Counter mode
Keystream generation mode
Message authentication mode
Cryptographic hash mode
Data Encryption Standard
Advanced Encryption Standard
How AES works
Summary
Public Key Cryptography
Asymmetric cryptography
Integer factorization
Discrete logarithm
Elliptic curves
Public and private keys
RSA
Encryption and decryption using RSA
Elliptic Curve Cryptography
Mathematics behind ECC
Point addition
Point doubling
Discrete logarithm problem in ECC
RSA using OpenSSL
RSA public and private key pair
Private key
Public key
Exploring the public key
Encryption and decryption
Encryption
Decryption
ECC using OpenSSL
ECC private and public key pair
Private key
Private key generation
Hash functions
Compression of arbitrary messages into fixed-length digest
Easy to compute
Preimage resistance
Second preimage resistance
Collision resistance
Message Digest
Secure Hash Algorithms
Design of Secure Hash Algorithms
Design of SHA-256
Design of SHA-3 (Keccak)
OpenSSL example of hash functions
Message Authentication Codes
MACs using block ciphers
Hash-based MACs
Merkle trees
Patricia trees
Distributed Hash Tables
Digital signatures
RSA digital signature algorithm
Sign then encrypt
Encrypt then sign
Elliptic Curve Digital Signature Algorithm
How to generate a digital signature using OpenSSL
ECDSA using OpenSSL
Homomorphic encryption
Signcryption
Zero-Knowledge Proofs
Blind signatures
Encoding schemes
Financial markets and trading
Trading
Exchanges
Orders and order properties
Order management and routing systems
Components of a trade
The underlying instrument
General attributes
Economics
Sales
Counterparty
Trade life cycle
Order anticipators
Market manipulation
Summary
Getting Started with web3.js
Introduction to web3.js
Importing web3.js
Connecting to nodes
The API structure
BigNumber.js
Unit conversion
Retrieving gas price, balance, and transaction details
Sending ether
Working with contracts
Retrieving and listening to contract events
Building a client for an ownership contract
The project structure
Building the backend
Building the frontend
Testing the client
Summary
Introducing Bitcoin
Bitcoin
Bitcoin definition
Bitcoin – a bird's-eye view
Sending a payment to someone
Digital keys and addresses
Private keys in Bitcoin
Public keys in Bitcoin
Addresses in Bitcoin
Base58Check encoding
Vanity addresses
Multisignature addresses
Transactions
The transaction life cycle
Transaction fee
Transaction pools
The transaction data structure
Metadata
Inputs
Outputs
Verification
The script language
Commonly used opcodes
Types of transactions
Coinbase transactions
Contracts
Transaction verification
Transaction malleability
Blockchain
The structure of a block
The structure of a block header
The genesis block
Mining
Tasks of the miners
Mining rewards
Proof of Work (PoW)
The mining algorithm
The hash rate
Mining systems
CPU
GPU
FPGA
ASICs
Mining pools
Summary
Building a Wallet Service
Difference between online and offline wallets
hooked-web3-provider and ethereumjs-tx libraries
What is a hierarchical deterministic wallet?
Introduction to key derivation functions
Introduction to LightWallet
HD derivation path
Building a wallet service
Prerequisites
Project structure
Building the backend
Building the frontend
Testing
Summary
Alternative Coins
Theoretical foundations
Alternatives to Proof of Work
Proof of Storage
Proof of Stake (PoS)
Various stake types
Proof of coinage
Proof of Deposit (PoD)
Proof of Burn
Proof of Activity (PoA)
Nonoutsourceable puzzles
Difficulty adjustment and retargeting algorithms
Kimoto Gravity Well
Dark Gravity Wave
DigiShield
MIDAS
Bitcoin limitations
Privacy and anonymity
Mixing protocols
Third-party mixing protocols
Inherent anonymity
Extended protocols on top of Bitcoin
Colored coins
Counterparty
Development of altcoins
Consensus algorithms
Hashing algorithms
Difficulty adjustment algorithms
Inter-block time
Block rewards
Reward halving rate
Block size and transaction size
Interest rate
Coinage
Total supply of coins
Namecoin
Trading Namecoins
Obtaining Namecoins
Generating Namecoin records
Litecoin
Primecoin
Trading Primecoin
Mining guide
Zcash
Trading Zcash
Mining guide
Address generation
GPU mining
Downloading and compiling nheqminer
Initial Coin Offerings (ICOs)
ERC20 tokens
Summary
Development Tools and Frameworks
Languages
Compilers
Solidity compiler (solc)
Installation on Linux
Installation on macOS
Integrated Development Environments (IDEs)
Remix
Tools and libraries
Node version 7
EthereumJS
Ganache
MetaMask
Truffle
Installation
Contract development and deployment
Writing
Testing
Solidity language
Types
Value types
Boolean
Integers
Address
Literals
Integer literals
String literals
Hexadecimal literals
Enums
Function types
Internal functions
External functions
Reference types
Arrays
Structs
Data location
Mappings
Global variables
Control structures
Events 
Inheritance
Libraries
Functions
Layout of a Solidity source code file
Version pragma
Import
Comments
Summary
Building a Betting App
Introduction to Oraclize
How does it work?
Data sources
Proof of authenticity
Pricing
Getting started with the Oraclize API
Setting the proof type and storage location
Sending queries
Scheduling queries
Custom gas
Callback functions
Parsing helpers
Getting the query price
Encrypting queries
Decrypting the data source
Oraclize web IDE
Working with strings
Building the betting contract
Building a client for the betting contract
Projecting the structure
Building the backend
Building the frontend
Testing the client
Summary
Hyperledger
Projects under Hyperledger
Fabric
Sawtooth Lake
Iroha
Burrow
Indy
Explorer
Cello
Composer
Quilt
Hyperledger as a protocol
The reference architecture
Requirements and design goals of Hyperledger Fabric
The modular approach
Privacy and confidentiality
Scalability
Deterministic transactions
Identity
Auditability
Interoperability
Portability
Rich data queries
Fabric
Hyperledger Fabric
Membership services
Blockchain services
Consensus services
Distributed ledger
The peer to peer protocol
Ledger storage
Chaincode services
Components of the fabric
Peers
Orderer nodes
Clients
Channels
World state database
Transactions
Membership Service Provider (MSP)
Smart contracts
Crypto service provider
Applications on blockchain
Chaincode implementation
The application model
Consensus in Hyperledger Fabric
The transaction life cycle in Hyperledger Fabric
Sawtooth Lake
PoET
Transaction families
Consensus in Sawtooth
The development environment – Sawtooth Lake
Corda
Architecture
State objects
Transactions
Consensus
Flows
Components
Nodes
The permissioning service
Network map service
Notary service
Oracle service
Transactions
Vaults
CorDapp
The development environment – Corda
Summary
Alternative Blockchains
Blockchains
Kadena
Ripple
Transactions
Payments related
Order related
Account and security-related
Interledger
Application layer
Transport layer
Interledger layer
Ledger layer
Stellar
Rootstock
Sidechain
Drivechain
Quorum
Transaction manager
Crypto Enclave
QuorumChain
Network manager
Tezos
Storj
MaidSafe
BigchainDB
MultiChain
Tendermint
Tendermint Core
Tendermint Socket Protocol (TMSP)
Platforms and frameworks
Eris
Summary
Blockchain - Outside of Currencies
Internet of Things
Physical object layer
Device layer
Network layer
Management layer
Application layer
IoT blockchain experiment
First node setup
Raspberry Pi node setup
Installing Node.js
Circuit
Government
Border control
Voting
Citizen identification (ID cards)
Miscellaneous
Health
Finance
Insurance
Post-trade settlement
Financial crime prevention
Media
Summary
Scalability and Other Challenges
Scalability
Network plane
Consensus plane
Storage plane
View plane
Block size increase
Block interval reduction
Invertible Bloom Lookup Tables
Sharding
State channels
Private blockchain
Proof of Stake
Sidechains
Subchains
Tree chains (trees)
Block propagation
Bitcoin-NG
Plasma
Privacy
Indistinguishability Obfuscation
Homomorphic encryption
Zero-Knowledge Proofs
State channels
Secure multiparty computation
Usage of hardware to provide confidentiality
CoinJoin
Confidential transactions
MimbleWimble
Security
Smart contract security
Formal verification and analysis
Oyente tool
Summary
Building a Consortium Blockchain
What is a consortium blockchain?
What is Proof-of-Authority consensus?
Introduction to parity
Understanding how Aura works
Getting parity running
Installing rust
Linux
OS X
Windows
Downloading, installing and running parity
Creating a private network
Creating accounts
Creating a specification file
Launching nodes
Connecting nodes
Permissioning and privacy
Summary
Current Landscape and What's Next
Emerging trends
Application-specific blockchains (ASBCs)
Enterprise-grade blockchains
Private blockchains
Start-ups
Strong research interest
Standardization
Enhancements
Real-world implementations
Consortia
Answers to technical challenges
Convergence
Education of blockchain technology
Employment
Cryptoeconomics
Research in cryptography
New programming languages
Hardware research and development
Research in formal methods and security
Alternatives to blockchains
Interoperability efforts
Blockchain as a Service
Efforts to reduce electricity consumption
Other challenges
Regulation
Dark side
Blockchain research
Smart contracts
Centralization issues
Limitations in cryptographic functions
Consensus algorithms
Scalability
Code obfuscation
Notable projects
Zcash on Ethereum
CollCo
Cello
Qtum
Bitcoin-NG
Solidus
Hawk
Town-Crier
SETLCoin
TEEChan
Falcon
Bletchley
Casper
Miscellaneous tools
Solidity extension for Microsoft Visual Studio
MetaMask
Stratis
Embark
DAPPLE
Meteor
uPort
INFURA
Convergence with other industries
Future
Summary
Other Books You May Enjoy
Leave a review - let other readers know what you think
Preface
Blockchain technology is a distributed ledger with applications in industries such as finance, government, and media. This Learning Path is your guide to building blockchain networks using Ethereum, JavaScript, and Solidity. You will get started by understanding the technical foundations of blockchain technology, including distributed systems, cryptography and how this digital ledger keeps data secure. Further into the chapters, you’ll gain insights into developing applications using Ethereum and Hyperledger. As you build on your knowledge of Ether security, mining , smart contracts, and Solidity, you’ll learn how to create robust and secure applications that run exactly as programmed without being affected by fraud, censorship, or third-party interference. Toward the concluding chapters, you’ll explore how blockchain solutions can be implemented in applications such as IoT apps, in addition to its use in currencies. The book will also highlight how you can increase blockchain scalability and even discusses the future scope of this fascinating and powerful technology. By the end of this Learning Path, you'll be equipped with the skills you need to tackle pain points encountered in the blockchain life cycle and confidently design and deploy decentralized applications. This Learning Path includes content from the following Packt products:
Mastering Blockchain - Second Edition by Imran Bashir
Building Blockchain Projects by Narayan Prusty
Who this book is for
This Learning Path is designed for blockchain developers who want to build decentralized applications and smart contracts from scratch using Hyperledger. Basic familiarity with any programming language will be useful to get started with this course
What this book covers
Chapter 1, Blockchain 101, introduces the basic concepts of distributed computing on which blockchain technology is based. It also covers history, definitions, features, types, and benefits of blockchains along with various consensus mechanisms that are at the core of the blockchain technology.
Chapter 2, Decentralization, covers the concept of decentralization and its relationship with blockchain technology. Various methods and platforms that can be used to decentralize a process or a system have also been introduced.
Chapter 3, Understanding How Ethereum Works, explains how Ethereum works.
Chapter 4, Smart Contracts, provides an in-depth discussion on smart contracts. Topics such as history, the definition of smart contracts, Ricardian contracts, Oracles, and the theoretical aspects of smart contracts are presented in this chapter.
Chapter 5, Symmetric Cryptography, introduces the theoretical foundations of symmetric cryptography, which is necessary to understand how various security services such as confidentiality and integrity are provided.
Chapter 6, Public Key Cryptography, introduces concepts such as public and private keys, digital signatures and hash functions with practical examples. Finally, an introduction to financial markets is also included as there are many interesting use cases for blockchain technology in the financial sector.
Chapter 7, Getting Started with web3.js, introduces web3js and how to import and connect to geth. It also explains how to use it in Node.js or client-side JavaScript.
Chapter 8, Introducing Bitcoin, covers Bitcoin, the first and largest blockchain. It introduces technical concepts related to bitcoin cryptocurrency in detail.
Chapter 9, Building a Wallet Service, explains how to build a wallet service that users can use to create and manage Ethereum Wallets easily, even offline. We will specifically use the LightWallet library to achieve this.
Chapter 10, Alternative Coins, introduces alternative cryptocurrencies that were introduced after the invention of Bitcoin. It also presents examples of different altcoins, their properties, and how they have been developed and implemented.
Chapter 11, Development Tools and Frameworks, provides a detailed practical introduction to the Solidity programming language and different relevant tools and frameworks that are used for Ethereum development.
Chapter 12, Building a Betting App, explains how to use Oraclize to make HTTP requests from Ethereum smart contracts to access data from the World Wide Web. We will also learn how to access files stored in IPFS, use the strings library to work with strings, and more.
Chapter 13, Hyperledger, presents a discussion about the Hyperledger project from the Linux Foundation, which includes different blockchain projects introduced by its members.
Chapter 14, Alternative Blockchains, introduces alternative blockchain solutions and platforms. It provides technical details and features of alternative blockchains and relevant platforms.
Chapter 15, Blockchain - Outside of Currencies, provides a practical and detailed introduction to applications of blockchain technology in fields others than cryptocurrencies, including Internet of Things, government, media, and finance.
Chapter 16, Scalability and Other Challenges, is dedicated to a discussion of the challenges faced by blockchain technology and how to address them.
Chapter 17, Building a Consortium Blockchain, will discuss consortium blockchain.
Chapter 18, Current Landscape and What's Next, is aimed at providing information about the current landscape, projects, and research efforts related to blockchain technology. Also, some predictions based on the current state of blockchain technology have been made.
To get the most out of this book
You require Windows 7 SP1+, 8, 10 or Mac OS X 10.8+, examples in this book have been developed on Ubuntu 16.04.1 LTS (Xenial) and macOS version 10.13.2. As such, it is recommended to use Ubuntu or any other Unix like system. However, any appropriate operating system, either Windows or Linux, can be used, but examples, especially those related to installation, may need to be changed accordingly.
Examples related to cryptography have been developed using the OpenSSL 1.0.2g 1 Mar 2016 command-line tool.
Ethereum Solidity examples have been developed using Remix IDE, available online at https:/ / remix. ethereum. org
Ethereum Byzantine release is used to develop Ethereum-related examples. At the time of writing, this is the latest version available and can be downloaded from https:/ / www. ethereum. org/ .
Examples related to IoT have been developed using a Raspberry Pi kit by Vilros, but any aapropriate latest model or kit can be used. Specifically, Raspberry Pi 3 Model B V 1.2 has been used to build the hardware example of IoT. Node.js V8.9.3 and npm V5.5.1 have been used to download related packages and run Node js server for IoT examples.
The Truffle framework has been used in some examples of smart contract deployment, and is available at http://truffleframework.com/. Any latest version available via npm should be appropriate.
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Blockchain 101
If you are reading this book, it is very likely that you alreadyhaveheard about blockchain andhavesome fundamental appreciation of its enormous potential. If not, then let me tell you that this is a technology that has promised to positively alter the existing paradigms of nearly all industries including, but not limited to IT, finance, government, media, medical, and law.
This chapter serves an introduction to blockchain technology, its technical foundations, the theory behind it, and various techniques that have been combined together to build what is known today as blockchain.
In this chapter, we first describe the theoretical foundations of distributed systems. Next, we address the precursors of Bitcoin by which blockchain technology was introduced to the world. Finally, we introduce you to blockchain technology. This approach is a logical way to understanding blockchain technology, as the roots of blockchain are in distributed systems. We will cover a lot of ground quickly here, but don't worry—we will go over a great deal of this material in much greater detail as you move through the book.
The growth of blockchain technology
With the invention of Bitcoin in 2008, the world was introduced to a new concept, which is now likely to revolutionize the whole of society. It is something that promises to have an impact on every industry, including but not limited to the financial sector, government, media, law, and arts. Some describe blockchain as a revolution, whereas another school of thought believes that it is going to be more evolutionary, and it will take many years before any practical benefits of blockchain reach fruition. This thinking is correct to some extent, but in my opinion, the revolution has already begun.
Many prominent organizations all around the world are already writing proofs of concept using blockchain technology, as its disruptive potential has now been fully recognized. However, some organizations are still in the preliminary exploration stage, though they are expected to progress more quickly as the technology matures. It is a technology that has an impact on current technologies too and possesses the ability to change them at a fundamental level.
If we look at the last few years, we notice that in 2013 some ideas started to emerge that suggested usage of blockchain in other areas than cryptocurrencies. Around that time the primary usage of blockchain was cryptocurrencies, and many new coins emerged during that time. The following graph shows a broad-spectrum outline of year wise progression and adaption trend of blockchain technology. Years shown on the x axis indicate the range of time in which a specific phase of blockchain technology falls. Each phase has a name which represents the action and is shown on the x axis starting from the period of IDEAS & THOUGHTS to eventually MATURITY & FURTHER STANDARDIZATION. The y axis shows level of activity, involvement and adoption of blockchain technology. The graph shows that eventually, roughly around 2025 blockchain technology is expected to become mature with a high number of users.
The preceding graph shows that in 2013 IDEAS & THOUGHTS emerged related to other usages of blockchain technology apart from cryptocurrencies. Then in 2014 some RESEARCH & EXPERIMENTATION started which led to PROOF OF CONCEPTS, FURTHER RESEARCH, and full-scale TRIAL PROJECTS between 2015 and 2017. In 2018 we will see REAL WORLD IMPLEMENTATIONS. Already many projects are underway and set to replace existing systems, for example, Australian Securities Exchange (ASX) is soon to become the first organization to replace its legacy clearing and settlement system with blockchain technology.
It is expected that during 2019 more research will be carried out along with some interest towards regulation and standardization of blockchain technology. After this, production ready projects and off the shelf products utilizing blockchain technology will be available from 2020 and by 2021 mainstream usage of blockchain technology is expected to start. Progress in blockchain technology almost feels like the internet dot-com boom of the late 1990s. More research is expected to continue along with adaption and further maturity of blockchain technology, and finally, in 2025 it is expected that the technology will be mature enough to be used on day to day basis. Please note that the timelines provided in the chart are not strict and can vary as it is quite difficult to predict that when exactly blockchain technology will become mature. This graph is based on the progress made in the recent years and the current climate of research, interest and enthusiasm regarding this technology which suggests that by 2025 blockchain technology is expected to become mature.
Interest in blockchain technology has risen quite significantly over the last few years. Once dismissed as simply geek money from a cryptocurrency point of view, or as something that was just not considered worth pursuing, blockchain is now being researched by the largest companies and organizations around the world. Millions of dollars are being spent to adapt and experiment with this technology. This is evident from recent actions taken by European Union where they have announced plans to increase funding for blockchain research to almost 340 million euros by 2020.
Another report suggests that global spending on blockchain technology research could reach 9.2 billion dollars by 2021.
There are various consortiums such as Enterprise Ethereum Alliance(EEA), Hyperledger, and R3, which have been established for research and development of blockchain technology. Moreover, a large number of start-ups are providing blockchain-based solutions already. A simple trend search on Google reveals the immense scale of interest in blockchain technology over the last few years. Especially, since early 2017 the increase in the search termblockchainis quite significant, as shown in the following graph:
Various benefits of this technology are envisioned, such as decentralized trust, cost savings, transparency, and efficiency. However, there are multiple challenges too that are an area of active research on blockchain, such as scalability and privacy.
In this book, we are going to see how blockchain technology can help bring about the benefits mentioned earlier. You are going to learn about what exactly is blockchain technology, and how it can reshape businesses, multiple industries, and indeed everyday life by bringing about a plenitude of benefits such as efficiency, cost saving, transparency, and security. We will also explore what is distributed ledger technology, decentralization, and smart contracts and how technology solutions can be developed and implemented using mainstream blockchain platforms such as Ethereum, and Hyperledger. We will also investigate that what challenges need to be addressed before blockchain can become a mainstream technology.
Chapter 16, Scalability and Other Challenges, is dedicated to a discussion of the limitations and challenges of blockchain technology.
Distributed systems
Understanding distributed systems is essential to the understanding of blockchain technology, as blockchain is a distributed system at its core. It is a distributed ledger which can be centralized or decentralized. A blockchain is originally intended to be and is usually used as a decentralized platform. It can be thought of as a system that has properties of both decentralized and distributed paradigms. It is a decentralized-distributed system.
Distributed systems are a computing paradigm whereby two or more nodes work with each other in a coordinated fashion to achieve a common outcome. It is modeled in such a way that end users see it as a single logical platform. For example, Google's search engine is based on a large distributed system, but to a user, it looks like a single, coherent platform.
A node can be defined as an individual player in a distributed system. All nodes are capable of sending and receiving messages to and from each other. Nodes can be honest, faulty, or malicious, and they have memory and a processor. A node that exhibits irrational behavior is also known as a Byzantine node after the Byzantine Generals Problem.
This type of inconsistent behavior of Byzantine nodes can be intentionally malicious, which is detrimental to the operation of the network. Any unexpected behavior by a node on the network, whether malicious or not, can be categorized as Byzantine.
A small-scale example of a distributed system is shown in the following diagram. This distributed system has six nodes out of which one (N4) is a Byzantine node leading to possible data inconsistency. L2 is a link that is broken or slow, and this can lead to partition in the network.
The primary challenge in distributed system design is coordination between nodes and fault tolerance. Even if some of the nodes become faulty or network links break, the distributed system should be able to tolerate this and continue to work to achieve the desired result. This problem has been an active area of distributed system design research for many years, and several algorithms and mechanisms have been proposed to overcome these issues.
Distributed systems are so challenging to design that a hypothesis known as the CAP theorem has been proven, which states that a distributed system cannot have all three of the much-desired properties simultaneously; that is, consistency, availability, and partition tolerance. We will dive into the CAP theorem in more detail later in this chapter.
The history of blockchain and Bitcoin
Blockchain was introduced with the invention of Bitcoin in 2008. Its practical implementation then occurred in 2009. For the purposes of this chapter, it is sufficient to review Bitcoin very briefly, as it will be explored in great depth in Chapter8, Introducing Bitcoin. However, it is essential to refer to Bitcoin because, without it, the history of blockchain is not complete.
Electronic cash
The concept of electronic cash or digital currency is not new. Since the 1980s, e-cash protocols have existed that are based on a model proposed by David Chaum.
Just as understanding the concept of distributed systems is necessary to comprehend blockchain technology, the idea of electronic cash is also essential in order to appreciate the first and astonishingly successful application of blockchain, Bitcoin, or more broadly cryptocurrencies in general.
Two fundamental e-cash system issues need to be addressed: accountability and anonymity.
Accountability is required to ensure that cash is spendable only once (double-spend problem) and that it can only be spent by its rightful owner. Double spend problem arises when same money can be spent twice. As it is quite easy to make copies of digital data, this becomes a big issue in digital currencies as you can make many copies of same digital cash. Anonymity is required to protect users' privacy. As with physical cash, it is almost impossible to trace back spending to the individual who actually paid the money.
David Chaum solved both of these problems during his work in 1980s by using two cryptographic operations, namely blind signatures and secret sharing. These terminologies and related concepts will be discussed in detail in Chapter 5, Symmetric Cryptography and Chapter 6, Public Key Cryptography. For the moment, it is sufficient to say that blind signatures allow for signing a document without actually seeing it, and secret sharing is a concept that enables the detection of double spending, that is using the same e-cash token twice (double spending).
In 2009, the first practical implementation of an electronic cash (e-cash) system named Bitcoin appeared. The term cryptocurrency emerged later. For the very first time, it solved the problem of distributed consensus in a trustless network. It used public key cryptography with a Proof of Work (PoW) mechanism to provide a secure, controlled, and decentralized method of minting digital currency. The key innovation was the idea of an ordered list of blocks composed of transactions and cryptographically secured by the PoW mechanism. This concept will be explained in greater detail in Chapter 8, Introducing Bitcoin.
Other technologies used in Bitcoin, but which existed before its invention, include Merkle trees, hash functions, and hash chains. All these concepts are explained in appropriate depth in Chapter 6, Public Key Cryptography.
Looking at all the technologies mentioned earlier and their relevant history, it is easy to see how concepts from electronic cash schemes and distributed systems were combined to create Bitcoin and what now is known as blockchain. This concept can also be visualized with the help of the following diagram:
Blockchain
In 2008, a groundbreaking paper entitled Bitcoin: A Peer-to-Peer Electronic Cash System was written on the topic of peer-to-peer electronic cash under the pseudonym Satoshi Nakamoto. It introduced the term chain of blocks. No one knows the actual identity of Satoshi Nakamoto. After introducing Bitcoin in 2009, he remained active in the Bitcoin developer community until 2011. He then handed over Bitcoin development to its core developers and simply disappeared. Since then, there has been no communication from him whatsoever, and his existence and identity are shrouded in mystery. The term chain of blocks evolved over the years into the word blockchain.
As stated earlier, blockchain technology incorporates a multitude of applications that can be implemented in various economic sectors. Particularly in the finance sector, significant improvement in the performance of financial transactions and settlements is seen as resulting in desirable time and cost reductions. It is sufficient to say that parts of nearly all economic sectors have already realized the potential and promise of blockchain and have embarked, or will do so soon, on the journey to capitalize on the benefits of blockchain technology.
Blockchain defined
Now let's examine the preceding definitions in more detail. We will look at all keywords in the definitions one by one.
Peer-to-peer
The first keyword in the technical definition is peer-to-peer. This means that there is no central controller in the network, and all participants talk to each other directly. This property allows for cash transactions to be exchanged directly among the peers without a third-party involvement, such as by a bank.
Distributed ledger
Dissecting the technical definition further reveals that blockchain is a distributed ledger, which simply means that a ledger is spread across the network among all peers in the network, and each peer holds a copy of the complete ledger.
Cryptographically-secure
Next, we see that this ledger is cryptographically-secure, which means that cryptography has been used to provide security services which make this ledger secure against tampering and misuse. These services include non-repudiation, data integrity, and data origin authentication. You will see how this is achieved later in Chapter 5, Symmetric Cryptography which introduces the fascinating world of cryptography.
Append-only
Another property that we encounter is that blockchain is append-only, which means that data can only be added to the blockchain in time-ordered sequential order. This property implies that once data is added to the blockchain, it is almost impossible to change that data and can be considered practically immutable. Nonetheless, it can be changed in rare scenarios wherein collusion against the blockchain network succeeds in gaining more than 51 percent of the power. There may be some legitimate reasons to change data in the blockchain once it has been added, such as the right to be forgotten or right to erasure (also defined in General Data Protection (GDPR) ruling, https://gdpr-info.eu/art-17-gdpr/).
However, those are individual cases that need to be handled separately and that require an elegant technical solution. For all practical purposes, blockchain is indeed immutable and cannot be changed.
Updateable via consensus
Finally, the most critical attribute of a blockchain is that it is updateable only via consensus. This is what gives it the power of decentralization. In this scenario, no central authority is in control of updating the ledger. Instead, any update made to the blockchain is validated against strict criteria defined by the blockchain protocol and added to the blockchain only after a consensus has been reached among all participating peers/nodes on the network. To achieve consensus, there are various consensus facilitation algorithms which ensure that all parties are in agreement about the final state of the data on the blockchain network and resolutely agree upon it to be true. Consensus algorithms are discussed later in this chapter and throughout the book as appropriate.
Blockchain can be thought of as a layer of a distributed peer-to-peer network running on top of the internet, as can be seen in the following diagram. It is analogous to SMTP, HTTP, or FTP running on top of TCP/IP.
At the bottom layer in the preceding diagram, there is the internet, which provides a basic communication layer for any network. In this case, a peer-to-peer network runs on top of the internet, which hosts another layer of blockchain. That layer contains transactions, blocks, consensus mechanisms, state machines, and blockchain smart contracts. All of these components are shown as a single logical entity in a box, representing blockchain above the peer-to-peer network. Finally, at the top, there are users or nodes that connect to the blockchain and perform various operations such as consensus, transaction verification, and processing. These concepts will be discussed in detail later in this book.
From a business standpoint, a blockchain can be defined as a platform where peers can exchange value / electronic cash using transactions without the need for a centrally-trusted arbitrator. For example, for cash transfers, banks act as a trusted third party. In financial trading, a central clearing house acts as an arbitrator between two trading parties. This concept is compelling, and once you absorb it, you will realize the enormous potential of blockchain technology. This disintermediation allows blockchain to be a decentralized consensus mechanism where no single authority is in charge of the database. Immediately, you'll see a significant benefit of decentralization here, because if no banks or central clearing houses are required, then it immediately leads to cost savings, faster transaction speeds, and trust.
A block is merely a selection of transactions bundled together and organized logically. A transaction is a record of an event, for example, the event of transferring cash from a sender's account to a beneficiary's account. A block is made up of transactions, and its size varies depending on the type and design of the blockchain in use.
A reference to a previous block is also included in the block unless it is a genesis block. A genesis block is the first block in the blockchain that is hardcoded at the time the blockchain was first started. The structure of a block is also dependent on the type and design of a blockchain. Generally, however, there are just a few attributes that are essential to the functionality of a block: the block header, which is composed of pointer to previous block, the timestamp, nonce, Merkle root, and the block body that contains transactions. There are also other attributes in a block, but generally, the aforementioned components are always available in a block.
A nonce is a number that is generated and used only once. A nonce is used extensively in many cryptographic operations to provide replay protection, authentication, and encryption. In blockchain, it's used in PoW consensus algorithms and for transaction replay protection.
Merkle root is a hash of all of the nodes of a Merkle tree. Merkle trees are widely used to validate the large data structures securely and efficiently. In the blockchain world, Merkle trees are commonly used to allow efficient verification of transactions. Merkle root in a blockchain is present in the block header section of a block, which is the hash of all transactions in a block. This means that verifying only the Merkle root is required to verify all transactions present in the Merkle tree instead of verifying all transactions one by one. We will elaborate further on these concepts in Chapter 6, Public Key Cryptography.
This preceding structure is a simple block diagram that depicts a block. Specific block structures relative to their blockchain technologies will be discussed later in the book with greater in-depth technical detail.
Generic elements of a blockchain
Now, let's walk through the generic elements of a blockchain. You can use this as a handy reference section if you ever need a reminder about the different parts of a blockchain. More precise elements will be discussed in the context of their respective blockchains in later chapters, for example, the Ethereum blockchain. The structure of a generic blockchain can be visualized with the help of the following diagram:
Elements of a generic blockchain are described here one by one. These are the elements that you will come across in relation to blockchain:
Address
: Addresses are unique identifiers used in a blockchain transaction to denote senders and recipients. An address is usually a public key or derived from a public key. While addresses can be reused by the same user, addresses themselves are unique. In practice, however, a single user may not use the same address again and generate a new one for each transaction. This newly-created address will be unique. Bitcoin is, in fact, a pseudonymous system. End users are usually not directly identifiable, but some research in removing the anonymity of Bitcoin users has shown that they can be identified successfully. A good practice is for users to generate a new address for each transaction in order to avoid linking transactions to the common owner, thus preventing identification.
Transaction
: A transaction is the fundamental unit of a blockchain. A transaction represents a transfer of value from one address to another.
Block
: A block is composed of multiple transactions and other elements, such as the previous block hash (hash pointer), timestamp, and nonce.
Peer-to-peer network
: As the name implies, a peer-to-peer network is a network topology wherein all peers can communicate with each other and send and receive messages.
Scripting or programming language
: Scripts or programs perform various operations on a transaction in order to facilitate various functions. For example, in Bitcoin, transaction scripts are predefined in a language called
Script
, which consist of sets of commands that allow nodes to transfer tokens from one address to another. Script is a limited language, however, in the sense that it only allows essential operations that are necessary for executing transactions, but it does not allow for arbitrary program development. Think of it as a calculator that only supports standard preprogrammed arithmetic operations. As such, Bitcoin script language cannot be called
Turing complete
. In simple words, Turing complete language means that it can perform any computation. It is named after Alan Turing who developed the idea of Turing machine that can run any algorithm however complex. Turing complete languages need loops and branching capability to perform complex computations. Therefore, Bitcoin's scripting language is not Turing complete, whereas Ethereum's Solidity language is.
To facilitate arbitrary program development on a blockchain, Turing complete programming language is needed, and it is now a very desirable feature of blockchains. Think of this as a computer that allows development of any program using programming languages. Nevertheless, the security of such languages is a crucial question and an essential and ongoing research area. We will discuss this in greater detail in Chapter 8, Introducing Bitcoin, Chapter 4, Smart Contracts, and Chapter 11, Development Tools and Frameworks, later in this book.
Virtual machine
: This is an extension of the transaction script introduced earlier. A
virtual machine
allows Turing complete code to be run on a blockchain (as smart contracts); whereas a transaction script is limited in its operation. However, virtual machines are not available on all blockchains. Various blockchains use virtual machines to run programs such as
Ethereum Virtual Machine
(
EVM
) and
Chain Virtual Machine
(
CVM
). EVM is used in Ethereum blockchain, while CVM is a virtual machine developed for and used in an enterprise-grade blockchain called
Chain Core
.
State machine
: A blockchain can be viewed as a state transition mechanism whereby a state is modified from its initial form to the next one and eventually to a final form by nodes on the blockchain network as a result of a transaction execution, validation, and finalization process.
Node
: A node in a blockchain network performs various functions depending on the role that it takes on. A node can propose and validate transactions and perform mining to facilitate consensus and secure the blockchain. This goal is achieved by following a
consensus protocol
(most commonly PoW). Nodes can also perform other functions such as simple payment verification (lightweight nodes), validation, and many other functions depending on the type of the blockchain used and the role assigned to the node. Nodes also perform a transaction signing function. Transactions are first created by nodes and then also digitally signed by nodes using private keys as proof that they are the legitimate owner of the asset that they wish to transfer to someone else on the blockchain network. This asset is usually a token or virtual currency, such as Bitcoin, but it can also be any real-world asset represented on the blockchain by using tokens.
Smart contract
: These programs run on top of the blockchain and encapsulate the business logic to be executed when certain conditions are met. These programs are enforceable and automatically executable. The smart contract feature is not available on all blockchain platforms, but it is now becoming a very desirable feature due to the flexibility and power that it provides to the blockchain applications. Smart contracts have many use cases, including but not limited to identity management, capital markets, trade finance, record management, insurance, and e-governance. Smart contracts will be discussed in more detail in
Chapter 4
,
Smart Contracts
.
How blockchain works
We have now defined and described blockchain. Now let's see how a blockchain actually works. Nodes are either miners who create new blocks and mint cryptocurrency (coins) or block signers who validates and digitally sign the transactions. A critical decision that every blockchain network has to make is to figure out that which node will append the next block to the blockchain. This decision is made using a consensus mechanism. The consensus mechanism will be described later in this chapter.
Now we will look at the how a blockchain validates transactions and creates and adds blocks to grow the blockchain.
How blockchain accumulates blocks
Now we will look at a general scheme for creating blocks. This scheme is presented here to give you a general idea of how blocks are generated and what the relationship is between transactions and blocks:
A node starts a transaction by first creating and then digitally signing it with its private key. A transaction can represent various actions in a blockchain. Most commonly this is a data structure that represents transfer of value between users on the blockchain network. Transaction data structure usually consists of some logic of transfer of value, relevant rules, source and destination addresses, and other validation information. This will be covered in more detail in specific chapters on Bitcoin and Ethereum later in the book.
A transaction is propagated (flooded) by using a flooding protocol, called Gossip protocol, to peers that validate the transaction based on preset criteria. Usually, more than one node are required to verify the transaction.
Once the transaction is validated, it is included in a block, which is then propagated onto the network. At this point, the transaction is considered confirmed.
The newly-created block now becomes part of the ledger, and the next block links itself cryptographically back to this block. This link is a hash pointer. At this stage, the transaction gets its second confirmation and the block gets its first confirmation.
Transactions are then reconfirmed every time a new block is created. Usually, six confirmations in the Bitcoin network are required to consider the transaction final.
It is worth noting that steps 4 and 5 are considered non-compulsory, as the transaction itself is finalized in step 3; however, block confirmation and further transaction reconfirmations, if required, are then carried out in step 4 and step 5.
This completes the basic introduction to blockchain. In the next section, you will learn about the benefits and limitations of this technology.
Benefits and limitations of blockchain
Numerous advantages of blockchain technology have been discussed in many industries and proposed by thought leaders around the world who are participating in the blockchain space. The notable benefits of blockchain technology are as follows:
Decentralization
: This is a core concept and benefit of the blockchain. There is no need for a trusted third party or intermediary to validate transactions; instead, a consensus mechanism is used to agree on the validity of transactions.
Transparency and trust
: Because blockchains are shared and everyone can see what is on the blockchain, this allows the system to be transparent. As a result, trust is established. This is more relevant in scenarios such as the disbursement of funds or benefits where personal discretion in relation to selecting beneficiaries needs to be restricted.
Immutability
: Once the data has been written to the blockchain, it is extremely difficult to change it back. It is not genuinely immutable, but because changing data is so challenging and nearly impossible, this is seen as a benefit to maintaining an immutable ledger of transactions.
High availability
: As the system is based on thousands of nodes in a peer-to-peer network, and the data is replicated and updated on every node, the system becomes highly available. Even if some nodes leave the network or become inaccessible, the network as a whole continues to work, thus making it highly available. This redundancy results in high availability.
Highly secure
: All transactions on a blockchain are cryptographically secured and thus provide network integrity.
Simplification of current paradigms
