IEEE Systems, Man and Cybernetics Magazine - October 2022 - 9

who can join [12]. We use the term open P2P network to
emphasize that we are not referring to the P2P network
topology. Any individual or organization could set up a P2P
network topology and retain full control over it. On the contrary,
an open P2P network is one that anyone can join and
leave without the permission of any
individual or organization. There
are typically two types of nodes: 1)
mining nodes (i.e., miners), which
have a very high hashing rate and
2) regular user nodes, which create
transactions and could run on
lightweight computing nodes, such
as smartphones. Miners aggregate
transactions into new blocks and
help secure the system by participating
in the consensus competition
in exchange for block rewards
and transaction fees. Regular users
who generate transactions pay
the miners the transaction fees.
transactions are totally ordered with no ambiguity.
Given an open P2P system, a highly robust consensus
algorithm is needed to ensure that blockchain copies
maintained by all the mining nodes are identical so that
the ledger can be useful.
It is decentralized
consensus that makes
cryptocurrency
possible, and indeed,
this is the most
significant innovation
of blockchain
technology.
Cryptography
Cryptography is an indispensable building block for any
secure system [13]. In blockchain, several cryptographic
primitives are used for various purposes. Cryptographic
hashes are used to generate addresses as pseudoanonymous
user identifiers from the public key, generate transaction
hashes so that transactions can be referenced, and
create block hashes so that blocks are chained together.
Most important, cryptographic hashes are used in PoW as
part of the puzzle design for reaching decentralized consensus
in the general form of H(P) < D, where P denotes
the materials to be hashed, H( ) is the cryptographic hash
function, and D is the difficulty target. The cryptographic
hash function makes it impossible for anyone to deduce P
when given D, and the only way to solve the puzzle is to
try different values of P to see if H(P) is smaller than D.
Therefore, the puzzle competition is a stochastic process,
and it offers a fair playing ground to all mining nodes.
Public key cryptographs are used to generate and verify
digital signatures. To prove ownership of coins received
in a transaction, a user must possess the corresponding
private key and use it to generate a digital signature. All
miners verify the signature and accept the ownership only
if the digital signature is valid (provided that other conditions
are met, as well).
Blockchain Data Structure
The most essential requirement for a cryptocurrency is
the prevention of double-spending attacks; i.e., the system
needs to make sure no one can spend coins twice.
To satisfy this, an important step is to record all transactions
in a secure ledger. Blockchain is an implementation
of a transaction ledger in the form of a singly linked list
of blocks, starting with the genesis block, so that all
Decentralized Consensus
It is decentralized consensus that
makes cryptocurrency possible,
and indeed, this is the most significant
innovation of blockchain
technology. The first decentralized
consensus algorithm was the
PoW algorithm introduced as part
of Bitcoin. PoW takes an unprecedented
approach to reaching consensus.
Instead of reaching
agreement via a collective process,
such as traditional distributed
consensus [5], PoW converts
the problem into a lottery competition,
whose difficulty can be
adjusted dynamically based on the system's total hashing
power. Due to the finite search space for the solution,
it is guaranteed that some mining node will solve the
consensus puzzle. Since the competition is a stochastic
process [14], the winning probability is proportional to
the hashing power of the competing node.
The design of PoW ensures that the puzzle is solvable
within a finite amount of time (assuming that there is a
minimum hashing rate), but it does not guarantee that only
a single miner will solve the puzzle in each competition
[15]. If two or more miners happen to solve the puzzle
almost at the same time at the same block height, a fork
occurs, which leads to inconsistency among the miners.
To resolve this, a miner should choose a chain that has the
highest cumulative difficulty.
Smart Contract
The first Turing-complete smart contract was introduced
in Ethereum, which made Ethereum the first large-scale,
fault-tolerant, and secure computer powered by decentralized
technology [5]. The key innovation is the combination
of a virtual machine (VM), referred to as the Ethereum VM
(EVM), and a gas mechanism to prevent the halting problem.
All smart contracts are run within the EVM. The EVM
can abort a smart contract execution, and it ensures the
atomicity of the smart contract execution. Any transaction
that invokes a smart contract must provide some amount
of gas, and every instruction during the execution of the
smart contract consumes some of the gas. If the gas is
exhausted prior to the end of the smart contract execution,
the process is terminated without causing any side
effect. The smart contract execution happens only when a
block is successfully mined and the transaction has been
included in the block by the miner. The smart contract is
October 2022 IEEE SYSTEMS, MAN, & CYBERNETICS MAGAZINE
9
IEEE Systems, Man and Cybernetics Magazine - October 2022

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