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ETHEREUM: A SECURE DECENTRALISED GENERALISED TRANSACTION LEDGER BERLIN VERSION 2 the Namecoin project which aims to provide a decentralised name-resolution system. Other projects still aim to build upon the Bitcoin net- work itself, leveraging the large amount of value placed in the system and the vast amount of computation that goes into the consensus mechanism. The Mastercoin project, first proposed by Willett [2013], aims to build a richer protocol involving many additional high-level features on top of the Bitcoin protocol through utilisation of a number of auxiliary parts to the core protocol. The Coloured Coins project, proposed by Rosenfeld et al. [2012], takes a similar but more simplified strategy, embellishing the rules of a transaction in order to break the fungibility of Bitcoin’s base currency and allow the creation and tracking of tokens through a special “chroma-wallet”-protocol-aware piece of software. Additional work has been done in the area with discard- ing the decentralisation foundation; Ripple, discussed by Boutellier and Heinzen [2014], has sought to create a “fed- erated” system for currency exchange, effectively creating a new financial clearing system. It has demonstrated that high efficiency gains can be made if the decentralisation premise is discarded. Early work on smart contracts has been done by Szabo [1997] and Miller [1997]. Around the 1990s it became clear that algorithmic enforcement of agreements could become a significant force in human cooperation. Though no specific system was proposed to implement such a system, it was proposed that the future of law would be heavily affected by such systems. In this light, Ethereum may be seen as a general implementation of such a crypto-law system. For a list of terms used in this paper, refer to Appen- dix A. 2. The Blockchain Paradigm Ethereum, taken as a whole, can be viewed as a transaction-based state machine: we begin with a gen- esis state and incrementally execute transactions to morph it into some current state. It is this current state which we accept as the canonical “version” of the world of Ethereum. The state can include such information as account bal- ances, reputations, trust arrangements, data pertaining to information of the physical world; in short, anything that can currently be represented by a computer is admis- sible. Transactions thus represent a valid arc between two states; the ‘valid’ part is important—there exist far more invalid state changes than valid state changes. Invalid state changes might, e.g., be things such as reducing an account balance without an equal and opposite increase elsewhere. A valid state transition is one which comes about through a transaction. Formally: (1) σt+1 ≡Υ(σt,T) where Υ is the Ethereum state transition function. In Ethereum, Υ, together with σ are considerably more pow- erful than any existing comparable system; Υ allows com- ponents to carry out arbitrary computation, while σ allows components to store arbitrary state between transactions. Transactions are collated into blocks; blocks are chained together using a cryptographic hash as a means of refer- ence. Blocks function as a journal, recording a series of transactions together with the previous block and an iden- tifier for the final state (though do not store the final state itself—that would be far too big). They also punctuate the transaction series with incentives for nodes to mine. This incentivisation takes place as a state-transition function, adding value to a nominated account. Mining is the process of dedicating effort (working) to bolster one series of transactions (a block) over any other potential competitor block. It is achieved thanks to a cryptographically secure proof. This scheme is known as a proof-of-work and is discussed in detail in section 11.5. Formally, we expand to: (2) σt+1 ≡ (3)B≡ Π(σt,B) (..., (T0 , T1 , ...), ...) Ω(B, Υ(Υ(σ, T0), T1)...) (4) Π(σ,B) ≡ Where Ω is the block-finalisation state transition func- tion (a function that rewards a nominated party); B is this block, which includes a series of transactions amongst some other components; and Π is the block-level state-transition function. This is the basis of the blockchain paradigm, a model that forms the backbone of not only Ethereum, but all decentralised consensus-based transaction systems to date. 2.1. Value. In order to incentivise computation within the network, there needs to be an agreed method for transmit- ting value. To address this issue, Ethereum has an intrinsic currency, Ether, known also as ETH and sometimes referred to by the Old English ̄D. The smallest subdenomination of Ether, and thus the one in which all integer values of the currency are counted, is the Wei. One Ether is defined as being 1018 Wei. There exist other subdenominations of Ether: Multiplier Name 100 Wei 1012 Szabo 1015 Finney 1018 Ether Throughout the present work, any reference to value, in the context of Ether, currency, a balance or a payment, should be assumed to be counted in Wei. 2.2. Which History? Since the system is decentralised and all parties have an opportunity to create a new block on some older pre-existing block, the resultant structure is necessarily a tree of blocks. In order to form a consensus as to which path, from root (the genesis block) to leaf (the block containing the most recent transactions) through this tree structure, known as the blockchain, there must be an agreed-upon scheme. If there is ever a disagreement between nodes as to which root-to-leaf path down the block tree is the ‘best’ blockchain, then a fork occurs. This would mean that past a given point in time (block), multiple states of the system may coexist: some nodes be- lieving one block to contain the canonical transactions, other nodes believing some other block to be canonical, potentially containing radically different or incompatible transactions. This is to be avoided at all costs as the un- certainty that would ensue would likely kill all confidence in the entire system. The scheme we use in order to generate consensus is a simplified version of the GHOST protocol introduced by Sompolinsky and Zohar [2013]. This process is described in detail in section 10.PDF Image | ETHEREUM: A SECURE DECENTRALISED GENERALISED TRANSACTION
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