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Smart Business Networks > Lecture 2 - Blockchain technology in SBN > Flashcards

Lecture 2 - Blockchain technology in SBN Flashcards

1
Q

What are blockchain drivers?

A
  • Securing built-in the protocol.
  • Transparency for the customer.
  • Immutable data.
  • Human trust replaced by mathematics.
  • Disintermediation.
  • Servification (combination of immutable data and execution).
  • Single source of truth.
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2
Q

What are the blockchain challenges?

A
  • Concept of regulation.
  • Highly complicated technology.
  • Transparency for the supplier.
  • Maturity (design paradigms)
  • We have and also love central authorities.
  • Lack of standards (every platform has its own technology).
  • Boundaries (on- and offchain)
  • Scaling problem (Merkle root)
  • Too many use cases
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3
Q

What is Blockchain?

A

A distributed consensus system for parties that do not trust each other to transact, by irreversibility storing transaction data or logic in a distributed ledger.
Combination of:
- existing knowledge in P2P (networking).
- cryptography (security).
- consensus mechanisms (AI).
- distributed computing (mainframe)
Blockchain is distributed since every node is connected to another node.

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4
Q

Three types of blockchain

A
  • Public: most common and is decentralized, based on proof (e.g. bitcoins/virtual currency).
  • Hybrid: used by multiple companies (hybrid) and based on validation (e.g. a group of banks).
  • Private: selected miners and in centralized, based on validation (e.g. government).
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5
Q

Public blockchain

A 
Type: public, not permissioned.
Consensus: decentralized, based on proof.
Governance: anonymous nodes.
Trust: low
Scalability: limited
Use: e.g. virtual currency.
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6
Q

Hybrid blockchain

A 
Type: consortium, private, permissioned.
Consensus: hybrid, based on validation.
Governance: pre-selected set of nodes.
Trust: medium.
Scalability: unlimited.
Use: e.g. banking system.
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7
Q

Private blockchain

A 
Type: private, permissioned.
Consensus: centralized, based on validation.
Governance: single organisation.
Trust: high.
Scalability: unlimited.
Use: e.g. government, notary.
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8
Q

How does a blockchain transaction work?

A
  1. Transaction is initiated by an actor through a wallet. 2. The transaction is prefunded to ensure that there is sufficient balance.
  2. The transaction is either simple (default) for one-time value transfers or contains contract code (smart contract).
  3. Once a transaction is verified and valid, it is added to a block.
  4. The transaction carriers a fee for the nodes to execute it, regardless of the outcome.
  5. Transaction is verified by network nodes, validated or mined and consequently executed or rejected. Nodes implement a certain codebase with default (Bitcoin) or custom (Altchain).
  6. Once a transaction is verified and valid, it is added to a block. For enhanced security an uncle or cousin is included by the nodes.
  7. Nodes update the balance states and are awarded for each succesful transaction.
  8. Winning node propagates the updated chain to other nodes in the chain (= forking). Chain can be queried for transaction specifics or state.
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9
Q

Chain

A

A combination of blocks. Within the blockchain ecosystem, there are multiple concepts of chains.

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10
Q

Main chain

A

A chain that contains the block headers generated by the network nodes. Main chain can be related to a side chain, where additional functionality is built upon.

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11
Q

Sidechain

A

A chain that allows the transfer of assets from the side chain to the main chain and vice-versa. The benefit is that it can store assets and data that cannot be saved on the main chain, and may increase the transaction speed significantly by using pre-mined main chain addresses (e.g. counterparty).

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12
Q

Altchain

A

Refers to a main chain that is implemented for an alternative codebase (e.g. Ethereum and Tendermint).

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13
Q

Drivechain

A

Side chain that provide a two-way peg allowing transfers of cryptocurrency form a main chain to another main chain requiring low-third-party trust.

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14
Q

Pegged chain side chain

A

A side chain that enables assets to be moved between multiple main chains, thereby illuminating counterparty risk, enabling atomic transactions, enforcing firewalled chains and making chains independent.

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15
Q

Blockchain technology is the enabler for?

A
  • Smart contracts: coded contracts on the blockchain that automatically move digital assets according to arbitrary specified rules.
  • Servification: risk-free exploitation of physical goods as a service, like car rental services that remotely disable the ignition system in the event that payment fails according to data on the blockchain.
  • Tokenization: process of converting rights to real world assets into a digital token on a blockchain.
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16
Q

Smart contract

A

Computer code running on top of a blockchain containing a set of rules under which the parties to that smart contract agree to interact with each other. If and when the pre-defined rules are met, the agreement is automatically enforced.

17
Q

Distributed application (dApp)

A

A collection of smart contracts, acting like an application. A dApp is a serverless html5 application that uses one or more decentralized technologies.

18
Q

Near future for blockchain

A
  • Regulation (that goes beyond ‘no’)
  • Real business models (ASML)
  • Scaling (sharing)
  • Standards (e.g. ERC20)
  • Ecosystem between blockchains
  • Lower entry (low coding platforms)
19
Q

Blockchain technology (Williams et al.)

A

A distributed ledger technology that can identify participants, automatically execute transactions, and provide a platform to support advanced functions and business logic known as smart contract.

20
Q

Distributed ledger technology

A

Based on number of established technologies:

  • Blockchain: secure record of historical transitions, 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 to identify the imitator.
  • 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: cryptographic tokens thar represent value.
21
Q

Enterprise ontology theory

A

Describes an enterprise as a heterogeneous system consisting of three layers:

  • Datalogical layer (technical): decribes blockchain transactions at the technical level in terms of blocks and code.
  • Infological layer (data): describes blockchain transactions effectuating open ledger system.
  • Essential layer (business implementation): describes the economic meaning of transactions.
22
Q

Blockchain technology at the datalogical level

A
  1. Actor: virtual ID that owns a wallet.
  2. Wallet: initiates transactions on the blockchain and receives the transaction output.
  3. Transaction: a request to the blockchain nodes that contains an input, amount and output (blockchain) or customer data like code (altchain). Verified transactions provide a proof that there was authorization to interact with the system.
  4. Node: an entity in the blockchain network that either proofs (public transaction) or validates (hybrid or private transaction) 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 succesful transaction that is added to the block.
  5. Miner: an anonymous node (e.g. server) that cryptographically proofs a public transaction to be valid using a providing mechanism like Proof of Work.
  6. Mining Mechanism: to mine transactions in public blockchains, altchain or sidechain.
  7. Validator: a non-public node that (cryptographically) validates hybrid or private transactions based on validation mechanisms like byzantie fault tolerances or double spending.
  8. Validating mechanism: to validate transactions in non-public blockchains, altchains or sidechains.
  9. Block: a transaction container with a unique block header, which cryptographically commits to the content of a block, a timestamp and the previous header.
  10. 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.
  11. Cousin: a block that is very close to being the “correct” next uncle in the blockchain by mining and rewarding for uncles, the proofing process becomes heavier and more reliable.
  12. Runtime (or cryplet): enables secure interoperation and communication between blockchain middleware and third part clouds like Microsoft Zure, Amazon, AWS, and others.
  13. 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.
23
Q

Blockchain technology at the infological level

A
  1. Chain: 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 services contains middleware and a runtime (or cryplets).
  2. Blockchain: refers to the main chain implemented according to the Bitcoin database.
    - Altchain: refers to main chain implemented according to an alternative codebase, like Ethereum.
    - Sidechain: a chain that allows for transfer of assets between the sidechain and the mainchain. 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 main 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 requiring allow 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 eachother.
24
Q

Blockchain at the essential(business) level

A
  1. Digital ledger: maintains a continuously-growing list of transaction records called blocks. Each block contains a timestamp and a link to a previous block.
  2. Account: sends and receives value to and from a transaction.
  3. Transaction: an end to end mainchain transaction as depicted in the data logical ontology.
  4. Journal: list of transactions.
25
Q

Blockchain technology implementation

A

Blockchain technology will be implemented in the information layer. May provide solution for storing and executing transactions that can be completely self-governed or automated.
Decision on which data will be part of the blockchain solution is the first step. The decision is triggered by strategy/problems/visions in the physical layer. Physical layer tells information layer, information layer influences the logic layer.

26
Q

Physical layer

A

Represents the logic processes between firms (actors) in the network.

27
Q

Information layer

A

Represents the transactions between firms, stored in information systems (within firms) or shared ledgers. 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 related inconsistencies.

28
Q

Logic layer

A
  1. Communication logic: for communication between participants in the network.
  2. Content logic: type of assets (e.g. letters of credit, cryptocurrencies) that are distributed over the network.
  3. Consensus logic: participating nodes use voting to confirm that net transactions are valid.
  4. Contract (automation) logic: the way transactions are animated to trigger events. Parties have the possibility to confirm an event or condition has in fact occurred without the need for third party.
29
Q

Propositions

A

Blockchain technology ultimately affects business network performance by causing changes in:
1. the information layer by introducing general ledgers.
2. the business operating logic (logic layer) by enabling several forms of business logic.
3. the physical layer by affecting the business network structure and business network processes.
Use of blockchain leads to changes in the Business Operating Logic, the structure of business networks and the network processes.

Smart Business Networks (7 decks)

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