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Eindhoven University of Technology MASTER An exploration and characterisation of public blockchain generations the introduction of a characterisation framework highlighting the essential design considerations to select a public permissionless blockchain technology for blockchain use cases van der Pasch, M.M.A. Award date: 2018 Link to publication Disclaimer This document contains a student thesis (bachelor's or master's), as authored by a student at Eindhoven University of Technology. Student theses are made available in the TU/e repository upon obtaining the required degree. The grade received is not published on the document as presented in the repository. The required complexity or quality of research of student theses may vary by program, and the required minimum study period may vary in duration. General rights Copyright and moral rights for the publications made accessible in the public portal are retained by the authors and/or other copyright owners and it is a condition of accessing publications that users recognise and abide by the legal requirements associated with these rights. • Users may download and print one copy of any publication from the public portal for the purpose of private study or research. • You may not further distribute the material or use it for any profit-making activity or commercial gain An exploration and characterisation of public blockchain generations The introduction of a characterisation framework highlighting the essential design considerations to select a public permissionless blockchain technology for blockchain use cases Name: M.M.A. (Mark) van der Pasch Student Number: 0944065 MSc Innovation Sciences, Department of Industrial Engineering & Innovation Sciences Publishing date: July 1st, 2018 st 1 supervisor: prof. dr. B.M. Sadowski (Department of Industrial Engineering & Innovation Sciences) nd 2 supervisor: prof. dr. G.M. Duysters (Department of Management, Tilburg University) th 3 supervisor: prof. dr. Z.O. Nomaler (Department of Industrial Engineering & Innovation Sciences) An exploration and characterisation of public blockchain generations The introduction of a characterisation framework highlighting the essential design considerations to select a public permissionless blockchain technology for blockchain use cases Keywords: Blockchain, Exploration, Characterisation, Use cases, Framework, Bitcoin, Ethereum, Cardano, Blockchain Generations, Distributed Ledger Technology (DLT) In partial fulfilment of the requirements for the degree of: MSc Innovation Sciences Department of Industrial Engineering & Innovation Sciences (IE&IS) Eindhoven University of Technology Date of Submission: July 1st, 2018 Author: M.M.A. (Mark) van der Pasch Student number: 0944065 First supervisor: prof. dr. B.M. Sadowski (Department of Industrial Engineering & Innovation Sciences) Second supervisor: prof. dr. G.M. Duysters (Department of Management, Tilburg University) Third supervisor: prof. dr. Z.O. Nomaler (Department of Industrial Engineering & Innovation Sciences) Company: Rabobank Company coach: D.S. Baars, MSc Disclaimer The copyright of the master thesis lies with the author. The author is responsible for its contents. Additionally, this master thesis does not represent the public opinion of the Rabobank Group or any of the other involved companies nor their employees. A Management summary Blockchain technology and in broader terms distributed ledger technology, is a digital platform top trend in the Gartner hype cycle of 2017. Technology platforms, like Bitcoin and Ethereum, have much news attention; however, the underlying technology blockchain is still in infancy. According to Tapscott & Tapscott (2017), the technology behind blockchain technology is pulling the world in a new era of openness, decentralization and global (economic) inclusion. Due to the high potential of the technology, many enterprises are looking how to deal with this new technology. A person or group with the pseudonym Satoshi Nakamoto wrote a paper that conceptualizes the first generation blockchain application called Bitcoin. Nakamoto (2008) introduced "A purely peer-to-peer version of electronic cash that allows on-line payments to be sent directly from one party to another without going through a financial institution" (Nakamoto, 2008, p. 1). Back then in 2008, the full potential of blockchain was still unclear, however currently blockchain technology appears to become the foundation technology that leads to a fundamental change from trusting humans to trusting machines, and from centralized to decentralized control (Aste, Tasca , & Matteo, 2017). Towards the end of 2013, Vitalik Buterin who was a young programmer and Bitcoin enthusiast, started working on a project to expand the features of Bitcoin. He mentioned that multiple projects, such as Bitcoin, Namecoin, Peercoin and Mastercoin were limited in features and were mainly focused on fulfilling one particular feature. His vision was to build a universal blockchain solution, enabling multiple features on a single blockchain platform. Therefore, Ethereum is considered as a second-generation blockchain platform enabling multiple features. Since there is much overlap and discussion about how to qualify the different type of blockchain technologies, this research builds on three type definitions for blockchain technologies: • Public permissionless: everybody is allowed to access and participate in the blockchain, and everyone is allowed to participate in the consensus mechanism. Examples of this type are Bitcoin and Ethereum. • Public permissioned: everybody is allowed to access and participate in the blockchain, however participation in the consensus mechanism is restricted. An example is Ripple. • Private permissioned: The network is only accessable for a authorized group of users, and participation to the consensus mechanism is also restricted. Examples of this type are Hyperledger Fabric and Quorum. This research focusses on public permissionless blockchains. In order to truly grasp the benefit and understand blockchain technology, this research introduces a characterisation framework based on Saviotti & Metcalfe (1984) ideology describing a technology as a set of service and technology characteristics that are interlinked by a pattern of mapping. A multiple case study describing Bitcoin, Ethereum and Cardano is used to draft this framework. Cardano claims to become a generation three- blockchain platform. The framework can be used to qualify the innovation output of public permissionless blockchain technologies. Table 0.1 provides an overview of the framework without a specific case filled in. B Table 0.1 A characterisation framework for public permissionless blockchains Services characteristics Technology characteristics sub-characteristic main-characteristic main-characteristic sub-characteristic Native functionalities Functionality Network design Add-on functionalities Consensus mechanism User level privacy Level of Privacy State machine Coding language architecture Transaction level Smart contract execution confidentiality Security Level of Trust Data structure Finality Block size Liveness Block release time Level of Block header data structure Interoperability Maximum throughput Level of scalability Complementary interchain protocol protocols Latency offchain protocol Transaction costs Incentives Governance Mechanism for Coordination The case study conducted for this research provided an overview of the current technical challenges of public permissionless blockchain technologies. Summarizing, the technical challenges of public blockchain technologies are related to the following service characteristics. • Level of Privacy: The level of privacy is a challenge for public permissionless blockchain technologies. User accounts on public permissionless blockchains are pseudonymous and the transactions are open and accessible. However, several protocols are currently introduced to improve the level of transaction confidentiality, i.e. zkSNARKs. • Level of Trust: Although the level of trust is considered high for Bitcoin and Ethereum, both protocols do not enable absolute finality, which is required for some use cases. This challenge relates to the current Proof of Work consensus mechanism implementation. The proposed Proof of Stake implementation of Ethereum will potentially solve this challenge. • Level of Interoperability: Currently, the three studied blockchain technologies do not enable native mechanism to interconnect heterogeneous blockchains. Currently the proposed solutions are mostly complementary protocols such as side-chains that enable a connection between two blockchain platforms. • Level of Scalability: One of the most debated issues is scalability. Public blockchains currently have low throughput and high cost per confirmed transactions. This is the trade-off for decentralized computations. Currently, several technology solutions are proposed that potentially increase the level of scalability of Ethereum, i.e. Sharding, Casper, Plasma. • Governance: Governance can be distinguished in off-chain and on-chain governance. Currently, much of the governance occurs off-chain by a selected group of participants. A truly democratic system would be in place where each stakeholder has equal voting rights. Such a system is very complex and brings multiple challenges. A solution opposed for on-chain delegated voting is the liquid democracy model however, this solutions seems far from integration. Another challenge for blockchain use cases is that the price of the
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