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Advanced Cryptographic Techniques for Secure Blockchain Development

Karolina

06 Jun 2023
Advanced Cryptographic Techniques for Secure Blockchain Development

The swift progression of blockchain technology has opened the door for inventive solutions in numerous industries. As blockchain gains prominence, it is critical to ensure the security of transactions and data stored on the blockchain. Cryptography is instrumental in attaining this security, offering strong encryption and authentication methods. This article emphasizes advanced cryptographic techniques for secure blockchain development, investigating how these approaches improve the integrity, confidentiality, and privacy of blockchain systems.

Table of Contents

Understading Cryptography in Blockchain

At the core of secure communication and data protection in blockchain networks lies cryptography. By utilizing cryptographic algorithms, blockchain systems can guarantee the confidentiality of classified information and maintain transaction integrity. Three main types of cryptography are employed in blockchain: symmetric-key cryptography, asymmetric-key cryptography, and hash functions.

Symmetric-Key Cryptography

Also known as secret-key cryptography, symmetric-key cryptography employs a single key for both the encryption and decryption processes. This type of encryption is efficient and suitable for instances where the sender and receiver possess a shared key. However, securely transmitting the key between parties can present difficulties.

Symmetric-key cryptography has two categories: stream ciphers and block ciphers. Stream ciphers encrypt data bit by bit, continuously altering the encryption key. In contrast, block ciphers encrypt data in fixed-size blocks with identical plaintext blocks resulting in identical ciphertext blocks. Symmetric-key cryptography ensures that both sender and receiver know the key to facilitate secure communication.

Asymmetric-Key Cryptography

Asymmetric-key cryptography, alternatively known as public-key cryptography, uses a pair of keys: a public key and a private key. These keys have mathematical relations but deriving the private key from the public key is computationally impractical. The owner keeps the private key confidential while the public key is openly distributed.

For key exchange and authentication in blockchain systems, asymmetric-key cryptography is essential. One party creates a secret key and encrypts it with the recipient's public key. The recipient then decrypts the secret key using their private key, forming a secure connection. Asymmetric-key cryptography offers scalability and heightened security during data exchange involving multiple participants.

Hash Functions

Cryptographic algorithms called hash functions transform an input (plaintext) into a fixed-length output (hash value). Hash functions play a vital role in connecting blocks in a blockchain and ensuring data integrity. Determinism, preimage resistance, collision resistance, and speedy computation are among the properties of hash functions.

A hash function applied to data within a block results in a significantly distinct hash value if the data undergoes any modification. This feature, termed the avalanche effect, guarantees that even minor changes in block data lead to unrelated outputs. Hash functions render blockchain data dependable, secure, and resistant to tampering.

Gaining insight into these core cryptographic methods paves the way for examining advanced techniques that further enhance blockchain system security. Subsequent sections delve into advanced cryptographic techniques such as multi-signature schemes, zero-knowledge proofs, homomorphic encryption, and threshold cryptography. These methods augment security, confidentiality, and scalability in blockchain development, protecting sensitive information and facilitating innovative applications.

More about Cryptography in Blockchain 

Advanced Cryptographic Techniques for Secure Blockchain Development

With the ongoing evolution of blockchain technology, the significance of advanced cryptographic techniques has grown to address the increasing demand for improved security in blockchain development. These methods contribute additional layers of defense, ensuring data confidentiality, integrity, and privacy on the blockchain. Let's examine some advanced cryptographic techniques:

Multi-Signature Schemes

Also known as multi-sig, multi-signature schemes permit several parties to have joint control over an address or execute transactions on the blockchain. Requiring multiple digital signatures from distinct private keys to authorize actions contributes to enhanced security. Multi-signature schemes help blockchain systems lessen the likelihood of single-point failures and unauthorized access while offering strong protection against harmful activities.

Zero-Knowledge Proofs

These proofs enable a party (the prover) to demonstrate the validity of a statement to another party (the verifier) without divulging any extra information beyond the truth of the statement. Within the sphere of blockchain, zero-knowledge proofs deliver mechanisms for privacy preservation. Users can confirm transactions or execute calculations on encrypted data without exposing underlying sensitive details. This approach equips blockchain participants with privacy and maintains network integrity.

Check out top ZKP projects to watch in 2023

Homomorphic Encryption

This encryption method allows computations on encrypted data without requiring decryption. As a result, secure, privacy-preserving computation can occur on blockchain data. Employing homomorphic encryption lets blockchain systems conduct operations like aggregations and computations on encrypted data while keeping the confidential information intact. Such encryption improves data security and privacy, thus expanding opportunities for secure computation in blockchain applications.

Threshold Cryptography

This type of cryptography entails distributing private keys among multiple participants so that a specific threshold of participants must work together to carry out cryptographic operations. This process strengthens security by eliminating single points of failure and minimizing key compromise risks. Applications for threshold cryptography include secure key generation, cryptographic operations, and digital signature schemes—all vital aspects in maintaining strong security within blockchain networks.

Incorporating these advanced cryptographic techniques into the development of blockchain lays the foundation for dependable and secure decentralized applications. Utilizing advanced cryptography enables blockchain solutions to attain superior levels of security, privacy, and reliability, thus unveiling new potential for numerous industries.

Moreover, continuous research and innovation in cryptography introduce groundbreaking techniques to bolster blockchain security. Staying up-to-date with the latest advancements in cryptographic methods becomes essential as blockchain technology progresses to ensure optimal security and integrity within these systems.

Practical Implementations of Advanced Cryptographic Techniques in Blockchain

Safeguarding the security and integrity of blockchain systems is made possible by advanced cryptographic techniques, which have become essential across numerous industries. By addressing specific challenges and strengthening trust in decentralized networks, these techniques have been successfully applied in various real-world situations. Here are some prominent examples of how advanced cryptographic techniques have been utilized in the blockchain sector:

Enhanced Security in Supply Chain Management

Advanced cryptographic techniques are crucial for blockchain-based supply chain management solutions, ensuring the protection of data and validation of goods and information flow throughout the supply chain. Multi-signature schemes enable participants to confirm transactions and transfers with multiple parties' authorization, mitigating fraud or tampering risks. Zero-knowledge proofs provide privacy-preserving product authenticity and quality verification, while homomorphic encryption safeguards sensitive supply chain information like pricing or trade secrets. These cryptographic methods improve transparency, traceability, and responsibility within supply chain operations.

Authentication and Identity Management

Blockchain-based identity management systems use advanced cryptographic techniques to protect personal information, streamlining identity verification processes simultaneously. Individuals can verify their identity through zero-knowledge proofs without giving away excessive personal data. Threshold cryptography ensures that private key management is more secure and distributed, reducing identity theft or unauthorized access risks. This takes digital identity systems to the next level by providing increased privacy, data protection, and user control over personal details.

Smart Contracts and Financial Transactions

Cryptocurrencies and blockchain-based finance systems depend heavily on advanced cryptographic techniques for secure transactions and smart contract execution. Using multi-signature schemes helps heighten security around cryptocurrency wallets while facilitating transactions requiring multiple parties' participation. Regulatory compliance is maintained through zero-knowledge proofs that enable anonymous transactions, while homomorphic encryption secures sensitive financial information stored on the blockchain. As a result, these cryptographic methods facilitate secure, transparent, and auditable financial dealings within decentralized networks.

Read more about Security of Smart Contracts 

Privacy Protection for Healthcare Systems

Blockchain healthcare technology takes advantage of advanced cryptographic techniques to maintain patient privacy while ensuring secure and efficient data sharing among healthcare providers. Zero-knowledge proofs enable organizations to validate patient information without exposing the actual data, protecting patient confidentiality. Meanwhile, homomorphic encryption provides a secure way to analyze and research encrypted medical records without compromising privacy. These methods contribute to data security, patient privacy, and increased interoperability in healthcare systems.

Voting and Governance Platforms

The effectiveness of blockchain voting and governance structures relies on the application of advanced cryptographic techniques to uphold the fairness and transparency of elections and decision-making processes. Multi-signature schemes necessitate several authorized signatures for vote validation, guaranteeing secure voting. Individual voter choices are kept confidential while proving eligibility and vote accuracy using zero-knowledge proofs. Moreover, threshold cryptography enables secure management of distributed keys, facilitating decentralized governance systems safely. These techniques improve verifiability, credibility, and resistance to tampering in governance mechanisms.

The successful implementation of advanced cryptographic techniques in these real-world scenarios reveals their ability to address diverse blockchain use cases' security, privacy, and trust challenges. By utilizing these methods, various sectors can exploit blockchain's full potential while ensuring optimal data protection and system integrity.

As blockchain technology evolves further, we can expect the range of applications for advanced cryptographic techniques to grow accordingly. This will lead to even more innovative solutions across areas such as supply chain management, identity authentication, financial services, healthcare provision, and governance frameworks. Adopting these methods nurtures a more reliable, transparent, and trust-based decentralized environment that benefits organizations and individuals.

Conclusion

To sum up, the security and integrity of blockchain systems rely heavily on advanced cryptographic techniques. Utilizing methods such as multi-signature schemes, zero-knowledge proofs, homomorphic encryption, and threshold cryptography allows organizations to boost the trust in their blockchain solutions. These advanced cryptographic techniques have practical applications across various sectors, including supply chain management, identity management, finance, healthcare, and governance. Adopting cutting-edge cryptography is essential for staying ahead in the ever-evolving blockchain landscape and fostering trust within decentralized networks. By effectively leveraging these techniques, we can unleash the full potential of blockchain technology and lay the foundation for a safer and more decentralized future.

Would you like to build your own project on Blockchain? Contact us!

Tagi

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Aethir Tokenomics – Case Study

Kajetan Olas

22 Nov 2024
Aethir Tokenomics – Case Study

Authors of the contents are not affiliated to the reviewed project in any way and none of the information presented should be taken as financial advice.

In this article we analyze tokenomics of Aethir - a project providing on-demand cloud compute resources for the AI, Gaming, and virtualized compute sectors.
Aethir aims to aggregate enterprise-grade GPUs from multiple providers into a DePIN (Decentralized Physical Infrastructure Network). Its competitive edge comes from utlizing the GPUs for very specific use-cases, such as low-latency rendering for online games.
Due to decentralized nature of its infrastructure Aethir can meet the demands of online-gaming in any region. This is especially important for some gamer-abundant regions in Asia with underdeveloped cloud infrastructure that causes high latency ("lags").
We will analyze Aethir's tokenomics, give our opinion on what was done well, and provide specific recommendations on how to improve it.

Evaluation Summary

Aethir Tokenomics Structure

The total supply of ATH tokens is capped at 42 billion ATH. This fixed cap provides a predictable supply environment, and the complete emissions schedule is listed here. As of November 2024 there are approximately 5.2 Billion ATH in circulation. In a year from now (November 2025), the circulating supply will almost triple, and will amount to approximately 15 Billion ATH. By November 2028, today's circulating supply will be diluted by around 86%.

From an investor standpoint the rational decision would be to stake their tokens and hope for rewards that will balance the inflation. Currently the estimated APR for 3-year staking is 195% and for 4-year staking APR is 261%. The rewards are paid out weekly. Furthermore, stakers can expect to get additional rewards from partnered AI projects.

Staking Incentives

Rewards are calculated based on the staking duration and staked amount. These factors are equally important and they linearly influence weekly rewards. This means that someone who stakes 100 ATH for 2 weeks will have the same weekly rewards as someone who stakes 200 ATH for 1 week. This mechanism greatly emphasizes long-term holding. That's because holding a token makes sense only if you go for long-term staking. E.g. a whale staking $200k with 1 week lockup. will have the same weekly rewards as person staking $1k with 4 year lockup. Furthermore the ATH staking rewards are fixed and divided among stakers. Therefore Increase of user base is likely to come with decrease in rewards.
We believe the main weak-point of Aethirs staking is the lack of equivalency between rewards paid out to the users and value generated for the protocol as a result of staking.

Token Distribution

The token distribution of $ATH is well designed and comes with long vesting time-frames. 18-month cliff and 36-moths subsequent linear vesting is applied to team's allocation. This is higher than industry standard and is a sign of long-term commitment.

  • Checkers and Compute Providers: 50%
  • Ecosystem: 15%
  • Team: 12.5%
  • Investors: 11.5%
  • Airdrop: 6%
  • Advisors: 5%

Aethir's airdrop is divided into 3 phases to ensure that only loyal users get rewarded. This mechanism is very-well thought and we rate it highly. It fosters high community engagement within the first months of the project and sets the ground for potentially giving more-control to the DAO.

Governance and Community-Led Development

Aethir’s governance model promotes community-led decision-making in a very practical way. Instead of rushing with creation of a DAO for PR and marketing purposes Aethir is trying to make it the right way. They support projects building on their infrastructure and regularly share updates with their community in the most professional manner.

We believe Aethir would benefit from implementing reputation boosted voting. An example of such system is described here. The core assumption is to abandon the simplistic: 1 token = 1 vote and go towards: Votes = tokens * reputation_based_multiplication_factor.

In the attached example, reputation_based_multiplication_factor rises exponentially with the number of standard deviations above norm, with regard to user's rating. For compute compute providers at Aethir, user's rating could be replaced by provider's uptime.

Perspectives for the future

While it's important to analyze aspects such as supply-side tokenomics, or governance, we must keep in mind that 95% of project's success depends on demand-side. In this regard the outlook for Aethir may be very bright. The project declares $36M annual reccuring revenue. Revenue like this is very rare in the web3 space. Many projects are not able to generate any revenue after succesfull ICO event, due to lack fo product-market-fit.

If you're looking to create a robust tokenomics model and go through institutional-grade testing please reach out to contact@nextrope.com. Our team is ready to help you with the token engineering process and ensure your project’s resilience in the long term.

Tagi

Quadratic Voting in Web3

Kajetan Olas

04 Dec 2024
Quadratic Voting in Web3

Decentralized systems are reshaping how we interact, conduct transactions, and govern online communities. As Web3 continues to advance, the necessity for effective and fair voting mechanisms becomes apparent. Traditional voting systems, such as the one-token-one-vote model, often fall short in capturing the intensity of individual preferences, which can result in centralization. Quadratic Voting (QV) addresses this challenge by enabling individuals to express not only their choices but also the strength of their preferences.

Table of Contents

In QV, voters are allocated a budget of credits that they can spend to cast votes on various issues. The cost of casting multiple votes on a single issue increases quadratically, meaning that each additional vote costs more than the last. This system allows for a more precise expression of preferences, as individuals can invest more heavily in issues they care deeply about while conserving credits on matters of lesser importance.

Understanding Quadratic Voting

Quadratic Voting (QV) is a voting system designed to capture not only the choices of individuals but also the strength of their preferences. In most DAO voting mechanisms, each person typically has one vote per token, which limits the ability to express how strongly they feel about a particular matter. Furthermore, QV limits the power of whales and founding team who typically have large token allocations. These problems are adressed by making the cost of each additional vote increase quadratically.

In QV, each voter is given a budget of credits or tokens that they can spend to cast votes on various issues. The key principle is that the cost to cast n votes on a single issue is proportional to the square of n. This quadratic cost function ensures that while voters can express stronger preferences, doing so requires a disproportionately higher expenditure of their voting credits. This mechanism discourages voters from concentrating all their influence on a single issue unless they feel very strongly about it. In the context of DAOs, it means that large holders will have a hard-time pushing through with a proposal if they'll try to do it on their own.

Practical Example

Consider a voter who has been allocated 25 voting credits to spend on several proposals. The voter has varying degrees of interest in three proposals: Proposal A, Proposal B, and Proposal C.

  • Proposal A: High interest.
  • Proposal B: Moderate interest.
  • Proposal C: Low interest.

The voter might allocate their credits as follows:

Proposal A:

  • Votes cast: 3
  • Cost: 9 delegated tokens

Proposal B:

  • Votes cast: 2
  • Cost: 4 delegated tokens

Proposal C:

  • Votes cast: 1
  • Cost: 1 delegated token

Total delegated tokens: 14
Remaining tokens: 11

With the remaining tokens, the voter can choose to allocate additional votes to the proposals based on their preferences or save for future proposals. If they feel particularly strong about Proposal A, they might decide to cast one more vote:

Additional vote on Proposal A:

  • New total votes: 4
  • New cost: 16 delegated tokens
  • Additional cost: 16−9 = 7 delegated tokens

Updated total delegated tokens: 14+7 = 21

Updated remaining tokens: 25−21 = 425 - 21 = 4

This additional vote on Proposal A costs 7 credits, significantly more than the previous vote, illustrating how the quadratic cost discourages excessive influence on a single issue without strong conviction.

Benefits of Implementing Quadratic Voting

Key Characteristics of the Quadratic Cost Function

  • Marginal Cost Increases Linearly: The marginal cost of each additional vote increases linearly. The cost difference between casting n and n−1 votes is 2n−1.
  • Total Cost Increases Quadratically: The total cost to cast multiple votes rises steeply, discouraging voters from concentrating too many votes on a single issue without significant reason.
  • Promotes Egalitarian Voting: Small voters are encouraged to participate, because relatively they have a much higher impact.

Advantages Over Traditional Voting Systems

Quadratic Voting offers several benefits compared to traditional one-person-one-vote systems:

  • Captures Preference Intensity: By allowing voters to express how strongly they feel about an issue, QV leads to outcomes that better reflect the collective welfare.
  • Reduces Majority Domination: The quadratic cost makes it costly for majority groups to overpower minority interests on every issue.
  • Encourages Honest Voting: Voters are incentivized to allocate votes in proportion to their true preferences, reducing manipulation.

By understanding the foundation of Quadratic Voting, stakeholders in Web3 communities can appreciate how this system supports more representative governance.

Conclusion

Quadratic voting is a novel voting system that may be used within DAOs to foster decentralization. The key idea is to make the cost of voting on a certain issue increase quadratically. The leading player that makes use of this mechanism is Optimism. If you're pondering about the design of your DAO, we highly recommend taking a look at their research on quadratic funding.

If you're looking to create a robust governance model and go through institutional-grade testing please reach out to contact@nextrope.com. Our team is ready to help you with the token engineering process and ensure that your DAO will stand out as a beacon of innovation and resilience in the long term.

Tagi