Page 62 - FIGI: Security Aspects of Distributed Ledger Technologies

Endnotes

1 Some portions of this report are extracted from DLT-related papers and manuscripts by the author: Perlman, L (2017)
Distributed Ledger Technologies and Financial Inclusion, available at https:// bit .ly/ 2nyxpBG; Perlman, L (2018) A
Model Crypto-Asset Regulatory Framework, available at https:// ssrn .com/ abstract = 3370679; Perlman, L (2019) Legal
Aspects of Distributed Ledger Technologies (forthcoming paper); Perlman, L (2019) Legal and Regulatory Aspects of
the Crypto-economy and Blockchain (forthcoming book); Perlman, L (2019) Use Of Blockchain Technologies In The
Developing World (forthcoming paper); Perlman, L (2019) Regulation of the Crypto-economy (forthcoming paper).
2 Depending on the type of DLT, a number of ‘trilemmas’ can exist simultaneously.
3 Ki-yis, D & Panagiotakos, K (2015) Speed-Security Tradeoffs in Blockchain Protocols, available at https:// goo .gl/ Fc2jFt
4 Ethereum currently manages a maximum of 20 tps, while Bitcoin original only reaches a capacity of 7 transactions per
second. Bitcoin cash reaches 61 tps. The Visa network reaches 24,000 tps. See Cointelegraph (2019) What Is Lightning
Network And How It Works, available at http:// bit .ly/ 2XXJsKY
5 Term coined by Vitalik Buterin, Ethereum Founder. NeonVest (2018) The Scalability Trilemma in Blockchain, available at
https:// bit .ly/ 2Y3dEpb
6 See all of the following. Fischer, M; Lynch, N & Paterson, M (1985) Impossibility of Distributed Consensus with One
Faulty Process, available at http:// bit .ly/ 2Z1YT6q; Gilbert, S & Lynch, N (2002) Brewer’s Conjecture and the Feasibility
of Consistent, available at http:// bit .ly/ 2XVRMuF; NULS (2019) Why it is Impossible to Solve Blockchain Trilemma?,
available at https:// bit .ly/ 2W7Dkzt; See also Kleppmann, M (2015) A Critique of the CAP Theorem, available at https://
bit .ly/ 2W2h0XN
7 Hence blockchain’s goals of striving to reach maximum levels of decentralization inherently result in a decrease in
scalability and/or security.
8 There is also the Ripple DLT, which is not viewed as ‘blockchain’ technology. See https:// www .ripple .com
9 Mosakheil, J (2018) Security Threats Classification in Blockchains, available at http:// bit .ly/ 2YZiuUJ. The layers are in
turn based on designs from Croman, K; Decker, C; Eyal, I et al. (2016) On Scaling Decentralized Blockchains. Bitcoin and
Blockchain, available at http:// bit .ly/ 2xXqRE8; and Dinh, T; Wang, J; Chen, G et al. (2017) Blockbench: A Framework for
Analyzing Private Blockchains, available at https:// nus .edu/ 2JCv9HK
10 Nakamoto, S (2008) Bitcoin: A Peer-to-Peer Electronic Cash System, available at http:// bit .ly/ 32Bje4n
11 The concept ‘cryptocurrency’ was first described in 1998 in an essay by Wei Dai on the Cypherpunks mailing list,
suggesting the idea of a new form of money he called ‘b-money.’ Rather than a central authority, it would use
cryptography to control its creation and transactions. See Dai, W (1998) b-money, available at http:// bit .ly/ 2GhYZiX
12 Bitcoin is a consensus network that enables a new payment system and a completely digital money or ‘cryptocurrency.’
It is thought to be the first decentralized peer-to-peer payment network that is powered by its users with no central
authority or middlemen. The first Bitcoin specification and proof of concept (POC) was published in 2008 in a
cryptography mailing list by one ‘Satoshi Nakamoto.’ It is not known if this is a pseudonym, The Bitcoin community has
since grown exponentially, but without Nakamato. See Bitcoin (2019) FAQs, available at http:// bit .ly/ 2Y27BjP
13 The technology, in the words of Bitcoin’s apparent creator, is: ‘[A] system based on cryptographic proof instead of
trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.’
See Nakamoto, S (2008) Bitcoin: A Peer-to-Peer Electronic Cash System, available at http:// bit .ly/ 32Bje4n
14 See Mills, DC; Wang, K; Malone B et al. (2016) Distributed Ledger Technology in Payments, Clearing, and Settlement
FEDS Working Paper No. 2016-095, available at http:// bit .ly/ 30FTu5m; and UK Government Office for Science (2016)
Distributed Ledger Technology: Beyond Block Chain, available at https:// goo .gl/ bVg0Vq. The term Distributed Ledger
Technology is often used interchangeably with ‘Shared Ledger Technology.’ DLT though will be used throughout this
study. SLT was coined by Richard Brown, CTO of blockchain company R3. See thereto. TwoBitIdiot (2015) Shared
Ledgers, available at https:// goo .gl/ gaeDRU; and Hoskinson, C (2016) Goodbye Mike and Some Thoughts About Bitcoin,
available at https:// goo .gl/ bGVN0R.
15 Any data that is placed on the block is said to be ‘on-chain’ and any data that derives from the blockchain, but which
for some reason must be swapped with another party not using blockchain technology is said to be ‘off chain.’ See also
Mills, DC; Wang, K; Malone B et al. (2016) ibid.
16 Depending on the DLT, the consensus method may be called Proof of Stake (POS), or Proof of Work (POW). For
example, with crypto-currencies POS is a consensus mechanism used as an alternative to the POW mechanism used in
Bitcoin. POS crypto-currencies are ‘minted’ rather than ‘mined,’ so avoiding expensive computations and thus providing
a lower entry barrier for block generation rewards. For a fuller discussion of these differences, see Bitfury Group (2015)
Proof of Stake Versus Proof of Work, available at https:// goo .gl/ ebS2Vo.

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