Blockchain

Question 1

What is the enterprise ontology theorie?

Answer 1

Enterprise ontology theory describes an enterprise as a heterogeneous system consisting of three layers:

➢ Datalogical layer: Describes blockchain transactions at the technical level in terms of blocks and code.

➢ Infological layer: Describes the blockchain transactions effectuating open ledger system

➢ Economic meaning: The transaction is described at the essential (or business ontology layer)

Question 2

Explain blockchain technology

Answer 2

Blockchain technology has been defined as “a distributed ledger technology that can identify participants, automatically execute transactions, and provide a platform to support advanced functions and business logic knows as smart contracts”.

Distributed ledger technology is a relatively new phenomenon, but based on a number of established technologies in novel ways:

Question 3

Explain distributed ledger technology - (4 things)

Answer 3

Distributed ledger technology is a relatively new phenomenon, but based on a number of established technologies in novel ways:

➢ Blockchain: A secure record of historical transactions, collected into blocks, chained in chronological order, and distributed across a number of different servers to create reliable provenance.

➢ Digital signatures: Unique digital keys used to authorize and check transactions and to identify the initiator.

➢ Consensus mechanism: Rules and techniques to ensure that participants recording and processing transactions agree on which transactions are valid, and, in some implementations.

➢ Digital currency: A cryptographic token that represents actual value like Bitcoin.

Question 4

At the datalogic level, Weigand & De Kruijff define blockchain technology by the following 12 classes:

Answer 4

➢ Actor: A virtual ID (for any individual or organization) that owns a wallet.

➢ Wallet: A wallet initiates transactions on the blockchain and receives the transaction output.

➢ Transaction: A request to the blockchain nodes that contains an input, amount and output (blockchain) or custom data like code (altchain). Verified transactions provide proof that there was authorization to interact with the system.

➢ Node: An entity in the blockchain network that either proof (public transactions) or validates (hybrid or private transactions) and subsequently adds it to a block with a unique hash. The hash will be used as input by the next transaction. Nodes receive rewards for every successful transaction that is added to the block.

➢ Miner: An anonymous node (e.g. server) that cryptographically proofs a public transaction to be valid using a probing mechanism like Proof of Work, Proof of Resource, Proof of Stage, Proof of Activity, etc.

➢ Mining mechanism: To mine transactions in public blockchains, altchain or sidechain.

➢ Validator: A non-public node that (cryptographically) validates hybrid or private transactions based on validation mechanisms like byzantine fault tolerances or double-spending.

➢ Validating mechanism: To validate transactions in non-public blockchains, altchains or sidechains. An example of a validation mechanism is a byzantine fault tolerance mechanism.

➢ Block: A transaction container with a unique block header, which cryptographically commits to the contents of the block, a timestamp and the previous block header.

➢ Uncle: A block that is very close to being the “correct” next block in the blockchain. By mining and rewarding for uncles, the proofing process becomes heavier and more reliable.

➢ Cousin: A block that is very close to being the “correct” next uncle in the blockchain. By mining and rewarding for causing, the proofing process becomes heavier and more reliable.

➢ Runtime (or cryplet): Enables secure interoperation and communication between blockchain middleware and third-party cloud like Microsoft Azure, Amazon AWS and others.

➢ Middleware: Software included in the blockchain and enables third parties to interact with blockchain records to provide services like identity management, data analytics, smart contracts and connections to widely used cloud software like Office 365 and Exchange.

Question 5

Explain Actor

Answer 5

➢ Actor: A virtual ID (for any individual or organization) that owns a wallet.

Question 6

Explain Wallet

Answer 6

➢ Wallet: A wallet initiates transactions on the blockchain and receives the transaction output.

Question 7

Explain transaction

Answer 7

Transaction: A request to the blockchain nodes that contains an input, amount and output (blockchain) or custom data like code (altchain). Verified transactions provide proof that there was authorization to interact with the system.

Question 8

Explain Node

Answer 8

Node: An entity in the blockchain network that either proof (public transactions) or validates (hybrid or private transactions) and subsequently adds it to a block with a unique hash. The hash will be used as input by the next transaction. Nodes receive rewards for every successful transaction that is added to the block.

Question 9

Explain Miner & Mining mechanism

Answer 9

➢ Miner: An anonymous node (e.g. server) that cryptographically proofs a public transaction to be valid using a probing mechanism like Proof of Work, Proof of Resource, Proof of Stage, Proof of Activity, etc.
➢ Mining mechanism: To mine transactions in public blockchains, altchain or sidechain.

Question 10

Explain Validator & validating mechanism

Answer 10

➢ Validator: A non-public node that (cryptographically) validates hybrid or private transactions based on validation mechanisms like byzantine fault tolerances or double-spending.
➢ Validating mechanism: To validate transactions in non-public blockchains, altchains or sidechains. An example of a validation mechanism is a byzantine fault tolerance mechanism.

Question 11

Explain block

Answer 11

➢ Block: A transaction container with a unique block header, which cryptographically commits to the contents of the block, a timestamp and the previous block header.

Question 12

Explain uncle

Answer 12

➢ Uncle: A block that is very close to being the “correct” next block in the blockchain. By mining and rewarding for uncles, the proofing process becomes heavier and more reliable.

Question 13

Explain Cousin

Answer 13

➢ Cousin: A block that is very close to being the “correct” next uncle in the blockchain. By mining and rewarding for causing, the proofing process becomes heavier and more reliable.

Question 14

Explain Runtime (or cryplet)

Answer 14

➢ Runtime (or cryplet): Enables secure interoperation and communication between blockchain middleware and third-party cloud like Microsoft Azure, Amazon AWS and others.

Question 15

Explain middleware

Answer 15

➢ Middleware: Software included in the blockchain and enables third parties to interact with blockchain records to provide services like identity management, data analytics, smart contracts and connections to widely used cloud software like Office 365 and Exchange.

Question 16

At the Infological level, the blockchain contains the following 7 classes:

Answer 16

➢ Chain: The highest level of abstraction for a combination of blocks.

➢ Mainchain: A digital ledger that contains the block headers of all blocks that are digitally signed and containing validated records of ownership that are irreversible, depleting the necessity for the reconciliation of data. A blockchain that is deployed as a service contains middleware and a runtime (or cryplets)

➢ Blockchain: Refers to the main chain implemented according to the Bitcoin codebase.

➢ Altchain: Refers to a main chain implemented according to an alternative codebase, like Ethereum, Tendermint, Eris or List. Nowadays, over 600 altchains or alternative digital currencies exist.

➢ Sidechain: A chain that allows for the transfer of assets between the sidechain and the main chain. The benefit of a sidechain is that it can store assets and data that cannot be saved (or is too expensive) on the main chain and may increase the transaction speed significantly by using pre-mined chain addresses.

➢ Drivechain: A sidechain that provides a two-way peg (2WP) that allows transfers of a cryptocurrency from a main chain to another main chain (and vice versa) requiring low third party trust

➢ PeggedSidechain: A sidechain that enables assets to be moved between multiple main chains, thereby illuminating counterparty risk, enabling atomic transactions (transaction happens all together or not), enforcing firewalled chains and make chains independent from each other.

Question 17

Explain Chain

Answer 17

➢ Chain: The highest level of abstraction for a combination of blocks.

Question 18

Explain mainchain

Answer 18

➢ Mainchain: A digital ledger that contains the block headers of all blocks that are digitally signed and containing validated records of ownership that are irreversible, depleting the necessity for the reconciliation of data. A blockchain that is deployed as a service contains middleware and a runtime (or cryplets)

Question 19

Explain blockchain

Answer 19

➢ Blockchain: Refers to the main chain implemented according to the Bitcoin codebase.

Question 20

Explain altchain

Answer 20

➢ Altchain: Refers to a main chain implemented according to an alternative codebase, like Ethereum, Tendermint, Eris or List. Nowadays, over 600 altchains or alternative digital currencies exist.

Question 21

Explain sideschain

Answer 21

➢ Sidechain: A chain that allows for the transfer of assets between the sidechain and the main chain. The benefit of a sidechain is that it can store assets and data that cannot be saved (or is too expensive) on the main chain and may increase the transaction speed significantly by using pre-mined chain addresses.

Question 22

Explain Drivechain

Answer 22

➢ Drivechain: A sidechain that provides a two-way peg (2WP) that allows transfers of a cryptocurrency from a main chain to another main chain (and vice versa) requiring low third party trust

Question 23

Explain PeggedSidechain

Answer 23

➢ PeggedSidechain: A sidechain that enables assets to be moved between multiple main chains, thereby illuminating counterparty risk, enabling atomic transactions (transaction happens all together or not), enforcing firewalled chains and make chains independent from each other.

Question 24

At the essential (business) level, the blockchain contains the following 4 classes:

Answer 24

➢ Digital ledger: maintains a continuously-growing list of transaction records called blocks. Each block contains a timestamp and a link to a previous block.
➢ Account: Sends and receives value to and from a transaction.
➢ Transaction: Is an end to end mainchain transaction as depicted in the datalogical ontology
➢ Journal: Is a list of transactions.

Question 25

Explain digital ledger

Answer 25

Digital ledger: maintains a continuously-growing list of transaction records called blocks. Each block contains a timestamp and a link to a previous block.

Question 26

Explain Account

Answer 26

Account: Sends and receives value to and from a transaction.

Question 27

Explain transaction

Answer 27

Transaction: Is an end to end mainchain transaction as depicted in the datalogical ontology

Question 28

Explain Journal

Answer 28

Journal: Is a list of transactions.

Question 29

Impact of blockchain on the information layer

Answer 29

The information layer is where data on transactions are stored in either internal (not shared) information systems of individual firms or in (distributed) shared ledgers. Transactions between organizations used to be stored by each organization internally (data silo’s), but now also can be only stored once externally in a blockchain ledger.

Question 30

Impact of blockchain on the internal transactions

Answer 30

Internal transactions within the company can be stored in a private (local) blockchain. When transactions are stored (internally or externally) in an irrevocable way in a blockchain, this not only eliminates duplications (data redundancy), but also the related inconsistencies.

Another effect of the externalization of data into the shared ledger is the mitigation of data heterogeneity. Standard and data ontologies will still be needed, but their reach and effect at the network level will be much stronger, as they are not only used for exchanging data but also for storing the data.

Question 31

what role can smart contracts play in the logic layer?

Answer 31

Smart contract could take the orchestration role that the NBOS plays in the logic layer in the Smart Business Network Model.

Question 32

To analyse the new logic layer in a blockchain-enabled Smart Business Network the 4x4 model by Birch et al (2016) is used: Name the 4 parts

Answer 32

➢ Communication logic: This logic determines the logic for communication between participants in the network.

➢ Content logic: The types of assets are distributed over the network. On a blockchain, different types of assets can be transferred, like cryptocurrencies, letters of credits or stock bonds. This means that token value can be simply information, representative of extrinsic value or have intrinsic value. It is also possible to configure multiple kinds of assets on a single blockchain.

➢ Consensus logic: To ensure that only legitimate transactions are added to the blockchain, the participating nodes in the network use voting to confirm that new transactions are valid. A new block of data will be added to the blockchain only if miners in the network reach consensus as to the validity.

➢ Contract logic: Also automation logic; the way that transactions are animated to trigger events. Using Blockchain technology, parties have the possibility to confirm that an event or condition has in fact occurred without the need for a third party.

Question 33

Name the three forms of communication logic in blockchain technology

Answer 33

Permissionless Public Blockchain (public):
Distributed, anyone can read and write on the blockchain, as long as they meet certain criteria and follow the specified rules. This type of blockchain is entirely distributed, a single source of truth and has entirely trustless integrity.

Permissioned Public Blockchain (hybrid): Decentralized, only permissioned entities may write the ledger, but anyone may view the content. This results in greater accountability and transparency.

Permissioned Private Blockchain (private):
Decentralized, only permissioned entities can read and write on the blockchain. This form is mostly used in experimental settings where R&D is the
the main purpose of existence.

Question 34

What was the conclusion of the ASX blockchain case?

Answer 34

It can be concluded that the ASX case provides empirical support for the assumptions that blockchain technology enhances network performance via changes in the business operating logic, network structure and network processes. Network performance is enhanced in terms of operating costs, timeliness of information and workflow. No evidence has been found that indicates that blockchain technology enhances business flexibility.

Question 35

What are the 5 key questions to predict the success of blockchain technology implementations.

Answer 35

➢ 1. Who starts the blockchain application (and seeds the first block)

➢ 2. Which other firms participate in the blockchain, and is the blockchain closed (private) or open to other firms (public or hybrid)

➢ 3. Which transaction data are stored in the blockchain?

➢ 4. Who (in the network?) decide(s) on the four types of logic to be applied in the blockchain?

➢ 5. How is the blockchain linked to the other (internal and inter-organizational) information systems and applications in the business network)

Question 36

Blockchain in its widest sense combines three existing technologies:

Answer 36

(1) distributed databases,
(2) encryption,
(3) consensus protocols.

This combination of technologies makes it possible to build applications around a representation of a shared state.

Question 37

Explain shared state & consensus protocol

Answer 37

Shared state is a ledger in accounting terms, a repository of data on transactions and the distribution of assets, recorded in accounts. The consensus protocol ensures that parties maintain an identical copy, without the need for a centralized administrator or data storage.

Question 38

Summery blockchain

Answer 38

Blockchain consists of “blocks of data” where each block codifies a set of transactions. A block of transactions is considered valid if the transactions adhere to formal rules that can be verified automatically. The consensus protocol is used to avoid the need for a central authority. Parties called nodes verify the validity of the latest block to be added to the chain. They do so by solving cryptographic puzzles. The solution is represented by a number called a nonce. The nodes vote by submitting a nonce, and after a majority of nodes have voted a block to be valid, the block is added to the blockchain, and proof of validity (the nonce) is included in the next block. Blocks are hashed to make sure block cannot be manipulated without traced.

Hashing generated for each block a unique number also called a hash. Changing a block will result in a different hash. To allow for comparison, the hash of a block is included in the next block. Nodes try to validate the latest block. To keep track of time, also a timestamp is added to the next block. So, all pieces of evidence needed to verify that block of transactions are valid and unchanged, are included on the blockchain itself.

Question 39

What validity protocol does bitcoin use?

Answer 39

Bitcoin uses the proof of work (POW) protocol. Nodes need to put quite a lot of computing power and energy into solving the cryptographic puzzle. In return, they are rewarded in the currency that is associated with the blockchain application.

Question 40

explain proof of stake

Answer 40

Proof of stake (POS) lets nodes follow a voting procedure in which nodes that own more of the underlying assets have a larger voting share

Question 41

Explain permissionless and permissioned blockchain

Answer 41

One can distinguish permissionless and permissioned blockchain. Permissionless are open to all actors. Permissioned is only open to actors with specific permission. Some authors group these two dimensions into three forms of blockchain:
➢ Public: Permissionless, proof of work or proof of stake;
➢ Consortium: Permissioned, selected group of validators;
➢ Private: Permissioned, single authority.

Question 42

Explain Trust

Answer 42

Trust is related to transactions between buyer and seller. There are two possible perspectives. The trustor needs reasons to trust the trustee and the trustee needs to be seen as trustworthy by the trustor. Trust is a crucial factor in business relations where there is uncertainty, interdependence, and fear of opportunism, as is the case in online markets.

Trust between actors has been defined as a “belief that the seller will behave in accordance with the consumer’s confident expectations by showing ability, integrity and benevolence. Trust is also characterized as “the willingness of a party to be vulnerable to the actions of another party based on the expectation that the other will perform a particular action important to the trustor, irrespective of the ability to monitor or control that other party.

Question 43

Explain party based trust and control based trust

Answer 43

Party based trust is the belief that the other party will behave as expected. Control based trust is the belief that the procedures and protocols that monitor and control the successful performance of a transaction will function properly. It also includes the belief that transaction details remain transparent and can be checked.

Question 44

2 issues in the diamond industry:

Answer 44

➢ 1. Avoiding trade of so-called “conflict diamonds”, is my diamond fair and not a blood diamond?
➢ 2. Providing trust in provenance, assuring the origin, is my diamond real and where does it come from?

Question 45

Theory

Answer 45

The three Blockchain applications differ in their design choices on each of the three layers. In the physical layer, we observe different numbers and types of actors who participate in the Blockchain applications; in the information layer, we observe different types of data shared; in the logic layer, we find different types of business logic.

Question 46

Conclusion of the Smits & Hulstijn blockchain article?

Answer 46

We conclude from our observations that trust requirements do indeed influence the design of a Blockchain application and also, vice versa, that the design of a Blockchain application influences the trust induced.

Question 47

Sheets blockchain conclusion:

Answer 47

➢ The success of blockchain technology depends on the way the technology is applied
o Which actor(s) start the business network application?
o Do other firms trust the application and the network (Risks? Gains?)

➢ Trust requirements influence the design of a blockchain application (table 2)
o The focal actor -like Everledger- may change the design if needed

➢ The design of a blockchain application influences trust (table 2)
o And may firms trigger to participate in the network

➢ “Trust → blockchain design → trust” leads to dynamic effects over time

➢ The six questions in table 1 can be used to analyze a -a blockchain based- business network and to predict performance and development over time.