IS4302_week_9_Fall 2024.pdf

IS4228: Information Technology and Financial Services IS4302 Blockchain and Distributed Ledger Technologies Week 9 © Copyright National University of Singapore. All Rights Reserved. Intended Learning Outcomes 1. Understand Scalability Impo...

IS4228: Information Technology and Financial Services IS4302 Blockchain and Distributed Ledger Technologies Week 9 © Copyright National University of Singapore. All Rights Reserved. Intended Learning Outcomes 1. Understand Scalability Importance of scalability in blockchain networks 2. Explain the Scalability Trilemma Balancing scalability, security, and decentralization 3. Identify Scalability Solutions Layer 1 and Layer 2 approaches 4. Explore Key Data Structures GHOST, BlockDAG, Segregated Witness 5. Discuss Cross-Chain Interoperability Tools and protocols for multi-chain communication 2 Overview Scalability Importance: Ensures blockchain networks can handle increased transaction volumes without compromising performance. Scalability Trilemma: Balancing scalability, security, and decentralization. Types of Scalability Solutions: Layer 1 and Layer 2 approaches, sharding, sidechains, and off-chain solutions. 3 Scalability Blockchain Trilemma 4 Overview Layer 1 Data Structures for Scalability Layer 2 Solutions 5 Scope Summary Public Blockchain: Best for transparency and open participation. Consortium Blockchain: Ideal for collaboration between trusted partners. Private Blockchain: Most suitable for secure, internal use within a single organization. 6 Layer 1 Scalability Solutions Consensus Mechanism Protocol Enhancements Improvements Increasing block size Proof of Stake (PoS) Reducing block time Delegated Proof of Stake (DPoS) Data Structures Practical Byzantine Fault Optimized block structures Tolerance (PBFT) Efficient state management 7 Blockchain – Original Design Consensus Guaranteed by Longest Chain heuristic 8 Data Structures Blockchains GHOST BlockDAG Segregated Witness 9 Greedy Heaviest-Observed Sub-Tree (GHOST) Allows concurrent work to be performed, allowing shorter inter-block times, thus increasing throughput Each block refers to 1-2 “uncle blocks” The “heaviest” branch is considered valid 10 Block Directed Acyclic Graph (DAG) Allows non-conflicting transactions from uncle blocks to be incorporated into the main chain. Selection rules can decide to use heaviest subtree or longest chain 11 Block Directed Acyclic Graph (DAG) Allows more concurrent processing and asynchronous processing, increasing the throughput as more miners/validators join. 12 Block Directed Acyclic Graph (DAG) Hedera hashgraph is one of the popular example of DAG which uses gossip protocol which ensure the highest standard of security to prevent any malicious attacks. 13 Block Directed Acyclic Graph (DAG) Hedera hashgraph is one of the popular example of DAG which uses gossip protocol which ensure the highest standard of security to prevent any malicious attacks. Gossip protocol: when an event occurs, the node transmits data to it to two other random nodes, which transmit them to two other nodes (in the total already four), and so on. This leads to an exponential spread of information throughout the network. “Gossip about Gossip” consensus algorithm: Each node on the network shares all of its information about which node, when and with whom it communicated Gets around the problem of asynchronous execution discussed in FT5003 discussion on Distributed Systems. 14 Segregated Witness (SegWit) Signatures (witnesses) were separated from the input fields of the blocks 15 Segregated Witness (SegWit) Signatures (witnesses) were separated from the input fields of the blocks The first part of a transaction contains the wallet addresses of the sender and receiver and the second part contains the “witness data” containing transaction signatures. SegWit removes the “witness data” from the main block, therefore notably reducing transaction size. This allows more transactions per block Implemented as an upgrade to Bitcoin First implemented in Litecoin, and later Bitcoin Disagreements about such upgrades also pushed the hard fork of Bitcoin Cash in 2018 16 Summary: Scalability Importance Scalability Trilemma Scalability: Ability to process a large number of transactions. Security: Protecting against attacks and ensuring data integrity. Decentralization: Maintaining a distributed network without central control. Types of Scalability Solutions Layer 1 Approaches: Enhancements to the base protocol (e.g., Proof of Stake, sharding). Layer 2 Approaches: Off-chain solutions (e.g., state channels, sidechains, rollups). Sharding: Partitioning the blockchain into smaller segments for parallel processing. Sidechains: Independent blockchains linked to the main chain for asset transfers. Off-Chain Solutions: Transactions conducted outside the main blockchain to reduce load. 17 Overview Layer 1 Data Structures for Scalability Layer 2 Solutions 18 Layer 2 Scalability Solutions State Channels Sidechains Rollups 19 Layer 2 Scalability Solutions: State Channels Off-chain transaction channels Instant transactions with minimal fees 20 Layer 2 Scalability Solutions Off-chain transaction channels Instant transactions with minimal fees Especially useful for small payments and micropayments The most well-known example of a payment channel network is the Lightning Network for Bitcoin 21 Layer 2 Scalability Solutions: State Channels Off-chain transaction channels Challenges Instant transactions with Need for Locked Funds: minimal fees can be inefficient if needed elsewhere. Centralization Risk: well- connected nodes facilitate most transactions. 22 Layer 2 Scalability Solutions: Sidechains Independent blockchains linked to the main chain Facilitates asset transfers and interoperability 23 Layer 2 Scalability Solutions: Sidechains Independent blockchains linked to the main chain Facilitates asset transfers and interoperability 24 Layer 2 Scalability Solutions: Sidechains Examples Liquid Network: A Bitcoin sidechain designed to facilitate fast and private transactions between businesses, such as exchanges and financial service providers. Polygon (formerly Matic Network): A scalability platform for Ethereum using sidechains to offer high-speed, low-cost transactions. Ronin: A sidechain specifically designed for the blockchain game Axie Infinity, enabling transactions and asset management within the game more efficiently. 25 Layer 2 Scalability Solutions: Sidechains Challenges Security: depends on their own consensus mechanism and the robustness of their connection to the main chain. Integration Complexity: Establishing and maintaining interoperability between the main chain and sidechains can be technically challenging. User Adoption and Liquidity: it needs to develop its own ecosystem of users and applications, which may require significant time and effort. 26 Layer 2 Scalability Solutions: Rollups Aggregating multiple transactions into a single batch State changes are computed off-chain and are then proven as valid on-chain using zero- knowledge proofs. Enhances throughput while maintaining security 27 Sharding Concept: Partitioning the blockchain into smaller, manageable segments (shards) Benefits Parallel transaction processing Increased throughput and scalability Challenges Ensuring cross-shard communication Maintaining security across shards 28 Thank you! 29