CYPHERIUM - Creating Financial Inclusivity Through Protocol Interoperability

in cypherium •  3 years ago 


Introduction

Since the inception of Bitcoin, the first public blockchain, researchers, engineers, and entrepreneurs throughout the world have wanted to expand this technology to a broader range of applications. Ethereum, the world’s first blockchain with Turing-complete smart contracts, made a bold attempt to transform blockchain into a general-purpose computing platform.

Although the early pioneers first mapped out blockchain’s potential as a digital payment network and a collaborative data sharing platform, poised to reshape human society entirely, the stark reality of the last ten years has shown us that these technologies were simply not ready to achieve these lofty goals. Blockchain has yet to see“killer dApps” other than the issuance of digital currencies. Even Bitcoin has not attained its original goal of “a peer-to-peer cash payment system”.

As regulatory bodies around the world began to impose stricter regulation over ICOs, with some completely banning them, blockchain and crypto fell into a long period of hibernation.

However, blockchain technology’s revolution has never stopped. Two of the most prominent digital currency projects were announced in 2019: Facebook’s Libra and People’s Bank of China’s DC/EP. Although these projects appear to have abundant resources and a huge potential user base, they are not the best use cases of blockchain technology because they revert back to the use of trusted third parties to expedite their regulatory compliance. However, true decentralization should not run into conflict with any regulator. Just as the internet is permissionless, blockchains can be both fully realized in their decentralization and governed with meaningful oversight.



Technical Background

A blockchain is a data ledger shared across a network of nodes, which store and replicate a consistent state of transactions. According to the admissions mechanism of the network, a blockchain can be classified into two categories: permissionless (open to any participant) and permissioned (open only to credentialed members). Typically, a blockchain consists of three layers: network, consensus, and smart contract.

A network is a collection of interconnected nodes that exchange information. The nodes can include computers, servers, mobile devices, or any other device that can be configured to communicate with other nodes in the network. The network may be configured as a centralized system, such as a client-server system having one or more central servers in communication with one or more client devices, or may be configured as a decentralized system, such as a peer-to-peer (P2P) network. A P2P network is a system in which each network node, sometimes called a “peer,” may be directly connected to one or more other nodes in the network. Peers typically have similar privileges and may share a portion of their resources with other peers in the network without coordination by any centralized servers or hosts. P2P networks have been implemented using various technologies, including for example file-sharing systems, such as Napster, and blockchain technologies, such as Bitcoin.



Problem

The Bitcoin system is one of the most well-known implementations of blockchain technologies in distributed transaction-based systems. In Bitcoin, each network node competes for the privilege of storing a set of one or more transactions in a new block of the blockchain by solving a complex computational math problem, sometimes referred to as a mining proof-of-work (POW). Under current conditions, a set of transactions is typically stored in a new block of the Bitcoin blockchain at a rate of about one new block every 10 minutes, and each block has an approximate size of one megabyte (MB). Accordingly, the Bitcoin system is subject to an impending scalability problem: only 3 to 7 transactions can be processed per second, which is far below the number of transactions processed in other transaction-based systems, such as the approximately 30,000 transactions per second in the Visa™ transaction system.

The most significant drawback of the Nakamoto consensus is its lack of finality. Finality means once a transaction or an action is performed on the blockchain, it is permanently recorded on the blockchain and impossible to reverse. This is vital to the safety of financial settlement systems as transactions must not be reserved once they are made. In Bitcoin’s case, malicious actors can tamper with the transaction history given enough hash power, causing a double-spending attack, provided that there is enough incentive and financial viability to carry out such attacks. Given that mining equipment renting and botnets are currently prevalent world-wide, such an attack has become feasible.

Due to this lack of finality, Nakamoto consensus must rely on extra measures, such as proof-of-work to prevent malicious activities. This impedes the ability ofNakamoto consensus to scale because a transaction must wait for multiple confirmations before reaching “probabilistic finality”. Therefore, safety is not guaranteed by Nakamoto consensus, and in order to protect the network, each transaction must undergo additional time to process. In Bitcoin’s case, a transaction is not considered final until at least six confirmations. Since Bitcoin can only process a few transactions per second, the transaction cost is outrageously high, making it impractical for small payments like grocery shopping or restaurant dining. This greatly hinders Bitcoin’s use as a payment method in the real world.



Solutions

Many distributed ledger projects have attempted to solve the challenges Bitcoin faces. However, these solutions have yet to resolve the so-called blockchain trilemma: to preserve speed, security, and decentralization at the same time. Often, these solutions must come down to a trade-off among these three vectors.



Digital Identity

The protection of private data remains a big challenge in modern cybersecurity. Traditional centralized data servers have become easy targets of cyber criminals. In the past few years, massive data leaks of big enterprises including Facebook, Yahoo, Marriott and so on, have resulted in billions of user data records being stolen and insurmountable financial losses. As software and devices become more and more complex, it is practically impossible to eliminate all security vulnerabilities in a system. A new form of identity must be implemented to prevent further data breaches.

Decentralized ledger technology handles identities via shared root of trust instead of centralized authority or a single point of failure. The Decentralized Identifiers (DIDs) is a standard facilitated by the Internet body World Wide Web Consortium (WC3) that allows users to own and manage their personal data. Cypherium can fully incorporate with open identity protocols including, but not limited to, the DID standard.



Big Data Analysis

  • The status of the big data center is unique among the three centers of DC/EP, as it is charged with conducting anti-money laundering, anti-fraud, and other security monitoring. As the data aggregation office of the other two centers, the big data center also needs to analyze and govern all the data being collected and processed, in order to help policy formulation with the output of many indicators.

  • Due to this important office and sensitive nature of the big data center, in order to ensure transaction security and information security, the center must abide by a special mandate: for all data, the big data center can only read, not modify.

  • Cypherium reserves a monitoring interface for on-chain activities, and can promptly warn against illegal transactions through the big data center.



Clearing System

Considering that there may be problems in directly connecting to the central bank’s digital currency system without special permission, Cypherium has also established a clearing system architecture, wherein intermediaries (which can be financial institutions with financial strength) perform the final clearing of funds to ensure that user accounts have a relatively smooth experience. The software architecture is as follows:



Cypherium Connect

Cypherium Connect is a plug-in module that processes Cypherium payment transactions in the banking system (it’s a bit similar to the payment front-end system). Between the remittance bank and the receiving bank, Cypherium Connect has established an information channel for exchanging KYC / AML, risk control information, handling fees, exchange rates, and other payment-related information. In order to attract banks to join, Cypherium has created adaptive designs on KYC / AML that can be personalized by both banks. Before the transaction is initiated, Cypherium Connect sends this information to the counterparty of the transaction. Only by confirming OK can one execute the transaction and clear the funds.



Cypherium Validator

  • Cypherium Validator is a verification machine. Before the transaction enters the Central Bank and blockchain ledger system, it must be confirmed by Validation. This machine has a strict authentication mechanism, and its verification rules can be customized according to specific system requirements.

  • Cypherium also introduces the scalable collective signature scheme CoSi. All communication parties must jointly sign the key information received and sent. Without increasing communication overhead, the system may always verify the correctness of the communication messages of all parties in the clearing system.

  • The Cypherium chain uses the BFT + BLS consensus model to solve double-spending, and the ledger nodes also perform additional version checks to ensure data integrity. There is also a queue manager in the system, which packages signed transactions into blocks and broadcasts each block to all participant nodes in the same channel. After receiving the broadcast, the nodes in the channel will verify the transaction again, and then update the transaction block to the ledger.

  • In order to ensure the privacy of transactions, a two-way channel must be established between every two banks in the system. In each channel, the bank must establish a channel account and allocate appropriate funds in the channel account to ensure that the transaction can be completed. Each transaction must be signed by the two banks in the channel to be verified.



Conclusion

This whitepaper has introduced the reader to Cypherium, a blockchain and smart contracting platform. Cypherium makes a number of advancements in decentralized ledger technology. Firstly, its proprietary consensus mechanism offers a unique solution to the so-called “blockchain trilemma” of scaling, security, and speed with a strong emphasis on applicability. While other third-generation blockchains have abandoned Proof-of-Work, the fundamental innovation of Bitcoin’s Nakamoto Consensus, Cypherium marries this older methodology to a more current cutting-edge technology, the HotStuff algorithm employed by Calibra. As such, Cypherium is the first public and permissionless HotStuff-based blockchain. Cypherium achieves this by rethinking the role of mining, breaking the process down into two component parts–minting new coins and verifying transactions–and supplying each with its own blockchain. This novel consensus architecture, called CyberBFT, improves upon the work of many established projects in the space including Bitcoin, ByzCoin, Bitcoin-NG, and others.

We are grateful for the interest and support of our community, partners, and advisors, and above all, we are excited to bring our technology to the world.



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cypherium dcif cypheriumchain hotstuff blockchain interoperability cph cbdc
3 years ago by

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