The Taoism and Magical Instruments of Public Chain and Consortium Chain

There are already many articles discussing the two forms of blockchain,公有链and联盟链, which are somewhat different from my understanding. Elwin here tries to analyze this from the perspective of Taoism, magic and instruments, covering the value of belief, background, technical characteristics, maintenance and governance, development trends and other aspects. I hope to share with you my understanding and suggestions on the two.

1. The Dao of Blockchain

"There is no sword in the hand, but there is a sword in the heart. Grass, wood, bamboo and stone can all be swords. No sword is better than a sword." In The Return of the Condor Heroes, the sword demon Dugu Qiubai mastered the "Tao" to achieve his goal. This "Tao" will not change because of the object (tool) or the method (technique). Tao is the origin, ontology, law or principle of the world.

Art is the strategy and method of dealing with things, or in other words, Tao can be regarded as beliefs and values; Art is skills and methodology. Law is the most fundamental strategy, method, guideline, and idea to realize values, and it is also a normative constraint; Tool is a tool, and the role of the tool is to improve efficiency and simplify complex problems.

Elwin's personal understanding is that for blockchain technology, blockchain development tools, compilation/operation environment and tools are "tools"; algorithms, smart contracts and frameworks are "techniques"; distributed ledger theory, encryption principles and P2P communication principles are "laws", alliance governance and supervision, community maintenance governance are also another kind of "laws"; the last "Tao" is the belief and values ​​of blockchain. The "Tao" of blockchain is to establish a value exchange network of mutual trust; the Tao of public chain is decentralized autonomy; the Tao of alliance chain is win-win cooperation.

The public blockchain originated from Bitcoin. When it was first created, it was aimed at decentralization. Its belief is that it is not controlled by any central organization. Transactions need to be publicly confirmed by the entire network. Everyone is equal before the algorithm. Everyone and every node can participate and supervise. It is its decentralization that makes it essentially different from all other virtual currencies. Later, virtual currencies such as copycat coins, which are still controlled by the issuer, ultimately found it difficult to develop.

The origin of public chain blockchain and Bitcoin is based on the pursuit of decentralized Internet. On the one hand, the Internet is extremely developed today, and the Internet is dominated by giants and unicorns, and many netizens cannot take the initiative. To recover the beautiful dream when the Internet was first built, we must return the power to the public through decentralization. On the other hand, many underlying Internet services are centralized services at present, and our network connection is actually very fragile. Countless devices around the world are increasingly connected to the Internet, especially the further popularization of the Internet of Things has aggravated the deterioration of the Internet. In the future, some malicious events may suddenly cause billions of users to be unable to use the Internet and cause the entire network system to stagnate. Decentralized network is the 3.0 of the Internet Web. In the future, there will no longer be centralized services of a single institution, such as decentralized communication, decentralized currency, decentralized DNS, decentralized publishing, decentralized social networking, etc. There are many beneficial explorations now. The emergence of Bitcoin has given everyone hope and direction, and thus blockchain (public chain) has opened a wave of decentralized applications.

Alliance blockchain is a blockchain that is open to specific organizations and groups and has an access mechanism. In layman's terms, many financial institutions and commercial organizations are currently building their own "circles of friends" based on blockchain technology, completing transactions and asset liquidations within the circle through the "alliance chain" model, which is usually called "部分去中心化" or "多中心化". The way he pursues is complementary cooperation and win-win under the new game within the alliance.

The origin of the alliance blockchain can be understood from the groups that use the alliance chain. Their main groups are banks, insurance, securities, business associations, group companies and upstream and downstream companies. The blockchain was born in the mobile Internet era. These companies are generally IT-based and Internet-based. Blockchain is very helpful for further improving the efficiency of notarization, settlement and clearing business and value exchange network in their circle's industrial chain. However, when trying to use existing blockchain technology (such as Bitcoin code family and Ethereum), they found that the processing performance, privacy protection, compliance, etc. of the existing blockchain do not meet their business requirements. On the other hand, they realized that if they fully adopted the design concept of Bitcoin's complete public chain, it would subvert their existing business model and inherent interests, and they would have to bear great risks. So they began to transform the blockchain system that suits them. The current alliance chain form is more based on distributed ledgers (DSL). The distributed ledger and distributed consensus of the blockchain solve the main core problem for them, which is the trust problem of multiple participants in the alliance. At present, the most active and recognized typical open source blockchain code project applied to the alliance chain is Fabric, one of the main projects of HyperLedger infrastructure, launched by IBM.

2. Blockchain Law

In terms of "law", public chains and consortium chains have common "laws" based on distributed ledger theory, asymmetric encryption principles and P2P communication network principles, but the biggest difference is access and maintenance governance.
1. Access

Public chains are open to everyone, anyone can participate, anyone can send transactions and transactions can be effectively confirmed, and anyone can participate in the consensus process, which determines which blocks can be added to the blockchain and clarifies the current status. Once a public chain is released and running, program developers have no right to interfere with users, so the blockchain can protect users who use the blockchain they develop. Anyone with sufficient technical ability can access it, that is, as long as there is a computer that can connect to the Internet, the conditions for access can be met, and there are not many restrictions on nodes. Although the access without a threshold has caused greater troubles in improving capacity and performance, the participation of all people has greatly enhanced trust and transparency.

The consortium chain is only for members of a specific group and limited third parties. It internally designates multiple pre-selected nodes as bookkeepers. The generation of each block is jointly determined by all pre-selected nodes. Other access nodes can participate in transactions, but do not ask about the bookkeeping process. Other third parties can perform limited queries through the open API of the blockchain. In order to obtain better performance, the consortium chain has certain requirements for the configuration and network environment of consensus or verification nodes. With the access mechanism, transaction performance can be improved more easily, avoiding some problems caused by irregular and unstable participants.

2. Maintenance and governance

The maintenance and governance of public chains are often initiated by some geeks and technical teams, and are maintained in a community manner. The code is completely open source and uses community crowdsourcing. Public chains are basically accompanied by an ICO process. ICO, the full name of which is Initial Coin Offering, is essentially a "public offering". It is not only a change from securities to encrypted digital currency compared to traditional securities IPOs, but more importantly, the encrypted digital currency of ICO, the token, is based on the public chain to create its own economic ecosystem and is the mainstay of public chain governance. Public chain project teams obtain funds for technology development and market expansion through ICO, while project enthusiasts support projects through ICO and can also choose to exit trading after the corresponding tokens enter the trading market. The token of a public chain is not only a new way to raise funds, but more importantly, it is a new decentralized governance model. There is no company with a central controller, and all participants share ownership and contributions. Community code needs to be maintained, community and public chains need to be operated, and public chain nodes need to be deployed and maintained. These are not feasible with traditional corporate management and operation models. The incentive mechanism mediated by tokens is the guarantee for the healthy operation of public chains. On the other hand, the decentralized community crowdsourcing model breaks the traditional way of disseminating and evaluating research results. Through word-of-mouth and interactive communication among users on the Internet, research results can reflect value and feedback more quickly, discover and optimize problems in a timely manner, concentrate the wisdom of the crowd, and accelerate the speed of scientific research and commercial applications. At the same time, it promotes technological innovation and establishes its own technological influence and standards.

Another special feature of the public chain is the gas fee, which is to pay for the use of the public chain network through the native token or the gas associated with the native token. On the one hand, it avoids abuse and waste of resources, and to a certain extent avoids malicious attacks. On the other hand, it can give back to the consensus nodes. This design is very good, but it also leads to a new problem, that is, the handling fee will fluctuate with the price fluctuations of the native token of the public chain, and in many cases it will become more and more expensive, especially for high-frequency applications, which may be more expensive to use.

The governance of public chains has special game problems. Take Bitcoin as an example. Its core governance principles are: asymmetric encryption protects the basic property rights of individuals, distributed ledgers ensure the basic consensus of property rights, blockchain technology ensures openness and fairness, and the proof-of-work mechanism uses simple and direct resource consumption to incentivize bookkeeping. The early days of the Bitcoin ecosystem relied on the innovative fun of early developers and the idealistic enthusiasm of geeks, which gradually led to the formation of the Bitcoin ecosystem. After years of development, the Bitcoin ecosystem has become very mature, and trading users, coin hoarders, and miners are now decentralized; while mining pools and exchanges, although they have a tendency to be centralized, will quickly decline if they violate the interests of miners and users; the centralization of the development team is the shortcoming of public chain governance, and the decision-making direction dominated by developers restricts the evolution of the ecosystem. As for the problem of Bitcoin being constrained, many functions have already been solved or even developed. Why can't it be upgraded for a long time? It is because the upgrade of public chain is different from the upgrade of traditional software. It is a decentralized upgrade, which requires the support and consent of most nodes to upgrade smoothly. However, the developer team is currently competing for decentralization. There are core developers with idealism in the early stage, and there are also development participating teams that consider economic and political aspects later. As a result, the current Bitcoin code branch has become three branch code formations: Bitcoin core, Bitcoin Classic, and Bitcoin Unlimited. Similarly, the famous Ethereum has also forked into two branch code formations: ETC and ETH. This special game problem is something that all decentralized applications may face. Although there is a solution (voting and other mechanisms), it will cause relatively large internal friction and constraints. Some public chain teams may not pay much attention to this problem, and focus on technology and algorithms. It is worth noting. The solution is to formulate a more complete governance mechanism at the beginning of the launch of the public chain, enhance the communication and mutual trust of various roles in the public chain ecosystem, and ensure that the technical considerations behind the system upgrade must be democratic.

The maintenance and governance of the alliance chain is generally carried out by the alliance members, usually using an election system, which is easy to control permissions. The code is generally partially open source or targeted open source, mainly developed by the member team, or customized by the manufacturer. There are many traditional solutions for the governance of the alliance chain. Compared with the public chain, their governance is more regular, but they will also encounter these alliance governance problems, such as joint fraud among alliance members and the balance of interests of competitive alliance members. From the governance level, there are asymmetric considerations for node use and harvest and investment maintenance, and the ownership of data assets in the alliance chain. These issues are also governance issues that need to be considered and improved at the beginning of the establishment of the alliance chain.

As for tokens and gas fees, most consortium chains will remove them or only use them in a form so that consortium members can use the blockchain network without worries. However, for value exchange type application scenarios, especially consortium chains that need to exchange value outside the consortium, token systems may also be used. Elwin understands this as a value consortium chain. A value consortium chain refers to a consortium chain that can transfer asset ownership internally, such as Ripple's current digital asset exchange application scenario. Its native Token XRP is a "transaction voucher" (or credit certificate) that transcends the exchange gateway, and one of the cornerstones to ensure the security of the Ripple network. It has its unique value and positioning. It is worth mentioning here that Ripple's application was more open before, operating with a public chain and decentralization, and later it turned to a conservative way that is more inclined to consortium chains. Therefore, it can be seen from the side that the same set of blockchain projects and code frameworks can be operated as a public chain or a consortium chain, mainly depending on its "Tao".

3. Supervision of the alliance chain

Although both public chains and consortium chains may eventually need corresponding laws and regulations for supervision, such as the legality of cryptocurrencies and ICOs, the legal validity of blockchain evidence, the validity of smart contracts, etc., but relatively speaking, consortium chains are more used in financial and commercial institutions, so they will have higher compliance requirements. Therefore, here we focus on the "law" of consortium chains - supervision. This is also one of the main reasons why consortium chain users cannot fully adopt the public chain (this refers to historical reasons, and now some public chains have partially solved the problem of supervision).

When it comes to the supervision of alliance chains, we have to mention two important concepts, AML (anti-money laundering) and KYC (know your customer). Although the Internet makes us ubiquitous, financial supervision exists everywhere. Since the financial crisis in 2008, the threshold for financial control has continued to rise, and the anti-terrorism war has led to the scope of anti-money laundering and anti-terrorist financing, which has gradually expanded the breadth and depth of supervision. Alliance chains need to add these regulatory elements and integrate the ideas of AML and KYC in the blockchain in order to meet the early stage of compliance, reduce costs and improve efficiency.

3. Blockchain Technology

The "art" of blockchain mainly includes models and methods such as consensus mechanism, encryption algorithm, smart contracts and framework.

The consensus mechanism is the key point of blockchain technology. The core of the consensus mechanism is to use a rule (algorithm) in a distributed network to ensure that the creation of blocks is consistent across the entire network. Consensus mechanisms include PoW proof of work, PoS proof of equity, DPoS share authorization proof mechanism, Byzantine family (such as PBFT), PoET elapsed time proof, etc. For many current consensus mechanisms, both public chains and consortium chains may be used, but due to the influence of their respective "Tao" and "Law", there will be some emphasis. Public chains are more inclined to use more decentralized and more incentive-based PoW and PoS consensus mechanisms, while consortium chains prefer to adopt consensus mechanisms similar to traditional Byzantine families (such as PBFT), DPoS, etc. From a technical point of view, consortium chains with predictable nodes will also run more efficiently in consensus mechanisms such as PBFT. Now many new blockchain systems will support pluggable consensus mechanism modules, and you can choose the consensus mechanism that best suits your application scenario.

Encryption algorithms mainly include hash functions and asymmetric encryption algorithms. They are applicable to both public and consortium chains, but there are also differences in details. For example, in the hash function algorithm, consortium chains generally do not consider mining issues and focus more on performance issues in commercial applications, and are more inclined to use the SHA256 algorithm as the main algorithm, while public chains will consider mining and incentive governance strategies and thus choose other hash function algorithms. For another example, in the asymmetric encryption algorithm, consortium chains need to consider both performance efficiency and security compliance issues. For example, domestic financial institutions prefer to use national encryption algorithms, while public chains focus more on openness and standardization.

In terms of smart contracts, both public chains and consortium chains need them, but usually public chains need to pay gas fees to execute smart contracts, while consortium chains do not necessarily need to pay gas fees. Of course, this is not inevitable. Another point that needs attention is that the smart contracts of public chains are striving for decentralization and autonomy, so their design concepts cannot be too restrictive. Consortium chains pay more attention to privacy, security and supervision, so more control elements will be added. For example, the Corda system records the clear connection between smart contract codes and legal language systems and management financial agreements; Fabric has achieved the separation of execution of contracts on different chains in order to protect the transaction privacy of alliance members. Different on-chain contract-related entities only know the transactions related to their own on-chain contracts and the verification of executed transactions; Qtum has added a master contract to the smart contract, and the execution logic of the master contract can be executed off-chain, introducing the role of regulator.

Finally, regarding the design of open frameworks and architecture models, since the consortium chain has node access, it has greater flexibility and can be optimized in terms of design and deployment from a software engineering perspective, such as the separation of different consensus channels, the separation of transaction verification and consensus, and the separation of CPU-intensive (transaction verification) and IO-intensive (consensus service) nodes, so as to use dedicated hardware in a targeted manner, maximize the degree of coupling in consensus transactions, reduce system seriality and increase parallelism, improve system availability while also improving system performance, and meet the design goal of high scalability of the system. In order to achieve the same effect, the public chain often needs to spend more time considering the design of the architecture in some places.

4. The device of blockchain

Regarding the "tools" of blockchain, that is, the development tools, compilation environment and tools, and operating environment and tools involved in blockchain, there is generally no difference between public chains and consortium chains. In fact, many blockchain projects can be used for both public chains and consortium chains or private chains. From a technical point of view, the main differences between them are IT deployment methods and operation methods.

The unique "tools" of the public chain are tokens and wallets, mining or casting (or forging) tools. Tokens and wallets are important media for the value exchange network, while mining or casting (or forging) tools are the core operating support for the public chain value exchange network and consensus mechanism. Of course, some operating public chains do not have these tools, such as blockchains that use other consensus mechanisms, but Elwn personally feels that something is missing. For alliance chains, tokens and wallets are not necessary. Many alliance chains do not use tokens, and there are no mining tools, but identity management, permission management, and supervision modules are essential.

Compared with the public chain, the nodes of the alliance chain have relatively consistent requirements (hardware, operating environment). Many blockchain systems dedicated to the alliance chain require the running node machine hardware to have a better configuration in the actual production environment. At the same time, considering saving the manpower cost of members' maintenance and deployment of nodes, Docker (container) is usually used for deployment. Blockchain systems that tend to be public chains will hope to support more forms of terminal nodes, such as additional support for home desktops, Raspberry (Raspberry Pi), mining machines, etc.

5. The potential of blockchain:

In 2016, blockchain technology has made many important progresses, and various new technologies and new blockchain system projects have flourished. The public chain and alliance chain of blockchain learn from each other and promote each other's development. The way is transformed into art, and the art forms a new way or improves its own way. The way and art are interdependent.

The following summarizes the applicability of mainstream blockchains to public chains and consortium chains respectively.

For public chains, on the one hand, the encrypted digital currency market continues to flourish, Bitcoin still has an absolute advantage and the price of the currency has soared sharply, but in the past two years, several new digital currencies such as Ethereum and Zcash have also attracted great attention from the market. At the same time, the positions of various countries on digital currencies are very contradictory. In view of the various drawbacks of the current legal currency system and the superiority of digital currencies, some countries restrict the use and development of digital currencies such as Bitcoin, while some countries vigorously promote them, and more are actively researching and developing their own digital currencies. It is worth mentioning that my country's central bank has made new progress in issuing digital currencies. The blockchain-based digital bill trading platform promoted by the central bank has been successfully tested, and the legal digital currency issued by the central bank has been trial-run on the platform, but from the analysis of the "Tao" and "Law" of blockchain, these should belong to the category of alliance chains.

On the other hand, innovators are enthusiastic about decentralized applications based on public chains. They are applying blockchain technology to various other network services and developing new decentralized applications. In turn, they integrate these new decentralized services to form higher-level decentralized applications. New DApp applications are being continuously launched, such as decentralized file storage systems IPFS and Storj, decentralized stock exchanges Bitshare, decentralized online markets OpenBazaar, decentralized prediction platforms augur and GNOSIS, etc. Everyone is exploring the dreamland of a decentralized and autonomous Internet like Web3.0.

As for alliance chains, international large financial institutions are optimistic about the development potential of blockchain technology and have established blockchain laboratories and alliances (such as R3 and various domestic blockchain alliance associations, which are not exactly the same concept as alliance chains, but are the social foundation for the offline entity gathering of alliance chains) and other institutions to actively promote the application and exploration of blockchain technology. In the research on alliance chains, financial institutions are currently exploring mainly in the fields of cross-border payments, interbank settlements, asset custody, credit contracts, bill transactions, collateral management, etc., while commercial institutions are exploring mainly in the fields of evidence storage and supply chain finance. They each conduct research on application scenarios and main solutions that suit them, and select some non-core businesses for trial implementation. From a technical perspective, the architecture design of several leading companies in the industry tends to modularization, distributed transactions, sharding (ledgers, transactions), and sub-chains. Relying on code repackaging, standardized pluggability can be achieved, and new designs of public chain projects are also absorbed, such as ring signatures, homomorphic encryption, and zero-knowledge proof technology to solve the privacy protection problem of blockchain. The technology and software engineering ideas of alliance chains have inspired public chain technology and thus given birth to strategic technologies such as sharding processing and state channels.

in conclusion:

“If the Tao is right and the technique is right, you will get twice the result with half the effort; if the Tao is right and the technique is wrong, you will get half the result with twice the effort” - We need to see clearly and make clear the Tao path we are taking and firmly use Tao to govern the technique. If the blockchain you choose is not the Tao you follow and is not suitable for your usage scenario, no matter how gorgeous the technology you use, it will be difficult to grow in the end, and the greater the development, the greater the constraints will be.

"The Dao and the art are inseparable. This Dao is the art of that Dao, and they alternate with each other, to infinity." - At the same time, we should not be obsessed with or even resist the magic tools of other Daos, such as thinking that the alliance chain must be inferior to the public chain. The magic tools adopted by different Daos are worth learning and drawing lessons from each other, and can complement each other's shortcomings. In addition to the Dao magic tools, you also need to pay attention to the soil where you build your blockchain application, which will greatly affect your current growth rate. For example, in China, the reason why the alliance chain projects are currently more deeply rooted and implemented in China is that the soil in many business fields is more suitable for the landing and growth of the alliance chain. While adhering to the Dao heart, the public chain project should calm down in the hustle and bustle of the currency circle, see the soil and environment for landing, and slowly cultivate deeply. Maybe the road to development will take longer, but the harvest will definitely be more abundant. Finally, whether it is a public chain or an alliance chain, we should be more open and tolerant, adopt and learn the magic tools in other Daos, take their essence, absorb and integrate them into the framework of Dao itself, and finally make ourselves more perfect and beautiful.