Can the block chain be scaled to support thousands of transactions per second, like the world’s major payment networks in retail?
Ethereum is a public block chain platform that lets anyone build and use decentralized applications. In its current state, Ethereum doesn’t
scale very well because every transaction needs to be processed by each and every node in the network. Rather than having each and every
node computing each and every smart contract, UppCoin is a private chain with off-block chain transactions acting as a side chain where any
number of transfers can be processed locally. I explore the possible interoperability between the two; public and private distributed ledgers as
a hybrid block chain. An asset is moved from a private test chain to a public block chain or from a public to private one. In the prototype, the
private chain's block header is checked and accepted as a valid header because the signature of the signers has been verified.
Once this is done, a token is issued and this transaction is then tracked on the public chain. Much like the private and public IP networks on the
internet, with private networks allowing constant internal ip traffic and public networks handling external traffic, this process allows only for a
subset of nodes to verify each transaction and as long as there enough nodes verifying each transaction, the system is still highly
secure but the nodes are not too many so that the system can still process as many transactions in parallel. The advantages of this design
include high throughput, low costs, low latency and anonymity.
A block chain is defined as a distributed database/ledger where every network node executes and records the same transactions grouped into
blocks. Only one block can be added at a time, and every block contains a nonce that verifies that it follows in sequence from the previous
block. This technology was originally used as the underlying peer-to-peer distributed timestamp server for Bitcoin.
A transaction is a chain of digital signatures with each owner making transfers to the next owner by digitally signing a hash of the
previous transaction and the public key of the next owner. A hash of a block of transactions to be timestamped is published in the peer to
peer network. Implementing this system as a peer to peer network requires a Proof of Work consensus.
Proof of Work is a consensus system that relies on computational proof for the order of transactions. CPU/GPU time and electricity are used
when work is done to scan for a value that when hashed, like with SHA-256, gives a value that begins with a number of zero bits.
The block cannot be changed without having to redo this. Miners race to solve this cryptographic problem and are rewarded with BitCoin
to validate transactions and create new blocks.
In Ethereum, each and every node of the network runs the Ethereum Virtual Machine and executes the same Contract Accounts.
The virtual machine on every node maintains the same consensus implementing a trustless smart contract platform on which users can
create their own decentralised applications. The sender of a transaction pays with Ether for the contract activated as well as computation and
memory storage. The transaction fees are collected by the nodes that validate the network.
Proof of stake is an alternate consensus system that is based on proof of ownership of the currency i.e someone holding 5 percent of Bitcoin
can mine 5 percent of the blocks.
Proof of Authority is an alternate consensus system where instead of miners racing to find a solution to a difficult problem, authorized signers
can at any time and own discretion create new blocks.[1.3]
Transitions between consensus systems or changes on the blockchain can be achieved by hard forks or soft forks. A hard fork is permanent,
when non-upgraded nodes can’t validate blocks created by upgraded nodes on a chain while a soft fork is temporary, non-upgraded nodes
don’t follow the new consensus rules. There are three types of blockchains, Public, Private and Consortium.
While blockchain technology allows for transparency, some assets need only to be private and localized. A hybrid blockchain
would be a mix of both the public and private chains. This could be used by groups of organisation/firms, sharing assets
with multiple transactions or within an internal organisation with intra-transactions without need for the public to have access to them.
Design for a Hybrid BlockChain
We assume that all validators are rational except an attacker, who wants to break the system but no more than some fraction (1/4 to 1/2) are
A smart contract checks and accepts a block header where the signature or the signer is verified on the private chain then creates a token.
The transaction of this token is then recorded on the private chain but can be tracked on the public blockchain.
We use a token to represent value on the platform. They represent product prices on the platform.
Tokens are also used to represent details regarding your payment mode like in this case cryptocurrencies or a bank account.
Tokens used for currency conversion.