Group 49 Blockchain and Distributed Ledger Technologies Bachelor Project Spring 2020 Sven Daneel and Bjørnar Hoff INSTITUTE OF TECHNOLOGY – OSLO METROPOLITAN UNIVERSITY Software Engineering PROSJEKT NR. 49 Institutt for Informasjonsteknologi Postadresse: Postboks 4 St. Olavs plass, 0130 Oslo TILGJENGELIGHET Besøksadresse: Holbergs plass, Oslo Åpen Bachelorprosjekt Telefon: 22 45 32 00 HOVEDPROSJEKTETS TITTEL DATO Blockchain and Distributed Ledger Technologies 25.05.2020 ANTALL SIDER / BILAG 180 PROSJEKTDELTAKERE INTERN VEILEDER Sven Daneel (s325867) Eva Hadler Vihovde Bjørnar Hoff (s325858) OPPDRAGSGIVER KONTAKTPERSON Oslo Metropolitan University (OsloMet) Tulpesh Patel SAMMENDRAG Throughout our joint bachelor thesis at Oslo Metropolitan University, we have created a research report that deals with Blockchain and Distributed Ledger Technologies. The thesis contains a broad aspect of components and use-cases of this technology, including speculative opinions about the future potential of this technology. With the use of diagrams, figures, dictionary, tables, and educationally written structure, we aim to provide the reader with the necessary competence to devour all the contents and use their acquired knowledge to make up their own opinions and thoughts about this technology. 3 STIKKORD Blockchain Distributed Ledger Technologies Finance 1 Preface The current document is a bachelor project submitted to Oslo Metropolitan University (OsloMet) in the spring of 2020. For continuous flow and readability, the report has been optimized for digital reading, while following specified guidelines in cooperation with internal OsloMet supervisors. Within the document, we have embedded various links, enabling the reader to access additional information and definitions as required. It is also possible to print the document and read it in paper format. In order to provide a bigger and more complete picture of our thesis topic, we also included subjects that were not necessarily part of our field of studies, such as economics, finance, and blockchain. Therefore, we decided to give our thesis an objective research-based approach, intending to clarify and provide readers with a valuable learning experience. The document is divided into two phases, providing the reader with a continuous and steady learning curve. Knowledge gathered from chapters in phase 1 (Technological Background) is needed to gain further understanding of the topics discussed in phase 2 (Real-World Usage). Structuring the thesis into two distinct phases allows the reader while progressing through the document, to continuously acquire the knowledge needed to attain a deeper understanding of the complex nature of this technology. The thesis requires some basic knowledge or understanding of computer science or IT. Internal links provide further definitions or clarification regarding specific blockchain terms or unfamiliar words. Links within the document are recognized by a blue underscore. In the dictionary, one can return to the first occurrence of the dictionary-word for a smoother navigation experience and mitigate the frustration of scrolling through the document and guessing the page number one was reading previously. In the document, footnotes make reference to external sources. These references are formatted within footnotes and listed in a separate reference list at the end of the thesis. Figures and diagrams are either generated by us (in blue) or copied from the internet. Internet sources are listed under an independent reference list for attachments. The thesis is built with the vision of an intended continuous thread, starting from the beginning and guiding the reader throughout the document. Consequently, we strongly recommend reading the thesis based on its given structure, with phase 1 followed by phase 2. However, we want to highlight essential chapters 3, 5, 8, 14, 15, 16, 18, 19, due to their importance and thought-provoking nature. Due to the tremendous size of our thesis, we have determined to build the document with defined and numbered headings to our table of contents. This implementation will greatly enhance and aid while navigating through the thesis in PDF format, independently if the reader is using an Apple or Microsoft product. We highly advocate that the reader has activated the navigation route for the table of contents or uses the indexes related to our thesis. If the navigation contents do not automatically appear in PDF format, it has to be activated through switching on bookmarks. 2 Table of Content TABLE OF CONTENT ........................................................................................................................ 3 1 INTRODUCTION .................................................................................................................. 10 1.1 BACKGROUND AND MOTIVATION .............................................................................................. 10 1.2 AUTHORS ................................................................................................................................... 11 1.3 CONTRIBUTORS ......................................................................................................................... 11 1.3.1 Employer ................................................................................................................................... 12 1.3.2 Supervisors ................................................................................................................................ 12 1.3.3 Sparring Partner ......................................................................................................................... 13 1.4 TASK & SOLUTION .................................................................................................................... 13 1.4.1 Phase 1 - Task ............................................................................................................................ 13 1.4.1.1 Solution Methods ...................................................................................................... 13 1.4.2 Phase 2 - Task ............................................................................................................................ 14 1.4.2.1 Solution Methods ...................................................................................................... 14 1.5 APPENDICES WITH A DECENTRALIZED EXCHANGE (DEX) TASK ............................................... 15 1.5.1 Solution Methods ....................................................................................................................... 15 1.6 WORK PROCESS ......................................................................................................................... 15 1.7 LAST WORDS ............................................................................................................................. 15 PHASE 1 – TECHNOLOGICAL BACKGROUND ........................................................................ 17 2 HISTORY OF BLOCKCHAIN ............................................................................................ 17 3 WHAT IS BLOCKCHAIN .................................................................................................... 20 3.1 BLOCKS & LEDGERS .................................................................................................................. 20 3.1.1 Block ......................................................................................................................................... 20 3.1.2 Ledger ........................................................................................................................................ 21 3.2 NODES ....................................................................................................................................... 21 3.2.1 What are Nodes ......................................................................................................................... 21 3.2.2 Full Nodes ................................................................................................................................. 21 3.2.3 Lightweight Node ...................................................................................................................... 22 3.3 PERMISSIONLESS VS. PERMISSIONED ......................................................................................... 23 3.3.1 Permissionless Blockchain ........................................................................................................ 23 3.3.2 Permissioned Blockchain........................................................................................................... 23 3.4 PROBLEMS SATOSHI TARGETED ................................................................................................ 23 3.4.1 Byzantine Fault or Byzantine Generals’ Problem ...................................................................... 23 3.4.2 Double Spend Problem .............................................................................................................. 24 3.5 CENTRALIZED VS. DECENTRALIZED VS. DISTRIBUTED............................................................... 24 3.5.1 Centralized ................................................................................................................................. 24 3.5.2 Decentralized ............................................................................................................................. 25 3.5.3 Distributed ................................................................................................................................