Module 6 - Blockchain Protocols

Dr. Senthil Prakash P.N.

  • Assistant Professor Senior Grade 1, School of Computer Science and Engineering, Vellore Institute of Technology, Chennai – 600127

  • Course: BCSE324L - Foundations of Blockchain Technology

  • Module 6: Blockchain Protocols

Ethereum Overview

  • Ethereum is an open-source and decentralized software platform.

  • Enables Smart Contracts and Distributed Applications (DApps).

  • Functionality allows operation without downtime, fraud, control, or interference from third parties.

  • Uses a native programming language called Solidity for developing DApps.

  • Second largest cryptocurrency after Bitcoin, allowing DApps to be built on its blockchain.

  • Average transaction processing speed: 15 transactions per second.

  • Block time averages 15-20 seconds, compared to Bitcoin's 10 minutes.

Ethereum Development Timeline

  • 2009: Bitcoin launched.

  • 2013: Ethereum project whitepaper announced by Vitalik Buterin.

  • 2014: Ethereum pre-sale; investment in Ether tokens (60 million tokens sold).

  • 2016: DAO attack leading to Ethereum fork (Ethereum Classic).

  • 2015: Launch of Ethereum platform.

Initial Coin Offering (ICO) for Ethereum

  • ICO announcement by Vitalik Buterin at a Bitcoin Conference in 2014.

  • Initial rate during ICO: 2,000 ETH for 1 BTC.

  • Price evolution: Close to 1,337 ETH for 1 BTC by the end of the ICO.

Ethereum Blockchain Transaction Process

  • User signs a transaction through a node (e.g., MyCrypto).

  • Transaction sent to miners from a transaction pool.

  • Miners select transactions, particularly those with high gas fees, to include in new blocks.

  • Once added to the blockchain, transactions become permanent.

Ethereum vs. Bitcoin

  • Ethereum: Launched in 2015, supports programmable applications and smart contracts.

  • Bitcoin: First crypto launched in 2009, acts primarily as a digital currency for transactions.

  • Ethereum's supply vs. Bitcoin's: ~104 million ETH vs. 21 million BTC.

  • Market cap differentiation: ~65 billion USD (ETH) vs. ~13 billion USD (BTC).

Token Types on Ethereum

  • Tokens: Digital assets representing value on the blockchain.

    • Fungible Tokens: Interchangeable and identical properties, used for digital currencies.

    • Non-Fungible Tokens (NFTs): Unique assets that cannot be exchanged on a one-to-one basis.

Token Standards on Ethereum

  • ERC-20: Standard for fungible tokens with defined functions.

  • ERC-721: Standard for non-fungible tokens, ensuring uniqueness.

  • ERC-777: Enhances ERC-20 and ERC-223 with backward compatibility and security features.

Case Study: Augur

  • Decentralized prediction market on Ethereum, allows users to bet on outcomes of events.

  • Utilizes native token Reputation (REP) for participation.

  • ICO in 2015 raised over $5 million, selling 8.8 million REP tokens.

  • Market lifecycle includes Creation, Trading, Reporting, and Settlement stages.

Case Study: Golem

  • Golem Network: Platform for sharing computational resources globally.

  • Connects users to provide or access computing power, promoting digital capabilities.

  • Utilizes Infrastructure-as-a-Service (IaaS) and Platform-as-a-Service (PaaS) models.

  • Native token: GLM.

Tokenization Process

  • Tokenization: Digitally representing assets on the blockchain.

  • Involves auditing assets, creating security tokens, and custodian storage.

Types of Token Offerings

  • ICO: Raising funds using cryptocurrencies.

  • STO: Tokenized securities ranging from financial assets.

  • IEO: Tokens offered through exchanges.

  • ETO: Equity tokens offered similarly to ICOs and STOs.

Tokenomics

  • Refers to economic principles governing token functionality.

  • Key Components:

    • Token Supply

    • Distribution Mechanism

    • Utility and Functionality

    • Governance Structures

    • Scarcity and Demand

Security Law Framework for Blockchain Tokens

  • Explanation of Howey Test for determining if a token is a security, requiring:

    1. Investment of money

    2. Common enterprise

    3. Reasonable expectation of profit

    4. Derived from efforts of others.

Best Practices in Token Sales

  • Publish a whitepaper detailing the network.

  • Commit to a development roadmap.

  • Use an open, public blockchain for transparency.

  • Establish fair token pricing and development team token distribution.

Ethereum Community

  • Subreddit r/ethereum: A hub for discussions among over 1.1M crypto investors.

Notable NFTs

  • Beeple's "Everydays: The First 5000 Days" sold for $69 million.

  • Pak's "The Merge" NFT sold for $91.8 million.