Key considerations for cloud-native blockchain implementation

In this section, we will explore the key considerations and best practices for implementing cloud-native blockchain solutions on AWS, Azure, and GCP. By understanding these factors, organizations can make informed decisions and ensure the successful deployment and management of their blockchain applications in a cloud-native environment.

Choosing the right blockchain framework

Determining the right blockchain platform is paramount for executing a cloud-native blockchain initiative. Given that each platform possesses its distinct attributes, strengths, and challenges, it’s crucial to pinpoint the one that resonates most with an organization’s distinct needs. There are many blockchain networks in the market, and it would be impossible to cover all of them in depth. In the next few sections, we’ll look at the three platforms that better represent a broad utilization of permissionless and permissioned blockchain technologies for building decentralized apps: Ethereum, Hyperledger Fabric, and Corda.

Ethereum

Ethereum presents itself as a decentralized, open source platform endorsing smart contracts and facilitating the birth of dapps. Let’s look at some of its standout features:

• An open, unrestricted blockchain network
• Endorsement for smart contracts primarily coded in Solidity
• Extensive developer involvement and supportive community
• Energy costs (or gas fees) associated with transaction handling and executing smart contracts

For organizations eyeing the development of public dapps or delving into DeFi arenas, Ethereum emerges as a favored choice.

Hyperledger Fabric

Initiated by the Linux Foundation, Hyperledger Fabric stands out as an open source, permissioned blockchain platform tailored for enterprise scenarios. Some of its notable attributes are as follows:

• An adaptable framework that allows for modifications and personalization
• Multi-language support for smart contracts (known as chaincode)
• Special channels to ensure transaction confidentiality
• Versatile consensus methods

Given its features, Hyperledger Fabric frequently becomes the go-to for businesses keen on integrating blockchain in sectors with regulatory measures, such as banking, healthcare, and logistics.

Corda

Tailored mainly for the world of financial services, Corda is an open source, permissioned blockchain platform. It comes equipped with features such as the following:

• Direct communication pathways among network users
• Backing for intricate financial contracts and smart contracts
• Seamless merging with present financial frameworks and facilities
• Enhanced data privacy and confidentiality tools

Corda, with its specialized attributes, is particularly fitting for financial entities keen on leveraging blockchain for facets such as asset oversight, transaction processing, and other fiscal operations.

Scalability and performance

Scalability and performance are critical considerations when implementing cloud-native blockchain solutions. Organizations must ensure that their chosen platform can handle the anticipated transaction volume and accommodate future growth. Most blockchain networks struggle on both sides in terms of scaling and performing well when the number of transactions grows. Let’s examine a couple of strategies that are commonly used in blockchain platforms to achieve better scalability and performance, namely storing data off-chain (that is, not on the blockchain digital ledger), and rolling up multiple blocks and committing them at once. This latter approach is typical in so-called Layer 2 blockchain networks.

Off-chain storage

Off-chain storage can help improve the scalability and performance of blockchain applications by moving non-essential data and processing off the blockchain. This can help reduce network congestion and transaction fees, while also improving the overall user experience.

Off-chain storage solutions can include the following:

• Traditional databases (for example, Amazon RDS, Azure SQL, and Google Cloud Spanner)
• Distributed databases (for example, Amazon DynamoDB, Azure Cosmos DB, and Google Cloud Firestore)
• File storage services (for example, Amazon S3, Azure Blob Storage, and Google Cloud Storage)

Layer 2 solutions

Layer 2 solutions are built on top of existing blockchain networks and aim to improve scalability and performance by handling transactions and smart contract execution off-chain. Here are some popular Layer 2 solutions:

• State channels: Off-chain communication channels that enable participants to transact privately and securely without requiring on-chain transactions
• Plasma chain: A framework for creating scalable, hierarchical blockchain networks that rely on the root chain for security
• Rollups: Techniques for aggregating and compressing multiple transactions into a single on-chain transaction

State channels

To make this clearer, let’s look at examples of each solution. State channels are a Layer 2 scaling solution that allows for off-chain transactions between participants, thereby reducing the load on the main blockchain and increasing transaction throughput. Let’s say we have Alice and Bob, who want to engage in multiple transactions with each other without relying on the main blockchain for every transaction. They decide to set up a state channel between themselves to facilitate these transactions. The following figure describes what happens next on a state channel:

Figure 1.3 – State channel transaction

This is what happens:

1. Opening the channel: Alice and Bob create a multi-signature wallet on the blockchain and lock some funds into it as collateral. This collateral serves as security to ensure that both parties abide by the rules of the state channel. The state channel is now open, and Alice and Bob can start transacting off-chain.
2. Transacting off-chain: Alice and Bob can now exchange transactions directly with each other off-chain. These transactions are signed by both parties and can involve transferring funds or updating the state of a shared application. Since these transactions are off-chain, they are fast and have minimal fees compared to on-chain transactions.
3. Updating the state: As Alice and Bob continue to transact, they keep track of the current state of their interactions. This state includes information such as the balances of each party and any other relevant data. Each time they want to update the state, they exchange and sign a new transaction reflecting the updated state.
4. Closing the channel: Once Alice and Bob are done transacting or want to settle their balances on the main blockchain, they can close the state channel. To close the channel, they submit the final state of their interactions to the blockchain. The blockchain verifies the final state and settles any outstanding balances accordingly. The collateral that’s locked into the multi-signature wallet is released back to both parties, and the state channel is closed.

By using state channels, Alice and Bob were able to conduct multiple transactions off-chain, reducing congestion on the main blockchain and enjoying fast and low-cost transactions. State channels are particularly useful for scenarios where frequent interactions between parties are needed, such as gaming, microtransactions, or payment channels.

Plasma chains

Moving on to an example of a plasma chain, this approach is used by Layer 2 platforms for creating scalable, hierarchical blockchain networks that can process a high volume of transactions off-chain while maintaining security through periodic on-chain settlement. Let’s consider a simple implementation of plasma called Plasma Cash, which focuses on token transfers and is often used for NFTs or unique assets. The following figure depicts the flow of transactions between Alice and Bob:

Figure 1.4 – Plasma chain for Layer 2 networks

This is what happens in a plasma chain:

1. Setup: Alice wants to trade digital artwork with Bob. She sets up the plasma chain on Ethereum as a smart contract, which acts as the root chain. Alice deposits her digital artwork (represented as an NFT) into the plasma chain’s contract, locking it into a specific position in the Merkle tree. This initial state is recorded on the Ethereum mainnet.
2. Transactions: Alice and Bob can now trade digital artwork with each other off-chain within the plasma chain. Each transfer of digital artwork is represented by a unique token (for example, Plasma Cash). These transactions are conducted off-chain, allowing for fast and low-cost transfers between Alice and Bob.
3. Proofs and challenges: To ensure the security of the plasma chain, participants can challenge invalid transactions by submitting proofs to the root chain (Ethereum). For example, if Bob tries to spend a token that he doesn’t own or tries to spend the same token multiple times, Alice or other participants can challenge the transaction by submitting proof of the invalid transaction to the root chain.
4. Periodic settlement: Periodically, the plasma chain’s operator (Alice) submits a Merkle root of the latest state of the Plasma chain to the Ethereum mainnet. This Merkle root serves as a cryptographic proof of the state of the Plasma chain, allowing participants to verify the validity of transactions without having to process every transaction on the Ethereum mainnet. If no challenges are raised within a specified period, the state of the Plasma chain is considered finalized, and any tokens can be withdrawn from the Plasma chain back to the Ethereum mainnet.
5. Exit mechanism: If Alice or Bob want to exit the Plasma chain and withdraw their tokens to the Ethereum mainnet, they submit a proof of ownership (for example, a Merkle proof) to the Plasma chain’s contract on Ethereum. The contract verifies the proof and allows the user to withdraw their tokens to the Ethereum mainnet, ensuring that their ownership rights are preserved.

In summary, plasma allows for the creation of scalable blockchain networks by conducting most transactions off-chain, with periodic settlement and on-chain verification to maintain security and trust. This framework enables applications such as decentralized exchanges, gaming platforms, and asset tokenization to achieve high throughput and low latency while leveraging the security of the Ethereum mainnet.

Rollups

Rollups are a common Layer 2 scaling solution that aggregates and submits multiple transactions off-chain to the main blockchain, reducing congestion and increasing throughput. There are two main types of rollups: optimistic rollups and Zero Knowledge (ZK) rollups. Let’s look at an example of how each type works.

Optimistic rollups

Alice wants to participate in a DEX on Ethereum, which is prone to high gas fees and network congestion during peak times. The DEX pictured in the following figure implements an optimistic rollup solution to improve scalability and reduce transaction costs:

Figure 1.5 – Optimistic rollup transaction process

The transaction process consists of the following steps:

1. Off-chain transactions: Alice and other users conduct trades off-chain within the optimistic rollup environment. These transactions are fast and low-cost since they don’t require interaction with the Ethereum mainnet. The DEX’s optimistic rollup operator aggregates these transactions into a single Merkle root.
2. Submission to the Ethereum mainnet: Periodically, the optimistic rollup operator submits the aggregated Merkle root to the Ethereum mainnet, along with a fraud proof that attests to the validity of the transactions. The Ethereum mainnet verifies the validity of the Merkle root and fraud proof. If no fraudulent activity is detected, the transactions are considered valid and included in the Ethereum blockchain.
3. Challenge period: After the Merkle root is submitted to the Ethereum mainnet, there is a challenge period during which users can scrutinize the transactions and raise disputes if they suspect any fraudulent activity. If a challenge is raised and proven valid, the fraudulent transactions are reverted, and the guilty party may face penalties.

Optimistic rollups enable high throughput and low-cost transactions by batching multiple transactions off-chain and submitting them to the Ethereum mainnet periodically. Users can enjoy the scalability benefits of Layer 2 solutions while still benefiting from the security and decentralization of the Ethereum mainnet.

ZK rollups

Bob wants to participate in a DeFi protocol on Ethereum, which requires frequent interactions with smart contracts and is affected by high gas fees. The DeFi protocol depicted in the following figure implements a ZK rollup solution to achieve scalability and reduce transaction costs:

Figure 1.6 – ZK rollup transaction process

This is how the transaction process goes:

1. Off-chain transactions: Bob and other users interact with the DeFi protocol off-chain, executing transactions within the ZK rollup environment. These transactions are private and efficient as they don’t require interaction with the Ethereum mainnet. The ZK rollup operator generates a succinct proof (zk-SNARK) that attests to the validity of the transactions without revealing sensitive information.
2. Submission to the Ethereum mainnet: Periodically, the ZK rollup operator submits the zk-SNARK proof to the Ethereum mainnet, along with a commitment to the updated state of the DeFi protocol. The Ethereum mainnet verifies the validity of the zk-SNARK proof, ensuring that the transactions comply with the protocol’s rules without revealing the details of individual transactions.
3. Finality and settlement: Once the zk-SNARK proof has been verified, the transactions are considered finalized, and the updated state of the DeFi protocol is reflected on the Ethereum mainnet. Users can interact with the DeFi protocol on-chain, confident that their transactions are secure and valid.

ZK rollups provide high scalability and privacy for blockchain transactions by aggregating off-chain transactions into succinct proofs (zk-SNARKs) that are verified on-chain. Users can enjoy the benefits of efficient and cost-effective transactions while preserving privacy and security.

In summary, both optimistic rollups and ZK rollups are powerful Layer 2 scaling solutions that enable high throughput and low-cost transactions on blockchain networks like Ethereum. They achieve scalability by aggregating and batching transactions off-chain before submitting them to the mainnet, thereby reducing congestion and increasing efficiency.

Security and privacy

Security and privacy are essential aspects of any blockchain implementation. Organizations must ensure that their chosen platform provides the necessary features and controls to protect sensitive data and maintain compliance with relevant regulations.

Data encryption

Data encryption is a crucial aspect of securing sensitive data within a cloud-native blockchain environment. Organizations should ensure that their chosen platform supports the necessary encryption standards and protocols to protect data both at rest and in transit.

Here are some encryption techniques to consider:

• Transport Layer Security (TLS) for securing data in transit
• Advanced Encryption Standard (AES) for encrypting data at rest
• Hardware Security Modules (HSMs) for managing cryptographic keys

Access control and identity management

Access control and identity management are critical for ensuring that only authorized users can access and interact with the blockchain network and its associated resources. Organizations should implement robust access control policies and leverage the identity management features provided by their chosen cloud provider.

Some access control and identity management considerations are as follows:

• Role-Based Access Control (RBAC) for managing user permissions and privileges
• Multi-Factor Authentication (MFA) for enhanced user security
• Single Sign-On (SSO) integration with existing identity providers

It’s important to note that access control and identity management are peculiar to permissioned blockchains, where anonymous access is not authorized. Sovrin (https://sovrin.org/) is a decentralized identity platform that provides tools and protocols for creating and managing self-sovereign identities, where individuals have control over their identity information. Sovrin allows organizations to issue verifiable credentials, such as government-issued IDs or academic certificates, which can be stored and managed by individuals using their Sovrin identities.

Another example is uPort (https://www.uport.me/), a decentralized identity platform built on Ethereum. It provides tools and libraries for developers to integrate decentralized identity into their applications, allowing users to control their identity information. Also, uPort supports the creation of self-sovereign identities, enabling users to manage their identity credentials and interact with decentralized applications in a secure and privacy-preserving manner.

Smart contract security

Smart contracts play a crucial role in blockchain applications, and their security is of paramount importance. Organizations should ensure that their smart contracts are thoroughly audited, tested, and secured to prevent vulnerabilities and potential attacks.

Here are some smart contract security best practices:

• Formal verification to prove the correctness of the smart contract code
• Automated testing and fuzzing to identify vulnerabilities
• Security audits conducted by reputable third-party firms

Interoperability and integration

Interoperability and integration are essential considerations for organizations looking to leverage existing systems and infrastructure within their cloud-native blockchain solutions. The chosen platform should support seamless integration with other services and provide the necessary tools and APIs for bridging blockchain networks with traditional systems.

API and SDK support

APIs and SDKs play a crucial role in enabling seamless integration between blockchain networks and existing systems. Organizations should ensure that their chosen platform provides comprehensive API and SDK support for various programming languages and platforms.

The following are some key API and SDK features to consider:

• RESTful APIs for easy integration with web services and applications
• Web3.js, Web3.py, or other SDKs for interacting with Ethereum-based networks
• SDKs for popular programming languages, such as Java, Python, and JavaScript

Blockchain network interoperability

With the expansion and progression of the blockchain universe, the emphasis on ensuring compatibility among diverse blockchain systems has amplified. Organizations need to align with platforms that facilitate communication and interaction across chains, augmenting the effectiveness of their blockchain integrations.

A few notable solutions promoting such inter-chain compatibility are as follows:

• Cosmos Network: An integrated network comprising independent, adaptable, and compatible blockchains (https://cosmos.network/)
• Polkadot: A framework designed to bridge and fortify distinct blockchain entities (https://polkadot.network/)
• Chainlink: A distributed oracle network that safely links smart contracts to outside data streams and application interfaces (https://chain.link/)

Cost optimization

Implementing a cloud-native blockchain solution can be expensive, particularly when considering the costs associated with infrastructure, development, and ongoing maintenance. Organizations should carefully consider the costs involved and optimize their implementations to minimize expenses while maximizing the benefits.

The following are some cost optimization strategies:

• Using managed services to reduce the overhead of managing infrastructure
• Implementing autoscaling policies to ensure efficient resource utilization
• Monitoring and analyzing resource usage to identify and eliminate waste

In this section, we covered the key considerations and best practices for implementing cloud-native blockchain solutions on AWS, Azure, and GCP. By understanding these factors, organizations can make informed decisions and ensure the successful deployment and management of their blockchain applications in a cloud-native environment.

With that, we’ve discussed the importance of choosing the right blockchain framework, ensuring scalability and performance, securing sensitive data and transactions, enabling seamless interoperability and integration, and optimizing costs. By following these best practices, organizations can successfully implement cloud-native blockchain solutions that meet their specific requirements and deliver the desired benefits.