Technical Whitepaper

Blockchain Paradigm


Over the past few years, an important innovation colloquially known as the Blockchain has emerged as a potentially disruptive technology. The core of the innovation is built around the concept of a distributed cryptographic database. The database, also referred to as the ledger, is maintained by a network of computers. The ledger makes it possible for the entire network to create, evolve and keep track of an immutable record of transactions. The most successful blockchain application has been Satoshi Nakamoto’s cryptocurrency known as bitcoin and its underlying Bitcoin platform, which he outlined in his seminal paper, “Bitcoin: A Peer-to-Peer Electronic Cash System,” in 2008. This powerful technology has so far been implicated in the numerous cryptocurrencies that exist online. Financial institutions are only beginning to understand the potential applications of blockchain in conventionally regulated industries.

Understanding Blockchain

The blockchain is a data structure that cryptographically links blocks of transactions or any potential transfers of value at a fundamental level. As a paradigm, the blockchain allows for true privacy to exist between those involved in a transaction. This characteristic of the blockchain makes its most significant implementation in the financial industry. Its structure allows for automation, immutability, and decentralization. Nakamoto carefully chose these characteristics to create a digital mechanism of trust. It would result in a more limited reliance on third-party trust mechanisms enabling a direct contractual interface between two parties involved in any transfer of value for the financial world. This technology has the power to make such exchanges safer, faster, and cost-effective.
Ownership of value stored in the blockchain is established through asymmetrical cryptography. Digital keys, wallet addresses, and digital signatures are all created cryptographically to ensure total privacy in the transmission of transactional data. Every transaction on the blockchain needs to be signed using digital keys. Whoever owns these keys owns access to the value stored in the wallet. All keys generated by the wallet software come in pairs; a private key kept secret and a public key. The public key is akin to a bank account number, and the private key is like the secret pin used to control the account. The idea behind digital signatures is that private and public key pair shares a mathematical relationship such that a public key can verify a message (transaction) signed by a private key without revealing the private key.

Public Blockchain

Bitcoin’s blockchain network is structured as a peer-to-peer network architecture. In this network implementation, all nodes are equal or symmetric. There is no server, no centralized service, and no hierarchy in Bitcoin’s network. However, blockchain implementations for the financial industry cannot allow for such an open and symmetric network structure. Bitcoin enthusiasts advocate, therefore, that the blockchain and Bitcoin are fundamentally linked. It is a short-sighted view considering that the Bitcoin technology stack exists to solve the problem of an unregulated digital currency. The same stack can evolve to solve similar transfers of value over an asymmetric network.
The development of the Ethereum blockchain was a major milestone in the blockchain ecosystem. With the availability of Turing complete smart contracts, the limited functionality of the Bitcoin scripting language was overcome, and several different applications became possible. The focus shifted onto system state and virtual machines that could run smart contracts across the network.

Private Blockchain

Private blockchains came into prominence with the Hyperledger Project that saw participation from IBM and Intel in 2016. Another major private blockchain developed by R3 called Corda also raised significant amounts of funding. Since then, R3 has also joined the Hyperledger Project. Fully private blockchains make the case that centralized and trusted implementation of the core data structure of the blockchain along with significant changes to the consensus mechanism are meaningful value propositions for enterprise applications.

Hybrid Blockchain

Quorum developed by JP Morgan is designed to be the hybrid blockchain in a fully permissioned environment. Hybrid blockchains are fairly unexplored, and only a few implementations exist, even in development. Truly Hybrid blockchain must necessarily be able to connect public blockchain with a private blockchain implementation running in a fully permissioned environment. The XDC hybrid blockchain aims to be exactly that, leveraging the power of both the public and private blockchain paradigms.
For further reading, refer to our technical whitepaper.
The XDC Protocol: Technical Whitepaper by XDC Organization. All rights reserved.
Last modified 5mo ago