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Distributed Ledger Technology (1/3)

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  • Distributed Ledger Technology (1/3)

    One of the tools for implementing a decentralized world is Distributed Ledger Technology (DLT). Simply put, It is a data structure that resides across multiple devices. DLT components are as follows:

    1. Data model: Here we need to specify the format required to display the system state. Bitcoin and Ethereum networks use Unspent Transaction Output (UTXO) and Account, respectively. In the Bitcoin network, the coin distribution is written on each coin. For example, one way to see how much money I have is to look at each of the coins on the net and see which one has my name on it. In contrast, the Ethereum data model looks at this from another aspect. The goal here is to see how many coins each person has.

    2. Language of transaction to show how transaction happens. In fact, each transaction transfers the network from one state to another.

    3. Consensus protocol: DLT technology needs a protocol where all the nodes in the network accept one thing and that is the current state of the network. The consensus mechanism used in the Bitcoin and Ethereun networks is Proof-of-Work (PoW).

    Note: Casper is the implementation that will eventually convert Ethereum into a Proof of Stake (PoS) blockchain (aka Ethereum 2.0). Although Ethereum was launched in the summer of 2015 as a Proof of Work (PoW) blockchain, developers were already planning a long-term transition to the staking model.

    Different types of DLT

    From one perspective, DLT is divided into two groups: public and private.

    1. Public: Two famous examples are Bitcoin and Ethereum. To access this network you basically do not need permission from anyone. For example, you just have to run Ethereum Virtual Machine (EVM) to download blockchain and mine new coins on the Ethereum network.

    2. Private: You cannot licentiously log in this network and do whatever you want. Instead you have to get permission from a number of entities. In other words, this network is not completely open. Since the private network needs to go through the customer identification process, Identities are not unknown. For this reason, this network can use other consensus algorithms such as PBFT. In addition, its efficiency (TPS) is much better than public blockchain though its security is less. An example for it is Hyperledger Fabric.

    From another perspective, DLT is divided into three groups: Blockchain, Tangle, Hashgraph.

    1. Blockchain: In this data structure, data is grouped into a series of blocks that are chained together. Each block includes a batch of transactions arranged. Bitcoin and Ethereum use the blockchain data structure. This is not necessarily the best solution and there may be more efficient solutions.

    2. Tangle: IOTA network utilize this data structure to implement DLT. Here, unlike Bitcoin, nodes are not subdivided into several nodes (including Full nodes, Miners and regular users). Instead, all nodes play a role in the mining process. They have to do very little PoW. Transactions in this network have a tree or DAG (Directed Acyclic Graph) structure. Transactions that have not yet been confirmed are in the last layer (leaf). Suppose Alice wants to transfer money through this network. Alice creates a transaction and based on this transaction selects two of the unconfirmed transactions (located in the last layer) and begins to verify these transactions. To verify a transaction means seeing if it has a backward consistency. For example, whether previous transactions have been confirmed. What I am saying here is quite abstract, and it is not that we really have to move from one end to the other to confirm a transaction, but there are some solutions.
    Last edited by crypto_enthusiast; 1st September 2019, 11:09 AM.