Blockchain

Question 1

Distributed Ledger (Computer Science)

Answer 1

• All participants share a consistent copy of the database, there is no central server
  -> Some participants might not have a full copy
• Network connections are peer-to-peer
• Using a type of consensus protocol, to agree on validity of a given transaction
• Transaction - could be financial and/or exchanging of assets and/or services
• Uses digital signatures (private/public key) to sign and/or encrypt transactions on the ledger

Question 2

Public vs. Private Blockchain

Answer 2

• A public blockchain is a blockchain, in which there are no restrictions on reading blockchain data (which still may be encrypted) and submitting transactions for inclusion into the blockchain
• A private blockchain is a blockchain, in which direct access to blockchain data and submitting transactions is limited to a predefined list of entities

Question 3

Permissionless vs. Permissioned Blockchain

Answer 3

• A permissionless blockchain is a blockchain, in which there are no restrictions on identities of transaction processors (i.e., users that are eligible to create blocks of transactions)
• A permissioned blockchain is a blockchain, in which transaction processing is performed by a predefined list of subjects with known identities

Question 4

Consensus in public permissionless blockchains

Answer 4

• All transactions are publicly readable and validatable
  -> No unnoticeable modifications of past transactions
  -> Unauthorized transactions are observable
  -> No double spending (digital money is not duplicated)
• Problem: Decentralized computing might lead to different variants of the blockchain - which of it is the right one?
• Solution: Majority decisions by Consensus-Mechanisms

Question 5

Proof of Work

Answer 5

• A publicly auditable cost-function can be efficiently verified by any third party without access to any trapdoor or secret information
• A fixed cost-function takes a fixed amount of resources to compute. The fastest algorithm to mint a fixed cost token is a deterministic algorithm
• A probabilistic cost-function is one where the cost to the client of mining a token has a predictable expected time, but a random actual time as the client can most efficiently compute the cost-function by starting at a random start value. Sometimes the client will get lucky and start close to the solution.

Question 6

Bitcoin: Transaction Confirmation

Answer 6

• Every new block accepted into the chain after the transaction was accepted is considered a confirmation
• Coins are not considered mature until there have been six confirmations
• New Coins created by the mining process are not valid until about 120 confirmations
• This is to assure that a node with more than 51% of the total hash-power does not pull off fraudulent transactions

Question 7

Security in Bitcoin

Answer 7

• Authentication: Digital Signatures
• Integrity: Digital Signatures and Cryptographic Hash
• Availability: Broadcast messages to the P2P network
• Confidentiality: Pseudonymity

Question 8

Practical Limitations of Bitcoin

Answer 8

• At least 10 minutes to verify a transaction