The Magic Behind Blockchain: The Basics
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Welcome to the first episode of the Magic Behind Blockchain series!
Over the course of these articles, Naoris Protocol Lead Researcher and Content manager Kwadjo Nyante will be exploring and demystifying blockchain, and the fundamental approach behind Naoris Protocol’s dPoSec consensus — taking you from just a curious enthusiast to a person capable of understanding the complex security, math, and cryptoanalysis of any blockchain project — eventually even engineering your own solutions! All this will be done in a very intuitive way such that you don’t need to memorize anything.
DECISIONS
If I asked you to make any decision, how would you do it? Really think about it…
You would first deliberate your options and then eventually choose. Most people will take a certain number of steps and eventually arrive at the “best choice”. In cryptography, we hope this happens in a reasonable and finite number of steps. To make the mathematicians happy, we say it should happen in Polynomial Time. 2^O(logn)
Similarly, if you asked 2 people to make a joint decision, how would that go? They would have a spirited debate on the choices and eventually present you with a single choice.
How about 10 people? If 10 people were asked to make a joint decision on something that matters — like who is going to be their leader. Suddenly just deliberation is not enough. Most people would solve this problem by choosing one trusted person to hold votes and then stage an election. However, choosing this trustworthy person (electoral commissioner) is not trivial!
What if your entire city were to make a decision on whether to pursue a cause or not? How would that go? How long would that take? Who would be trusted to count the votes? I guess you could still find a government agency to trust and then conduct a vote.
What if an entire continent were to make a decision on say… global warming? Who do you trust? How long does it take to arrive at a collective decision?
In some ways, making a joint decision creates a single point that all parties can trust: and this is immensely valuable in a world where trust is hard to achieve. Without this agreement, any group of people could quickly descend into serious disagreements and sometimes even war.
WHY SHOULD YOU CARE ABOUT JOINT DECISIONS?
You see… decisions make the world go round. Individual decisions have a lesser impact as compared to group decisions. The larger the group, the larger the impact of the decision taken.
In some sense, decisions are the true currency of the world.
- If a whole country decides that they trust a person, he is president and his decisions carry the weight of an entire country.
- If a group of countries jointly decide that a piece of paper can be used in exchange for goods and services, the paper magically becomes money/currency.
- Similarly, if a group of dispersed computers can decide on anything, suddenly that thing can have value in the real world. The computers are just the tool to create the agreement. The trust generated always impacts the real world. This is why bitcoin has value in the real world.
From this, it is easy to see that joint/collective decisions (technically known as consensus) are what give these so-called cryptocurrencies their value.
If you are one of those people who think all cryptocurrency is worthless because it is not backed by any asset, think again. The same joint decisions that make gold valuable also make crypto-currency valuable. Intrinsic value (and natural use cases) just makes the decision more stable, however, the value in crypto at this point is undeniable. These were the same joint decisions that made toilet paper valuable during the COVID19 pandemic.
Unstable decision-making does NOT always equal worthless / impact-less decisions!
JOINT COMPUTER DECISIONS
Now let’s model the same problem of making joint decisions in computers and networks. You will soon realize that you can only utilize a centralized agent (group of centralized or federated servers) for voting, banking, identity management, DNS, etc. only up to a certain point. At some point, you can’t scale the trust in these centralized or federated (localized trusted agents) systems any further. This is simply because there is no common entity (human or machine) to trust. Everyone is cautious.
Therefore in order to have a worldwide consensus on anything, one first has to solve this scalability of trust problem. In the past, there have been several solutions attempting to solve this problem of trust scalability such as onion routing, mixed networks, and many more. Our focus today is the so-called Blockchain.
WHAT IS A BLOCKCHAIN?
The truth is that: the so-called blockchain is simply any fully non-centralized system that can scale trust by facilitating joint decisions.
No more to say here on the definition. Everything else is about how this trust is scaled. So to scale trust you need the following:
- A way for all (or most) parties within the system to agree on the next decision. This could be based on past decisions. The agreement creates value because it creates ownership. There is an important mental shift you need to make here. Traditionally, you own money (fiat cash) if you have physical access to it (or someone keeps it for you). In the Blockchain paradigm, you own a piece of cryptocurrency if everyone agrees that it is yours. An analogy here is: how do you prove that you are who you say you are? you can either have a physical ID card (that says “hey the agency trusts me”) or you are popular enough that everyone knows you so you don’t really need to physically own an ID card for everyday activities. The latter is the power of agreement.
- If this agreement must happen, then all input to this blockchain system must also be verified to be true. For example: In Bitcoin, the true purpose of “mining” is to verify transactions in a trusted way. This principle also keeps transactions tamper-proof after the fact.
- Most people will tell you that a blockchain has to be permanent, thus, read and write only. No delete or edit. But this is NOT set in stone! It is just easier for everyone to keep track / agree on the same decisions when these decisions are fixed and not changing. If you think the consensus problem is hard to solve, imagine introducing a time constraint on when consensus changes and then having to agree on deletes and edits. I call this rotational consensus / mobile consensus. This is just a problem for the future and that is why most blockchains today stick to digital permanence.
By this definition, if you were to wake up one day and realize that everyone’s bank transactions are written in the sky, this would a perfect example of a blockchain if:
- All transactions are verified and agreed upon before being written in the sky. You would just have to look up at the sky to verify if Mr. X has this amount in their bank account. Trust is easy. Comes at a privacy cost though.
- Once the transactions are in the sky, there is no way to change them. In fact, I use this sky-writing analogy because the simplest way to ensure that a piece of information is not changed / permanent is to announce it. It then lives in everyone’s minds.
If everyone knows the sky is blue, good luck lying about it. Any information that is publicly announced is hard to change after the fact.
GENERAL ARCHITECTURE OF BLOCKCHAIN
In general, most blockchains are made up of 6 layers:
Physical Layer → The hardware that makes up the blockchain. Eg: decentralized computers, edge microcontrollers, etc.
Peer-to-Peer (P2P) Layer → A blockchain is not exactly wired like the regular internet. You don’t have many computers routing to one central server to feed a website. Instead, each computer establishes direct communication with the other; passing on information: Like a busy marketplace with no central announcer. Everyone talks directly to the other, and the only way to spread/announce information is through gossip. Why this setup? It makes it easy for anyone to join the blockchain network (democracy and entry barrier). Also, like the sky analogy, if each computer gossips to the next, this ensures that eventually, the universally agreed-on information is hard to tamper with after the fact. Technologies like Chord and Pastry are used here to uniquely identify each node in the peer-to-peer network and solve issues like excluding unresponsive nodes, entry into the network, etc.
If anyone can participate, at this layer, it is called a permissionless blockchain e.g. Bitcoin. If only special people can participate in this blockchain, it is called a permissioned blockchain e.g. HyperLedger Fabric
Content Layer → How data is represented on each node that is transporting it. This goes back to data structures in software engineering. Bitcoin uses a singly-linked list (blocks of data chained together hence the term blockchain. Blockchains like IOTA use Directed Acyclic Graphs. So here you can decide which data structure you want.
If the content layer contains source code that is executed by every node, well you have a so-called smart contract. This is just distributed code execution.
Consensus Layer → How the next decision is agreed on. This is the heart of technology. We have things like Proof of Work, Proof of Stake, Proof of Authority, Proof of Space-Time, etc. We cover this in later sessions.
Primitives → Basic cryptographic and economic services: hashing, Merkle trees, Ethereum gas, accounts, unspent transactions outputs, Signatures, Commitments/Accumulators, Proofs, SHA256 — EthHash, Scrypt, X11, Equihash, RIPEMD1600
Advanced Protocols → Building on primitives. E.g. Payment channels, atomic swaps, blockchain oracles, etc.
This is a visual aid to make this easier to envision:
WHY DO I SAY SO-CALLED BLOCKCHAIN?
If you have understood everything till now, you already have a stronger blockchain foundation than you realize. This entire technology is focused on joint decisions: and that is a truly powerful statement. In my personal opinion, a more fitting name would be DDT (Distributed Decision Technology). Blockchain is just a specific use case with a linked list at the content layer.
Why is this difference so important?
Simply because the word blockchain distracts you from the true power of this technology. Cryptocurrency and NFT investments are the most basic use cases.
The true power of Blockchain
What is a government? A government is simply any group of people that has the power to make joint decisions for a larger group (country, continent, etc).
If this consensus (scalability of trust) problem is truly solved, you could easily start using this so-called blockchain to make a joint decision of building a hospital in your community (with the subject matter experts as blockchain stakeholders), then building schools, roads, programs to help the needy, etc. Blockchain transaction prices would be the tax. Do you see where I am going with this?
This technology, if sufficiently advanced, is capable of executing every governmental decision in a mathematically incorruptible and transparent way. No mismanagement is possible. Can you see why this is a dangerous thought?
So I leave you with this: If a time-traveler were to travel back here from 2060, I wouldn’t be surprised if they said the following:
The human race is capable of fully decentralized self-governance. A government truly of the people (the blockchain participants), by the people (consensus by people), and for the people (serving in making real-time critical decisions).
And the ultimate economic incentive for why this is the most stable state according to the game theory and mechanism design is that the whole world would never make a decision that destroys itself. Eventually, amplifying acceptable individual self-interests would naturally lead to more peaceful and happier co-existence.
See you in episode 2 of this series where we talk about a simple homegrown blockchain construction and how to analyze it.
About Naoris Protocol
Naoris Protocol is a Decentralized CyberSecurity Mesh for the hyper-connected world. Our disruptive design pattern makes networks safer as they grow, not weaker, by turning each connected device into a trusted validator node. A robust Blockchain protocol that every company can use to protect against the escalating levels of cyber threat.
Devices are rewarded for trusted behavior fostering a secure environment. Participants earn $NAORIS staking rewards for securing the network.
The more users, businesses, and governance structures that use the Decentralized Cyberecure Mesh, creating networks of networks, the stronger and more secure it becomes.
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