Page 63 - FIGI: Security Aspects of Distributed Ledger Technologies

17 Some would argue that in practice Bitcoin is basically a closed network today since the only entity that validates a
transaction is effectively 1 in 20 semi-static pools. Further, the miners within those pools almost never individually
generate the appropriate/winning ‘hash’ towards finding a block. Rather, they each generate trillions of invalid hashes
each week and are rewarded with shares of a reward as the reward comes in.
18 Distinctions between permissioned and permissionless described here reflect the current state of the art. As DLTs
mature, many believe that there will be a full spectrum between permissioned and permissionless.
19 Deloitte (2017) Blockchain Risk Management: Risk Functions Need to Play an Active Role in Shaping Blockchain
Strategy, available at http:// bit .ly/ 2JMG00U
20 Public blockchains are said to be fully decentralized.
21 Adopted from Lapointe, C & Fishbane, L (2018) The Blockchain Ethical Design Framework, available at http:// bit .ly/
2O2q2oA
22 The manner in which state channels operate on the blockchain can be described generally as: (i) a deposit of a total
sum of funds which may be used over the duration a payment channel may exist is entered into a multi-signature
address or wallet; (ii) Users digitally sign transactions off-chain between themselves, which changes the amounts each
user should receive from the wallet ; (iii) When the users agree to close the channel, the net total of the funds in the
wallet are committed to the address of each party and entered into the blockchain as a single transaction.
23 Sharding refers to splitting the entire Ethereum network into multiple portions called ‘shards’. Each shard would contain
its own independent state, meaning a unique set of account balances and smart contracts. See District0x (2019)
Ethereum Sharding Explained, available at http:// bit .ly/ 2Sr6kRV

24 https:// blockonomi .com/ watchtowers -bitcoin -lightning -network/
25 The ‘Plasma Cash’ solution white paper was published in 2017, co-written by the founders of Ethereum (Vitalik Buterin)
and the Bitcoin Lightning Network White Paper (Joseph Poon). Plasma is in its infancy with limited iterations appearing
in use in 2019, a number of sources represented that slowdowns maybe occurring on development with some new
interest on using Plasma with (z snarks). Examples of Plasma implementation (very new or in development stages)
include (i) PlasmaChain integrates into the Ethereum network as well as six stablecoins; (ii) the Plasma Group; and
Loom’s Plasma CLI with Plasma Cash. Duffy, J (2019) PlasmaChain Integrates With Top 100 ERC20 Tokens, Enabling
Lightning-Fast Layer 2 Stablecoin Payments With Multi-Currency Support, https:// bit .ly/ 2Cohyjs; Priya (2019)
PlasmaChain integrates with six stablecoins including USD Coin, TrueUSD, and Gemini Dollar, available at https:// bit .ly/
2HqcQpy; https:// plasma .group/ ; See Bharel, D (2019) Plasma Cash Developer’s Guide: Everything You Need to Know
(+ How to Use Loom’s Plasma CLI), available at https:// bit .ly/ 2TWNeWU
26 Using Merkle-based proofs to enforce spawned child chains.
27 See the following: Poon, J & Buterin, V (2017) Plasma: Scalable Autonomous Smart Contracts, available at https://
plasma .io/ ; Butler, A (2018) An introduction to Plasma, available at http:// bit .ly/ 2O01YCP; Schor, L (2018) Explained:
Ethereum Plasma, available at http:// bit .ly/ 2XL0cKa
28 https:// raiden .network/ 101 .html
29 Deutsch, J & Retwiessner, C (2017) A Scalable Verification Solution for Blockchains, available at http:// bit .ly/ 2NYNd34
30 https:// truebit .io/ ‘retrofitting oracle which correctly performs computational tasks. Any smart contract can issue a
computation task to this oracle in the form of WebAssembly bytecode, while anonymous ‘miners’ receive rewards
for correctly solving the task. The oracle’s protocol guarantees correctness in two layers: a unanimous consensus
layer where anyone can object to faulty solutions, and an on-chain mechanism which incentivizes participation and
ensures fair remuneration. These components formally manifest themselves through a combination of novel, off-chain
architecture and on-chain smart contracts. Rather than relying on external, cryptographic proofs of correctness, Truebit
leverages game theoretic principles to effectively increase the on-chain computation power of existing networks.’Also
see http:// bit .ly/ 2JEOuYM
31 When the technically-oriented press discusses financial technology (FinTech) developments, they also use blockchain
as shorthand for DLTs.
32 Hedera (2019) Hedera Hashgraph, available at http:// bit .ly/ 32C4TVm
33 Hays, D (2019) An Overview Of The Evolution Of Blockchain Technology, Blockchain 0.0 to 3.0, available at http:// bit .ly/
2XYbaHI
34 A common concern is that current DLTs processes are much slower than what is needed to run mainstream payment
systems or financial markets. Also, the larger the blockchain grows, the larger the requirements become for storage,
bandwidth, and computational power required to process blocks. This could result in only a few nodes being able to
process a block. However, improvements in power and scalability are being designed to deal with these issues. See
Croman, K et al. (2015) On Scaling Decentralized Blockchains, available at https:// goo .gl/ cWpQpF; and McConaghy, T et
al. (2016) BigchainDB: A Scalable Blockchain Database, available at https:// goo .gl/ IBcGv0.

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