Page 16 - FIGI: Security Aspects of Distributed Ledger Technologies

public, permissionless DLTs. Usually only those with ‘smart contracts’ is one of a class of blockchains now
an appropriate cryptographic key can view or add to termed Blockchain 2.0, versus Blockchain 1.0 of the
the data on a blockchain, which may layer on permis- original circa 2008-2009 Bitcoin blockchain. Smart
sions for different types of users where necessary. contracts are part of a class of 2.0-type application
That said, anyone can with the right tools, create a known as decentralized applications (dApps).which
blockchain and decide who has access to the block- may include those which manage money, those
chain, see the data in the blockchain, or add data to where money and ‘crypto-assets’ are involved, as
it. Banks, governments, and private entities are rap- well as dApps that facilitate voting and governance
idly developing and implementing blockchain-based systems. Many thousands of dApps containing these
solutions worldwide, but these are usually permis- and other categories are in use today.
sioned and private types. Table 6 highlights design Even these 2.0 types have their challenges, pri-
considerations for DLT development in the develop- marily ones of privacy of data and speed of transac-
ing world. 21 tion processing. As a result, so-called ‘offchain’ solu-
Often the data - if it represents fungible or tions – also termed Layer 2 – have been developed to
non-fungible value - on a DLT are known as ‘tokens,’ augment the ‘main-net’ blockchain, correspondingly
and which are secured by crytpo-graphic private now referred to as ‘Layer 1.’ Table 1 outlines the var-
keys known to the owner. Some tokens may reflect ious Layer 2 solutions. These Layer 2 solutions have
their use as tradable crypto-assets which can be been developed to solve inter alia speed and scal-
traded at so-called crypto-exchanges that store the ability issues in Layer 1 mainnets, especially for pay-
keys on behalf of the token owner. ment transaction processing. For example, off-chain
‘state channels’ are payment channels between users
4�2 Innovations in DLTs and Their Security Profiles which do not take place on-chain - on the Layer 1
As the technology had evolved, and more uses have main-net - until a final state is reached. Scaling solu-
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been found for DLTs, scalability and speed issues tions include ‘Lightning’ networks for Bitcoin, and
have necessitated ‘redesigns’ of blockchain, includ- ‘Plasma’ or sharding for Ethereum.
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ing the emergence of automated programs oper- These off-chain Layer 2 solutions and Blockchain
ating over DLTs called smart contracts, lightning 2.0 both though introduce new security challenges.
networks, and DAGs. ‘Layer 2’ solutions used to complement and
As a result of many of these challenges and due to enhance Layer 1 main-net blockchains, primarily to
innovations in technology, many varieties of DLTs have speed up transaction processing times. Some of
emerged since 2008. The Ethereum DLT launched in these solutions, often placed in the wild without suf-
2014, because of its innovation in allowing automated

Table 1: ‘Layer 2’ solutions used to complement and enhance Layer 1 main-net blockchains,

Layer 2 Type Description
Lightning Network To reduce both the number of on-chain transaction traffic and corresponding transaction fees, an
(Bitcoin) off-chain, Layer 2 network of payment channels is created, Known also as state channels, it lowers
the number of repetitive transactions between two (or more) parties. Each transaction is finalized
and entered onto the blockchain after the payment channel is completed or closed. This creates
a vulnerability though as it is ‘off-chain.’ 24
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Plasma (Ethereum) Plasma is a platform which uses smart contracts to create and maintain branching and spawned
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child blockchains off of a single root blockchain which ultimately make their way back to the
main net. 27
Raiden Network The Raiden Network is the Ethereum equivalent to the Lightning Network, aspiring to reduce
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latency to near instant transfers, lower transaction fees significantly below on-chain levels, and
improve upon privacy by conducting transactions on channels which are private between the
parties. It transfers Ethereum ERC-20 tokens.
TrueBit A scalable verification solution for blockchains which uses an oracle for transactions versus smart
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contracts. TruBit’s oracle protocol is a hybrid of an off-chain and on-chain solution which pro-
vides incentives for computational work and confirmation. 30

14 Security Aspects of Distributed Ledger Technologies