Comparing Bitcoin and Ethereum

Bitcoin

• Bitcoin = single-use
  • transfer coins
  • (exception: so-called "coloured" coins)
• Ethereum = Blockchain 2.0:
  • cryptocurrency Ether is a means to an end
  • Example: How do you arrange a true blockchain-only exchange?
    • need an escrow => autoexecuting code that runs on a blockchain
• create a "virtual computer" for decentralized code execution
• code execution = require computing power
  • malicious code could "crash" virtual machine
  • pay for GPU cycles =>Ether is the "fuel" 
• Big message:
  • Ethereum is not a "better" cryptocurrency
  • It is a code execution network that runs on Ether

Ethereum

Some Ethereum History

Mining concentration

Source: blockchain.info 25/02/2018 

Source: etherscan.io 25/02/2018 

Ether

Bitcoin

Concerns and Shortcomings of Public, Permissionless Blockchains

1. Not enterprise grade - runs on people's home computers
2. Scalability
   • the feasible transaction frequency is much too low
   • Bitcoin: <10 TPS, Ethereum ~30 TPS, VISA: >10K TPS
3. Energy consumption
   • proof of work = mining => uses way too much electricity
4. Privacy:
   • all activities and contracts are visible (albeit by anonymous addresses)

Concern 2: Scalability in Bitcoin

• block limit of 1MB => limits # of transactions per block

Root Problem

• increase block limit (led to "Bitcoin Cash")
• decrease content per block (Segwit => eliminate signatures from the blocks)
• double-signed transactions ("Lightning Network")

Solutions

• problem:
  • currently, getting on a block is competitive and people are throwing money (fees) at the problem => miners benefit
  • with larger blocks, total fees may decline
  • => Difficult to get miners on board

Concern 2: Scalability in Bitcoin

Source: bitinfocharts

Concern 2: Scalability in Bitcoin

Concern 2: Scalability in Ethereum

• ​Ethereum blocks have no size limit
• but: gas limit imposes computation  limit and thus transaction limit
• note: in contrast to Bitcoin, Ethererum always announced that it would eliminate proof-of-work eventually

Root Problem

• Side Channels:
  • Keep two-party interactions off the main chain and use chain only for terminal settlement
• Sharding
  • instead of storing all info on all nodes, break up the blockchain into shards

Solutions

Concern 3: Energy Consumption

Root Problem

• Irrespective of scaling solutions, increasing difficulty will require ever-increasing energy consumption.
• Should real resources fuel the digital world?

Solution

• Proof of Stake
  • Idea:
    • select people according to stake in the chain (to avoid Sybil attack)
    • they build blocks based on verified transactions
  • Problem: no working implementation yet
  • CASPER:
    • add punishment for malicious behavior

Key problem of Proof-of-Stake:

How to incentivize support of longest chain?

B3

B1

B2

B4

B5

B6

Concern 3: Privacy/Secrecy

• intrinsic feature of public blockchains is that information gets stored by public addresses.
• logic of smart contracts is visible to all
• => firms have need of secrecy, individuals have rights to privacy

Root problem

Solutions

• large numbers of wallets/addresses
• coinjoin
• ring signatures
• zero knowledge proofs

Concern 3: Privacy/Secrecy

• Note: some tricks like coinjoin aren't enough.
• See: "When the cookie meets the blockchain: Privacy risks of web payments via cryptocurrencies" by Goldfeder, Kalodner, Reismany, Narayanan

Zero Knowledge Proof

• Basic feature of blockchain:
  • public-private key signatures to prove ownership
  • Why? concern that the signatory is fraudulent

• Idea of Zero knowledge:
  • the verifier may be fraudulent
  • reveal that you are the owner of information without revealing the information

Summary

• There are real concerns.
• There are paths to solutions for the problems.
• The economic foundation of some approaches on public blockchains is weak and not yet well understood.
• Much work, including conceptual work, is needed, but much work is also being done.

Private/Permissioned Blockchains

• public:
  • no restrictions on reading blockchain data (which still may be encrypted) and submitting transactions for inclusion into the blockchain.
• private
  • direct access to blockchain data and submitting transactions is limited to a predefined list of entities.
• permissionless
  • no restrictions on identities of transaction processors (i.e., users that are eligible to create blocks of transactions).
• permissioned
  • transaction processing is performed by a predefined list of subjects with known identities.

Terminology

Why private/permissioned?

1. KYC = Know Your Client
   • private allows operator to check who is using the chain
   • can restrict access to, e.g., investments when not suitable
2. AML = anti money laundering
   • crypto-currency transactions can be used for money laundering
   • can be prevented when you know users
3. No need for cryptocurrency
   • private blockchains can operate with monetary coinbase rewards
4. Scalability/no need for proof-of-work
   • validation roles can be assigned to trusted parties => higher throughput
5. Data protection
   • higher control over what is shared and how interactions are organized

Why not private/permissioned?

Let's discuss it!

Ethereum Enterprise Alliance

Common Idea:

• build private blockchains on top of Ethereum
• use open source tools

Advantages

• preserve interoperability of systems
• compatibility and free development
• best of two worlds? 

• 150 companies are members of EEA
• US$400M invested in VC funding (CBInsight)
• US$900M from tokens since Nov 2016 (Smith and Crown).

Raiden Network

Description Idea:

• Raiden Network is an off-chain scaling solution for performing ERC20-compliant token transfers
• no need for global consensus
• How? This is achieved using digitally signed and hash-locked transfers, called balance proofs, fully collateralized by previously setup on-chain deposits.
• = "payment channel technology"

Quorom (by J.P. Morgan)

• Idea: a permissioned version of Ethereum
  • known nodes
  • private interactions
  • trustless
• Design:
  • privacy layer for smart contracts
  • contracts stored locally
  • hashes of encrypted contracts on public chain
• Key feature: Zero Knowledge tech

Quorom (by J.P. Morgan)

AION

• Allow creation of custom blockchains that connect via Aion network
  • => customize governance, issuance, and participants.
• Provide federated inter-chain communication of data and value between all Aion network spokes.
• Connect with the main Ethereum blockchain, allowing AION tokens to traverse chains between Aion-1 and Ethereum seamlessly

Features

• high-performance virtual machine (VM) (for smart contracts)
• scalable database

Premise

• In the future there will be many blockchains.
• Enterprises will operate various blockchains in-house
• mined chains are not suitable for enterprises because they are dependent on entities (miners) outside their control.
• Aion will combine them and enable interoperability

AION

transaction bridge supported by validator votes

votes ("signatures") get stored on Ethereum 

transaction bridge supported by validator votes; get paid in AION tokens

AION Blockchain

Special Features:

1. Representative validators
   • like a representative democracy, vote for who should be a validator
   • vote is backed by a stake
   • rewards flow to backers
2. Consensus protocol
   • "Proof of Intelligence"

Hyperledger Sawtooth

What is Hyperledger?

• not a blockchain
• not a company
• not a cryptocurrency
• project by the Linux Foundation
• open-source project

What is Sawtooth?

• blockchain suite by Intel
• consensus protocol: 
  • Proof of Elapsed Time (PoeT)
• written in Python
• allows permissioned and permissionless application

Hyperledger Sawtooth

What is PoET?

• uses secure CPU instruction (available in new processors like Intel builds)
• Instructions
  • => random selection of a  “leader”/scheduler
  • Like Bitcoin: "randomly" become first to solve puzzle and get one-time access to write the blockchain.
• to be scheduler:  
  • “validator” (=nodes) use the secure CPU instruction to request a wait time.
  • Validator with the shortest wait time will be elected as a leader. 

Hyperledger Sawtooth

Hyperledger Fabric

• developed by IBM
• implemented in Go
• smart contract system: "Chaincode"
• basic idea:
  • have two-party interactions
  • commit only what's necessary to the public chain
  • => save processing costs
  • => increase speed and privacy
• Participants usually need to register to get the permission to join and issue transactions on a Fabric based blockchain

Key roles

• consenter
  • orders the already validated transactions
• endorser
  • build, validate and propagate transactions and chaincode
• committer

Hyperledger Fabric

Hyperledger Fabric

Hyperledger Fabric

Hyperledger Fabric

R3 Corda

• Similar idea as most others:
  • keep transaction details locally
  • rely on direct interactions with record keeping

Key feature

• digital notaries that settle disputes by reviewing signed transaction data

R3 Corda

My take:

• translation of the current world into the digital world
• maintains position or rent-seeking institutions

How will smart contracts be used? 

We will use remix.ethereum.org

We will use remix.ethereum.org

https://github.com/blockgeeks/workshop/tree/master/src/contracts