12  Blockchain

• Proof of Reputation (PoR): The PoR consensus algorithm model

depends on the reputation of the participants to keep the network

secure and safe. It is similar to PoA. A company that would like to

join the network needs to prove its reputation and pass verification. A

network participant must have a reputation high enough, and if they

attempt to cheat the system, they face significant financial and brand

consequences.

• Proof of History (PoH): PoH is a high-frequency verifiable delay func-

tion. A verifiable delay function requires a specific number of sequen-

tial numbers of sequential steps to evaluate; however, it produces a

unique output that can be efficiently and publicly verified.

For instance, when you take a photograph with the cover of a news-

paper front page (Guardian cover page), you are creating proof that

your photograph was taken after the newspaper was published. Using

PoH, you can create a historical record that proves that an event has

occurred at a specific moment in time. Solana blockchain uses PoH.

• Directed Acyclic Graph (DAG): The DAG consensus algorithm is

popular for high scalability due to its unique structure. In DAGs,

blocks are added parallelly rather than in a linear way like any other

blockchain system. For instance, in any other blockchain, there is a

linear structure whereby transactions/blocks are added one by one.

However, DAGs add the blocks/transaction, parallelly making it a

very scalable solution.

DAGs are used by projects such as IOTA, Hashgraph and Nano, to

name a few.

Figure 1.6 shows some of the famous and most used consensus algorithms.

DEFI (DECENTRALISED FINANCE) OVERVIEW

DeFi is a short form for ‘decentralised finance’. It is also known as ‘open

finance’. It is an umbrella term for a variety of financial applications (also

called dApps) geared towards disrupting financial intermediaries. It is here

to disrupt every financial service you use today like savings, loans, trading

and insurance, to name a few. The main value add of DeFi is that they are

accessible to anyone with a smartphone and internet connection.

Currently, Ethereum is the leading blockchain technology to drive DeFi

applications because of the inbuilt smart contract feature. Decentralised

finance is here to unlock the opportunities for the financial ecosystem by

providing financial security and transparency and unlock liquidity and

growth opportunities through the use of blockchain (Figure 1.7).

The following are some of the Ethereum principles that are being appreci-

ated by DeFi dApps: