book

Mastering Blockchain, Fourth Edition - Fourth Edition

by Imran Bashir

March 2023

Intermediate to advanced

818 pages

25h 41m

English

Packt Publishing

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The growth of blockchain technologyProgress towards maturityRising interestDistributed systemsCAP theoremPACELC theoremThe history of blockchainBitcoinElectronic cashIntroducing blockchainBlockchain architectureBlockchain by layersBlockchain in businessGeneric elements of a blockchainBlockchain functionalityBenefits and features of blockchainLimitations of blockchain technologyTypes of blockchainDistributed ledgersShared ledgerPublic blockchainsPrivate blockchainsSemi-private blockchainsPermissioned ledgerFully private and proprietary blockchainsTokenized blockchainsTokenless blockchainsLayer 1 blockchainsMonolithic and polylithic blockchainsLayer 2 blockchainsSidechainsSummary
Introducing decentralizationMethods of decentralizationDisintermediationContest-driven decentralizationQuantifying decentralizationBenefits of decentralizationEvaluating requirementsFull-ecosystem decentralizationStorageCommunicationComputing powerDecentralization in practiceSmart contractsAutonomous agentsDecentralized organizationsDecentralized autonomous organizationsDecentralized autonomous corporationsDecentralized autonomous societiesDecentralized applicationsCriteria for a DAppOperations of a DAppDesign of a DAppInnovative trendsDecentralized webWeb 1Web 2Web 3Summary
Introducing cryptographyServices provided by cryptographyCryptographic primitivesKeyless primitivesRandom numbersHash functionsSymmetric key primitivesMessage authentication codes Secret key ciphersAdvanced Encryption StandardData Encryption StandardHow AES worksEncrypting and decrypting using AESSummary
Foundational mathematicsAsymmetric cryptographyPublic and private keysAsymmetric cryptography algorithmsInteger factorizationDiscrete logarithmElliptic curvesIntegrated encryption scheme Introducing RSAEncrypting and decrypting with RSA Introducing ECCMathematics behind ECCPoint additionPoint doublingPoint multiplicationThe discrete logarithm problemGenerating keys with ECCDigital signaturesRSA digital signature algorithmsGenerating RSA digital signaturesThe elliptic curve digital signature algorithmGenerating ECDSA digital signaturesDifferent types of digital signaturesBlind signaturesMultisignaturesThreshold signaturesAggregate signaturesRing signaturesCryptographic constructs and blockchain technologyHomomorphic encryptionSecret sharingCommitment schemesZero-knowledge proofszk-SNARKszk-STARKsZero-knowledge range proofsEncoding schemesBase64base58Verifiable random functionsSummary
Introducing consensusFault toleranceFLP impossibilityAnalysis and designModelProcessesTiming assumptionsClassificationAlgorithmsCFT algorithmsPaxosRaftBFT algorithmsPractical Byzantine Fault ToleranceIstanbul Byzantine Fault ToleranceTendermintNakamoto consensusVariants of PoWHotStuffChoosing an algorithmFinalitySpeed, performance, and scalabilitySummary
Introducing BitcoinCryptographic keysPrivate keys in BitcoinPublic keys in BitcoinAddressesTypical Bitcoin addressesAdvanced Bitcoin addressesTransactionsCoinbase transactionsThe transaction lifecycleTransaction validationTransaction feesThe transaction data structureMetadataInputsOutputsVerificationThe Script languageOpcodesStandard transaction scriptsContractsTransaction bugsBlockchainStructureThe genesis blockStale and orphan blocksForksPropertiesMinersProof of Work (PoW)Mining systemsCPUGPUFPGAsASICsMining poolsNetworkTypes of messagesClient softwareBloom filtersWalletsSummary
Bitcoin in the real worldBitcoin paymentsInnovation in BitcoinBitcoin improvement proposalsAdvanced protocolsSegregated WitnessBitcoin CashBitcoin UnlimitedBitcoin GoldTaprootExtended protocols on top of BitcoinColored coinsCounterpartyAltcoins from BitcoinBitcoin client installationTypes of clients and toolsSetting up a Bitcoin nodeSetting up the source codeSetting up bitcoin.confStarting up a node in the testnetStarting up a node in regtestExperimenting further with bitcoin-cliUsing the Bitcoin command-line toolUsing the JSON-RPC interfaceUsing the HTTP REST interfaceBitcoin programmingSummary
Introducing smart contractsDefinitionsPropertiesReal-world applicationRicardian contractsSmart contract templatesOraclesSoftware-and network-assisted proofsTLSNotaryTLS-N-based mechanismHardware device-assisted proofsAndroid proofLedger proofTrusted hardware-assisted proofsTypes of blockchain oraclesInbound oraclesOutbound oraclesCryptoeconomic oraclesBlockchain oracle servicesDeploying smart contractsThe DAOAdvances in smart contract technologySolana SealevelDigital Asset Modeling LanguageSummary
Introducing EthereumCryptocurrencyKeys and addressesAccountsTransactions and messagesMPTsTransaction componentsRecursive Length PrefixGasTransaction typesSimple transactionsContract creation transactionsMessage call transactionsMessagesTransaction validation and executionState and storage in the Ethereum blockchainThe world stateThe account stateTransaction receiptsEthereum virtual machineExecution environmentThe machine stateBlocks and blockchainThe genesis blockBlock validation, finalization, and processingBlock difficulty mechanismNodes and minersThe consensus mechanismForks in the blockchainThe Ethereum networkMain net Test netsPrivate netsPrecompiled smart contractsProgramming languagesSolidityRuntime bytecodeOpcodesWallets and client softwareWalletsGethLight clientsSupporting protocolsWhisperSwarmSummary

Ethereum paymentsInnovations in EthereumDifficulty time bombEIP-1559The merge and upcoming upgradesProgramming with GethInstalling and configuring the Geth client Creating a Geth new accountQuerying the blockchain using GethGeth consoleGeth attachGeth JSON RPC APISetting up a development environmentConnecting to test networksCreating a private networkStarting up the private networkExperimenting with the Geth JavaScript consoleMining and sending transactionsIntroducing Remix IDEInteracting with the Ethereum Blockchain with MetaMaskInstalling MetaMaskCreating and funding an account with MetaMaskUsing MetaMask and Remix IDE to deploy a smart contractAdding a custom network to MetaMask and connecting it with Remix IDEImporting accounts into MetaMask using keystore filesDeploying a contract with MetaMaskInteracting with a contract through MetaMask using Remix IDESummary
LanguagesThe Solidity compilerInstalling solcExperimenting with solcTools, libraries, and frameworksNode.jsGanacheganache-cliGanache UITruffleDrizzleOther toolsContract development and deploymentWriting smart contractsTesting smart contractsDeploying smart contractsThe Solidity languageFunctionsVariablesLocal variablesGlobal variablesState variablesData typesValue typesReference typesControl structuresEventsInheritanceLibrariesError handlingSummary
Interacting with contracts using Web3 and GethDeploying contractsUsing solc to generate ABI and codeQuerying contracts with GethInteracting with Geth using POST requestsInteracting with contracts via frontendsInstalling the web3.js JavaScript libraryCreating a web3 objectCreating an app.js JavaScript fileCreating a frontend webpageCalling contract functionsCreating a frontend webpageDeploying and interacting with contracts using TruffleInstalling and initializing TruffleCompiling, testing, and migrating using TruffleInteracting with the contractUsing Truffle to test and deploy smart contractsDeployment on decentralized storage using IPFSSummary
IntroductionEthereum after The MergeThe Beacon ChainBeacon nodesConsensus clientExecution clientValidator clientProof-of-stakeP2P interface (networking)The MergeShardingThe future roadmap of EthereumSummary
Projects under HyperledgerDistributed ledgersFabricSawtoothIrohaIndyBesuLibrariesAriesTransactUrsaAnonCredsToolsCelloCaliperDomain-specificGridHyperledger reference architectureHyperledger design principlesHyperledger FabricKey conceptsMembership serviceBlockchain servicesSmart contract servicesAPIs and CLIsComponentsPeers/nodesClientsChannelsWorld state databasePrivate data collectionsTransactionsMembership Service ProviderSmart contractsCrypto service providerApplications Chaincode implementationThe application modelConsensus mechanismTransaction lifecycle Fabric 2.0New chaincode lifecycle managementNew chaincode application patternsSummary
Tokenization on a blockchainAdvantages of tokenizationDisadvantages of tokenizationTypes of tokensFungible tokensNon-fungible tokensStable tokensSecurity tokensProcess of tokenizationToken offeringsInitial coin offeringsSecurity token offeringsInitial exchange offeringsEquity token offeringsDecentralized autonomous initial coin offeringOther token offeringsToken standardsERC-20ERC-223ERC-777ERC-721ERC-884ERC-1400ERC-1404ERC-1155ERC-4626Building an ERC-20 tokenBuilding the Solidity contractDeploying the contract on the Remix JavaScript virtual machineAdding tokens in MetaMaskEmerging conceptsTokenomics/token economicsToken engineeringToken taxonomySummary
Enterprise solutions and blockchainSuccess factorsLimiting factorsRequirementsPrivacyPerformanceAccess governanceFurther requirementsComplianceInteroperabilityIntegrationEase of useMonitoringSecure off-chain computationBetter toolsEnterprise blockchain versus public blockchainEnterprise blockchain architectureDesigning enterprise blockchain solutionsTOGAFArchitecture development method (ADM)Blockchain in the cloudCurrently available enterprise blockchainsEnterprise blockchain challengesInteroperabilityLack of standardizationComplianceBusiness challengesVMware BlockchainComponentsConsensus protocolArchitectureVMware Blockchain for EthereumQuorumArchitectureNodesPrivacy managerCryptography PrivacyEnclave encryptionTransaction propagation to transaction managersEnclave decryptionAccess control with permissioningPerformancePluggable consensusSetting up a Quorum network with IBFTInstalling and running Quorum WizardRunning a private transactionAttaching Geth to nodesViewing the transaction in CakeshopFurther investigation with GethOther Quorum projectsRemix pluginPluggable architectureSummary
What is scalability?Blockchain trilemmaMethods for improving scalabilityLayer 0 – multichain solutionsPolkadotLayer 1 – on-chain scaling solutionsLayer 2 – off-chain solutionsLayer 2RollupsData validityData availabilityHow rollups work Types of rollupsOptimistic rollupsZK-rollupsTechnologies used for building ZK-rollupsZK-ZK-rollupsOptimistic rollups vs ZK-rollupsFraud and validity proof-based classification of rollupsExampleLayer 3 and beyondSummary
PrivacyAnonymityConfidentialityTechniques to achieve privacyLayer 0TorI2PIndistinguishability obfuscationHomomorphic encryptionSecure multiparty computationTrusted hardware-assisted confidentialityMixing protocolsCoinSwapTumbleBitDandelionConfidential transactionsMimbleWimbleZkledgerAttribute-based encryptionAnonymous signaturesZetherPrivacy using Layer 2 protocolsPrivacy managersPrivacy using zero-knowledgeCryptographic CommitmentsZero-knowledge proofsBuilding ZK-SNARKsExampleSummary
SecurityBlockchain layers and attacksHardware layerNetwork layerBlockchain layerAttacks on transactionsTransaction replay attacksAttacks on consensus protocolsDouble-spendingSelfish miningForking and chain reorganizationBlockchain application layerSmart contract vulnerabilitiesDeFi attacksInterface layerOracle attacks/oracle manipulation attacksAttacks on walletsAttacks on layer 2 blockchains Cryptography layerAttacking public key cryptographyAttacking hash functionsKey management-related vulnerabilities and attacksZKP-related attacksSecurity analysis tools and mechanismFormal verificationFormal verification of smart contractsModel checkingSmart contract securityOyenteSolgraphThreat modelingRegulation and complianceSummary
IdentityDigital identityCentralized identity modelFederated identity modelDecentralized identity modelSelf-sovereign identityComponents of SSIIdentity in EthereumIdentity in the world of Web3, DeFi, and MetaverseSSI-specific blockchain projectsHyperledger Indy, Aries, Ursa, and AnonCredsOther projectsSome other initiativesChallengesSummary
IntroductionFinancial marketsTradingExchangesOrders and order propertiesOrder management and routing systemsComponents of a tradeTrade lifecycleApplications of blockchain in financeInsurancePost-trade settlementFinancial crime preventionPaymentsDecentralized financeProperties of DeFiDeFi layersDeFi primitivesDeFi servicesAsset tokenizationDecentralized exchangesFlash loansDerivativesMoney streamingYield farmingInsuranceDecentralized lending – lending and borrowingBenefits of DeFiUniswapSwap the tokenUniswap liquidity poolSummary
Use casesIoTIoT architectureThe physical object layerThe device layerThe network layerThe management layerThe application layerBenefits of IoT and blockchain convergenceImplementing blockchain-based IoT in practiceSetting up Raspberry PiSetting up the first nodeSetting up the Raspberry Pi nodeInstalling Node.jsBuilding the electronic circuitDeveloping and running a Solidity contractGovernmentBorder controlElectionsCitizen identificationHealthMediaBlockchain and AISome emerging trendsSome challengesSummary

Content preview from Mastering Blockchain, Fourth Edition - Fourth Edition

21 Decentralized Finance

Decentralized finance is a new financial system built using smart contracts and the blockchain technology that operates in a decentralized manner without relying on traditional financial intermediaries.

In this chapter, we’ll cover the following topics:

Introduction
Financial markets and trading
Application of blockchain in finance
Decentralized finance
DeFi primitives
DeFi services
DeFi benefits
Using Uniswap

Now let’s have a quick introduction to finance and financial markets. This will provide a foundation for the material presented next, such as DeFi, as many of the terms and ideas are the same, albeit in a different context.