Trust without Trust — Blockchain, The Fundamental Building Block of Metaverse & Industry 5.0
Blockchain as part of the Metaverse decentralization layer and one of the Technology Enablers in Industry 5.0
- Having trust without trust: decentralization through distributed consensus mechanism with Blockchain; Proof-of-Work (PoW), Proof-of- Stake (PoS.
- Blockchain-based crytocurrency: bitcoin, ethereum.
- Blockchain-based digital asset: NFT.
Centralized systems have been operating for so many years. Take a banking system, for example. In a typical setup, a bank has a back-end core banking system to manage our CASA (current and saving accounts). Banks usually have another back-end banking system for providing credit card services.
Various satellite banking systems depend on the core banking system to provide services to banking customers. Branch banking, Internet banking, mobile banking, and digital banking are front-end satellite banking systems serving customers in daily transactions.
Back-end and front-end banking systems are the critical banking systems with the expectation to run 24x7 with very high availability (such as 99.998%). The need for redundant systems arises. Banks (also mandated by the regulatory) started to have 2nd installation of their banking systems, the DRC — Disaster Recovery Center that can be up and running quickly if the primary DC — Data Centers are down, maintaining the high availability services to their customers.
Common e-commerce and payment systems in Indonesia like GoJek, Tokopedia, GoPay, Ovo, and Shoppe, for example, also use centralized systems to some extent.
In a centralized system such as core banking, the core banking system serves as the intermediary among customers to do transactions. If the core banking system is down (say both DC and DRC are down), the customers can not do any transactions.
Some banks are even increasing the availability by creating redundant systems in one installation (e.g., redundant core banking systems in Data Center).
Let's now take a look at a different implementation, the distributed system — in which there is no single point of failure, such as in the centralized system.
A distributed system consists of nodes communicating through message channels, establishing a network, and implementing a specific protocol to achieve a common goal (edx, 2018).
There are three components of distributed systems:
- Components in the system (e.g., nodes) process information concurrently.
- Each node maintains its clock; there is no global clock like centralized systems.
- Protocols protect against the potential failure of individual components.
Instead of having just one or a few nodes in the centralized system, a distributed system has many nodes (or processes) connected by the message channels. For example, in implementing Bitcoin or Ethereum-based blockchain, the number of nodes within the network is not uncommon to reach thousands or even hundreds of thousands.
As an analogy, we can consider core banking running in either DC or DRC within a banking system as just one node.
The challenge then arises: how many independent nodes doing the same things can agree on a specific goal?. The agreement is achieved through a distributed consensus mechanism by "voting" in a distributed system. So, the saying majority will be the winner (e.g., measured by more than two-thirds of total nodes).
In the simple four nodes distribution system illustration below, the "Go" or "No-Go" instruction to the controlling PLC is determined by the voting majority of four independent redundant PLCs. The four redundant PLCs get the same sensor data independently to detect whether the bottle has been filled or not. The instruction is the input for the target PLC to seal the bottled beverage products.
PLC is a Programmable Logic Controller, the programmable hardware usually installed in modern factories as part of factory automation.
In this case, the decision is "Go" as three PLCs say "Go" (the majority, 3 of 4 PLCs — 75%, more than two-thirds), although one faulty PLC says "No-Go" (or can also be not-giving either "Go" or "No-Go"). Ideally, all four PLCs will say "Go" or "No-Go."
The terms distributed consensus or consensus mechanism and node or process refer to the same meaning (within the context of distributed systems).
Safety and Liveness Properties
In the distributed system, there are two properties: safety and liveness. These two properties determine correctness (edx, 2018).
- Safety: "This will not happen" the system will not do bad things.
- Liveness: "This must happen" the system will eventually do good things.
Consensus Mechanism in Distributed System
There are three factors to achieve correctness: validity, agreement, and termination. Correctness is defined as achieving its intended goal.
- Validity — Any value to be decided must be proposed by one of the processes.
- Agreement — All non-faulty processes must agree on the same value.
- Termination — All non-faulty processes eventually decide on a value.
Validity and agreement are safety properties, while termination is liveness property.
Let's now discuss blockchain, the specific type of distributed system.
If we talk about the origin of blockchain, we usually refer to Satoshi Nakamoto, who introduced bitcoin in a 2008 whitepaper and later implemented the first blockchain network, Bitcoin. Nakamoto was active until 2010 (Wikipedia, 2022a). Since then, many have claimed to be Nakamoto.
Until now, nobody knows the true identity of Satoshi Nakamoto (e.g., person or persons), who claimed Japanese nationality and was born on April 5, 1975.
"A blockchain is a growing list of records, called blocks, linked together using cryptography. Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data" (Wikipedia, 2022b).
The description continues, "A peer-to-peer network typically manages blockchains for use as a publicly distributed ledger, where nodes collectively adhere to a protocol to communicate and validate new blocks. Although blockchain records are not unalterable as forks are possible, blockchains may be considered secure by design and exemplify a distributed computing system."
How blockchain works — An Illustration
The following two excellent demo videos show how blockchain works in principle.
Consensus Mechanism in Blockchain
The blockchain has two leading consensus mechanisms: Proof-of-Work (PoW) and Proof-of-Stake (PoS). For years, due to the massive demand for computing power in current implementations, efforts have been underway to transition from PoW to PoS.
In this article, the term economic stake or stake refers to the exact meaning within the Proof-of-Stake consensus mechanism.
A node must show Proof-of-Work to append a new block into a blockchain by solving the complex mathematical challenges (do the mining). The work consumes a massive amount of energy and drains a lot of electricity.
The Proof-of-Work consensus mechanism is the current implementation of blockchain standards. Bitcoin, the first cryptocurrency and the largest blockchain network (followed by most operating networks), applied the Proof-of-Work consensus mechanism. The implementations of PoW led to the increasing demand for computing hardware, especially GPU — Graphics Processing Unit. Recently, the hardware became ASIC — Application Specific Integrated Circuit, the specialized hardware designed for a specific function, e.g., mine bitcoin.
A node must show Proof-of-Stake to append a new block into a blockchain. Proof-of-Stake is required to become a selected validator (be able to append a new block). To become one of the validators, the stake must be locked at a certain amount of cryptocurrency.
Bitcoin — BTC
Mining bitcoin is basically "guessing" the 64-hexadecimal (256 bits) target hash value. Every 10 minutes, a hash value is generated. Each hexadecimal value has 15 possible values, from 0 to f. An example of a hash value is 0000000006cf97ea3098dfbbca8865ff4499758864cde430098ce328722bb43c.
By "guessing" the target hash correctly, the miners (nodes) help validate the transaction block to avoid double-spending in the network. To guess the target hash, the miners generate as many 32 bits of random nonces as possible — called a nonce, a number only used once.
The first miner to successfully generate the hash less than or equal to the target hash gets the bitcoin (BTC) reward. The network adds the verified block to the network for the miner, increasing the cryptocurrency in circulation. Unverified block "orphan block" is not added to the bitcoin network.
The following is the screenshot taken from blockchain.info, showing the successful mined of block: 730244 on April 3, 2022, 7:36 PM GMT+7. The miner (“Unknown”) was awarded 6.25 BTC (equivalent to USD 290,132.25 at the time of award) by correctly guessing the nonce = 1,266,115,965; an additional reward was also given (USD 926.93). The target hash value is 000000000000000000089d5c09b584af9375289d08f656b6510694b9d5cb2e40, shown on top.
BTC (short for bitcoin) is the cryptocurrency of the Bitcoin blockchain.
Initially, in 2009 — as designed by Satoshi Nakamoto, the miner would be rewarded with 50 BTC (50 Bitcoins) when solving the 64-hex target hash value. The reward has been halved every four years since. Starting in May 2020, the reward was only 6.25 BTC.
Ethereum — ETH
Ethereum is the second-largest blockchain network in operation after Bitcoin. ETH (short for ether) is the cryptocurrency of the Ethereum blockchain.
The following is the screenshot taken from the blockchain explorer for Ethereum (Blockchain.com, 2022), showing the successful mined of block: 14517465 in the Ethereum blockchain on April 4, 2022, at 11:49 AM GMT+7. The miner (“0xea674fdde714fd979de3edf0f56aa9716b898ec8”) was awarded 2.468381053537237892 ETH (equivalent to USD $8,656.61 at the time of award) by correctly guessing the nonce = 0x3d5a7f8ad357aba1; an additional reward was also given (0.468381053537237892 ETH, equivalent to USD 1,642.39). The target hash value is
0x0f8ad330b9e87a476b3bb2c5e449d93faa7d3d994e012384c4a327bd1a02452c, shown on top.
The current operation of the Ethereum blockchain is still using the Proof-of-Work consensus mechanism.
In the spirit of significantly reducing the massive energy requirement for the Proof-of-Work consensus mechanism, the Ethereum blockchain network is transitioning from Proof-of-Work to Proof-of-Stake in 2022 (after preparing for the transition for six years).
The economic stake in participating as a validator in the Proof-of-Stake consensus mechanism in the Ethereum blockchain is 32 ETH (about USD 152,000 on April 3, 2022).
The responsibility of validators in the PoS consensus mechanism is similar to miners in PoW, that is, "ordering transactions and creating new blocks so that all nodes can agree on the state of the network" (Ethereum.org, 2022).
“The Ethereum platform was founded with broad ambitions to leverage blockchain technology for many diverse applications. Bitcoin was designed strictly as a cryptocurrency” (Jake Frankenfield, 2022).
Blockchain-based Digital Asset — NFT
NFT (Non-Fungible Token) implements blockchain to create trusted digital assets as a unique cryptographic token. The network allows anybody in the blockchain network to verify the digital asset's ownership "digital certificate" as the history of ownership is recorded in the blockchain. The digital certificate can represent the actual physical assets or digital assets, or both.
In contrast, BTC or ETH as cryptocurrency is a Fungible Token. If I have 1 ETH and you have 1 ETH, it is the same value — If I have 10 ETH and send 1 ETH to X and then receive 1 ETH from Y, I still have 10 ETH. However, in NFT, a specific form of the digital asset (e.g., land in the decentraland Metaverse) is cryptographically unique. No other person other than the current owner owns the particular land.
Examples of NFT are paintings, photographs, music, video clip, avatars, 3D models in the Metaverse, and various game collectibles. An entitlement to the physical house can also be an NFT.
NFT can be exchanged through the smart contract mechanism from one person to another. E.g., the creator of the NFT can get a specific commission, according to what is defined in the smart contract, when the NFT changes ownership.
For instance, we can create NFT in the Opensea marketplace (running on Ethereum or Polygon blockchain platform). The marketplace enables users to exchange NFTs and accept payment in cryptocurrencies such as ETH or BTC.
The following illustrates the NFT creation process on the Ethereum or Polygon Blockchain platform.
Metamask, as a digital wallet stores the cryptocurrencies acquired by credit or debit card transactions or by receiving cryptocurrencies from other users in the blockchain network.
The blockchain-based platform such as Opensea creates an NFT by assigning a unique digital token after "minting" the digital asset, e.g., a painting. Minting is adding a block to a blockchain by validating information, creating a new block, and recording that information into the blockchain. The NFT can then be exchanged on the NFT marketplace such as Opensea.
The interested reader may refer to further reading on NFT "Mari Mengenal NFT" (Andi Sama, 2022c). The article is in the Indonesian language.
Blockchain and Metaverse
Many technologies support the Metaverse ecosystem (which becomes the business and investment opportunities). Blockchain is one of them.
Blockchain has been an integrated part of the Metaverse, supporting the uniqueness of trusted digital assets (NFTs) and trusted payment for doing transactions (cryptocurrency).
Let's look at the following illustration, "The seven layers of the metaverse" (Jon Radoff, 2021a), and the role of blockchain in the Metaverse within the decentralization layer.
The foundation infrastructure covers layers 1–6; layer 1 is at the bottom. The Foundation infrastructure cover technologies such as 5G dan 6G, GPU, Smart Phone, Wearable, Blockchain, Edge Computing, VR, AR, XR, and various design tools.
The top layer (layer-7) is the user experience layer in which we are experiencing various activities in the Metaverse (playing games, socializing, shopping, watching movies, and many more activities).
The interested reader may refer to further reading on Metaverse "Mimpi menuju Open Metaverse — The Next Internet (R)Evolution?" (Andi Sama et al., 2022b). The article is in the Indonesian language.
Blockchain and Industry 5.0
As part of the top technology enablers, Blockchain (to be more precise: Industrial Blockchain) will play a key role during the transition from Industry 4.0 to Industry 5.0. Other technology enablers include drones, exoskeletons, additive technology, 5G, and mixed realities (Frost and Sullivan, 2019).
Industry 4.0 focuses heavily on the integration of OT (Operational Technology) and IT (Information Technology) and relies heavily on automation by providing actionable intelligence in real-time — thus, reducing a lot of workforces. Industry 5.0 will bring empowered humans to the shop floor.
Industry 5.0 is focusing on hyper-product customization (from mass product customization), delivering customer experience instead of only connecting machines, and returning manpower to factories (equipped with enhanced tools such as mixed realities) rather than doing the work remotely — to mention the shifting of three out of five trends.
The following illustration shows all five trends toward Industry 5.0.
The distributed consensus mechanism enables trust without trust in the blockchain network. Major implementations have been utilizing the Proof-of-Work consensus mechanism, such as in the most significant two blockchain networks: Bitcoin and Ethereum.
As the Proof-of-Work has been draining massive computing power for many years, the Proof-of-Stake consensus mechanism has been seen as a better alternative. Sometime in 2022, following six years of preparation, there is a plan for the Ethereum network to migrate to this alternative “greener” consensus mechanism.
Scaling Up Blockchain
A centralized system can be highly scalable as transaction volume increases (the need for processing higher TPS — transactions per second: e.g., hundreds or thousands of TPS).
However, in a distributed system such as a blockchain, this is a real challenge as the decision to add a new block to the existing blockchain must wait for the consensus (block time scalability problem). This means it takes much longer to add a new block to a blockchain than to add more transactions per second in a centralized system.
Typically — to get a high confidence level, it requires at least six confirmations to add a new block in Bitcoin and 40 confirmations in Ethereum.
As mentioned before, the block time is about 10 minutes for the Bitcoin network, resulting in about 3.2 TPS.
The size of the blockchain in the Bitcoin network is also getting bigger. It was about 180GB in mid-2018 and has grown to 382 GB in Feb 2022. This is the size of a full blockchain ledger that has to be maintained by each full node in a Bitcoin network.
In a distributed system such as Blockchain, scalability can be achieved by upgrading to a higher-end system’s hardware (vertical scaling) or adding more hardware with similar capabilities (horizontal scaling). Software (e.g., operating system, application infrastructure, and the application itself) is typically highly scalable, just constrained by the system’s hardware.
In a specific case such as Bitcoin, scalability can be achieved i.e., by speeding up the creation to append a new block or by distributing the blockchain ledgers to multiple systems.
There is a trilemma in designing the scalability in Blockchain network: decentralization, security, and scalability. We can only choose two to optimize (edx, 2018).
- Anders Brownworth, 2017a, "Blockchain 101 — A Visual Demo."
- Anders Brownworth, 2017b, "Blockchain 101 — Part 2 — Public / Private Keys and Signing."
- Andi Sama, 2022a, "AWE USA 2022: Next Generation Insights of Technology Innovations."
- Andi Sama, 2022b, “Mari Mengenal NFT.”
- Andi Sama et al., 2022, “Mimpi menuju Open Metaverse — The Next Internet (R)Evolution?.”
- Blockchain.com, 2022, "Blockchain Explorer."
- edx, 2018, "BerkeleyX CS198.2x: Blockchain Technology."
- Ethereum.org, 2022, "Proof of Stake."
- Euny Hong, 2022, "How Does Bitcoin Mining Work?"
- Frost and Sullivan, 2019, “Industry 5.0 — Bringing Empowered Humans Back to the Shop Floor."
- Jake Frankenfield, 2022, “Ethereum.”
- Jon Radoff, 2021a, "The Metaverse Value-Chain," April.
- Jon Radoff, 2021b, "Market Map of the Metaverse," November.
- MIT Technology Review, 2022, "Why Ethereum is switching to proof of stake and how it will work."
- Stephanie Glen, 2021, "NFTs Explained in Two Pictures: The Good, The Bad … and The Ugly."
- Wikipedia, 2022a, "Satoshi Nakamoto."
- Wikipedia, 2022b, "Blockchain."