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Block chains and Consensus AlgorithmsBY JERRY D CHANWALLSTREETTECHNOLOGIST.COMBITTOKU.CO.JP
Public Block chain (Bitcoin,Ethereum)
Block chain, not Blockchain!
A collection of transactions
Time-stamped grouping in blocks
Proof of Work to decide sequencing
Token to incentivize validators (block writers) to remain in consensus
Public, permission-less, censorship-resistant, pseudo-anonymous
Private Block chains (Consensus Ledgers)
aka distributed ledgers, aka private block chains
Shared multi writer database
Control and participation in the network is private/permissioned
Ownership of the assets represented is public
Use of cryptographic keys to restrict asset ownership changes into the ledger
If no PoW, why blocks?
Private Block chains vs multi-writer Dbs
Better immutability guarantees with simplified audit trail
No super-user roles
Ownership of the data / Ownership of the Db
No central 3rd party acting as a gatekeeper for controlling the modification of that data
Token vs Token-less◦ PBFT + Merkel Root + PGP + P2P + TRUST == Private Block chain◦ PBFT + Merkel Root + PGP + P2P + TOKEN == Permissioned Block chain
Are they secure?
Benefits of Private Block Chains Allows a group of companies to pool resources and reduce costs in a trust reduced way
Local money corporate money
Real time settlement between counterparties (for certain markets)
Potentially replace SWIFT, but only if money is taken off banks and put into settlement chain
Potentially replace 3rd party settlement business, trade aggregators/netting services
Benefits of Public Block Chains Global permission-less
Trust minimized
Censorship resistant
Commodity like deflationary money which is not based on debt
IoT, DAOs, DACs
Internet vs AOL, Napster (mp3), Telecoms (skype), Personal Banking (?)
Potential Issues Flash crash (liquidity) risk
Increased attack risk
Systematic risk
Legal risk
Operational risk vs Systematic risk
Proof of Stake More akin to equity shareholder voting.
Weak subjectivity (external systems required to ensure truth)
Cheap simulation, nothing at stake problem
Internal network Value->Security
Proof of Work Alignment of incentives, and reduces the risk of dishonest actors, the more valuable the token becomes
Objective truth
Solution to Byzantine generals problem
Energy->Security->Network Value
