ACE Journal

Part 1: Blockchain Fundamentals and Early 2020 Landscape

1. Introduction and Motivation (Early 2020)

By March 1, 2020, blockchain has continued maturing beyond its initial promise as Bitcoin’s underlying ledger. What began in 2009 as a decentralized payment network has evolved into a versatile platform for distributed applications, digital assets, and decentralized finance. At its core, a blockchain remains a distributed, append-only ledger secured by cryptography and consensus. In early 2020, the primary motivations driving blockchain adoption include:

By early 2020, enterprises are actively piloting or operating permissioned and hybrid blockchains—Hyperledger Fabric 2.0, R3 Corda 4.x, and Quorum 2.x have all stabilized. Public chains continue to iterate on scalability, privacy, and programmability. DeFi on Ethereum has grown from under $1 billion total value locked (TVL) in January 2019 to over $1.5 billion by March 2020, sparking intense interest in lending, automated market makers, and yield farming.

2. Historical Background and Evolution up to Early 2020

  1. Bitcoin (2008 – 2009)
    • White Paper & Genesis: Satoshi Nakamoto’s “Bitcoin: A Peer-to-Peer Electronic Cash System” (Oct 2008) introduced PoW and a chained-block data structure. Bitcoin mainnet launched January 2009 with block 0 (the “genesis block”).
    • Mining Evolution (2009 – 2018):
      • 2009–2010: CPU mining → GPU mining (2010) → FPGA/ASIC arrival (2011+).
      • 2017: Segregated Witness (SegWit) activated (Aug 2017), reducing transaction malleability and enabling Lightning Network. By early 2020, SegWit adoption surpasses 60%.
    • Network Metrics (Early 2020):
      • Hash Rate: Exceeded 100 EH/s (exahashes per second) as ASIC hardware continuously optimized.
      • Blockchain Size: Full nodes store ~250 GB of historical data. Pruning nodes can reduce footprint to ~20 GB but are less common in enterprise contexts.
  2. Early Altcoins and Ethereum (2011 – 2020)
    • Altcoins & Early Experiments (2011 – 2014): Projects like Litecoin (2011), Namecoin (2011), and Dogecoin (2013) experimented with alternative hashing algorithms (e.g., scrypt) and early community-driven token models.
    • Ethereum Conception & Launch:
      • White Paper & Frontiers: Vitalik Buterin’s white paper (late 2013) described a Turing-complete smart-contract platform. Ethereum mainnet (Frontier) launched July 2015.
      • Byzantium & Constantinople Upgrades:
        • Byzantium (Oct 2017): Introduced reduced gas costs, zk-SNARK precompiles.
        • Constantinople & Petersburg (Feb 2019): Postponed multiple times, finally activated February 28 2019, reducing protocol inefficiencies ahead of Eth 1.x research.
      • Ethereum 2.0 Research:
        • Testnets: Medalla testnet launched August 2019; Topaz and Spadina followed late 2019.
        • Phase 0 (Beacon Chain): Targeted mid-2020 for mainnet, but as of March 2020, still in final testnet phases.
    • ERC-20 and Tokenization (2015 – 2020):
      • ICO Era (2016 – 2018): Over $20 billion raised across thousands of ERC-20 ICOs; 2018 saw a market correction with many token projects failing or pivoting.
      • STO Emergence (2018 – 2019): Security Token Offerings used Reg D and Reg S frameworks to tokenize traditional securities; platforms like Polymath (launched Q3 2018) facilitated compliant issuance.
      • NFT Growth (2017 – 2020): CryptoKitties (Dec 2017) exposed scalability limits. By early 2020, OpenSea (founded Feb 2018) has over $10 million in monthly NFT volume; NBA Top Shot enters beta (Jan 2020), foreshadowing mainstream interest.
  3. Enterprise and Permissioned Blockchains (2015 – 2020)
    • Hyperledger Fabric (2015+):
      • Fabric 1.x (2017 – 2018): Fabric 1.2 (July 2018) introduced CouchDB-based state database for rich queries; Fabric 1.4 (Jan 2019) added improved performance and Calvin-like ordering.
      • Fabric 2.0 (July 2019): General Availability with decentralized governance of chaincode (Smart Contracts), improved lifecycle management, peer grafting, and gossip improvements. By early 2020, supply chain pilots (e.g., IBM Food Trust) and trade finance PoCs are active.
    • R3 Corda (2016+):
      • Corda 3.0 (Sept 2018): Enhanced privacy, flows, and CorDapp packaging.
      • Corda 4.x (Feb 2019 – Jan 2020):
        • Corda 4.0 (Feb 2019): Introduced UTXO-based states and improved interoperability.
        • Corda 4.3 (Oct 2019): Enhanced firewall rules and identity management.
        • Corda Enterprise: Production-ready distributions supported by major banks, with proven deployments in trade finance (e.g., Marco Polo Network).
    • Quorum (2016+):
      • Quorum 2.0 (Sept 2018): Integrated Istanbul BFT (IBFT) for fast finality and Tessera for enhanced privacy.
      • Quorum 2.2 (May 2019): Upgraded private contract handling, RBAC refinements, and compatibility with Ethereum Developer tools (Truffle, Remix).
      • By early 2020, interbank payment pilots (e.g., Utility Settlement Coin experiments) leverage Quorum for near-real-time settlements.
  4. DeFi Explosion (2018 – 2020)
    • TVL Growth:
      • Jan 2019: Total Value Locked (TVL) in Ethereum DeFi ≈ $675 million.
      • Dec 2019: TVL reached ≈ $674 million.
      • Feb 2020: TVL surpassed $1.5 billion (per DefiPulse).
    • Key Protocols:
      • MakerDAO: Over $500 million locked as collateral in 01 2020; DAI stablecoin adoption grows in trading pairs and lending.
      • Compound Finance: Mainnet launched Sept 2018; COMP governance token launched June 2019, sparking “yield farming” mania in late 2019.
      • Uniswap: v1 launched Nov 2018; v2 launched May 2020. Uniswap v1’s growth in 2019 demonstrated viability of automated market makers (AMMs).
      • Synthetix, Aave, Balancer, Curve: All gained traction for synthetic assets, variable-rate lending, and stablecoin swaps.

3. Core Components and Architecture

By early 2020, regardless of public or permissioned implementation, these foundational building blocks remain consistent:

  1. Data Structures: Blocks and Chains
    • Block Header Fields:
      • previousBlockHash → Links to prior block.
      • MerkleRoot (Bitcoin) / StateRoot + TxnTrieRoot (Ethereum) → Summarize transactions and state.
      • timestamp → Unix epoch seconds.
      • nonce → PoW solution (Bitcoin: SHA-256d; Ethereum: Ethash) or irrelevant for PoS/BFT.
      • difficulty (Bitcoin) / mixHash (Ethereum) → Mining parameters.
    • Transaction Models:
      • Bitcoin (UTXO): Unspent outputs are spent atomically; encourages stateless verification; privacy improved via CoinJoin and Schnorr (Erlay research in 2019).
      • Ethereum (Account-Based): Global state of account balances and contract storage; storage is accessed via Merkle Patricia Tries.
    • Merkle Structures:
      • Bitcoin: Standard binary Merkle tree for inclusion proofs.
      • Ethereum: MPT (hexary Patricia Trie) for state (accounts, contract code, storage) and for transactions/receipts.
  2. Consensus Protocols (Public vs. Permissioned)
    • Proof of Work (PoW):
      • Bitcoin (SHA-256d): Block interval ~10 min; 2020 hash rate peaked above 115 EH/s.
      • Ethereum (Ethash): Memory-hard PoW with ~13–15 s block time; by early 2020, Eth2 testnets run Beacon Chain, but mainnet still PoW.
      • ASIC Developments: Ethereum ASIC mining hardware (e.g., Bitmain Antminer E3) released Aug 2018; ASIC resistance debates continue.
    • Proof of Stake (PoS) Research & Testnets:
      • Ethereum 2.0 Phase 0 (Beacon Chain):
        • Medalla (Aug 2019) → Multi-client testnet with staking contracts.
        • Topaz, Spadina (Q4 2019): Rehearsal testnets for Phase 0.
        • Early 2020: Final testnet “Zinken” launched Feb 2020; Beacon Chain mainnet now slated for mid-2020.
      • Alternate PoS Chains in 2019:
        • Tezos: Mainnet launched Sep 2018; ~71 bakers by early 2020, on-chain governance active.
        • Algorand: Mainnet launched Jun 2019 with Pure PoS; average block time ~4.5 s.
        • Polkadot: Substrate 1.0 alpha (Aug 2018); Kusama Canary network launched May 2019; Polkadot mainnet launch targeted mid-2020.
    • Byzantine Fault Tolerant (BFT) Variants (Permissioned):
      • Hyperledger Fabric:
        • Kafka Orderer (Fabric 1.x) → Crash fault tolerance only.
        • Raft Orderer (Fabric 1.4 / 2.0) → Leader-based consensus with high throughput; no need for external Kafka cluster.
      • Quorum IBFT: Istanbul BFT in Quorum 2.x providing deterministic finality (≤ 2 s latency).
      • R3 Corda Notaries: Pluggable consensus; many deployments use BFT-SMaRt for finality in small clusters.
  3. Networking Layer
    • Peer Discovery & Transport:
      • Bitcoin: DHT-based discovery; “seed” nodes bootstrap new peers.
      • Ethereum: devp2p “discovery v4” over UDP; stable since 2017.
      • Discovery v5 Proposal: In progress through early 2020; spec complete but not yet widely implemented.
    • Gossip Protocols & Propagation:
      • Transaction/Block Gossip:
        • Bitcoin: TX relay networks (e.g., FIBRE) for faster propagation.
        • Ethereum: devp2p “eth” subprotocol; “fast sync” and “snap sync” modes in Geth (introduced late 2019) speed up node sync.
      • Metrics:
        • Bitcoin Node Bandwidth: ~60 GB/month per full node.
        • Ethereum Node Bandwidth: ~250 GB/month (including continuous state downloads in full archival mode).
  4. Storage and State Management
    • Bitcoin:
      • Blockchain Size (Mar 2020): ~280 GB.
      • UTXO Database: LevelDB storing ~60 million UTXOs.
      • Pruned Nodes: Less than 10 GB but cannot serve historical blocks.
    • Ethereum:
      • State Database: ~1.2 TB for archival nodes; ~250 GB for full (non-archive) nodes with pruning.
      • Snapshot Sync (Geth v1.9+, late 2019): Greatly reduces initial sync time by downloading state snapshots over hundreds of peers in parallel.
      • Pruning: “Fast sync” (skips historical state) vs. “archive” (stores all state). Archive nodes exceed 5 TB by early 2020.
    • Permissioned Ledgers:
      • Fabric: World state in CouchDB (JSON document store) or LevelDB; block files on local disk.
      • Corda: Vault stored in relational DB (H2/Postgres/Oracle); on-ledger flows only store necessary states to counterparties.
      • Quorum: Vote and contract data on Ethereum fork with private state via Tessera.

4. Cryptographic Foundations

Blockchains circa early 2020 rely on a standardized set of cryptographic primitives:

  1. Hash Functions (SHA-256, Keccak-256 / SHA-3)
    • Bitcoin (SHA-256d): Double SHA-256 hashing secures PoW and transaction Merkle trees.
    • Ethereum (Keccak-256): “SHA-3” in Ethereum parlance; used for address derivation, block hashing, and Merkle Patricia Tries.
    • Proofs:
      • Merkle Proofs: Allow inclusion checks in O(log n) time. Widely used in Light Clients (Bitcoin SPV, Ethereum “eth_getProof”).
      • Sparse Merkle Trees & Verkle Trees (Under Research): Proposed to reduce proof sizes for account/state verification in Eth 2.0.
  2. Digital Signatures (ECDSA on secp256k1, Ed25519, Schnorr)
    • ECDSA (secp256k1):
      • Standard in Bitcoin/Ethereum transactions.
      • Ethereum uses (r, s, v) format with EIP-155 chain-ID protection (introduced late 2016).
    • Ed25519 / EdDSA:
      • Used by newer chains: Algorand (Mainnet June 2019), Cardano (Shelley testnet Nov 2019).
      • Faster batch verification and smaller key sizes (32 bytes public, 64 bytes signature) compared to ECDSA.
    • Schnorr/Taproot (Bitcoin):
      • BIP-340 (Schnorr signatures) and BIP-341 (Taproot) were in review as of early 2020; anticipated activation via version bits around Q4 2020.
    • Key Management:
      • HD Wallets (BIP-32/44/49/84): Derive many keys from one seed phrase.
      • Hardware Wallets: Ledger Nano S/X, Trezor One/Model T dominant; improved UX across 2019.
      • Smart Contract–Based Wallets: Gnosis Safe (launched Dec 2018) supports multisig and modular security.
  3. PKI vs. Blockchain Identity
    • Public Chains (Pseudonymous): Addresses (hex strings) represent identity; KYC processes (e.g., centralized exchanges) map addresses to real-world IDs off-chain.
    • Permissioned Chains (PKI Integration):
      • Fabric MSP (Membership Service Provider): Manages X.509 certificates; Fabric CA issues node/client certs.
      • Corda Network Map & TLS Certificates: Nodes register with network map and use TLS client auth for P2P messaging.
    • Decentralized Identity (DID):
      • Hyperledger Indy (launched late 2017): Projects like uPort (since 2018) and Sovrin Foundation run test pilots for self-sovereign identity (SSI) in government and education sectors.
      • W3C DID Spec (July 2019): Standardizes decentralized identifiers; early adopters include SpruceID, Veramo.

5. Common Use Cases and Applications (Early 2020)

While cryptocurrency payments remain the most mature public-chain use case, multiple verticals show active adoption as of March 2020:

  1. Cryptocurrency & Payments
    • Bitcoin:
      • Ongoing adoption as digital “store of value.”
      • Lightning Network:
        • Mainnet early beta launched Mar 2018; by early 2020, multiple wallets (Breez, Phoenix, Zap) and major exchanges (Bitfinex, Kraken) support Lightning inbound/outbound channels.
        • Around 10,000 active payment channels, ~1,200 BTC capacity locked.
      • Custodial vs. Noncustodial Solutions:
        • Multi-sig custodial wallets (Blockstream Green, Casa) reduce single point of failure.
        • Native Lightning custody solutions (Bolt Labs) under active development.
    • Ethereum:
      • Stablecoins:
        • DAI (MakerDAO) ~$600 million circulating by Feb 2020; USDC (Circle/Coinbase) >$500 million.
        • Tether (USDT) on ERC-20 ~$3 billion.
      • Payment Pipelines & Bridges:
        • ERC-20↔ERC-20 “fast withdrawals” via sidechains (e.g., xDai).
        • Wrapped Bitcoin (wBTC) ~$100 million by Feb 2020.
  2. Decentralized Finance (DeFi)
    • Total Value Locked (TVL):
      • Jan 2019: ≈ $675 million.
      • Mar 2020: ≈ $1.5 billion.
    • Major Protocols:
      • MakerDAO: Over $500 million locked by early 2020; DAI stablecoin widely used for collateralized debt positions.
      • Compound Finance: COMP governance token airdropped June 2019, triggering “yield farming” mania. By Mar 2020, >$600 million locked.
      • Uniswap:
        • v1 launched Nov 2018; v2 launched May 2020 (postdating this post).
        • By Mar 2020, Uniswap v1 facilitates ~$20 million daily volume, with ~$10 million liquidity.
      • Synthetix: Synth issuance (sBTC, sETH) grows from $15 million in Jan 2019 to $150 million in Mar 2020.
      • Aave (ex-EthLend): Rebranded Jan 2020; supports flash loans.
    • Risks & Security:
      • Smart Contract Audits: Firms like ConsenSys Diligence, Trail of Bits, OpenZeppelin lead industry.
      • Protocol Exploits: Multiple flash loan attacks in 2019 (bZx, Harvest Finance early 2020). Best practices include time-weighted average price oracles and reentrancy guards.
    • Onboarding & UX:
      • Web 3 wallets (MetaMask) remain primary UI; aggregated DEX front ends (e.g., 1inch) streamline user experience, but gas costs on Ethereum average $3–$5 per transaction as of Mar 2020.
  3. Supply Chain & Provenance
    • Hyperledger Fabric Use Cases:
      • IBM Food Trust (Late 2018 – 2020):
        • Walmart, Nestlé, and Carrefour expanded traceability pilots. By early 2020, >40 participants share digital supply-chain data (produce, meat, dairy).
      • TradeLens (IBM & Maersk, Launched Aug 2018):
        • Over 100 participants (carriers, ports, customs) live on TradeLens by Mar 2020, sharing shipping events on a permissioned Fabric network.
      • MediLedger (Pharma, Aug 2018):
        • Walmart and Pfizer pilot track-and-trace for prescription drugs on a private Fabric network to comply with US DSCSA (Dec 2018).
    • R3 Corda Use Cases:
      • Marco Polo Network (Trade Finance, Jun 2019):
        • Over 12 banks collaborate on CartaBanca, using Corda to digitize Letters of Credit workflows.
      • B3i (Insurance, Launched 2016):
        • POC for reinsurance data sharing; by early 2020, moving toward production.
    • Quorum Use Cases:
      • JP Morgan Interbank Information Network (IIN, Launched May 2017):
        • Over 100 global banks collaborate on KYC and payments on a Quorum network.
      • Utility Settlement Coin (USC, Pilots in 2019):
        • Consortium led by UBS tests tokenized fiat settlements on Quorum; by early 2020, regulatory conversations intensify.
  4. Identity Management & KYC/AML
    • Hyperledger Indy (Late 2017+):
      • Multiple pilots for self-sovereign identity (SSI) in government (Estonian e-ID integration, mid 2019) and higher education (academic credential issuance).
    • uPort & Civic (2017 – 2019):
      • uPort client apps (iOS/Android) allow users to own and share verifiable credentials.
      • Civic’s Identity.com marketplace sees partnerships with exchanges like Binance for KYC.
    • W3C DID & Verifiable Credentials (July 2019):
      • Standardizes decentralized identifiers and credential schemas. Early adopters include Sovrin, SpruceID, Microsoft ION (launched June 2019 on Bitcoin).
  5. Tokenization of Assets & NFTs
    • Security Token Offerings (STOs):
      • Polymath v3 (Launched Mar 2019): Modular framework for compliant token issuance.
      • tZero (Launched Dec 2018): Trading platform for security tokens, backed by Overstock.
      • Harbor (Acquired by BitGo Nov 2019):
        • Focus on tokenized real estate; spholding fallback.
    • Non-Fungible Tokens (NFTs):
      • OpenSea (Founded Feb 2018): By Mar 2020, >$10 million monthly NFT volume; primary marketplace for CryptoKitties, Decentraland parcels, and testnet collectibles.
      • Rarible (Alpha Jun 2019): Community-owned NFT marketplace, launched governance token RARI Jan 2020.
      • NBA Top Shot (Beta Jan 2020): Dapper Labs’ NBA highlight collectibles on Flow testnet; closed beta with waiting list.
  6. Enterprise Permissioned Use Cases
    • Trade Finance & Supply Chain:
      • Voltron (Launched Oct 2018): Bank-of-America-led consortium uses Corda for L/C tracking; by early 2020, >20 banks participate.
      • SYNCChaos (Maritime Logistics, Q4 2019): Maersk & IBM’s TradeLens expands to >90 organizations by early 2020.
    • Interbank Settlements & Wholesale CBDCs:
      • Project Ubin (Singapore MAS, 2016 – 2020): Multiple phases exploring tokenized SGD and interbank settlement chains; Phase 5 (Jan 2020) trials atomic cross-chain swaps.
      • Jasper (Canada DC Pilot, 2016 – 2019): Bank of Canada & R3 test interbank settlement in a permissioned network; final report (Dec 2019) informs wholesale CBDC research.
    • Decentralized Energy & IoT:
      • Grid+ (Launched Beta May 2019): Ethereum-based microgrid platform for direct peer-to-peer energy trading; >500 residential customers in Texas pilot by early 2020.
      • IOTA (Tangle, 2015 – 2020): Directed Acyclic Graph (DAG) protocol for IoT data integrity; by 2020, IOTA focuses on Coordicide research for decentralization.

6. Conclusion and Next Steps

As of March 1, 2020, blockchain stands at an inflection point. Following the DeFi surge of late 2019 and early 2020, the ecosystem focuses on: