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Blockchain 101

14. Launching your blockchain

What is needed to launch your own blockchain? Let's talk about this now before we get started. Let's talk about why perhaps we want to build a blockchain. Now there are a lot of good reasons to just go ahead and decide. Maybe none of the platforms meet our requirements for one reason or another. We may want to go ahead and deploy a project where we build our own blockchain. We may have specific DA requirements that aren't being met. We may want to have additional cryptocurrency requirements, token requirements, or whatever it is that we need to meet.

We need to look at, you know, why we want to build this blockchain in the first place. So, for example, we may need to have flexibility. And as part of that, we may want to examine our consensus, select our own consensus, and select our own platform, hardware, or software. We may want to choose security features as well, choose a programming language or languages that we use, and control our own code base and updates. One disadvantage of using a pre-existing blockchain, whether permissionless or permissioned, is that you will have updates that are not under your control, but rather under the control of the consortium or the vendor. It also gives you additional flexibility in how you handle, for example, additional features, functions, or users for that matter. The main thing is, for example, is the protocol that you're using open source or not? For example, you might want to consider a fork of another blockchain. Who knows, it might solve some of the problems.

But anyway, you want to control features, which is another good excuse. Now, when it comes to steps for building a blockchain, we want to think about it from the perspective of establishing a use case. We need to go out there and determine why we want a blockchain. In the first case, for example, not every application out there needs a blockchain. If you need speed or high performance, blockchains are not a good use case for that. So you may want to take that off the table. On the other hand, if you need mutability, you need to have even more transparency in some cases, depending on the type of blockchain you're going to use. That may be a great, great use case. If you're already programming, Hyperledger might make the most sense. You want to design your nodes, your services, your APIs, your testing, and then you want to put it all together and release it to production.

Again, the main focus of the exam, which I believe we want to ensure you understand, is to understand some of the reasons why you might not choose an already existing blockchain in production, such as Ethereum Hyperledger, for a quarter. You may want to go with some other hybrid or fork of a blockchain, or just go out and create your own. So whatever that use case comes down to, you need to look at whatever the trade-offs are, right? For example, some of the measures of performance are going to be the transaction time, the volume, and the cost per transaction. Maybe this can't be met by what's on the market right now; who really knows? Another thing is scalability or decentralization. Maybe things just don't match up.

Whatever the trade-offs are, they will almost always be a trade-off between decentralization, security, and scalability, as well as performance. With that said, just realise that on the exam, you just want to understand why you may have to build your own blockchain, and generally, it's because there isn't one that meets your use case. And for the exam, do you understand the process for building a blockchain? Which one of these would be considered the first step, and again, go and look at the practise questions and determine why it is a use case? In this case, D would be the best answer, but let's go and move on to the next module.

15. Segwits and Forks

This is the goal. Let's go ahead and talk about why Segwitz and Forks are areas on the exam you might want to know about. Now when it comes to blockchains, generally, forks are going to be a result of a public blockchain or blockchain such as ethereum or bitcoin that is going to basically split the blockchain, and we'll talk about what exactly that is, the benefits, the pros, and the cons, and why this occurs. Typically, in the cryptocurrency world, This does not happen in the world of permission-based blockchain. So that's not really something that you need to worry about in the private world. This is more or less exclusive to cryptocurrencies. So let's go ahead and talk more about this. What exactly is a fork? Well, a fork is really a change to the software of the digital currency that creates two separate versions of the blockchain and will have a shared history as well.

Typically, one of the histories will be dominant. Now, this can be a permanent or temporary fork; really, most of the forks are going to be permanent, basically. For example, we had bitcoin, bitcoin, cash, ethereum, ethereum, and classic—these are all examples of forks. Essentially, the fork will occur at a specific block height, which is typically when it occurs. And basically, two, it will be as a result of what is known as "snapshot days," and some blockchains, such as Ethereum, may also be referred to as such. But basically, the snapshot is going to occur at a block number, and this will essentially result in a new currency as well. For example, bitcoin, bitcoin, cash, ethereum, ethereum, and classic are two of the most common ones. Now, what is a hard fork, and what is a soft fork? One of the things on the exam you're going to want to definitely make sure you get is the difference between a hard fork and a soft fork is.

So let's talk about a hard fork first. A hard fork is a term that's going to describe a major change to the protocol. Basically, this is going to make all the previously invalid blocks or transactions valid. And the way this works is that basically what will happen is that you'll have competing mining interests in a lot of cases, and one group of miners will go one way, and then another group of miners will go another way. Essentially, this is a method of creating a new coin.

And this is essentially what a hard fork means now: there will be a situation in which miners, for example, will need to upgrade their hardware. So, for example, switching from an ASIC or GPU to a CPU, or vice versa, depending on the situation. But basically, there's going to be an upgrade. More hash power, processing power, memory, or whatever the requirements are, will be required to accommodate. A soft fork is entirely different.

This is really a backward-compatible fork. Basically. For example, you could have a one-meg block that only allows 500K blocks. A change to the software protocol, for example, is where previously valid blocks are now made invalid. Basically, software needs to have a majority of hash power in the network as well. So here's an example of why a software bug could occur in a hard fork. I think the main thing to know and understand is that a soft fork is basically going to be a major upgrade. Or is it a hard fork that's a major upgrade? Is software backwards compatible, or is a hard drive backwards compatible? This is the main area of the exam. I just want to make sure that you understand and appreciate my taking it. And this is an example of a soft fork versus a hard fork. If you haven't taken a look at it, take a look at it. It's on Investopedia as well. Now let's talk about some examples. So for example, a theorem classic, one of the more, I guess, well-known ones, would be a theorem classic. This is a split from Ethereum.

Basically, this occurred after a hard fork. Monero is another good example where there was a hardfork to introduce an upgrade, and as part of that upgrade, it was required to help implement what is called the RCT, which is called ring confidential transactions. This is to improve privacy, and another well-known hard fork is bitcoin cash. This is a hard fork again, orchestrated by part of the community, whereas some of the bitcoin is from bitcoin miners, I should say, who decided to maintain the status quo, whereas others decided to go their own way. Basically, they want to increase the block size.

Soft fork examples BIP 66 This is a fork of the bitcoin signature validation protocol. And then we have the P and the S. This is the software that enables multisignature on the bitcoin network as well. These are examples of soft forks. Now on the exam, I'm going to just advise you to make sure you know these. You'll likely get a question that's going to ask you which one is going to be a soft fork versus a hard fork. So you might want to spend some time figuring out which one is which. Now segway. What exactly is a segway? This is again another term that's really used to sort of describe a scenario where basically the community just decided it was time to create some efficiencies, and as part of that, segregated witness was used in the bitcoin community to help separate transaction signatures. Now why would they want to do that? Because it really enabled better capacity and therefore allowed the miners to add more transactions to the chain, and when they added more transactions, that increased their profitability as well.

Now again, SegWit removes signatures; it creates efficiency; but as part of that, it does what? It increases the security threat. So if you remove the signatures, there's the possibility that that transaction or those transactions in that block could be compromised. Some of the advantages will be similar in both the segment and the exam. Why would we want to have a segment in Bitcoin? Because it will increase scalability, decrease transaction times, enable off-chain protocols, and improve transaction security by reducing malleability. Now again, if you're able to reduce the footprint of your vulnerabilities' capabilities, or actually your vulnerabilities' sort of footprint, I guess, then that should reduce some of the malleability that can occur. Now again, this is a tricky subject and again, themain thing to get out of segue and forks isusually forks and segments are going to occur. In a scenario where you want to, for example, create a segue, you might want to create what's called efficiencies in the block weight. This is basically where you're going to take a mashup of the block size without all the SIG data and then cap it at so many megabytes. Again, this is really done, for example, in Bitcoin, but it's also done in Litecoin.

Litecoin actually was the first to go with SegWit, which was, I believe, a few months before Bitcoin. So, with that said, it's just really difficult to approach a scaling problem, especially when Bitcoin was producing two to three times as many transactions as it was 16 or 17 years ago, for example. But with that said, segwood is really about efficiency; forks are about efficiency as well. And it all comes down to, for example, how do you reduce those transaction times? How do you enable protocols? How do you just, you know, create efficiencies? OK, so I think that's enough about SegWit and forks. You'll absolutely see questions on Segawood and Forks—probably two to three on the exam. As a result, I strongly advise you to get to know them. There are some practise questions as well in this area, and I encourage you to make sure you understand the answers.

16. Objective – When is mining needed and when it is not

This objective. Let's talk about when mining is needed and when it is not. Generally, when we talk about mining, we want to just realise that mining is really focused on processing transactions. That's really what it's all about. Now when it comes to mining, for example, in the world of bitcoin, we're going to have miners that are going to be connected to the network, and these miners are going to use their computers to look for transaction requests. And then, when they get these transaction requests, they're going to start assembling a list of valid transactions.

Then what will happen is that it'll start processing these transactions when the requests start coming in. And the miners are again going to check for a few things, of course, as well. The first thing is that they're going to check to make sure that the digital signature is valid. And the second thing I'm going to check for is to make sure that you haven't spent your inputs. Basically, the inputs are actually what's in your wallet. In other words, if you have five bitcoins, you can't spend one bitcoin. Right?

Again, the goal is to prevent double spending. Now in the world of bitcoin mining, again, it's the process of adding transactions to the ledger. And again, these miners are searching for transactions. They're going to be checking for what? They're going to be checking for two things. The first thing they're going to check is the digital signature. The second thing is that you haven't double spend. So again, there's a lot more to this from a mining perspective, but we just want to clarify why we need mining and how it works.

The first thing, too, when it comes to having a requirement for mining is that we want to prevent double spending. That's really what it's all about. The last bullet point pretty much sums it up: it will try to prevent attempts to respend coins that have already been spent. That's your double-spending issue. Now, bitcoin mining is called mining because it's doing hard work. Now, basically, it's an exertion of resources that's occurring on the bitcoin network by the miners. They're using an insane amount of electricity and computing resources to process transactions. It's basically a marathon between the computers on the network, and bitcoin does use what's called the hash-cash proof-of-work algorithm.

Now, once again, when it comes to the processing of transactions, basically, as we spoke about on the earlier slide, if everything matches up, if the check is good, or, in other words, if the check basically says the signature is good and they haven't double spent and they have the funds to send, then what's going to happen is that the miner will go ahead and complete a block. So the miner is going to go ahead and say, "Okay, this looks good." They're going to go ahead and basically select the valid transactions. Then it will add those transactions to a block, which will then be added to the official blockchain.

Again, a lot more mining is required for this exam. You don't need to understand how the nonsense works or how the Merkel tree works in all of this, but you should understand that we need mining to avoid double spending. Now for the mining rewards. So rewards are given whenever a block is discovered. The discoverer may also award themselves a certain number of bitcoins, which is also agreed upon by everyone in the network, as a reward. Basically, there's a bounty of 25 bitcoins, and this is going to be cut in half every 210,000 blocks.

Now the miners are awarded the fees that are also paid by the users sending the transactions as well.So that's the transaction fee you're paying to send those bitcoins, for example, as well as the fees and added incentive to the miner to try to add that to the blockchain as soon as possible. And here is an additional question as well. Let's move on and go to the next module.

17. Genesis Mining

What I like to do is discuss how mining as a service works and show you an example of how you can participate in a mining as a service solution such as Genesis Mining. I'm currently mining in the Unsol in Genesis. Now, Genesis Mining is located in Iceland, and interestingly enough, they're one of the first professionally built and laid out data centres that have specialised mainly in cryptocurrency mining. And for you to participate in a solution such as this, you would simply create an account and then proceed to set up your mining allocation. In this example, you can see that I have bitcoin mining, ether mining, and manero mining as well. Now, you can also participate in other forms of mining, such as litecoin, dash, and cash. One of the things about these services, such as Genesis, is that some of the cryptocurrency mining capacity fills up quickly, so it's pretty limited.

So what you need to do is look for openings. Like, for example, I could go here to buy hash power, and you could see that everything is out of stock. So, unfortunately, there is no way for you to participate in the recording at this time. But if we go back here to mining allocation, you can see that you can also change your allocation if that's available. You can see bitcoin mineral mining, for example, here. And then I could go over here to payouts, where it shows me the amount of bitcoin, ether, and monero that I'm making per day. And it also tells you the payouts for that as well. And you can buy what's called "hash power." And again, that's something you can participate in. So this is called Genesis mining. This is mining as a service. This is a way for the average person to participate in cryptocurrency mining without having to go out and purchase your own mining rig, get additional alcohol and power, and increase network capacity. And you can participate as little or as much as you want in most cases. But this is just one example. SS Mining.

18. Objective – Byzantine Fault Tolerance

This objective. Let's talk about Byzantine fault tolerance. Now, with Byzantine fault tolerance, this is a technical challenge in the IT world, and it revolves around what was originally known as the Byzantine general's problem. Now, the Byzantine general's problem is essentially where you have, for example, before communications, like radios and even radar to figure out who's who and where they're coming from, telephones, et cetera. How did a bunch of armies coordinate an attack on a castle or a city, for example? And how did General One, General Two, and General Three coordinate? Well, back before we had radios and telephones, there weren't really many options.

You might have had smoke signals or messengers. Now, the challenge with messengers is how they could get captured. The message could be misunderstood by the receiving party. There are numerous difficulties. So basically, the generals have to coordinate the attack, and if they don't do it correctly, then what can happen is that they could lose the battle. Now, when we talk about computers, basically one of the challenges we have is that when we talk about computers, we like to refer to a computer as a node.

And that node is doing what? It's processing some kind of data in the blockchain world; it's processing the blockchain network; is there any activity on that ledger? Basically, if you have a decentralised network, there are challenges because no two nodes can basically guarantee that everything is the same, right? So this is a challenge, and Satoshi Nakamoto solved this issue with what's called the Proof of Work Consensus algorithm. Now, Byzantine fault tolerance is known as a problem in distributed computing. Essentially, you want to have pre-selected generals who will be the ones validating the transactions. Basically, Pvft runs really efficiently. It has high throughput. Hyperledger is a good example. Ripple and Stellar all use a form of BFT as well. When we talk about a Byzantine node, we are referring to a node that may be rogue in the sense that it is not forwarding packages as they should be.

In other words, this is where you might have a messenger, let's say in the Byzantine general issue, that might be relaying the wrong message for whatever reason, could have been hijacked, could have been captured, whatever. But basically, it is really not a good idea to have a Byzantine node, and you need to have a consensus mechanism to prevent that. Hyperledger Fabric does have one, but it doesn't provide that right out of the box. You need to go ahead and deal with your own consensus on how to handle that. Now, Hyperledger does of course have a form of PBFT with Hyperledger, and we'll talk a lot more about Hyperledger in the modules for that specific blockchain. There are some options on whether you want to use a solo approach, which is more for development, or if you want to use a cascade-based approach as well. For example, Indy does have what's called "plenty-based PBFT" as well, so just be aware. But basically, in PBF, each node maintains internal storage. When a node receives a message, it's signed by the node, which then verifies the format. And here are some practise questions as well. Let's go ahead and move on to the next one.

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