Nervos




ASIC-Resistance describes the ability of a blockchain's mining algorithm to resist implementation of specialized hardware called ASICs (Application-Specific Integrated Circuits). ASICs are specifically designed to perform a single task, in this case mining cryptocurrency, and are orders of magnitude more efficient than general-purpose hardware like CPUs or GPUs.

## What is ASIC-Resistance?
The concept of ASIC resistance emerged as a way to maintain a level playing field in mining, where smaller players with consumer-grade hardware could still participate and be rewarded for their contributions to the network. The theory was- by designing a mining algorithm that was difficult to implement in ASICs, the network would be made more decentralized and resistant to centralization by well capitalized, large miners.

One approach to achieving ASIC-resistance is through the use of memory hard functions. These functions require large amounts of memory to be available to the mining hardware in order to perform the calculations required to mine a block. This significantly increases the R&D and manufacturing costs of an ASIC, compared to one that has a purely computational task (like a hash function).

The mining algorithm used to mine Ethereum from 2015 to 2022, Ethash, is an example of a memory hard function. It required a large amount of data to be read from memory, and this requirement would increase over time, making older hardware impossible to use to mine the chain. 

Similarly, the Grin blockchain employs a memory hard function called Cuckoo Cycle. This algorithm requires miners to find cycles in a large directed graph, which requires a large amount of memory and high-speed memory access.



## Is ASIC-Resistance possible?

Over time, developers realized that achieving true ASIC-resistance was a difficult task, as ASICs can be designed to mine any algorithm, given enough resources and time. As a result, many proof-of-work blockchains that once claimed to be ASIC-resistant have since been overtaken by ASICs, leading to concerns about centralization and control by a few large mining operations. 

The first Ethereum ASIC's took years to produce, but over time grew to comprise 50% of the hash rate of the network. After Ethereum's merge, these ASIC's had no choice but to move to another chain secured by Ethash, Ethereum Classic. It is now unprofitable to mine Etheruem Classic with anything but an ASIC.

To combat this, some blockchains have opted to hard fork their protocol in order to change the mining algorithm and render existing ASICs obsolete. This is often done in an effort to restore a level playing field and prevent a small group of miners from controlling the majority of the network's hash power. However, hard forking is not always an easy decision to make, as it can be disruptive to the network and its users, and may require significant effort to ensure a smooth transition.



## Conclusion

It's important to note that while memory hard functions can make it more difficult for ASICs to be developed to mine a blockchain, this strategy is not foolproof. ASIC manufacturers may still be able to develop specialized hardware that is optimized for mining these functions.

As a result, hard forks are required to keep ASIC's off the network. These hard forks create concentrations of power (in the decision making process) and require immense coordination in the ecosystem to implement. 

This kind of hard fork can also undermine important stakeholders in a blockchain's community, as miners and mining hardware manufacturers invest signficant sums in equipment that can not be re-purposed to mine another chain. A hard fork may be in the interest of some community members, but creating a large sunk cost for key stakeholders may not be in the interest of the chain overall.


ASIC-Resistance, is it possible?



Payment channels are a unique solution to the scalability problems decentralized blockchains face; they allow for faster and more efficient transactions.

## What are Payment Channels?

Payment channels are a type of off-chain solution for blockchain systems. They allow for the creation of a private payment channel between two parties, which can be used to conduct a series of transactions off the main blockchain. Payment channels are created by locking funds in a smart contract, which is then used to conduct the transactions.

Payment channels are different from on-chain transactions, which are recorded directly on the blockchain. With payment channels, the transactions are recorded off the blockchain, and the final state of the transactions is recorded on the blockchain only when the channel is closed. This allows for faster and more efficient transactions, as they do not need to be validated by the entire blockchain network.

## How do Payment Channels work?

Payment channels work by creating a smart contract on the blockchain that holds the funds of the two parties involved in the transaction. The transactions inside the channel are signed by both parties and can be conducted instantly, without needing to wait for a transaction to be validated on the main blockchain.

The smart contract is designed in such a way that the final state of the transactions can be recorded on the main blockchain at any time. This is done by closing the payment channel, which triggers the final settlement of the transactions on the blockchain. This final settlement is done by broadcasting the last transaction to the blockchain, which records the final state of the payment channel. 



## Keeping Things Secure Off-Chain

Payment channels utilize the security of the blockchain while conducting transactions off-chain. This is done through use of a "challenge period" in which the settlement is not finalized, to account for the case that both parties do not agree on the final state of the channel. Funds are locked for an additional amount of time to allow for a counterparty in the channel to submit a dispute transaction, showing a newer agreed transaction.

Some payment channel designs impose penalties on a channel participant for closing the channel with an older transaction.



## What are the advantages of Payment Channels?

Payment channels offer several advantages over traditional on-chain transactions. Some of these advantages include:

1. Faster and more efficient transactions: Payment channels allow for instant transactions, without needing to wait for the transaction to be validated on the main blockchain. This makes transactions faster and more efficient, especially for micropayments.
2. Lower fees: Since payment channels are conducted off the main blockchain, the fees for each transaction are significantly lower. This makes payment channels more cost-effective, especially for small transactions.
3. More private transactions: Payment channels are designed to be private, as the transactions are conducted off the main blockchain. This makes payment channels more secure and less vulnerable to attacks, such as double-spending.
4. Scalability: Payment channels allow for a higher throughput of transactions, as they do not need to be validated by the entire blockchain network. This makes payment channels a scalable solution for blockchain systems.



## Conclusion

Payment channels are a promising solution to the scalability issues of blockchain systems. They offer faster and more efficient transactions, lower fees, more private transactions, and scalability. While rollups have garnered significant interest as the path for scaling blockchains, payment channels offer an unmatched answer to the challenge of the blockchain trilemma and are likely to become an increasingly important part of the blockchain ecosystem. Bitcoin's Lightning Network is the best example of payment channels in use today.


What are Payment Channels?


![alt_text](images/image1.png "image_tooltip")



### What is the Blockchain Trilemma?

The Blockchain Trilemma is a theory, proposed by Ethereum founder Vitalik Buterin, stating that blockchain networks can’t be secure, decentralized, and scalable all at the same time.

This trilemma arises because increasing a blockchain's transaction processing speed and capacity typically requires more computing power and network bandwidth, making it more expensive and difficult for nodes to operate. This can lead to fewer nodes on the network, making it more centralized and potentially compromising its security and decentralization.

Therefore, the trilemma highlights the trade-offs that all blockchains encounter when trying to scale and the challenges of achieving a truly decentralized and scalable blockchain.


## Decentralization in Blockchain

Decentralization is a critical aspect of blockchains because it ensures that the network is not controlled by any single entity or group of entities. In a decentralized network, all participants have equal power to validate and verify transactions, making the network more resistant to attacks, capture, and censorship.

![alt_text](images/image2.png "image_tooltip")


_The comparison between centralized network (left) vs. decentralized network (right)._

Because decentralized blockchains have no single points of failure, they're significantly harder to attack and compromise than centralized systems. By eliminating the need for intermediaries or trusted third parties, blockchains sacrifice efficiency for security and other qualities like censorship resistance and permisionlessness. In other words, sufficient decentralization makes it impossible for the network’s participants to collude and tamper with or compromise the blockchain. 


## Security in Blockchain

Blockchain security is directly and proportionally tied to decentralization. The more decentralized a blockchain is, the more secure it becomes.

Security in this context refers to the blockchain’s ability to resist different types of attacks without experiencing any downtime. In Proof-of-Work blockchains, security is typically measured by the network’s cumulative hash rate, where a higher and more equally distributed hash rate implies greater security. On the other hand, the security of Proof-of-Stake-based blockchains is typically measured (among other thighs) by the cumulative staked amount and its distribution. 

For example, suppose a single miner or a validator controls more than half of a network’s hash rate or staked amount. In that case, they can relatively easily compromise the blockchain by executing a 51% attack or attempting to censor transactions.

Another essential security feature of blockchains is the underlying cryptography used to secure them. Every blockchain network utilizes cryptographic functions to encrypt and secure data. If the underlying cryptographic primitives or encryption mechanisms are easy to break, so will the blockchain. For example, Bitcoin heavily relies on the SHA256 hashing algorithm for its encryption. If one day someone manages to break this algorithm, either by finding its key or brute forcing the algorithm using a quantum computer, then Bitcoin’s security will be destroyed.


## Scalability in Blockchain

Scalability, in the context of blockchains, refers to the ability of a blockchain network to handle a growing volume of transactions while maintaining reasonable transaction processing times and costs. The more scalable a blockchain is, the better equipped it is to accommodate higher transaction throughput without compromising decentralization or security.

There are several approaches to scaling blockchains, each with its own trade-offs. For instance, on-chain scaling involves either increasing the block size, decreasing the block time, or both. Larger blocks can accommodate more transactions, while shorter block times allow for quicker confirmation of transactions. However, increasing the block size and decreasing the block time can result in a more centralized network, as these changes may require more powerful hardware to validate and propagate blocks, potentially excluding some nodes from participating in the consensus process.

To scale sensibly, blockchains must balance several factors, including security, decentralization, and performance. Increasing scalability often requires sacrificing one of these aspects. For example, larger blocks can increase throughput but lead to greater centralization, as fewer nodes have the resources to store and process the entire blockchain. This means that on-chain scaling is an inherently limited approach, which is why ever more blockchains are adopting off-chain scaling through layered architectures.

Off-chain scaling means moving some transactions off the main blockchain to secondary layers or sidechains. Examples of off-chain scaling solutions include Layer 2 networks like state channels and rollups, and sidechains with their own consensus mechanism and security properties. Off-chain scaling can significantly improve transaction throughput but may introduce additional complexity and potential security risks to the system.

Another less popular scaling solution is sharding, which involves splitting the blockchain into smaller, parallel chains called shards. Each shard processes a subset of the total transactions, thus increasing overall throughput. Sharding can be complex to implement and may introduce new attack vectors.


## Finding Solutions to the Blockchain Trilemma

There are different proposals to solve the blockchain trilemma. For example, some newer blockchain projects utilize modified versions of the Proof-of-Stake consensus mechanism, like Delegated Proof-of-Stake or Proof-of-Authority, where they sacrifice a certain amount of decentralization to improve scalability. 

For example, instead of allowing unlimited nodes to validate transactions, they limit the number of nodes to only 100 or fewer. These nodes can run much more powerful and expensive hardware, expanding the network's processing power, but also increasing the network's dependency on a small set of validators that can be more easily attacked and compromised.

Other popular solutions include the previously mentioned Layer 2 networks like state channels and rollups. These solutions allow blockchains to offload a significant portion of the transaction processing to separate networks built on top of them. Since Layer 2 networks are fully dependent on the underlying Layer 1 blockchain for their security and decentralization, they're often seen as one of the most promising solutions to the Blockchain Trilemma.

Read the detailed explanation on [Layer 1 vs. Layer 2](https://www.nervos.org/knowledge-base/layer_1_vs_layer_2) to understand how both of them work.


## How Nervos Solved the Blockchain Trilemma

![alt_text](images/image3.png "image_tooltip")


_Nervos’ multi-layer model illustrated_

Nervos utilizes a multi-layer blockchain model. Nervos Layer 1 blockchain, called the [Common Knowledge Base](https://medium.com/nervosnetwork/nervos-ckb-in-a-nutshell-7a4ac8f99e0e), utilizes the Proof-of-Work consensus mechanism, which remains the most battle-tested consensus mechanism when it comes to decentralization and blockchain security. Meanwhile, there are two Nervos Layer 2 blockchains; they are called AXON and [Godwoken](https://godwoken.com), where AXON is a sidechain and Godwoken is an Optimistic Rollup. Both AXON and Godwoken utilize Common Knowledge Base for their security and decentralization.

By using a multi-layer model like this, the idea is to improve scalability in the Nervos ecosystem while still able to maintain a good level of blockchain decentralization and security.

Read more about [how Nervos multi-layer model is designed from the ground up to solve blockchain trilemma](https://medium.com/nervosnetwork/how-to-move-beyond-blockchains-trilemma-6a10ae034e9f)**.**


Blockchain Trilemma: The Ultimate Guide



![alt_text](images/image5.png "image_tooltip")



## What Is a Hash Function?

Hash functions are mathematical functions that take an input of any length and transform it into a fixed-length character string. They’re a staple encryption tool in cryptography, used by many everyday digital systems, including messaging, banking applications, and cryptocurrencies.

The key thing to understand about hash functions is that they are one-way functions, meaning that their input cannot be reverse-engineered from their output, making them very simple but reliable encryption tools.

Consider the following example:


![alt_text](images/image2.png "image_tooltip")


As the above example shows, running the “let’s learn blockchain” input through a hash function gives the following output: 77db72b12a7667ad73fd33544d1f397268dffe18ca3042e0a09af9f993a8f9c1. 

However, adding a single dot to the input, and rerunning it through the hash function, changes the output completely: 17368fcb5bab73c97aa60aa7ae9e54e6676d292743587b9a35ace927a626520a.



![alt_text](images/image3.png "image_tooltip")


This example is the best way to showcase hash functions’ power as encryption mechanisms. Even the slightest change in the input changes the output completely, meaning that it’s (almost) impossible to reverse-engineer and find out the original input simply by analyzing the output.


## Why are Hash Functions Useful?

Hash functions play a critical role in Bitcoin and Proof-of-Work mining. They are used to secure the integrity of the blockchain by ensuring that each block contains a unique, unalterable hash value based on the block's contents.

In Bitcoin mining, miners compete to find a hash value smaller than a target value set by the network. This is done by combining the block's header data with a nonce (a random number) and then running the resulting data through a hash function (SHA-256). The output of this hash function is a fixed-length string of numbers and letters unique to the block's contents. Miners must try many different nonces until they find one that results in a hash value smaller than the target value. Once a miner finds a suitable hash value, they broadcast it to the network as proof of work and are rewarded with newly minted bitcoins.

Hash functions are also used to link blocks together in the blockchain. Each block contains a hash of the previous block's header data, which creates a chain of blocks linked together in a tamper-evident way. Any attempt to alter the data in one block would result in a different hash value, which would be detected by the network and rejected as invalid.

Overall, hash functions are critical for the security and integrity of the Bitcoin network and Proof-of-Work mining. They ensure that each block contains unique and unalterable data and enable the creation of a tamper-evident chain of blocks that forms the basis of the blockchain.


## What are Some of the Most Common Hashing Algorithms?

While there are many different types of hashing algorithms, each with unique characteristics, used by individuals and businesses today, the most popular include Message Digest 5 (MD5), Secure Hash Algorithm 1 (SHA-1), Secure Hash Algorithm 2 (SHA-2), and Secure Hash Algorithm 3 (SHA-3).


### Message Digest 5 (MD5)

Message Digest 5 (MD5) is a cryptographic hash function that generates a fixed-size output of 128 bits, regardless of the size of the input message. It was developed by Ronald Rivest in 1991 and is widely used in digital signature applications, as well as for verifying the integrity of files.

MD5 takes an input message of any length and divides it into fixed blocks. Each block is then processed through a series of rounds, with each round using a different mathematical function to transform the input block. During each round, MD5 applies four basic operations to the input block: addition, bitwise logical operations, circular shifts, and modular addition. These operations are designed to scramble the input block in an irreversible way and produce a fixed-size output unique to the input message.

MD5 is considered a relatively fast and efficient hash function, but it is also known to have several weaknesses that make it vulnerable to attacks. For example, it is possible to create different input messages that produce the same MD5 output (known as a "collision") which makes it easier for attackers to create malicious files that appear to have the same integrity as legitimate files. Because of its vulnerabilities, MD5 is no longer recommended for use in new applications that require strong cryptographic security. Instead, more secure hash functions like SHA-256 or SHA-3 are recommended.


### Secure Hash Algorithm 1 (SHA-1)

Secure Hash Algorithm 1 (SHA-1) is a hash function that takes a random-length input and produces a 160-bit (20-byte) hash value called a message digest, typically represented as 40 hexadecimal digits. The U.S. [National Security Agency](https://en.wikipedia.org/wiki/National_Security_Agency) designed the algorithm in 1995, but the hash function has since been broken and replaced by more secure protocols.

SHA-1 transforms the user’s data by breaking the input into an ‘n’ number of parts; each size is 448 bits, then it adds 64 bits of padding to get a total of 512 bits. These 512 bits are sent through a compression function that outputs a final 160-bit hash value.



![alt_text](images/image4.png "image_tooltip")



### Secure Hash Algorithm (SHA-2)

Secure Hash Algorithm (SHA-2) is a family of cryptographic hash functions that includes SHA-224, SHA-256, SHA-384, and SHA-512. Like SHA-1, SHA-2 is designed by the National Security Agency (NSA) and is widely used in various security protocols and applications.

SHA-2 uses the same basic structure as SHA-1, but with longer input and output block sizes, which makes it more secure against brute-force attacks. SHA-224 and SHA-256 have a 32-bit word size, while SHA-384 and SHA-512 have a 64-bit word size.

SHA-2 operates by dividing the input message into blocks of a fixed size and then processing each block using a series of mathematical operations. The processing of each block involves a series of logical functions, such as AND, OR, and XOR, as well as modular addition and bit rotation operations.

The core of the SHA-2 algorithm is the compression function, which takes a message block and a set of variables called the message schedule and updates the variables to produce a new hash value. This compression function is iterated repeatedly until all of the message blocks have been processed, at which point the final hash value is produced.

SHA-2 is widely considered a secure and robust cryptographic hash function and is used in various applications such as digital signatures in blockchains (SHA-256), SSL/TLS, and file integrity checking. Many security researchers, however, believe that sooner or later, the world will migrate from SHA-256 to SHA-512 to ensure even greater security.


### Secure Hash Algorithm 3 (SHA-3)

Secure Hash Algorithm 3 (SHA-3) is the latest iteration in the Secure Hash Algorithm family of cryptographic hash functions, released in 2015 by the National Institute of Standards and Technology (NIST). It is based on a new design called the Keccak algorithm, which was selected from a public competition to develop a new hashing standard to replace SHA-2.

Like its predecessors, SHA-3 takes an input message of any length and produces a fixed-length output, or hash, of 224, 256, 384, or 512 bits. SHA-3 uses a sponge construction, meaning that the input message is absorbed into the algorithm's state, and then the state is squeezed to produce the output hash.

The sponge construction is based on a permutation function, a bijective mapping of the input bits to the output bits. The permutation function is applied repeatedly to the state, along with the input message, until the entire message has been absorbed. The remaining state is then squeezed to produce the output hash.

One of the main advantages of SHA-3 over SHA-2 is that it is resistant to length extension attacks, a type of attack where an attacker can append additional data to a hash without knowing the original input. SHA-3 also has a simpler design than SHA-2, which makes it easier to implement in hardware and software.

Overall, SHA-3 is considered a secure and efficient cryptographic hash function, and it is recommended for use in applications such as digital signatures, key derivation, and data integrity. For this reason, a popular hash function of the SHA-3 family, known as keccak-256, is used in several established blockchains today, including Ethereum. Nervos’ Layer 1 blockchain, [Common Knowledge Base (CKB)](https://medium.com/nervosnetwork/nervos-ckb-in-a-nutshell-7a4ac8f99e0e), uses a novel, SHA-3-inspired hashing algorithm called [Eaglesong](https://medium.com/nervosnetwork/the-proof-of-work-function-of-nervos-ckb-3cc8364464d9).


## Potential Vulnerabilities Linked to Hash Functions

While hash functions are generally secure and widely used in cryptography, they're not bulletproof. Namely, some potential vulnerabilities associated with them include: 



* **Collision attacks:** This type of attack occurs when an attacker can generate two inputs that produce the same hash output. This can allow an attacker to substitute one input for another, potentially leading to security vulnerabilities.
* **Length extension attacks:** In this type of attack, an attacker can append additional data to the end of a message without knowing the original message's contents. This can allow an attacker to create a fake message with a valid hash, making it appear as though the message is legitimate.
* **Preimage attacks:** A preimage attack occurs when an attacker can find an input that generates a specific hash output. This can allow an attacker to create a message that hashes to a known value, potentially leading to security vulnerabilities.
* **Birthday attacks:** In a birthday attack, an attacker exploits the birthday paradox to find two messages that hash to the same value. This type of attack is particularly effective against hash functions with smaller output sizes, such as MD5.
* **Side-channel attacks:** These do not directly target the hash function but instead exploit weaknesses in the implementation or environment in which the hash function is used. Side-channel attacks can include timing, power analysis, or electromagnetic attacks.

It's worth noting that many of these vulnerabilities are related to older or weaker hash functions, such as MD5 or SHA-1. More modern hash functions, such as SHA-256 or SHA-3, have been designed with these attack vectors in mind and are generally considered unbreakable.
