Lecture 2 - Introducing DLT, HyperLedgerFabric, Ethereum

Question 1

Name some primary differences between the two concepts: Traditional Finance and Decentralized Finance

Answer 1

(T)raditional: Proprietary Software
(D)ecentralized: Open Source

T: Intermediaries
D: Peer-to-peer/Web

T: Trust in institutions
D: Trust in technology

T: Limited Transparency
D: Transparent

T: Central Clearing
D: Blockchain

Question 2

There are four key characteristics in blockchain that brings trust. What are they

Answer 2

• Cryptographically secure
• Ledger
• Shared
• Distributed

Question 3

Explain what a ledger is

Answer 3

Append only ledger for full transactional history (no value overriding)

Question 4

What is a centralized network?

Answer 4

A centralized network is where participants must communicate with a central authority to communicate with one another.
All participants must go through a single centralized source (single point of failure).

Question 5

What is a decentralized network?

Answer 5

A decentralized network is where there are multiple authorities that serve as a centralized hub for a subsection of participants. Since some participants are behind a centralized hub, the loss of that hub will prevent those participants from communicating.

Question 6

What is a distributed network?

Answer 6

A distributed network is where every participant can communicate with one another without going through a centralized point. (also known as a peer-to-peer network)

Question 7

What is meant by the peer-to-peer model?

Answer 7

Not client-server model –-> nodes are both servers as well as clients (peers).

Each peer mostly have similar functionality.

Question 8

What is Distributed Ledger Technology (DLT)?

Answer 8

A distributed ledger is a distributed record of transactions
maintained by consensus among a network of peer-to-peer nodes.

Blockchain is a popular data structure for distributed ledgers.

Question 9

What are the properties of Distributed Ledger Technology(DLT)?

Answer 9

Pseudo-anonymity: user identifiers in cryptocurrency

Public access: anonymized transactions

Proof of work (/consensus protocols): to stop double-spending (also offers block ordering guarantee)

Small transaction size: small sizes

Immutable records: change to one record cause subsequent records to be invalid.

Distributed

Replication and Synchronization: After successful validation, all peers have an identical copy due to consensus protocols

Integrity protection: Cryptographic hashes.

Question 10

What are some popular DLTs?

Answer 10

• Blockchain
• Tangle
• Hashgraph
• Sidechain

Question 11

Flip to see a comparison and SWOT analysis of the different DLTs

Answer 11

https://www.notion.so/sardorf/DLTs-Comparison-fef47c1ff3444d7c94a8fbed92888991

Question 12

What is a Node?

Answer 12

an individual system within a blockchain network

Question 13

There are two types of nodes. What are these, and how do they differentiate?

Answer 13

Full node: stores entire blockchain, ensures transactions are valid.
• Publishing node: Full node that publishes new blocks.

Lightweight node: Does not store/maintain a copy of blockchain and must pass their transactions to full nodes.

Question 14

Explain a permissionless blockchain, what are the issues, and whats an example?

Answer 14

• Permissionless Blockchain are where anyone can publish new blocks.

Issues:

• Privacy and Scaling
• Malicious users can join
• Consensus protocol is expensive

Example: Ethereum

Question 15

Explain a permissioned blockchain, what are the issues, and whats an example?

Answer 15

Permissioned Blockchains (consortium)
• Knowns only participants
• More control than public blockchains (corporate intranet)
• Publishing new blocks are restricted.
• Better privacy and confidentiality • Faster consensus protocol is in use

Issues:
• Not fully decentralized

Example: Hyperledger Fabric

Question 16

What are the components of Blockchain?

Answer 16

1. Hashing
2. Transaction
3. Cryptography
4. Addresses and Address deviation
5. Ledgers

Question 17

What is the disadvantage of asymmetric encryption?

Answer 17

Its slower than symmetric encryption

Question 18

What is a “Nonce”

Answer 18

Cryptographic nonce is an arbitrary number (used once).

Nonce = Number used Once

Question 19

What is a nonce used for?

Answer 19

Can be combined with data to produce different hash digests (per nonce):
• hash (data + nonce) = digest (PoW consensus model)

Question 20

Explain what an address is in Blockchain

Answer 20

Addresses is user’s public-facing identifier in a blockchain network (e.g., QR code)

Question 21

What are addresses used for?

Answer 21

Smart contract uses addresses for execution purposes.

Wallet is a software to store private/public keys, associated addresses, digital assets.

Question 22

Explain the Consensus Protocol

Answer 22

The consensus protocol determines which user publishes next block.

Consensus systems in permissionless blockchain promote non-malicious behavior through rewarding publishers of protocol-conforming blocks with a native cryptocurrency.

One protocol per system.

There’s more on this in lecture 3

Question 23

Name a couple of different consensus protocols

Answer 23

• Proof of Work
• Proof of Stake
• Delegated Proof of Stake

Question 24

Flip to see a list of different consensus protocols, their benefits and drawbacks

Answer 24

https://www.notion.so/sardorf/Consensus-Protocols-Comparison-8b3d3869eeb643c294df83fe40458895

Question 25

What are smart contracts?

Answer 25

• Collection of business logic (and data).
• Executed by nodes of blockchain network.
• Execution results are recorded on blockchain.
• Deployed by cryptographically signed transactions on blockchain network

Question 26

Name some existing blockchain platforms and their ledger type and consensus protocol

Answer 26

Bitcoin - Public - PoW
Ethereum - Public - PoW & PoS
Hyperledger Fabric - Consortium - Pluggable Algorithm
Stellar - Public & Private - Stellar Consensus protocol
Quorum - Private - Majority voting
Ripple - Private - Probabilistic voting

Question 27

The runtime for smart contracts in Ethereum is ___

Answer 27

The Ethereum Virtual Machine(EVM)

Question 28

How do things get executed on the Ethereum network?

Answer 28

In Ethereum, there is a single, canonical computer (EVM) whose state everyone on Ethereum network agrees on.

• Requests for computation are called transaction requests.
• Record of all transactions + EVM’s present state is stored in blockchain.

Question 29

What is Hyperledger Fabric?

Answer 29

Hyperledger Fabric is a permissioned distributed ledger framework for developing blockchain applications.

Question 30

What are the primary features of Hyperledgeer Fabric?

Answer 30

Consensus: A unique approach to consensus enables flexibility and scalability needed for enterprise

• Privacy: Channels and private data collections enable private and confidential exchange assets on a common network.
• Security & Membership Services: Permissioned membership provides a trusted blockchain network.

Assets: Enable exchange of almost anything with monetary value over network.

Smart contract/Chaincode: Execution is partitioned from transaction ordering.
• Limits required levels of trust
• Verification across node types
• Optimize for network scalability and performance.

Ledger: immutable, shared ledger encodes entire transaction history for each channel, and supports query.