ABCD: The roots of DeFi (part B)

Cloud computing

Decentralization of server capacity is referred to as decentralized cloud computing. Rather than employing a single server at a single server center, datasets can be distributed among many server centers that are more or less simultaneously accessible via the internet by a large number of users situated all over the world.

Cloud computing refers to the provision of data storage and processing capacity on-demand without the need for users to own or operate the servers that provide these services. Cloud computing is based on commercial data centers that rent capacity to consumers who access it via the internet.

Cloud service providers typically link server centers across different time zones, countries and economic regions to provide cloud stability in the face of volatile demand and energy supply, diversify against demand peaks, and ensure economic operations where energy costs fluctuate throughout the day. They also channel excess demand to servers where data processing capacity is cheaper due to lower demand and energy costs.

Unsurprisingly, the growing use of cloud-based computer infrastructure has prompted the creation of feasible solutions to address existing problems. The option to use a decentralized or peer-to-peer paradigm appears to be popular among the solutions presented as alternatives to typical cloud computing services.

Such solutions are built on nodal blockchain-based networks of cloud service providers that share and secure cloud computing resources autonomously. In essence, cryptography helps protect the network’s security in DeFi and cloud services.

Distributed ledger technology (including blockchain and smart contracts)

If you are wondering what is distributed ledger technology in blockchain, keep reading to find out.

A distributed ledger is a shared and synchronized database by consensus over networks that span several sites, institutions or continents, allowing a transaction to have multiple private or public witnesses. Data sharing results in a database that is distributed across a network of servers and functions as a ledger.

Distributed ledgers are characterized by an absence of, or minor, central management and no centralized data storage. They are thus “distributed,” in the sense that numerous participants’ software-driven interactions result in the authorization to record a specific piece of information.

When combined with cryptographic solutions, such features (decentralization and distribution across a network of computers) reduce the risk of data manipulation, eliminating the need to rely on third parties, particularly data storage service providers, because this is where the data is stored and most easily manipulated.

The easiest way to understand distributed ledgers is to look at their opponent, the concentrated ledger. Assume that all relevant data is contained in a centralized register maintained by a single entity. Contrary to current practice, the centralized record is not secured and thus semi-distributed through a plethora of back-ups kept on multiple servers.

There are several risks associated with a centralized setup. First, if the hardware on which the register is “placed” is destroyed, the information content and the authority to verify its accuracy are lost. Second, dishonest database administrator workers or unfaithful administrators may tamper with the register’s information content. Third, a cyber-attack can lead to data loss and modification.

These issues are addressed by distributed ledgers, which raise the barrier to manipulation. Many data storage points (nodes) must agree on the underlying technology. For example, if there are n nodes (rather than one focused ledger) and e describe the work required to break into any single server, the effort needed to manipulate all the linked servers will be n*e rather than 1*e if all other circumstances are equal (server safety, etc.).

A blockchain protocol is frequently used in conjunction with distributed ledgers. The storage of data in data bundles (called blocks) in a strict time-related series, with each block linked to the previous and following blocks through a timestamp, as well as several protocols providing evidence of a user’s authorization to alter the data stored, is what blockchain is all about.

Because a successful cyberattack would have to concurrently corrupt not just one set of data but all subsequent data sets (i.e., the entire blockchain) as well as the timestamps, the blockchain makes data corruption even more difficult.