Blockchains vs. DLTs

Brief comparative analysis of its underlying resources

By Tatiana Revoredo

Introduction

We are witnessing the growth of a phenomenon that can be presented as a catalyst for changes in the way the world is today, changes that affect governance, lifestyles, corporate models, institutions on a global scale and society as s whole.

Challenging old patterns and ideas that populate our minds for centuries [1], Blockchain architecture will challenge governance and centralized and controlled ways of transacting, and it is unfair to define it as just a distributed registry. This represents only one of its many dimensions whose range of people and companies are still unable to qualify and quantify.

Blockchains concepts, features and characteristics are still being uncovered, but it is possible to envisage that the way to solutions in Blockchains requires perceptions and evaluations of its underlying resources.

In this line, the objective of this article is to make a brief comparative analysis between Blockchains and Distributed Ledgers, addressing some of its key characteristics and, thus, to help identify the advantages and disadvantages that can result from its adoption.

Blockchains vs. Distributed Ledger Technologies (DLTs)

While the use of the terms “Blockchains” and “DLTs” (Distributed Ledger Technologies) as synonyms is very common, the truth is that although Blockchains (Bitcoin, Ethereum, for example) have similarities with Distributed Ledger technologies (as Hyperledger Fabric, or R3 Corda), DLTs are not Blockchains.

Distributed Ledger Technologies (DLTs), or, as others prefer, distributed ledger architectures and structures were created for the processing of transactions in an environment shared by known actors (by a contractual relationship, for example), while the real Blockchains were designed so that strangers could transfer value safely, to dispense validating agents to obtain certainty (accuracy, truthfulness, fidelity) and immutability [2] in transactions and data. It is worth noting here that veracity and immutability are essential for the success of an adequate digitization of the assets.

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On the other hand, when analyzing some of the various technological resources existing in Ethereum, IBM Hyperledger Fabric and R3 Corda, we can identify some more differences between “Blockchains” and “DLTs”.

Ethereum

Transactions in Blockchain Ethereum are stored within “blocks”, with state transitions [3] resulting in new system states (which sacrifices the speed of database transaction processing [4] by that of system integrity).

Blockchains vs DLTs 2 ethConcerning the participation of the parties, this is done without permission, that is, anyone has access to the Ethereum network, without the need for authorization. The mode of participation, it should be noted, has a profound impact on how consensus is achieved.

About the “consensus” in Ethereum, all participants need to reach consensus on the order of all transactions that have taken place, whether or not the contributor has contributed to a specific transaction. The order of transactions is crucial to the consistent state of the ledger. If a final order of transactions can not be established, there is a chance that double spending may have occurred. Because the network may involve parts that are not known (or have any contractual liability), a consensual mechanism must be employed to protect the ledger against fraudulent participants wishing to incur double spending. In the current implementation of Ethereum, this mechanism is established by mining based on the labor “Proof of Work” (PoW). All participants have to agree to a common book and all participants have access to all entries already registered. The consequences are that PoW adversely affects the performance of transaction processing [5]. With respect to the data stored in the ledger, although the records are anonymous, they are accessible to all participants, which can compromise applications that require a greater degree of privacy.

Another feature noteworthy is that Ethereum has a built-in cryptocurrency called Ether. It is used to pay rewards for “nodes” that contribute to achieving consensus by mining blocks as well as to pay transaction fees. Therefore, decentralized applications (DApps) can be built for Ethereum, which allow for monetary transactions. In addition, a digital token for custom use cases can be created by deploying a smart contract that conforms to a predefined pattern [6] .  In this way, cryptocurrencies or assets can be defined.

In addition, the Ethereum architecture also allows “affiliate platforms” capable of adding layers of “crypto-economic” incentives to the system.

Finally, the Ethereum has integration in the digital commoditization of assets, what means that can integrate in a saving of digital goods, which is not possible neither in Hyperledger Fabric, neither in R3 Corda.

See how Vitalik Buterin explains Ethereumhere.

Hyperledger Fabric

IBM Hyperledger Fabric replaces the key principles of a Blockchain system, maintaining the execution of all transactions within the multichannel architecture to ensure high transaction throughput in a trusted environment. IBM Fabric is a DLT, not a Blockchain.

Blockchains vs DLTs 4 HyperledgerThe Hypherledger Fabric architecture sacrifices the integrity and data fidelity of a Blockchain system for faster transaction processing and throughput in a reliable data flow environment. However, while the state arrangement within the Fabric environment is efficient, it does not have the ability to preserve value in a decentralized public ecosystem in the same way that a Blockchain like Ethereum or Bitcoin would do.

Concerning the participation, in Hyperledger Fabric it is authorized (permissioned), so that network participants are selected in advance and network access is restricted to these only.

By the way, the consensus interpretation of Hyperledger Fabric is more refined and is not limited to PoW-based mining (Proof of Work) or some derivative. By operating in the permissioned mode, Hyperledger Fabric provides more refined access control to the records and thus privileges privacy. In addition, you get a performance gain, so only stakeholders who participate in a transaction need to reach consensus. The Hypherledger consensus is broad and covers the entire flow of transactions, that is, from the proposition of a transaction to the network to the commitment with the ledger. [7] In addition, computational devices (also known as “nodes”) assume different roles and tasks in the process of obtaining consensus, which contrasts with Ethereum, where the roles and tasks of the nodes participating in the consensus are identical.

In Hyperledger Fabric, nodes are differentiated, being classified into Client or submitting-client [8], peer [9] or consenter [10]. Without entering into technical details, Fabric allows refined control over consensus and restricted access to transactions, resulting in improved scalability and performance privacy.

Hyperledger does not require built-in cryptocurrencies, since consensus is not achieved through mining. With Fabric, however, it is possible to develop a native currency or a digital token with the chaincode. [11]

Watch Hyperledger Fabric Explainer here.

R3 Corda

In the R3 Corda architecture, in turn, the processing of shared data occurs in a “partially reliable” environment, that is, the counterparts do not have to trust each other completely, although their platform does not have the components of a Blockchain system able to assure unequivocal, exact and unchanging value.

Blockchains vs DLTs 3 CordaIn R3 Corda, pieces of information are attached to a database-like ledger, which adds data into an event chain, and allows the traceability of its origin in a controlled environment. The origin of the data is controlled by the members of the Consortium R3 Corda that holds certain controls of access to the software platform. Using this configuration, banks and financial institutions will be able to maximize efficiency in terms of information processing in a shared accounting ecosystem. Data can be better moved and processed between organizations, reducing the need for substantial trust between untrusted counterparts. For a transaction in R3 Corda to be valid, it must: be signed by the parties involved, be validated by the contract code that determines the transaction.
As for participation in R3 Corda, just like in Hyperledger Fabric, it is authorized (permissioned), so that the participants of the network are selected in advance and access to the network is restricted to these only.

Concerning the consensus in R3 Corda, its interpretation is more refined and is not limited to mining based on PoW (Proof of Work) or derivative. By operating with permission, R3 Corda provides more refined access control for records and thus enhances privacy. In addition, you gain performance because only the parties involved in a transaction need to reach a consensus. Similar to Fabric, the consensus in Corda is also reached at the transaction level, involving only parts. The validity of the transaction and the uniqueness of the transaction are subject to consensus, and such validity is guaranteed by the execution of a smart contracts code associated with a transaction. Consensus on exclusivity of a transaction is reached among the participants known as “notary nodes”. [12]

Here, it is important to note that because a system is closed, the R3 Corda does not have the necessary means and the technological characteristics to build an ecosystem based on economic incentives, nor an environment of public digital assets. What’s more, the R3 Corda does not require embedded crypto-currencies because consensus is not achieved through mining, and its White Paper does not provide for the creation of cryptocurrencies or tokens.[13]

Watch R3 Corda overview here.

Architectures Ethereum, Hyperledger Fabric and R3 Corda regarding possible use cases

When analyzing the Ethereum White Papers [14], Hyperledger Fabric and R3 Corda, these structures have very different views on possible fields of application. [15]

Therefore, the motivation for the development of Hyperledger Fabric and R3 Corda is in concrete use cases. In R3 Corda, the use cases are extracted from the financial services sector, which is why in this sector lies the main field of application of Corda. Hyperledger Fabric, on the other hand, intends to provide a modular and extensible architecture that can be employed across a range of industries, from banking and healthcare to supply chains.

Ethereum also shows itself totally independent of any specific field of application, but in contrast to Hyperledger Fabric, it is not the specificity that stands out, but the provision of a generic platform for all types of transactions and applications.

Final Considerations

It is concluded here that the platforms are inherently different from one another. While Blockchains as Ethereum, it has certain features that do not exist in the distributed ledgers. DLTs, in turn, have performance features that Ethereum is currently unable to achieve to the same extent.

All the architectures analyzed here are still under construction and therefore their protocols should be carefully examined by businessmen and managers, who must understand them to the necessary depth before any practical implementation.

Knowing where you plan to go and how close these architectures are to replicating the desired degrees of functionality can make all the difference.

Bibliography

Ethereum. In: Ethereum State Transition Function. Github. Disponível em: https://github.com/ethereum/wiki/wiki/White-Paper#ethereum-state-transition-function.

Ethereum. In: Philosophy. GitHub. Disponível em: https://github.com/ethereum/wiki/wiki/White-Paper#philosophy

Hearn, Mike. In: Corda: A distributed ledger. Corda Technical Whitepaper. Corda, 2016. Disponível em: https://docs.corda.net/_static/corda-technical-whitepaper.pdf

Mougayar, William (Author); Butterin, Vitalik (Prologo) In: The Business Blockchain: Promise, Practice, and Application of the Next Internet Technology. Amazon, 2017.

Ray, Shaan. In: The Difference Between Blockchain And Distributed Ledger Technology. Towards Data Science, 2018.

The Linux Foundation. In: Hyperledger Explainer. Hyperledger. Disponível em: https://youtu.be/js3Zjxbo8TM

The Linux Foundation. In: Hyperledger Architecture, Volume 1. Hyperledger Whitepaper. Disponível em: https://www.hyperledger.org/wp-content/uploads/2017/08/Hyperledger_Arch_WG_Paper_1_Consensus.pdf

Valenta, Martin; Sandner, Phillip. In: Comparison of Ethereum, Hyperledger Fabric and Corda. Frankfurt School Blockchain Center, 2017.

Wikipedia, A enciclopédia livre. In: White Paper. Disponível em: https://pt.wikipedia.org/wiki/White_paper

Xu, Bent. In: Blockchain vs. Distributed Ledger Technologies. Consensys, 2018.

Endnotes

[1] Blockchains helps diminish, and potentially even eliminate, our reliance on trusted validating agents (such as banks, governments, lawyers, notaries, and regulatory compliance officials)

[2] Antonopoulos, Andreas. In: “What is the Blockchain”, Youtube, Jan. 2018. Disponível em: https://youtu.be/4FfLhhhIlIc

[3] Current configuration of a data structure

[4] Computational events that can lead to state transactions, being able to initiate contracts or call pre-existing contracts

[5] Vukolić M. (2016). The Quest for Scalable Blockchain Fabric: Proof-of-Work vs. BFT Replication, in: Camenisch J., Kesdoğan D. (eds.) Open Problems in Network Security, iNetSec 2015, Lecture Notes in Computer Science, Vol. 9591, Springer

[6] https://www.ethereum.org/token

[7] https://hyperledger-fabric.readthedocs.io/en/latest/fabric_model.html#consensus

[8] https://github.com/hyperledger-archives/fabric/wiki/Next-Consensus-Architecture-Proposal

[9] Peers can have two special roles: a. A submitting peer or submitter, b. An endorsing peer or endorser. https://github.com/hyperledger-archives/fabric/wiki/Next-Consensus-Architecture-Proposal

[10] https://github.com/hyperledger-archives/fabric/wiki/Next-Consensus-Architecture-Proposal

[11] https://hyperledger-fabric.readthedocs.io/en/latest/Fabric-FAQ.html#chaincode-smart-contracts-and-digital-assets

[12] https://github.com/hyperledger-archives/fabric/wiki/Next-Consensus-Architecture-Proposal

[13] https://discourse.corda.net/t/mobile-consumer-payment-experiences-with-corda-on-ledger-cash/966?source_topic_id=962

[14] White Paper is, according to Wikipedia, official document published by a government or an international organization, in order to serve as a guide or guide on some problem and how to face it.

[15] Valenta, Martin; Sandner, Phillip. In: Comparison of Ethereum, Hyperledger Fabric and Corda. Frankfurt School Blockchain Center, 2017

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