This approach isn’t fool-proof, but it’s not by mistake that the system looks the way it does today (that’s my history degree talking). Despite best technical efforts, human problems remain within the realm of probability. From http://www.nytimes.com/2009/01/15/books/15masl.html: “…blame cannot be easily assigned: not even the most sophisticated economists of the era could accurately predict disaster, let alone guard against it. The effects of a public herd mentality at the time of the [insert catastrophe here] are depicted, all too recognizably, as unstoppable.”
Many people believe this is the future of the blockchain. It maintains network security and allows for scalability. The biggest criticism is that it heavily favors those with more funds as smaller holders have no chance of becoming witnesses. But the reality is, smaller players have no hope of participating in Proof of Work either, as mining from your own laptop at home is no longer a reality. Smaller players get outcompeted by bigger players who have massive mining rigs. STEEM and EOS are examples of DPOS blockchains. Even Ethereum is moving to POS with its Casper project.
Using Rootstock as an example, in order to transfer assets from one chain to the other a user on the parent first has to send their coins to a special output address where they will consequently become locked and un-spendable. Once the transaction is completed, SPV then confirms it across the chains and after waiting out a contest period, which is just a secondary method to help prevent double spending, the equivalent amount will be credited and spendable on the Sidechain and vice versa.
Blockstream has also released an “Alpha” sidechain with all of those features up and running except the last, coupled to the Bitcoin testnet. (Used for testing Bitcoin software without putting real value at risk.) In the absence of the Bitcoin protocol change that will cryptographically secure the programmatic transfer of value between Bitcoin and sidechains, they’re cooperating with several external organizations to perform and validate those transfers. If and when that protocol change happens, though, pegged sidechains will be as permissionless, and as decentralized, as Bitcoin itself.
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NPD said the next step for retailers is to develop their own cryptocurrency to prevent customers from having to use credit cards when shopping online. NPD said the practice makes sense for the retailer, because if the customer could send the payment transfer via blockchain, it would avoid third-party clearing house fees retailers pay for processing card payments.
Performance at scale: It is not uncommon for large businesses to process 100,000’s of transactions per second (TPS). Therefore, enterprise blockchains need to scale so that they can deliver performance accordingly. To achieve this, they can compartmentalize processes using containers or similar approaches. Read more about this requirement in this article “Enterprise blockchain ready to go live”.
The two-way peg is the mechanism for transferring assets between sidechains and is set at a fixed or predefined rate. Bitcoin’s Dynamic Membership Multi-Party Signature (DMMS) plays a vital role in the functionality of the two-way peg. The DMMS is one of Bitcoin’s lesser known but incredibly important components. It is a group digital signature — composed of the block headers in Bitcoin — that has no fixed size due to the computationally powered PoW nature of its blockchain. The Pegged Sidechain paper further describes it as:
Peer-to-peer blockchain networks lack centralized points of vulnerability that computer crackers can exploit; likewise, it has no central point of failure. Blockchain security methods include the use of public-key cryptography.:5 A public key (a long, random-looking string of numbers) is an address on the blockchain. Value tokens sent across the network are recorded as belonging to that address. A private key is like a password that gives its owner access to their digital assets or the means to otherwise interact with the various capabilities that blockchains now support. Data stored on the blockchain is generally considered incorruptible.
A federation is a group of servers that act as an in-between point between the main chain and a sidechain. The Federation decides when the user’s coins are locked as well as when they are released. The developers of the sidechains can choose the members of the federation. The downside to using federations is that they add another layer between the sidechains and the parent chain.
Public blockchains: a public blockchain is a blockchain that anyone in the world can read, anyone in the world can send transactions to and expect to see them included if they are valid, and anyone in the world can participate in the consensus process - the process for determining what blocks get added to the chain and what the current state is. As a substitute for centralized or quasi-centralized trust, public blockchains are secured by cryptoeconomics - the combination of economic incentives and cryptographic verification using mechanisms such as proof of work or proof of stake, following a general principle that the degree to which someone can have an influence in the consensus process is proportional to the quantity of economic resources that they can bring to bear. These blockchains are generally considered to be "fully decentralized".
By definition, blockchain is a ledger of all transactions that have been executed and could be seen as a write-only platform, wherein transactions once executed cannot be modified later. This platform has been further divided into Public and Private blockchain. Is there a third one? a hybrid mode such as a ‘Consortium blockchain’ as represented by Vitalik Buterin, founder of Ethereum, a decentralized web 3.0 publishing platform.
There has been tremendous interest in blockchain, the technology on which Bitcoin functions. Nakamoto developed the blockchain as an acceptable solution to the game theory puzzle – Byzantine General’s Problem. This lead to a number of firms adopting the technology in different ways to solve real world issues, wherever there was an element of trust involved. Majority of them could be relating to the ability to provide proof of ownership – for documents, software modules/licenses, voting etc.
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In a cooperative consensus algorithm, there is a fixed number of voters. Voters cannot leave and join randomly. All voters know each other and every voter has only one vote. If the majority agree on the value of the data, then the system is working as designed. This can handle over 30,000 transactions per second. Scaling the number of voters can be an issue, because every vote proposed by a voter must be delivered to every other voter in the consortium.
“Given all of this, it may seem like private blockchains are unquestionably a better choice for institutions. However, even in an institutional context, public blockchains still have a lot of value, and, in fact, this value lies to a substantial degree in the philosophical virtues that advocates of public blockchains have been promoting all along, among the chief of which are freedom, neutrality and openness.”
"Proof of Work" used by Bitcoin is a competitive consensus algorithm. Each node races to solve a difficult puzzle first. Doing so earns the right to produce a block and you are rewarded in Bitcoin. The block is where the transaction (value of data) is written and confirmed. However, this race is a waste of time and money for those that don’t win. You get nothing unless you are the first to solve the puzzle. Since no one wants to lose, nodes started working together to solve the puzzle and share the reward based on your computational power (the hash rate).
Unfortunately our second option cannot be done yet, because to use these sidechains, main chain (here it is bitcoin) needs to do some upgrade (soft fork). By the way, upgrades in public blockchains are very painful yet. There will be a user activated soft fork (UASF) on August 1. All bitcoin forms’ trend topic is this soft fork which is about a code change for Segregated Witness Adoption.
The sole distinction between public and private blockchain is related to who is allowed to participate in the network, execute the consensus protocol and maintain the shared ledger. A public blockchain network is completely open and anyone can join and participate in the network. The network typically has an incentivizing mechanism to encourage more participants to join the network. Bitcoin is one of the largest public blockchain networks in production today.