Ethereum: Advanced Concepts

Oracles

Blockchain creates an isolated system environment which is separated from the real world. Smart contracts can only passively receive the data into the chain but cannot actively obtain the data out of the chain. A large number of blockchain use cases are based on retrieving and storing real-time data: like location, temperature, price, quantity, quality etc. For this, we need specific services that can feed real-time data onto smart contracts. They are termed Oracles.

Oracle comprises an entire system that collects off-chain data, verifies it, and transmits it to smart contracts on the blockchain. An Oracle may consist of three elements.

Elements of a blockchain Oracle

The data source can be a sensor (measuring temperature, humidity, etc.), a Web Application Programming Interface (which provides access to data recorded in other off-chain applications like stock markets and crypto exchanges), manual data entry, etc. They are considered trusted data sources. The Oracle nodes (service) collect data from the data source, certify accuracy, and convey reliable data to the smart contract. It can be a node, a group of nodes or any trusted environment. A smart contract in the blockchain will have a code that governs the processing based on input data.

These three parts may not exist separately from each other. Oracles are classified based on these entities and their tasks.

Types of Oracles

• Data Source: Depending on the external data source, Oracles can be classified into hardware, software, and human. Hardware Oracles use specific devices like sensors and scanners to gather data. Software Oracles use programmed interfaces to collect data like schedules, price data and exchange rates. Human Oracles refer to the manual entry of data.

• Trust Model: The number of nodes in the Oracle network defines the trust model of an Oracle. A centralised Oracle may be depending on a single source, whereas a decentralized Oracle gathers data from multiple sources and reaches a decision based on a consensus mechanism. Provable and Town Crier are centralised Oracles. Chainlink is a decentralized Oracle which acquired Town Crier.

• Design Pattern: Oracles can be designed in 3 main patterns.

  • The request-reply setup where the smart contract initiates a request serviced by an off-chain element.
  • In a publish-subscribe design pattern, an Oracle keeps track of fluctuating data like market prices, temperature etc. Updated data will be broadcasted to its subscribers.
  • The immediate-read pattern is helpful in quick response scenarios like academic certificates or dial codes.

• Interactions with external data sources: Interactions can be classified as inbound or outbound. Inbound Oracles feed data from external sources to the blockchain (like reading input data from a sensor and storing it in the blockchain). In contrast, outbound Oracles allow smart contracts to deliver data to the external world (like sending a notification once a blockchain payment is received).

Oracle Implementation

The Oracle Problem

The consensus mechanism is responsible for the trustless data on the blockchain, which confirms their reliability. At the same time, Oracles skip the consensus mechanism and get the privilege of inserting arbitrary data on the blockchain. Since Oracles operate separately from the blockchain, they do not guarantee the decentralization, immutability and transparency of the blockchain environment.

Thus the inclusion of Oracles may make blockchain adoption risky for specific real-world scenarios. The centralisation of Oracles raises the Oracle Problem which brings the puzzle between efficiency and decentralization when Oracles fetch real-world events data from external data sources . As a solution Decentralized Oracle Network concept emerged. Chainlink is an example for this.

We can communicate with Oracle in two ways

• Reference Data Method
• Request Receive Method

First, we are going to familarize Reference Data Method. In this method, a smart contract present inside the blockchain will act as a reference point. This on-chain reference contract in blockchain, will get data updates from a program running outside the blockchain (off-chain). This off-chain program will collect information from an external API and populate the information into the on-chain reference contract.

Let us take a scenario in which a smart contract present needs to get real-time information regarding the price value of Ether in USD. The smart contract cannot directly interact with any API and hence it needs the help of Oracles. OracleV1 is the on-chain contract of Oracle. initOracle.js is the off-chain program.

// SPDX-License-Identifier: MIT
pragma solidity ^0.8.20;

contract OracleV1 {
    string public ethPrice;

    // function to set the price value
    function setPriceData(string memory _ethPrice) public {
        ethPrice = _ethPrice
    }
}

This contract will act as a reference point for other contracts in the blockchain to get Ether price in real-time.

The setPriceData is the function used to update the Ether value in USD, which is stored as a state variable ethPrice. Since ethPrice is declared as public by default, it acts like a getter function.

Save the below code in a file initOracle.js 'initOracle.js' is the offline program used to update the on-chain contract.

import 'dotenv/config'
import axios from 'axios'
import { abi, instance } from './app.js'
const timer = (ms) => new Promise((res) => setTimeout(res, ms))

initOracle()

async function initOracle() {
  while (true) {
    // axios to get a value from an API
    let data1 = await axios.get(
      'https://minapi.cryptocompare.com/data/pricefsym=ETH&tsyms=BTC,USD,EUR'
    )
    // store the value of ether in usd
    let usd = JSON.stringify(data1.data.USD)
    console.log('Read Data from truth point, USD rate is:', USD)

    //call the setPriceData to set the updated value
    let txnReceipt = await instance.setPriceData(usd)

    console.log(txnReceipt)
    console.log('Updated on-chain oracle contract')

    // to repeat the function on regular intervals
    await timer(30000)
  }
}

This off-chain program will get the Ether price data from API. Here, at regular intervals (as specified by timer), the initOracle function will call the API, get the Ether price, and store it in the OracleV1 contract using the setPriceData function. So now the value is present on the blockchain, in the OracleV1 contract. Now any other contract can get the value from the OracleV1 contract.

Contract Deployment

Here, first we need to deploy the OracleV1(on-chain contract) and then we can start the initOracle.js(off-chain program). The off-chain program will populate on-chain contract from API. If we have any other smart contract which needs to know the ether price, it can interact with OracleV1 contract to get the required data. Let us see an example.

CallOracle is a smart contract that wants to get the real-time Ether price data in USD. The CallOracle contract will get the help of the previous Oracle to get the price value.

// SPDX-License-Identifier: MIT
pragma solidity ^0.8.20;
import "./OracleV1.sol";

contract CallOracle {
    OracleV1 internal OracleV1Obj;

    //initialise the object to directly interact with contract
    constructor(address OracleV1Addr) {
        OracleV1Obj = OracleV1(OracleV1Addr);
    }

     //get the updated price value from the OracleV1 contract
    function getPriceData() public view returns (string memory) {
        return OracleV1Obj.ethPrice();
    }
}

For getting the data, this contract directly interact with OracleV1 contract by creating an object, OracleV1Obj, using the contract address of OracleV1 contract. Then it gets the Ether value directly from the ethPrice variable of the OracleV1 contract using OracleV1Obj.

Next, let us see the Request Receive method. Here also we have an on-chain contract (Oracle contract) and off-chain Oracle program. However, the off-chain program will update the Oracle contract only upon getting a request from the Oracle contract. When the Oracle contract gets a request from any other smart contract, it will emit an event. The off-chain program continuously listens for this event from Oracle contract. On receiving the event, it will get the data using an API and populate the on-chain contract.

// SPDX-License-Identifier: MIT
pragma solidity ^0.8.20;
contract OracleV2 {
    string public priceData;

    event PriceDataRequest();

    // event is emitted when another contract calls this function to make a request
    function requestPriceData() public {
       emit PriceDataRequest();
    }

    // updated value is stored
    function updatePriceData(string memory _priceData) public {
       priceData = _priceData;
    }
}

OracleV2 is the on-chain contract. Here, the Ether price is stored in the state variable priceData, which was declared public. An event PriceDataRequest is emitted when any contract calls requestPriceData() function.

updatePriceData() function is used to set a new value to the priceData.

Add the below code in a file eventOracle.js 'eventOracle.js' is the off-chain program that interacts with OracleV2 contract.

import 'dotenv/config'
import axios from 'axios'
import { instance, instance1 } from './instances.js'

eventOracleV1()

async function eventOracleV1() {
  console.log('Listening...')

  instance.on('PriceDataRequest', async (event) => {
    console.log('Event recived')
    let data1 = await axios.get(
      ' https://min-api.cryptocompare.com/data/price?fsym=ETH&tsyms=BTC,USD,EUR'
    )

    // get the value of ether in usd
    let usd = JSON.stringify(data1.data.USD)
    console.log('Read Data from truth point, USD rate is:', USD)

    // call the Oracle contract to update the value
    await instance1.updatePriceData(usd)
    console.log('Updated on-chain oracle contract')
  })
}

eventOracleV1() is the function that updates the on-chain contract. This off-chain program will continuously listen for the PriceDataRequest event emitted by the on-chain contract. Once it receives the call, it will get the Ether price value through API and update it to the OracleV2 contract using updatePriceData() function.

Here, the interacting contract has to make a request to the Oracle contract. When the request is received, the event will get emitted and the off-chain program will send the reply to Oracle contract.

Now let us code a smart contract to interact with our Oracle contract.

// SPDX-License-Identifier: MIT
pragma solidity ^0.8.20;

import "./OracleV2.sol";

contract CallOracle {
    OracleV2 internal OracleV2Obj;

    // create an object of OracleV2
    constructor(address OracleV2Addr) {
        OracleV2Obj = OracleV2(OracleV2Addr);
    }

    // making a request to OracleV2
    function requestUpdate() public {
        OracleV2Obj.requestPriceData();
    }

    // getting the updated value from OracleV2
    function getPriceData() public view returns (string memory) {
        return OracleV2Obj.priceData();
    }
}

CallOracle is another contract that needs to get Ether price data. For this, the contract has to create an object, OracleV2Obj, of the OracleV2 contract, using OracleV2's contract address as a parameter. Using this object, the CallOracle contract can invoke the priceData() function of the OracleV2 contract.

These are some of the ways in which smart contracts get real-time data. Oracles are an exciting feature that keeps smart contracts closer to the physical world. They have a wide range of applications in usecases involving the collection and monitoring of real-time data.

Layer 2

Ethereum is currently home to thousands of DApps and smart contracts. This number could have been much more extensive. The main factor which prevents DApps from choosing Ethereum is its low scalability. Researchers in the domain have come up with various ideas to solve the scalability issue. Some straight suggestions are: changing the consensus mechanism, optimizing data storage in a block, sharding and alternatives to blockchain storage structures such as DAG and so on. These solutions propose changes to the underlying blockchain infrastructure and protocols. They are termed Layer 1 or L1 solutions. However, changing the fundamentals of a currently live blockchain platform is both challenging and risky. It may give rise to compatibility issues that may cause network forks.

But in Ethereum, we do have the option to bring changes that do not affect the live blockchain layer. Ethereum has built a programmable base layer for deploying smart contracts and facilitating Ether transfers. It also supports creating applications on top of this base layer, which can help improve the scalability. Such solutions are termed Layer 2 or L2.

L2 is a collective term used to denote those protocols which try to push the majority of activities “off-chain” and report to a smart contract on-chain (L1) with a summary of its off-chain activity. Since L1 is freed from intensive computations and storage requirements, it helps improve the scalability.

Working Off-chain

Every time a transaction happens in L1, it should be broadcasted to all the nodes, verified by all of them and finally added in a block by a validator. The transaction will take a minimum of 12 seconds to get included in a block. If we had a smaller network with a different consensus mechanism, the transaction processing time could have been reduced.

Let us see an example.

In the Ethereum network, transactions from an account can only occur sequentially. Alice wishes to transfer some tokens to Bob, Carol, David and Elsa. She has to first transact with Bob, wait for it to be confirmed, next transact with Carol and so on. When she finishes the transactions, it will take approximately 48 seconds (assuming an optimal situation) or longer. Imagine we have a sidechain: A minor blockchain running alongside the leading Ethereum network. It will have its consensus mechanism and an independent ledger. In this sidechain, Alice can perform the same transactions, using its native assets (let’s say TKN) at a lower cost and faster pace.

How can Alice use the sidechain to perform the transactions?

• Alice will transfer a part of her assets to the sidechain using a bridge. The bridge is a two-way peg component that allows the transfer of assets back and forth between blockchains. Just like how you transfer money from your bank account to wallet applications like Paytm, Mobikwik etc. But this may take longer.
• Alice then initiates the transfer to Bob, Carol, David and Elsa on the sidechain. The nodes in the sidechain network process these transactions. Since it’s a shorter and faster chain, the transactions happen faster.
• Occasionally, the sidechain pushes a proof, which will be a comprehensive representation of a list of L2 transactions, onto the Ethereum chain. It can be a hash of headers of sidechain blocks, a Merkle proof and so on. Proofs are usually based on cryptographic algorithms. A simple example will beMerkle tree. Other techniques include Zero-Knowledge proofs, polynomial commitments etc. This will be done using a smart contract deployed on the mainchain. Anytime the state of the sidechain can be confirmed by referring to the proof on Ethereum.
• The users can transact on the sidechain without informing the main chain. If the users want to transfer the funds to the main chain, they use the bridge. Since chains are independent, assets are typically locked on one chain and minted(created) on another. They are burned(destroyed) and unlocked when they are transferred back.

Transaction processing in Ethereum vs a sidechain

An off-chain process will facilitate all the interactions between sidechain and Ethereum. This process will act as an intermediary by interacting with smart contracts on both chains.

L2 Scaling Solutions

The basic idea of L2 is to build a secondary framework which can handle transactions off-chain. The L2 does the transaction processing, whereas the state changes will be summarized and updated to L1. A fundamental requirement is L2 should preserve the security and risk models of L1. This also implies that, if in case, the L2 needs to be abandoned, users should be able to recover their state from L1. So, strictly speaking, the sidechain model we described cannot be counted as L2 scaling. Remember that sidechains are independent blockchains that work on their consensus mechanism and exist differently from the leading network. Nodes within the sidechain network are responsible for processing transactions, adding transactions to blocks, and maintaining consensus across the network. Note that security is the responsibility of the sidechain; it is not directly inherited from Ethereum.

Some popular sidechains are Polygon and Gnosis chain.

L2 and Ethereum

L2 options offer the advantage of smaller and faster networks alongside utilizing the security and decentralization of Ethereum. L2 applications try to reduce the workload of the main network. It will perform the major computations to itself (off-chain) and occasionally communicate with the main chain. It uses the decentralized security features offered by L1 as a guarantee. So main chain will continue to serve decentralization, security and data availability, whereas the L2 protocol will handle scalability. State channels, Rollups, and Plasma chains are well-known L2 solutions.

Rollup

Rollups offer a solution to perform transactions secured by blockchain at a lower cost. The basic idea strongly resembles the concept of shadow chains proposed by Vitalik Buterin in 2014. Rollup is an L2 scaling solution that extends the concept of sidechains. They help reduce the load of Ethereum by performing transaction executions on L2 (off-chain). Unlike the sidechain example which we discussed, rollups save certain data corresponding to each transaction on Ethereum. Rollups group transactions into batches, execute them off-chain and store some data related to each transaction on the main chain. Rollups execute transactions “off-chain” from the main network (L1), batch (“rollup”) these transactions into a single block, and then send that block to the L1 as a single transaction. In short, thousands of transactions can be processed off-chain and represented by submitting a single transaction to the main network. In this way, rollups can significantly increase the scalability and throughput of the underlying L1 blockchain.

Rollup Vs Sidechain

Sidechains are secondary blockchains which occasionally communicate with the main chain (L1). Sidechains have independent consensus mechanisms and protocols; thus, Ethereum cannot guarantee the security of a sidechain. Whereas a rollup relies on the security of the L1 blockchain. It will function properly as long as the Ethereum is live. All transactions are stored on the blockchain and executed off-chain by a central entity. Rollups group transactions into batches and compress them. It increases the throughput by reducing the size of each transaction and by removing the need for execution on L1. The verification part is done on the blockchain.

Working of Rollups

Let us see an example.

In the Ethereum network, transactions from an account can only occur sequentially. Alice wishes to transfer some tokens to Bob, Carol and David. She has to first transact with Bob, wait for it to be confirmed, next transact with Carol and so on. When she finishes the transactions, it will take approximately 36 seconds (assuming an optimal situation) or longer.

Rollups offer a solution to reduce the overall time and price to carry out these transactions by exempting Ethereum from doing the execution. To understand this concept, let’s review what happens when a user submits a transaction.

Ethereum maintains the state of the blockchain, which refers to the current balance held by each account (contract & user accounts), and current values assigned to the state variables in the contract. This data is represented using Merkle Patricia Tries, which are stored in Key-Value databases like LevelDB or CouchDB. A transaction is a request for state transition. When the transaction: Alice transfers 10 ETH to Bob is processed, Ethereum will check if Alice has enough amount to pay Bob, debits her account balance and credits Bob’s account. This will alter the data stored in the trie, which will generate a new root value.

Assume we have a rollup. Rollup will maintain a state that records the addresses and account states being handled by them. The state of a rollup is stored on the L1 chain by a rollup smart contract.

• Alice will submit all three transactions to the rollup. Each transaction will require a state change.
• The rollup will process the transactions into a batch (block). This will generate the new state root.
• The compressed set of transaction batch, previous state root and current state root will be sent to the smart contract.
• The rollup contract on the L1 checks if the previous state root in the batch matches its current state root. It will update the state root to the new value if it is a match.

Transaction processing in Ethereum vs a Rollup

Compression Techniques in Rollups

Many fields typical to an Ethereum transaction can be omitted or represented in a storage-efficient way in rollup transactions. For example, every Ethereum transaction has a nonce value, which is incremented for every subsequent transaction of the sender. However a rollup transaction does not require a nonce value since it can be computed from the previous state. Another example is the recipient’s address. In rollups, the address is replaced by an index value much smaller. Rollups try to replace data with computation wherever possible. They can reduce the overall size of a transaction to almost one-tenth of its Ethereum equivalent.

Cost reduction in Rollups

Batching multiple transactions together reduces overall transaction fees by spreading fixed costs over all transactions within a given batch. The L2 operators also apply some compression techniques to minimize the data posted to Ethereum. Rollups convey their state roots back to Ethereum using calldata for storage. After the recent Dencun upgrade, blobs in the consensus layer are another storage location that can be used for storing the proofs at a lower cost.

Securing Rollup transactions

Though Ethereum is not executing the rollup transactions, Ethereum guarantees the genuineness of the state updates. This approval is represented in the form of proof. Rollups prove their correctness to Ethereum using particular proofs that allow Ethereum to verify the transaction processing without actually executing the transactions. This is the unique factor which makes rollups different from a sidechain.

Types of Rollups

Rollups are categorized based on the nature of the proof.

Optimistic rollups such as Arbitrum and Optimism are based on fraud proofs. They follow an optimistic perspective and assume that transactions are valid unless someone challenges them. They post the updated state to Ethereum without posting any proof. Anyone can post a batch of transactions. To challenge it, one should execute the same transactions and submit a proof of incorrect computation called fraud-proof on the rollup smart contract. The contract will verify this. If incorrect computation is detected, that batch of transactions and subsequent batches will be reverted. The contract maintains a history of previous state root upgrades and the corresponding batch hashes. An incentive mechanism rewards the participating entities so that they are tempted to produce correct claims and challenge incorrect claims.

ZK-Rollups (Zero-Knowledge) submits a validity proof along with every batch of transactions. The validity proof is a cryptographic proof which proves the new root has been computed correctly from the submitted batch of transactions. This proof is checked by the contract. ZK-proof represents the mathematical certainty that whatever is posted on L1 is valid and occurred on the rollup. If the proof evaluates to true, the transaction can be considered final. StarkWare and zkSync are working on ZK-rollups in Ethereum.

Optimistic rollups are less expensive and suitable for general-purpose computations. Generally optimistic rollups are EVM-compatible. However, they have limited throughput. Though the proof computation is technically challenging and costly, ZK-rollups offer better data compression and faster finality. This makes ZK-rollups fit for financial applications. EVM compatibility of ZK-rollups is an active research area.

The proofs ensure that even if the validators/operators of the rollup act fraudulently, they cannot steal any funds since the ultimate security guarantees are derived from Ethereum.

Zero Knowledge Proof

Zero-Knowledge proofs fully convince that a statement is true without yielding additional knowledge.

“A Zero-Knowledge protocol is a method by which one party (the prover) can prove to another party (the verifier) that a statement is true, without revealing any information apart from the fact that this specific statement is true”. [Ref]

Zero-Knowledge proofs must satisfy three properties:

• Completeness: An honest prover can convince an honest verifier if the statement is true.
• Soundness: If the statement is false, there should not be a way by which a dishonest prover may convince an honest verifier.
• Zero-Knowledge: If the statement is true, the verification process will not reveal anything beyond the fact that the statement is true.

Types of ZK Proofs

ZK-Proofs are broadly classified into interactive and non-interactive proofs.

Interactive zero-knowledge proofs require the prover and verifier to engage in a two-way conversation. The verifier might be asking the prover some questions, and based on the prover’s response to the questions, the verifier may be able to confirm or reject the prover’s statement. This requires the verifier and prover to be available at the same time. If another verifier needs to be convinced, a new set of interactions is required between the new verifier and the prover. So the proof cannot be re-used to prove the same statement to others. So interactive proofs are inefficient when a prover needs to convince multiple verifiers (for example, in a distributed system like blockchain). We have a non-interactive version of ZK- proofs to deal with such issues.

In the case of non-interactive zero-knowledge proofs, the prover sends a single message to the verifier, who can then check the statement’s validity without further communication from the prover. So the prover sends out one proof that anyone with access to the verification algorithm can verify. This proof should be trustworthy, available to the public, and infeasible to be misused.

Zero-Knowledge and Ethereum

Privacy is a significant concern in the blockchain domain. As we try to include transparency and decentralization by distributing the data, it is unsuitable for domains with strict privacy concerns. ZK-proofs can help overcome this problem.

Transactions in a public blockchain are recorded in an open ledger. Though users are pseudonymous, they may not be able to remain anonymous. Transparency is also required since all the nodes should verify the transactions. But using ZK-proofs, nodes may be able to verify transactions without getting access to the details of the sender/receiver, amount or token involved.

In public blockchains like Ethereum, Layer-2 solutions like rollups use zero-knowledge techniques to scale the network and decrease transaction costs. Zero-Knowledge rollups batch transactions together and post them to the layer-1 blockchain with validity proof of the computation. The validity proofs can be either SNARKs or STARKs.

Zero-knowledge proofs have transitioned from purely academic to practical, real-life applications in access control, network communications, blockchain transactions, etc. ZK techniques can help applications maintain decentralization without compromising privacy.

DAO

In the realm of blockchain technology, a fascinating concept has emerged that promises to revolutionize traditional organizational structures – the Decentralized Autonomous Organization (DAO). Built upon the foundations of Ethereum, DAOs present a model where decision-making and operations are driven by transparent code rather than centralized hierarchies.

The concept of decentralized governance will give one the confidence to take ownership in a decentralized community, collaborate with strangers guided by shared purpose, and confidently invest in a cause they support.

Understanding DAOs

In essence, a DAO is a digital entity governed by a set of rules encoded in smart contracts on the Ethereum blockchain. Smart Contracts function as the bylaw of the organisation, which dictates every process, including fund allocation and member voting. Key features of DAOs include:

• Decentralization: No single individual or group holds absolute power within a DAO. Decision-making is distributed among the token-holding members of the community.
• Transparency: All transactions, rules, and voting processes are publicly recorded on the blockchain, ensuring accountability and minimizing the potential for corruption.
• Automation: Smart contracts enable many of the DAO's operations to run autonomously, reducing the need for human intervention and increasing efficiency.

Ethereum's Role in Enabling DAOs

Ethereum has become the primary platform for creating and deploying DAOs due to its key characteristics:

• Smart Contract Functionality: Ethereum's core strength is its ability to execute sophisticated smart contracts, providing the building blocks for DAO governance and operations.
• Turing-Completeness: Ethereum's programming language allows for complex logic and rulesets, essential for creating the intricate structures of DAOs.
• Robust Developer Community: Ethereum boasts a large and active community of developers, constantly improving tools and infrastructure to support DAO development.

Use Cases of DAOs

DAOs offer a wide array of potential applications across various industries:

• Venture Capital Funds: DAOs allow investors to pool resources and collectively decide on investment strategies, democratizing the venture capital process.
• Charities: DAOs can provide unprecedented transparency in the donation and distribution process of charitable funds.
• Freelance Networks: DAOs streamline collaboration and project management for decentralized groups of freelancers.
• DeFi Protocols: Decentralized finance (DeFi) protocols like lending platforms and exchanges often utilize DAOs for governance and collective decision-making.

Notable DAO Projects

• The DAO (2016): An early pioneer, The DAO was a venture capital fund that raised a staggering amount of Ether before a security vulnerability led to its demise. It serves as both a success and cautionary tale within DAO history.
• MakerDAO: One of the most successful DAOs governing the Maker Protocol, a stablecoin system on Ethereum.
• Uniswap: A popular decentralized exchange (DEX) governed by its community through a DAO structure.

Challenges and Considerations

While DAOs hold immense promise, there are several challenges and considerations to keep in mind:

• Legal Status: The legal framework surrounding DAOs is still uncertain, creating regulatory and jurisdictional questions.
• Security: Smart contracts are complex and vulnerable to exploits. Rigorous security audits and testing are crucial to protect DAO funds.
• Participation: Maintaining active participation and preventing voter apathy is essential for the health of a DAO's decision-making.

The Future of DAOs

DAOs represent an ongoing experiment in decentralized governance, demonstrating the power of blockchain technology to reshape how we organize and collaborate. As tools and platforms mature, we can anticipate a greater proliferation of DAOs, potentially disrupting industries and empowering communities in unprecedented ways.

DID

Currently, our online identities are often fragmented and controlled by centralized entities like corporations and governments. Many internet giants hold vast stores of user data, creating vulnerabilities for privacy breaches and making it difficult for individuals to truly own and manage their online presence. Decentralized identity (DID), designed for decentralized systems, offers a revolutionary solution to these challenges. Let us check the concept of decentralized identity and its profound potential on the Ethereum blockchain.

What is Decentralized Identity?

Decentralized Identity empowers individuals with sovereign ownership and control over their digital identity information. Instead of relying on traditional identity providers that act as gatekeepers, DID systems leverage distributed ledger technology (DLT). This creates identifiers (DIDs), directly linked to users, that reside on the blockchain. These DIDs are not controlled by a single organization; they are owned and managed by the user themselves.

With decentralized identity, one can achieve:

• User Sovereignty: Individuals become the sole custodians of their identity data. It's no longer tied to and controlled by external organizations.
• Privacy and Security: DLT's immutability and cryptographic security enhance privacy. Users choose what data to share and with whom, minimizing exposure to data breaches.
• Data Portability: DIDs and associated data are not locked into specific platforms, giving users the freedom to use their identity across different services without depending on a central source.

Ethereum's Role in Powering Decentralized Identity

Ethereum stands as a leading force in fostering DID development. Its key attributes align seamlessly with decentralized identity principles:

• Decentralized Infrastructure: Ethereum's blockchain network acts as a decentralized ledger, offering a secure and tamper-proof foundation for storing and managing DIDs and associated data.
• Smart Contracts: The flexibility of smart contracts enables sophisticated identity management mechanisms. They automate identity verification processes and define the conditions under which personal data can be shared.
• Cryptographic Security: Ethereum's robust cryptography underpins user-controlled private keys that grant access to DIDs and their corresponding data, ensuring security and ownership.

Prominent Examples of DID Implementation on Ethereum

• Ethereum Name Service (ENS): ENS is a popular example of DID on Ethereum. It translates complex Ethereum wallet addresses into human-readable domains (e.g., yourname.eth). This simplifies interaction with the Ethereum network and promotes broader adoption. ENS domains act as DIDs, offering users an easily verifiable digital identity within the Ethereum ecosystem.
• Verifiable Credentials (VCs): VCs are digital equivalents of physical credentials like passports or degrees. They can be verified cryptographically by relying on the attestations of trusted issuers (like universities or government agencies). Ethereum-based projects explore VCs, enabling tamper-proof and user-controlled sharing of credentials for various use cases.

Beyond the Basics: DIDs in the Wider Ecosystem

DIDs on Ethereum impact numerous areas of our digital lives:

• Digital Reputation: VCs can facilitate the creation of portable reputation systems, where users can accumulate verifications of skills or experiences throughout their digital interactions.
• Secure Online Voting: DIDs and their associated verifications offer a potential way to ensure voter anonymity while preventing double voting
• Decentralized Finance (DeFi): DID systems streamline onboarding and Know Your Customer (KYC) processes in DeFi, allowing users to prove their identity while maintaining control over data.

Decentralized identity built on Ethereum marks a paradigm shift in how we think of online identity. It empowers users to regain agency over their digital selves. As the technology matures, expect to see far-reaching implications for privacy, data portability, and the way we interact with online services.

DeFi

The world of finance is undergoing a profound transformation, driven by the emergence of blockchain technology and the concept of Decentralized Finance (DeFi). At the core of this revolution lies Ethereum.

What is DeFi?

Decentralized Finance (DeFi) is an umbrella term for a wide range of financial applications built on top of public blockchains. Its fundamental goal is to disrupt traditional financial systems by removing intermediaries like banks and financial institutions. DeFi aims to create an open, transparent, and accessible financial ecosystem where anyone with an internet connection can participate.

Ethereum's Central Role

Ethereum has become the dominant foundation for DeFi for several compelling reasons:

• Smart Contracts: The heart of Ethereum's power lies in its ability to execute smart contracts. Smart contracts automate complex financial transactions, making them more secure, transparent, and efficient.
• Programmability: Ethereum's programming language, Solidity, allows developers to create innovative, highly customizable financial applications. This flexibility has spurred a thriving DeFi ecosystem with a diverse range of possibilities.
• Composability: DeFi applications on Ethereum are uniquely 'composable'. This means they can interact with each other like Lego pieces, enabling developers to build complex financial products by combining existing protocols and services.
• Robust Network: Ethereum boasts a large and active community of developers and users, providing a stable and reliable foundation for DeFi applications to thrive.

Key Pillars of DeFi on Ethereum

The DeFi movement is rapidly expanding, encompassing a broad spectrum of financial use cases. Some of the most prominent pillars include:

• Decentralized Exchanges (DEXs): Platforms like Uniswap, SushiSwap, and Curve Finance allow users to trade cryptocurrencies directly with each other without the need for a centralized exchange. This eliminates counterparty risks and empowers users to maintain full control of their assets.
• Lending and Borrowing Protocols: Applications like Aave, Compound, and MakerDAO facilitate cryptocurrency lending and borrowing. Users can deposit their crypto assets to earn interest or access collateralized loans, unlocking liquidity within the crypto economy.
• Stablecoins: These cryptocurrencies, often pegged to fiat currencies like the US dollar (e.g., Tether, USDC), play a vital role in DeFi by providing a measure of stability and a safe haven against the volatility inherent in crypto markets.
• Yield Farming and Liquidity Mining: Users can earn rewards by providing liquidity to DeFi protocols or staking their tokens. These mechanisms incentivize participation and ensure the smooth operation of DeFi services.

Benefits of DeFi

DeFi built on Ethereum offers numerous advantages over traditional finance:

• Accessibility: DeFi breaks down geographical barriers, providing financial services to anyone with an internet connection, regardless of location or financial status.
• Transparency: Transactions on public blockchains are auditable and immutable, fostering increased transparency and reducing the potential for fraud.
• Permissionless: DeFi platforms are typically permissionless, meaning anyone can participate without approval from a central authority.
• Censorship-Resistance: DeFi applications are designed to be censorship-resistant, making it difficult for governments or institutions to shut them down.

Challenges and Considerations

While DeFi holds significant promise, it's still a nascent space with several challenges to overcome:

• Scalability: Being the most popular public blockchain, transaction fees can be higher and occasionally the network load may impose slower processing.
• Security: The complexity of smart contracts makes them vulnerable to bugs and exploits. Rigorous auditing and security practices are crucial.
• Regulation: The regulatory landscape for DeFi remains uncertain, posing challenges for wider adoption.
• User Experience: DeFi's technical complexities can be a barrier to entry for less tech-savvy users.

The Future of DeFi

The DeFi revolution is only just beginning. With ongoing innovations in Layer-2 scaling solutions for Ethereum, a focus on security, and evolving regulatory frameworks, DeFi has the potential to transform global financial systems. Its ability to democratize finance and create more inclusive financial products makes it a compelling force for positive change in the years to come.

Build A DAO

Decentralized Autonomous Organizations are offering a compelling alternative to traditional hierarchical organizations. With their blockchain-based foundation, DAOs empower communities to govern themselves through transparent rules and collective decision-making. Let's dissect the core components that enable a DAO to function.

Essential Smart Contracts

1. DAO Token Contract (ERC-20 Compatible):

   • This contract establishes the governance token representing voting rights and ownership stakes within the DAO. Standard ERC-20 token functionality includes:

     • transfer() : Sending tokens between members
     • balanceOf() : Tracking token holdings
     • approve() and transferFrom(): Enabling spending allowances

   • Minting and Burning: The contract may incorporate functions to create (mint) or destroy (burn) tokens, influencing circulating supply and voting power dynamics.

   • Distribution: Determine an initial distribution strategy: token sales, airdrops, rewards programs, etc.

2. Governor Contract:

   • This is the central nervous system of DAO governance. Key elements include:
     • Proposal Submission: The process for members to submit proposals for changes or actions within the DAO.
     • Voting Delay: An optional period after a proposal is submitted before voting begins, allowing for review and discussion.
     • Voting Period: The timeframe for members to cast votes.
     • Quorum: The minimum percentage of votes required for a proposal to pass.
     • Vote Weighting: How voting power is calculated (e.g., one token, one vote, or alternative schemes).

3. Timelock Contract:

   • This contract introduces a critical safeguard. Key functions include:
     • Delayed Execution: A mandatory delay between proposal approval and execution, giving the community a chance to intervene if malicious actions are passed.
     • Role-based Permissions: Setting up specific roles (e.g., 'Proposer', 'Executor', 'Admin') to manage the contract and control proposal execution.

The DAO Proposal Lifecycle

1. Create a Proposal:
   • A member with sufficient tokens drafts a detailed proposal. This often includes:
     • Description of the proposed change
     • Rationale behind the proposal
     • Code or actions to be executed if passed
2. Cast a Vote:
   • Token holders cast votes according to pre-defined rules (often 'yes', 'no', 'abstain').
   • Voting power is usually proportional to token holdings.
3. Execute the Proposal:
   • Reaching Quorum: If the quorum is met, the proposal is considered successful.
   • Timelock Queue: The proposal enters the Timelock queue.
   • Execution: After the delay, the proposal can be executed, affecting changes to the DAO's contracts, treasury, or rules.

Note

• Advanced Governance: Voting systems like quadratic voting or conviction voting may help mitigate imbalances caused by large token holders.
• Reputation Systems: Reputation-based voting systems use participation and contributions to influence voting weight.
• Sub-DAOs: Large DAOs often fragment into sub-DAOs focusing on specific projects or areas, with their own governance structures.
• Legal Considerations: Always seek legal advice, as DAOs operate in a developing regulatory landscape.

DAOs hold the potential to unlock unprecedented levels of collaboration, efficiency, and fairness in group decision-making. By understanding the core components and governance flow, you can play an active role in shaping the DAOs of tomorrow.

Usecase

The approval process for issuing certificates in universities can involve several entities depending on the type of certificate and the university's structure. Here's a breakdown of the typical players involved:

University Level

• Department/Program Coordinator: The department or program coordinator responsible for the specific course or program usually initiates the process. They ensure students meet all the course requirements and program completion criteria.
• Examination Committee: The university's examination committee, consisting of faculty members, reviews and approves the results of examinations and assessments.
• Dean/Head of Faculty: The Dean or Head of the Faculty overseeing the department or program may need to approve the issuance of certificates.

Central University Bodies

• Academic Council/Board of Studies: This university-level body, comprising senior faculty, approves academic programs, curriculum, and student evaluation methods. Their approval might be required for certain certificates, especially newly introduced programs.
• Controller of Examinations: This central university office manages the overall examination process, including the issuance of certificates. They typically oversee the final printing and distribution of certificates.

External Regulatory Bodies (for specific programs)

• University Grants Commission (UGC): The UGC regulates higher education in India. Their approval might be necessary for specific professional programs or certificates.
• All India Council for Technical Education (AICTE): AICTE regulates technical education programs (engineering, pharmacy, etc.) in India. They approve the curriculum and grant permission to offer technical programs. Other regulatory bodies might be involved depending on the specific field (medical, legal, etc.).

Additional Approvals (in some cases)

• Industry Associations: Certain professional programs might require approval from relevant industry associations to ensure graduates meet specific industry standards.
• Government Agencies: Government agencies might need to approve certificates for specific professions requiring licenses or certifications (e.g., teacher training programs).

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Communication Libraries

Smart contracts residing on the Ethereum blockchain offer a fascinating way to create decentralized, trustless applications. To interact with these smart contracts, popular libraries like web3.js or ethers.js streamline the process. However, there are scenarios where building a custom communication layer might be a preferable or necessary choice.

The Need for Custom Communication Layers

• Specialized Use Cases: Libraries like web3.js are comprehensive but they are of generic nature. If you have a highly specific use case for your smart contract interactions, building a custom layer allows you to tailor it precisely to your requirements, potentially optimizing performance.
• Enhanced Control: Using established libraries means relying on their structures and abstractions. A custom communication layer grants you complete control over the interaction mechanisms and data handling.
• Potential Performance Gains: While libraries are powerful, they add overhead. In performance-critical scenarios, a custom, barebones approach could offer speed improvements, albeit at the cost of development time.

The Mechanics

Building a custom communication layer for Ethereum smart contracts involves these core elements:

• Ethereum JSON-RPC API: Your primary interface to the Ethereum network is through its JSON-RPC API. This API exposes a set of methods that allow you to query blockchain data and send transactions. Understanding its specifications is essential. ([invalid URL removed])
• ABI Encoding: Smart contracts define their interface using an Application Binary Interface (ABI). The ABI describes the contract's functions and parameters. You'll need to encode function calls and decode responses according to this ABI for meaningful communication.
• Transaction Construction: To execute smart contract functions, you must assemble transactions. Transactions contain data like the target smart contract address, the function to be called, encoded parameters, gas limits, and potentially a value (if the function involves Ether transfers).
• Transaction Signing: Ethereum transactions must be cryptographically signed using your private key. This ensures authenticity and prevents tampering. You'll need a suitable mechanism to handle the signing process.
• Transaction Submission: Finally, you'll broadcast the signed transaction to the Ethereum network via an Ethereum node.

Limitations

• Increased Development Time: Rolling your own solution is inherently more time-consuming than utilizing existing, well-tested libraries.
• Security Considerations: There's greater responsibility in handling transactions, signing, and security, especially when compared to mature libraries that have been battle-tested.
• Reliance on JSON-RPC: Ethereum's JSON-RPC API might not always be the most efficient way to interact with the blockchain, particularly for complex or frequent data requests.

Deciding whether to build a custom communication layer for Ethereum smart contracts comes down to a balance between control, customization needs, and development resources. In the majority of cases, web3.js or ethers.js provide excellent abstractions and save considerable development time. Yet, for specific use cases or the desire for in-depth understanding, the custom route might prove invaluable.