In this article, dissection of the blockchain technology into discipline-specific approaches is attempted. When combined, it makes up for an explanation of the blockchain technology as it is. The disciplines being network theory, economics and cryptography.

Network Theory : P2P Decentralization

Peer-to-peer network involves direct communication between devices, aka peers. Each node is assigned equal rights and acts as both the client and the server. Each participant provides services to other peers while using services from them. Peer-to-peer network infrastructure is obtained on a global level over the Internet with a certain set of protocols.
Such networks avoid centralization by maintaining equality among participants of the network. This is how blockchain technology enforces decentralization. Any service is ideally provided by more than one peer, and hence cannot be stopped by individual decision. In other words, to completely eliminate a service from the eco-system, it has to be simultaneously discontinued by all the participants in the network. Such nature of blockchain network makes it robust and immune to individual or group level influence.

Torrents for example, are files shared over decentralized peer-to-peer network using BitTorrent protocol. Due to its decentralized nature, it has not been possible to completely eliminate the pirated content sharing, to this day, despite piracy via torrents being a major menace to the entertainment industry.

 

This article is published in PROTOCOL Magazine, April 2019 issue.

Cryptography: Public – Private Key Pairs and Hashing

Cryptography is used in blockchain networks to enforce security and privacy. In a currency based application of blockchain, a participant willing to transact gets a public-private keypair, aka the wallet. The public key is the public identity of the wallet while private key is used to digitally sign the transactions.

A transaction request consists of the digitally signed request and its encrypted copy. The verifying nodes then decrypt the encrypted copy using public key of the sender and matches both the requests. If they match, the transaction request is deemed valid and it is forwarded for addition to the real-time block.

Hashing Algorithm:

Hashing is a process where input data results in a string of fixed size, which gets changed entirely by a single change in any input byte. The miners in a proof-of-work consensus need to hash the block with the specific requirement for the output. Generally a certain zero’s in the beginning. To come to the acceptable hash, miners brute-force a random number aka nonce. Such consensus makes it tough to find the right nonce for the block, while keeping it easy to verify if validity of the found nonce. PoW avoids the spamming of blocks flooding the network with malicious content. Once a mined block is approved by majority of participants, it is added to the blockchain.

This article is published in PROTOCOL Magazine, April 2019 issue.

Economics : Game Theory

A peer-to-peer network being decentralized, depends on all the participants (nodes) to enforce protocol and security to ensure proper functioning of a decentralized ecosystem. A central entity for such requirement, would dis-allow malpractice by using the authority and regulate the ecosystem. Decentralized platforms however cannot be regulated by traditional means since it conflicts with the freedom of an individual. That’s where the concepts of Game Theory come handy.

In any community of autonomy, the negativity comes from an individual or a sub-community putting itself ahead of the community, at the expense of the community. The game theory provides the grounds for aligning the grater good with the individual benefit. Incentives in such decentralized community are devised such that enhancing the community is the only way for an individual to gain value. This is how ‘trustlessness’ is gained. By assuming that each participant would always act in self-interest. i.e. by inherently removing the assumption of trust in the protocol design.

Vast domain of theoretical models devised using concepts of game theory have come into existence with blockchain technology by the alias of DAOs. Decentralized Autonomous Organizations, where the governance through autonomy is enforced using the concepts of game theory.

Check PROTOCOL Magazine, April 2019 issue for more

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