🌟 ZVChain Global : Shanghai Roadshow | ZVChain Chief Scientist Lu Wei was invited to give a speech on the topic of Decentralised Finance (DeFi) Architecture. 🌟
On August 30, 2019, ZVChain’s chief scientist Mr Lu Wei attended the 2019 MiiX Global Blockchain Application Eco Developer Summit as a special guest and delivered a keynote speech on “Architecture Design and Innovation of DeFi Public Chain”.
The following is a recorded speech by Lu Wei at the conference:
“ Good afternoon everyone, first of all, thank you for the invitation to ZVChain to be here. I am the chief scientist at ZVChain, with more than 15 years of experience in algorithm and computing development. In general, i am from a technical background and in my speech will involve sharing about some technical terminology. I hope to explain in a more simple language for everyone here to understand.
Firstly, let us examine what is the difference between traditional finance and decentralised finance. For example, when Alice in China wants to initiate a remittance transaction to Bob in Germany, this process will involve numerous financial institutions as the intermediaries. You will not know how much time and cost it will involve until the end. Even for financial institutions, they are not able to give you an exact value, only an estimation value. Usually this process will take a long period, from three to seven working days, or even weeks.
Now with Decentralised Finance Infrastructure, Alice and Bob only need to initiate a transaction on their computer. Through the blockchain network, the transaction will be completed and confirmed at much lower cost and faster speed. In Bitcoin system, it will involves 6 confirmations, estimated around an hour of confirmation period. Ethereum is basically 12 to 18 confirmations, 3–7 minutes to arrive. The costs are also fixed, as the single transfer fee on the blockchain is pre-determined price.
From this aspect, we can see that the traditional financial industry still follows a longer process while decentralised finance can achieve at a much faster speed and lower costs. Analysing our century-old traditional finance, the greatest advantage remains to be security factor. This aspect of security can be analysed from two aspects, one is the system security and on the other hand is the business security. The combination of these two aspects of security become the key advantage of the traditional financial industry. However, the existing situation is manifested by its increasing shortcomings. The existing traditional financial industry is similar to the transportation industry. If the traditional financial industry does not rely on tools of productivity, the upside opportunities will be limited.
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DeFi opportunities and challenges
DeFi is the English abbreviation of Decentralized Finance, which is an attempt to integrate blockchain technology into the financial industry. Now it’s like having a car. Blockchain technology can be seen as an engine. We have an engine but we don’t have a complete car yet. Therefore, we have a vision for DeFi: DeFi need to have inherent decentralised nature however at the same time, need to fulfil the regulatory framework of internet finance, to be supervisable and regulatory-compliant.
After having a concept of DeFi, how can we transform blockchain technology to meet internet finance requirements? At this point, we mainly consider the three major shortcomings of the existing blockchain technology industry:
First, for the blockchain financial public chain security concerns ranks first. But as mentioned earlier, security is divided into two aspects. System security and business security. In today blockchain technology, does it really meet business security? I believe not yet. The example of cross-border remittance is a very simple financial scenario mentioned.The existing blockchain technology has an inherent problem that in the current blockchain PoW mechanism, there exists a problem of non-final data. Final data is only confirmed at a certain height, that the network participants know that the information is certain and will not be overwritten. At this level, most of the existing blockchain still face this security issue. We think that the main issue lies with security concern. This is an inevitable problem in the blockchain, that chain fork is possible. Nowadays, across most of the blockchain technology, the solution to chain forking is based on the longest block height to be the blockchain, resulting in a chain that the data is not final. Suppose now there i have a high hashing power on hand, i can rely on the power to generate a chain that is longer at block height. When i carry out transaction on this new chain of mine, it will replace the original chain based on the longest chain principle. This will overwrite the pending transaction. For a financial public chain, once this confirmation of data is not in the final state, there is a great potential danger. The second one is the issue of transaction confirmation.
The second one is the issue of confirmation of transaction. The block confirmation of the mainstream PoW chain mentioned earlier basically adopts the method of probability confirmation. For example, Bitcoin considers that there are six additional blocks connected in succession, that is, this block is confirmed. That is all the transactions in the block are confirmed. For Ethereum, the transaction is confirmed when there is 12–18 additional blocks recorded. This transaction will be taken as confirmed by some existing exchanges. But can it really be confirmed?
Let us use an extreme example. According to the operating principle of Ethereum, it will take around 3–7 minutes to confirm the block. If the network is disconnected for several hours, the subnets on both sides will generate some blocks will be confirmed. Under these conditions, can the customer think that the block has been confirmed? As a merchant, can i ship the product before I think that after this block is confirmed?
The Third problem is the example I just mentioned. If the network is isolated, or if a large number of miners are attacked, is there a mechanism to alert the user to avoid the poor health of the network? In addition to the above security issues, there are data privacy protection/regulatory issues and problems with the user experience.
Here to see a specific case to experience, this is the famous black hole address in Ethereum (0x0000000000000000000000000000000000000000), everyone can view the transaction as visible balance. From this transaction, we can see the largest value is transferred in the value of 2000 ETH and 1000 ETH respectively. This is visible to all participants, without protection for data privacy especially for large orders.
Another point is that existing blockchain will use long strings of random characters as transfer. This will result in mistakes that one or two errors were input incorrectly. As seen in the image above, where a mistake transaction of 2,000 ETH were sent to the black hole address. This results in 2,000 ETH to be transferred to an unknown account with no ownership.
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ZVChain’s Innovative Architecture
In order to address these aforementioned three problems, ZVChain designed the architecture in three levels.
The first level is the system infrastructure layer, ZVChain is powered by Chiron Consensus, which is a PoS consensus model based on the VRF algorithm framework. A key risk of PoW is the risk of data confirmation. In ZVChain, we adopted the PoS consensus model to complete the proposal and verification of block. Due to the time relationship, the Chiron consensus on the blockchain establish a consensus level of security, efficiency, decentralisation characteristics.
ZVChain’s PoS mechanism starts from user stake to become a node operator. The system randomly group all candidates (Node operators) into multiple groups. The system will then randomly select a user group to complete the verification work. The advantage of this is that the user or miner is able to perceive the system health of the entire network.
For example, we defined the concept of a confirmation block in the ZVChain system to be in this manner. The moment when a block working group is successfully concatenated in a block, and this covers two-thirds of all current working groups in the system, we define that the block is a confirmation block. As mentioned, all staking node operators are grouped. We can know how many groups the system is divided into at a certain time. In fact, we can regard it as a mathematical problem.
For example, I have 50 balls of different colors placed in a bag, and each time I take one out of it and put it back. If you take 100 times, there is a 99.99% probability that more than 70% of the balls can be drawn at least once, that is, more than 35 balls are drawn. Replace the ball with the working group of the block, that is, the 100 blocks that are subsequently concatenated in a block, at least 35 or more groups will be randomly selected. Therefore, through this mechanism, the user can perceive the status of the network according to the distribution of the block working group.The advantage is that if the block satisfies the following blocks that are randomly distributed, then the block can be considered as confirmed.
We know that the main reason for Casper project proposed by Ethereum is to use PoS as the checkpoint mechanism. The mechanism hopes to build a certain proportion of PoS Nodes, We know that the main reason for the Casper project proposed by Ethereum is that we hope to use the POS to checkpoint mechanism. Its mechanism itself also hopes to establish a certain proportion of POS nodes. If two-thirds of the nodes recognise, then the block is confirmed in the network.
Therefore, according to this mechanism, when a confirmation block is generated, it can be approximated as 2/3 of the whole network recognises the block。 This resolves the problem of solidification time of the transaction confirmation. Through the distribution of block work group, the system health can also be validated. For the user intending to send a transaction through the network, he can validate the system health more accurately. The random group number selected by the VRF and BLS algorithm is the cornerstone of the Chiron Consensus.
In the accounting layer, we provide user the option of anonymous account for transaction data privacy. The algorithm used for private transaction data follows a semi-homomorphic encryption of elliptic curves. We encrypt the transaction data to the nodes through semi-homomorphic encryption, the selected nodes can still perform data verification, account update and verification that the block hash is correct, but unable to know the specific amount of transaction value. At the same time, ZVChain’s account support both real-name account (KYC) to set up anonymous account. The transfer between anonymous account will be encrypted and therefore privatised. Common account balance and transaction value is transparent and visible. Therefore, users can decide to use real-name account (KYC) to open anonymous accounts or simply common account.
Another important aspect of ZVChain is that we designed the anonymous account that can only be generated by real-name account (KYC) for regulatory purposes. The data hash of mapping relationship between real-name account (KYC) and anonymous account is split across various guardian nodes. Hence to normal external users, the relationship between real-name account (KYC) and anonymous account is kept secret. When there is regulatory demand, voting will be initiated in the form of community governance. If consensus is voted upon, the data hash of the mapping relationship can be gathered back to identify the mapping relationship.
At the application layer, long string of user address provides a poor user experience. We adopt a model similar to EOS-like accounting system. Account name can be registered by user and be easily memorised and applied. When the user select the wrong option, the system can highlight whether the recipient address has been registered. If this requirement is not satisfied, the transaction will not go through, hence avoiding the risk of transferring to a wrong address.
The above is a detailed explanation of ZVChain’s architectural design and innovation level in the DEFI public chain. ZVChain’s goal is to inject more possibilities into the future of decentralised finance.
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Our main-net is scheduled to be launch in September 2019.
ZVChain test net is online and the development process is relatively stable and ongoing for more than a year. Learn more about our technical development and mining guide at https://developer.zvchain.io/#/.
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