Handbook on Blockchain

Preface
Contents
Foundation
Blockchain in a Nutshell
1 Introduction
2 What is Blockchain
2.1 The Blockchain Computer
2.2 The Blockchain State
2.3 The Chain Structure
2.4 Use of Cryptography
2.5 Where is Blockchain Stored
2.6 How to Process a Transaction
2.7 How to Achieve Consensus
3 The Bitcoin Network
3.1 Addresses
3.2 Elliptic Curve Cryptography
3.3 Transactions
3.4 Blocks
3.5 Mining Difficulty
3.6 Mining (Un)Fairness
3.7 Block Finality
4 Smart-Contract Blockchains
4.1 Smart Contract
4.2 Token Creation
4.3 Transaction Processing
4.4 Block Validation
4.5 Contract Interoperability
5 Blockchain Scalability
5.1 The Blockchain Trilemma
5.2 Layer-2 Scalability
6 Blockchain Interoperability
6.1 Atomic Swap
6.2 Chain Bridge
6.3 Chain Hub
7 Conclusions
References
Blockchain Peer-to-Peer Network: Performance and Security
1 Introduction
1.1 Related Work
2 Overview
3 Network Topology
3.1 Bitcoin P2P Network
3.2 Ethereum's P2P Network
3.3 Data Forwarding
4 Attacks on Blockchain P2P Networks
4.1 Eclipse Attacks
4.2 Network Partitioning Attacks
4.3 DDoS Attacks
4.4 Man-in-the-Middle Attacks
4.5 Deanonymization Attacks
5 Performance
5.1 Throughput
5.2 Latency
6 Performance Improvement as an Optimization Problem
6.1 Optimization Problem
6.2 Throughput-Optimal Propagation Scheme for Single-Source Problem
6.3 Throughput-Optimal Propagation Scheme for Blockchain Data Forwarding Problem
7 Conclusion
References
Consensus Algorithms for Blockchain
1 Introduction
2 Evaluation Criteria
2.1 Related Works
2.2 Evaluation Framework
3 Consensus Algorithms
3.1 Proof-Based Consensus Algorithms
3.2 Proof of Work (PoW)
3.3 Proof of Stake (PoS)
3.4 Vote-Based Consensus Algorithms
4 Evaluation
5 Conclusion
References
Blockchain Incentive Design and Analysis
1 Introduction
2 Incentive Design and Analysis in Bitcoin
2.1 Overview of Bitcoin
2.2 Selfish Mining in Bitcoin
2.3 Theoretical Results on Selfish Mining in Bitcoin
3 Incentive Design and Analysis in Ethereum
3.1 Overview of Ethereum
3.2 Reward Design and Its Impact on Selfish Mining
3.3 Theoretical Results on Selfish Mining in Ethereum
4 Incentive Design and Analysis in Bitcoin-NG
4.1 Overview of Bitcoin-NG
4.2 Microblocks and Its Incentive-Based Attacks
4.3 Theoretical Results on Microblocks Mining
4.4 Theoretical Results on Microblocks and Key-Block Mining in Bitcoin-NG
5 Further Reading
6 Conclusion
References
Cross-Blockchain Transactions: Systems, Protocols, and Topological Theory
1 Introduction
2 Internet-of-Blockchains Systems
2.1 Background
2.2 Architecture
2.3 Consensus Protocol
2.4 Communication Model
2.5 Programming Interface
2.6 Limitation
3 Protocols of Chain-to-Chain Federation
3.1 C2C Blockchain Transactions Through Time Locks
3.2 CBT Protocols Through Two-Phase Commits
3.3 Atomicity of Forked Blockchains: A Taxonomy of Protocols
3.4 Limitation
4 A Topological Theory of Cross-Blockchain Transactions
4.1 Topological Preliminaries
4.2 Assumptions and Notations
4.3 Topological Space of No-Fork Blockchains
4.4 Topological Space of Static-Fork Complexes
4.5 Topological Space of Growing Fork Blockchains
4.6 Analyzing Blockchains Through Algebraic Topology
5 Bibliographic Notes
References
Scalability
Scaling Blockchains and the Case for Ethereum
1 Introduction to the Scaling Problem
1.1 Considerations
1.2 Naive Scaling Solutions
1.3 Types of Scaling Solutions
2 Layer-1 Scaling Solutions
2.1 Sharding
2.2 Ethereum 2.0
3 Layer-2 Scaling Solutions
3.1 Side Chains
3.2 Rollups
4 Conclusion
References
Building Protocols for Scalable Decentralized Applications
1 Introduction
2 Decentralized Ledger Abstraction
2.1 Consistency
2.2 Immutability
2.3 Auditability
3 Decentralized Ledger Technologies
3.1 Assumptions and Attack Model
3.2 Data and Transaction Models
3.3 Smart Contracts
3.4 Committee-Based Consensus
3.5 Sybil Detection
3.6 Nakamoto Consensus
3.7 Bottlenecks
4 Improved and Novel Consensus Mechanisms
4.1 Improved Committee-Based Consensus Protocols
4.2 Minor Changes to Nakamoto Consensus
4.3 Decoupling Mining from Transaction Serialization
4.4 Novel Proof-of-Stake Protocols
4.5 Summary
5 Sharding Blockchains
5.1 Challenges in Sharding Blockchains
5.2 Foundations
5.3 Public Blockchain Sharding Protocols
5.4 Summary
6 Layer-2 Solutions
6.1 Building Blocks
6.2 Payment Channels
6.3 State Channels
6.4 Watchtowers
6.5 Subchains
6.6 Optimistic Rollups
6.7 Summary
7 Federated Chains
7.1 Cross-Chain Swaps
7.2 Polkadot
7.3 Avalanche Subnetworks and Cosmos Zones
7.4 Summary
8 Conclusion
References
Information-Theoretic Approaches to Blockchain Scalability
1 Introduction
2 Blockchain System Primer
2.1 The Blockchain Network
2.2 Ledger Construction
2.3 Costs of Maintaining Blockchain Ledger
3 The Storage Problem with Blockchain Systems
4 Dynamic Distributed Storage—On Blockchain Storage Cost Reduction
4.1 Problem Description
4.2 Coding Data Block
4.3 Recovery Scheme
4.4 Feasible Encryption Scheme
4.5 Dynamic Zone Allocation
4.6 Security Enhancement
5 Application-Based Scalable Blockchain Methods
5.1 Problem Statement
5.2 Computation Model
5.3 Validation Protocol
5.4 Client Operations
5.5 Endorser and Orderer Operations
5.6 Parameter Agnostic Design
5.7 Computations with External Randomness
5.8 Iterative Experiments with MNIST Training
5.9 Extensions of Distributed Trust Protocol
6 Future Work
7 Conclusion
References
Trust and Security
On Trust, Blockchain, and Reputation Systems
1 Introduction
2 Definitions and Fundamentals
2.1 Definitions of Trust
2.2 Blockchains as a Trust Enabler Platform
2.3 Taxonomy of Reputation
2.4 Discussion of Trust and Reputation in Blockchains and Distributed Ledgers
3 Tools and Methods for Blockchain Reputation Tracking
3.1 Reputation Tokens
3.2 Event Reputation Factors
3.3 Reputation Thresholds
3.4 Multi Signature Transaction (Multi-Sig)
3.5 Optimistic Fair Exchange
3.6 Anonymous Feedback
3.7 Insurance Models
3.8 Reputation Engines
3.9 Reaction and Service Differentiation
3.10 Graph and Flow Engines
4 Case Study of Blockchain-Based Reputation in a Cooperative Defense
4.1 Analysis of Reputation Properties
4.2 Analysis of Reputation Threats
5 Chapter Considerations
References
Blockchain for Trust and Reputation Management in Cyber-Physical Systems
1 Introduction
2 Blockchain-Based Trust and Reputation Management Systems
2.1 Trust and Reputation Management Systems for CPS
2.2 Adopting Blockchain for TRMS
3 Use Cases
3.1 Generic CPS Trust Architecture
3.2 Supply Chain Management
3.3 Crowdsourcing
3.4 Robotic and Autonomous Systems
3.5 Vehicular Ad Hoc Networks
3.6 IoT Data Marketplace
3.7 Distributed Energy Trading
4 Challenges and Future Directions
4.1 Scalability
4.2 Privacy
4.3 Resource Consumption
4.4 Security
4.5 Interoperability
5 Conclusion
References
Advances in Blockchain Security
1 Introduction
2 Background
2.1 Cryptographic Primitives
2.2 Blockchain Primer
3 Blockchain Security: Attacks and Counter-measures
3.1 Blockchain Network
3.2 Smart Contracts
3.3 Other Security Issues
4 Other Significant Advances in Blockchain
4.1 Anonymous Transactions
4.2 Consensus Protocols
4.3 Trusted Execution Environments (TEE) in Blockchain
5 Conclusions
References
Formal Verification of Blockchain Byzantine Fault Tolerance
1 Introduction
2 The Problem of Proving Blockchain Consensus Algorithms by Hand
2.1 The HoneyBadger and Its Randomized Binary Consensus
2.2 The Ethereum Blockchain and Its Upcoming Casper Consensus
2.3 Known Problems in Blockchain Byzantine Consensus Algorithms
3 A Methodology for Verifying Blockchain Components
3.1 Preliminaries on ByMC and BV-Broadcast
3.2 Automated Verification of a Blockchain Byzantine Broadcast
4 Verifying a Blockchain Byzantine Consensus Algorithm
4.1 Experimental Results
5 Related Work
6 Discussion and Conclusion
References
Decentralized Finance
Constant Function Market Makers: Multi-asset Trades via Convex Optimization
1 Introduction
1.1 Background and Related Work
1.2 Convex Analysis and Optimization
2 Constant Function Market Makers
2.1 CFMM State
2.2 Proposed Trade
2.3 Trading Function
2.4 Trading Function Examples
2.5 Prices and Exchange Rates
2.6 Adding and Removing Liquidity
2.7 Agents Interacting with CFMMs
3 Properties
3.1 Properties of Trades
3.2 Properties of Liquidity Changes
4 Two-Asset Trades
4.1 Exchange Functions
4.2 Exchanging Multiples of Two Baskets
5 Multi-asset Trades
5.1 The General Trade Choice Problem
5.2 Special Cases
5.3 Numerical Examples
6 Conclusion
References
Stablecoins: Reducing the Volatility of Cryptocurrencies
1 Introduction
2 Types of Stablecoins
3 Fiat or Asset Backed Stablecoins
3.1 Single Fiat-backed—USDC
3.2 Multi-Fiat-backed—Diem
3.3 Single Asset-backed—ECO
3.4 Multi-Asset-backed—DTC
3.5 Settlement Coin—FTC
4 Crypto-Collateralized Stablecoins
4.1 MakerDAO
4.2 Synthetic Assets
5 Algorithmically Stabilized Stablecoins
5.1 Purely Algorithmic—Ampleforth
5.2 Algorithmic Seigniorage—Basis
5.3 Future Value Backed—MetaMUI
6 Central Bank Digital Currencies (CBDCs)
7 Challenges and Risks Regarding Stablecoins
8 Conclusions
References
Central Bank Digital Currencies
1 Introduction
1.1 Central Bank Money
1.2 Typology of CBDCs
1.3 The Growing Interest in Issuing a CBDC
2 Characteristics and Design Choices for CBDCs
2.1 Core-Architecture Considerations
2.2 The Offline-Usability Conundrum
2.3 The Public-Private Interplay Design Factor
2.4 Cross-Border Perspectives (mCBDCs)
3 History of CBDC Projects
3.1 The Research Pioneers: 2015–16
3.2 The Next Wave: 2017–19
3.3 The Age of Maturity: 2020–21
3.4 Trends and Future Expectations
4 Regulatory and Compliance Issues
4.1 CBDCs and Monetary Law
4.2 Anti-Money Laundering and Counter Terrorist Financing
4.3 Cash, Anonymity, and Identification
4.4 Privacy and Data Protection
4.5 Privacy-Transparency Trade-Offs
5 A Deep Dive: Three CBDC Case Studies
5.1 China's DCEP/e-CNY
5.2 Libra/Diem by Facebook et al.
5.3 Model X: a Canadian Central Bank Digital Loonie
6 Conclusions
References
Application and Policy
Ocean Protocol: Tools for the Web3 Data Economy
1 Overview and Introduction
2 Ocean System
2.1 Goals
2.2 The Design
3 Data Ecosystem Powered by Ocean Tools
3.1 Introduction
3.2 USPs of Ocean Tools
3.3 Ocean Tools Foundation: Datatokens
3.4 Ocean Tools Architecture
3.5 Ocean Tools: Network Deployments
3.6 Ocean Tools: Data Marketplaces
3.7 Ocean Tools: Compute-To-Data
4 Ocean Applications
4.1 Decentralized Orchestration
4.2 Data Wallets: Data Custody and Data Management
4.3 Data Auditability
4.4 Data DAOs: Data Co-Ops and More
4.5 Permissioned Group-Restricted Access in Data Exchanges
4.6 Unlocking Latent Data of Individuals and Enterprises
4.7 Data Marketplaces
4.8 Initial Data Offerings (IDOs)
4.9 Data as an Asset Class for DeFi
5 Conclusion
References
Blockchain in Supply Chain: Opportunities and Design Considerations
1 Introduction
2 Characteristics and Requirements of Supply Chain Applications
2.1 Characteristics of Supply Chain Applications and Networks
2.2 Requirements of Supply Chain
3 Overview of Blockchain Technology
3.1 Introduction to BitCoin
3.2 Other Blockchain Platforms
4 Real-World Applications of Blockchain in Supply Chain
4.1 IBM FoodTrust
4.2 TradeLens
4.3 Other Applications
5 Blockchain-Based Data sharing for Supply Chain
6 Trusted Authentication and Access Control for Supply Chain
6.1 Managing Access Control in Supply Chains
6.2 Trust Management in Supply Chain
6.3 Section Summary
7 Interoperability
7.1 Interoperability Challenges
7.2 Existing Approaches for Interoperability
7.3 Suitability of Interoperability Approaches in Supply Chains
8 Importance of Scalable Blockchains for Supply Chain
9 Design Considerations and Open Challenges
9.1 Public Versus Permissioned Blockchains
9.2 Preventing Garbage-In-Garbage-Out Problem
9.3 Automated Verification of Compliance
9.4 Lack of Common Data Standard
9.5 Privacy Concerns
9.6 Lack of Interoperability with Legacy IT Systems
9.7 Operational Costs
9.8 Lack of Engagement from Field Operators
9.9 Payment Processing Challenges
9.10 Sustainability Demands
10 Decision Tree for Supply Chain
11 Chapter Summary
References
Tokenization of Assets
1 What Are Assets?
2 Asset Ownership
3 Determining Asset Value
4 Asset Valuation Factors
5 Distributed Ledgers
5.1 Types of Distributed Ledgers
5.2 Blockchain Types and Architectures
5.3 Smart Contracts
6 Asset Tokenization
6.1 Types of Assets
6.2 What is Tokenization?
6.3 Types of Tokens
6.4 Digital Asset Marketplaces and Blockchain Architectures
6.5 Valuation of Tokens
6.6 Use Cases for the Adoption of Tokens
6.7 Rewards
6.8 Redemption
7 The Cyber-Physical Divide
7.1 The Last Mile Problem
7.2 Digital Twins
7.3 Blockchain Oracles
7.4 How Do Oracles Work?
8 Trading in Tokens of Assets
8.1 Wallets
8.2 Exchanges
9 Methods of Pricing Tokens
9.1 Fixed Pricing
9.2 Time Based
9.3 Auction
9.4 Dynamic Pricing
9.5 Market Pricing
9.6 Tethered Pricing
10 Opportunities Created by Asset Tokenization
References
The New Economy of Movement
1 The Role of Industry Federations
2 Roaming, Connected Devices, and the New Economy of Movement
2.1 The BASICs
2.2 The New Economy of Movement
3 Introduction to MOBI
3.1 Community
3.2 History and Motivation
3.3 Use Cases
3.4 Goals and Vision
4 Overview of MOBI Working Groups and Standards
4.1 MOBI Working Groups
4.2 MOBI Standards
5 MOBI Web3 Technology Stack (MTS)
5.1 MOBI Consortium
5.2 Integrated Trust Network (ITN)
5.3 Citopia
6 DRIVES (Distributed Registry for Intelligent Vehicles Ecosystem Sustainability) Program
6.1 The What and Why of DRIVES
6.2 DRIVES Program in the MTS
7 Conclusion
References
Blockchain-Based Data Management for Smart Transportation
1 Introduction
2 Data Management Strategies
2.1 The Classic Centralized Approach for Crowd-Sourced Data Aggregation
2.2 Pure P2P: Keep Data Locally and Distribute Upon Request
2.3 A Distributed Ledger Technology to Register Data
2.4 A Decentralized File System for Crowd-Sensed Data
3 A Framework for Data Sharing and Management Based on DLTs and DFS
3.1 Data Integrity
3.2 Data Confidentiality
3.3 Data Access Control
3.4 Data Persistence
4 Implementation and Evaluation
4.1 Implementation
4.2 Performance Evaluation
5 Discussion
5.1 New DLT Proposals
6 Conclusions
References
Crypto Regulation and the Case for Europe
1 Introduction
2 Evolution of Regulatory Views on Blockchain
2.1 First Institutional Statements Before 2016—Cryptocurrencies in Focus
2.2 Year 2016—Cryptocurrencies and First Analysis of DLT
2.3 Year 2017—ICOs Controversies and First Acknowledgements of Crypto Assets
2.4 Year 2018—Cryptocurrencies and Crypto Assets—Focus on Risks and Concerns
2.5 Year 2019—Peak of Interest in ICOs and Crypto Assets and the Impact of Libra
2.6 Year 2020—Stablecoins and MiCA
2.7 Regulatory Uncertainties
3 The Liechtenstein Token Act
3.1 Background
3.2 The Vision of the Token Economy
3.3 Classification of Tokens in Liechtenstein Token Act
3.4 Civil Law of the Token in Liechtenstein Token Act
3.5 Regulation of Service Providers in Liechtenstein Token Act
3.6 User Protection Regulation in Liechtenstein Token Act
4 MiCA in Comparison to the TVTG
5 Review of Regulatory Approaches and Strategies
6 Conclusions
References
Economic Perspectives on the Governance of Blockchains
1 Introduction
2 A Brief Introduction to New Institutional Economics
3 Economic Conceptualizations of Blockchains
4 Permissionless Blockchains and Their Governance
5 Smart Contracts and Their Governance
6 Blockchain and Government
7 Summary and Future Directions
References