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August 2016
What is the Blockchain - Technical Overview
Howard Anglin
IBM Cloud Advisor
2
What is (the) Blockchain?
If you ask 10 different people what a
blockchain is, you will still get 10 different
answers
3
“Blockchain Technology may likely be the
biggest thing in technology since the advent
of the internet”
4
The Elements
Ledger - Domesday Book!!
(Winchester Roll or King’s Roll)
Ledger - 11th century England
Hashcash
Computatio...
5
Hashcash
Hashcash is a proof-of-work system used to
limit email spam and denial-of-service attacks,
and more recently ha...
6
Computational Puzzle
The basic idea — that solutions to
computational puzzles could be digital
objects that have some va...
7
*Domesday Book had the final word – there was to be no appeal beyond it as evidence of
legal title to land. For many cen...
8
Time Stamping – Document signing & Linking
Secure timestamping of digital documents - timestamping
accurately conveys th...
9
Linked Timestamping Efficiency Improvement
Instead of linking documents individually, we can collect them into blocks an...
10
Bitcoin: A Peer-to-Peer Electronic Cash System
Satoshi Nakamoto
Enter…
11
Digitally recorded "blocks" of data stored in a linear chain.
Each block in the chain contains data (e.g. bitcoin trans...
12
Bitcoin and blockchain are not the same things,
although they are related in that blockchain
technology was first
descr...
13
In essence, Bitcoin combines the
idea of using computational
puzzles to regulate the creation of
new currency units wit...
14
Blockchain - Shared/Distributed Ledger
 Records all transactions across business
network
 Shared between participants...
15
Centralized Ledger
Distributed Ledger - Permissioned & Unpermissioned
Distributed Ledger
16
How does Bitcoin Blockchain Work? - Mining
Mining: solving computational puzzles
Mining is the process of adding transa...
17
 The process of adding new blocks to the blockchain
(Bitcoin’s public ledger) and issuing new bitcoins with each
verif...
18
The bitcoin blockchain, which uses ‘Proof-of-Work Mining’, is
the most publicly proven method used to achieve distribut...
19
Mining hardware has progressed to specialized ASIC (Application-Specific Integrated Circuit) mining
- placing the SHA25...
20
Every two weeks the bitcoin network difficulty factor is
recalculated to make sure that blocks are found on
average eve...
21
22(extracted from) Infographic designed by fractalphia.com
Bitcoin Blockchain – Anatomy of a Block
23
Blockchain relies extensively on hashes and hash functions. A
hash (output) is the result of a transformation of the or...
24
#Hash - Bitcoin’s proof of work scheme
SHA-256
1. A reference to the previous block
2. Details of their candidate block...
25
#Hash - Bitcoin’s proof of work scheme
Increment Nonce
and try again
Combine hash
with nonce
Mining reward !! (12.5 BTC...
26
Bitcoin Blockchain Contains Two Different Hash Structures
The first is a hash chain of blocks that links the different ...
27https://bitsonblocks.net/tag/longest-chain-rule/
Bitcoin Blockchain - How do you resolve (block) conflicts?
How do you r...
28
Bitcoin Blockchain - Keys
*Ownership of bitcoin is established through digital keys,
bitcoin addresses, and digital sig...
29
Bitcoin Blockchain – Bitcoin Address
A bitcoin address is derived from a public key
– the corresponding private key is ...
30
31
Bitcoin Blockchain - Wallets
The digital keys are not actually stored in the network, but are
instead created and store...
32
Bitcoin Blockchain – Digital Signature
Introduction to Bitcoin and Decentralized Technology - https://app.pluralsight.c...
33
Resurfacing
34
Bitcoin Blockchain – (Financial) Transactions
1. Bob (B) creates new bitcoin address
for Alice (A) to send payment to.
...
35UBS - Global banks: Is FinTech a threat or an opportunity? – July 2016
5 BTC 2 BTC
3 BTC
* Change
AddrBob
AddrAlice
Addr...
36
How a Blockchain Transaction Works
37
Bitcoin Blockchain vs (IBM) Hyperledger Blockchain
The bitcoin blockchain uses ‘Proof-of-Work’ (mining or hashing)
cons...
38
The 3Ps of the Blockchain:
platforms, programs and protocols
39
©2016 IBM Corporation
Backup
41
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Tutorial blockchain technical overview-ss

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Tutorial blockchain technical overview-ss

  1. 1. August 2016 What is the Blockchain - Technical Overview Howard Anglin IBM Cloud Advisor
  2. 2. 2 What is (the) Blockchain? If you ask 10 different people what a blockchain is, you will still get 10 different answers
  3. 3. 3 “Blockchain Technology may likely be the biggest thing in technology since the advent of the internet”
  4. 4. 4 The Elements Ledger - Domesday Book!! (Winchester Roll or King’s Roll) Ledger - 11th century England Hashcash Computational puzzle Time stamping Document timestamp - 1960s
  5. 5. 5 Hashcash Hashcash is a proof-of-work system used to limit email spam and denial-of-service attacks, and more recently has become known for its use in bitcoin (and other cryptocurrencies) as part of the mining algorithm. Hashcash was proposed in May 1997 by Adam Back
  6. 6. 6 Computational Puzzle The basic idea — that solutions to computational puzzles could be digital objects that have some value — is pretty old. It was first proposed by cryptographers Dwork and Naor as a potential solution to email spam back in 1992.
  7. 7. 7 *Domesday Book had the final word – there was to be no appeal beyond it as evidence of legal title to land. For many centuries Domesday was regarded as the authoritative register regarding rightful possession and was used mainly for that purpose. It was called Domesday by 1180. Before that it was known as the Winchester Roll or King’s Roll, and sometimes as the Book of the Treasury. Another key component of Bitcoin is the block chain: a ledger in which all Bitcoin transactions are securely recorded. The Ledger (*Domesday Book)
  8. 8. 8 Time Stamping – Document signing & Linking Secure timestamping of digital documents - timestamping accurately conveys the order of creation of these documents Haber and Stornetta paper in 1991: Haber and Stornetta’s scheme signs a document together with the current time and as well as a link or a pointer to the previous document, and issues a “certificate” with this information. Secure
  9. 9. 9 Linked Timestamping Efficiency Improvement Instead of linking documents individually, we can collect them into blocks and link blocks together in a chain. Within each block, the documents would again be linked together, but in a tree structure instead of linearly. This data structure forms the skeleton of Bitcoin’s block chain link blocks
  10. 10. 10 Bitcoin: A Peer-to-Peer Electronic Cash System Satoshi Nakamoto Enter…
  11. 11. 11 Digitally recorded "blocks" of data stored in a linear chain. Each block in the chain contains data (e.g. bitcoin transaction), is cryptographically hashed. The blocks of hashed data draw upon the previous-block in the chain, ensuring all data in the overall "blockchain" has not been tampered with and remains unchanged. Bitcoin Blockchain - Blocks Source: http://www.blockchaintechnologies.com/blockchain-definition#sthash.R2xe5qpI.dpuf
  12. 12. 12 Bitcoin and blockchain are not the same things, although they are related in that blockchain technology was first described and implemented in Bitcoin
  13. 13. 13 In essence, Bitcoin combines the idea of using computational puzzles to regulate the creation of new currency units with the idea of secure timestamping to record a ledger of transactions and prevent double spending. What is Blockchain? – The underpinning Technology of bitcoin records asset transfer between participants Blockchain is a shared, replicated ledger technology
  14. 14. 14 Blockchain - Shared/Distributed Ledger  Records all transactions across business network  Shared between participants  Participants have own copy through replication  (Permissioned*, so participants see only appropriate transactions)  THE shared system of record A shared ledger is essentially a database that keeps track of who owns a financial, physical or electronic asset *IBM blockchain technology
  15. 15. 15 Centralized Ledger Distributed Ledger - Permissioned & Unpermissioned Distributed Ledger
  16. 16. 16 How does Bitcoin Blockchain Work? - Mining Mining: solving computational puzzles Mining is the process of adding transaction records to the public ledger by performing a computing task that is costly to execute but easy to verify.
  17. 17. 17  The process of adding new blocks to the blockchain (Bitcoin’s public ledger) and issuing new bitcoins with each verified block  Confirms to the rest of the network that unique transactions have taken place  Bitcoin nodes use the blockchain to distinguish legitimate Bitcoin transactions from attempts to re-spend coins that have already been spent elsewhere  Intentionally designed to be resource-intensive so that the number of blocks found each day by miners remains steady  Individual blocks must contain a proof of work to be considered valid. This proof of work is verified by other Bitcoin nodes each time they receive a block What is Bitcoin Mining?
  18. 18. 18 The bitcoin blockchain, which uses ‘Proof-of-Work Mining’, is the most publicly proven method used to achieve distributed consensus. Cryptographic proofs-of-work are required for new blocks to be accepted. Other forms of distributed ledger consensus exist such as Ethereum1, Ripple2, Hyperledger, MultiChain, Eris, and other private enterprise solutions Mining - Consensus Alternative blockchains (separate from the bitcoin blockchain) are often labeled Consensus Protocols or Consensus Platforms 1 Ethereum allows a network of peers to administer their own ‘smart contracts’ – short computer programs that execute their instructions once certain criteria have been met.. 2 Ripple’s distributed ledger are validated by consensus rather than using a proof-of-work approach like Bitcoin because a level of trust is assumed between the parties to a transactions Not needed in Trusted Networks
  19. 19. 19 Mining hardware has progressed to specialized ASIC (Application-Specific Integrated Circuit) mining - placing the SHA256 function directly on silicon chips - Mining - Hardware
  20. 20. 20 Every two weeks the bitcoin network difficulty factor is recalculated to make sure that blocks are found on average every 10 minutes despite increasing hash rates over time. The difficulty almost always goes up which means it becomes progressively harder to mine bitcoins. Bitcoin has become so difficult to mine that the vast majority of miners join a bitcoin mining pool. Anyone mining bitcoins has a ‘Hash Rate’, a measurement of how many math calculations your computer is doing per second A mining pool is a way for bitcoin miners to work together for a better chance at finding a bitcoin block Difficulty factor is recalculated every 2,016 blocks ~ every 2 weeks Mining – Solving the Hard Problem Difficulty is a measure of how hard it is to find a hash below the target value, a 256-bit number, during PoW
  21. 21. 21
  22. 22. 22(extracted from) Infographic designed by fractalphia.com Bitcoin Blockchain – Anatomy of a Block
  23. 23. 23 Blockchain relies extensively on hashes and hash functions. A hash (output) is the result of a transformation of the original information (input). A cryptographic hash function is characterized by its extreme difficulty to revert, in other words, to recreate the input data from its hash value alone. Mining – Hashes and Hash Functions A hash function is a mathematical algorithm that takes an input and transforms it into an output of fixed length A hash is usually a 64 character hexadecimal string that represents a one way encryption of data, usually transactions A measure of how difficult it is to find a hash below the target value, a 256-bit number, during PoW
  24. 24. 24 #Hash - Bitcoin’s proof of work scheme SHA-256 1. A reference to the previous block 2. Details of their candidate block of transactions 3. A special number called a ‘nonce’ 1 32 Miners must demonstrate a proof of work before their proposed block of transactions is accepted by the network With SHA256, the output is always 256 bits long, regardless of the size of the input
  25. 25. 25 #Hash - Bitcoin’s proof of work scheme Increment Nonce and try again Combine hash with nonce Mining reward !! (12.5 BTC) Solved the PoW …mining difficulty determines the target value New block propagated to the network hash < target value? • Bundle txns in a block (N+1) • Verify txns are valid • Select most recent block (N), insert into new block (N+1) as a hash
  26. 26. 26 Bitcoin Blockchain Contains Two Different Hash Structures The first is a hash chain of blocks that links the different blocks to one another The second is internal to each block, a Merkle Tree of transactions within the blocks
  27. 27. 27https://bitsonblocks.net/tag/longest-chain-rule/ Bitcoin Blockchain - How do you resolve (block) conflicts? How do you resolve this? Longest chain rule. In bitcoin, the conflict is resolved by a rule called the “longest chain rule”
  28. 28. 28 Bitcoin Blockchain - Keys *Ownership of bitcoin is established through digital keys, bitcoin addresses, and digital signatures. The public key is calculated from the private key using elliptic curve multiplication, which is irreversible * Mastering Bitcoin: Unlocking Digital Cryptocurrencies 1st Edition Practically irreversible The public key is used to receive bitcoins, and the private key is used to sign transactions to spend those bitcoins. Elliptical Curve Multiplication Hashing Function
  29. 29. 29 Bitcoin Blockchain – Bitcoin Address A bitcoin address is derived from a public key – the corresponding private key is stored in a wallet. Bitcoin users can create as many addresses as they wish. A new address is encouraged for every transaction to increase privacy. When a new address is created, a cryptographic key pair is created - a private key that can be verified with a public key (known to everyone). A bitcoin address is not the same as a public key. Bitcoin addresses are derived from a public key using a one-way function
  30. 30. 30
  31. 31. 31 Bitcoin Blockchain - Wallets The digital keys are not actually stored in the network, but are instead created and stored by users in a file, or simple database, called a wallet. Wallets provide access to multiple bitcoin addresses *Bitcoin wallets contain keys, not coins. Each user has a wallet containing keys. Wallets are really keychains containing pairs of private/public keys. Users sign transactions with the keys, thereby proving they own the transaction outputs (their coins). The coins are stored on the blockchain in the form of transaction-outputs. * Safari Books: Mastering Bitcoin
  32. 32. 32 Bitcoin Blockchain – Digital Signature Introduction to Bitcoin and Decentralized Technology - https://app.pluralsight.com/library/courses/bitcoin-decentralized-technology/table-of-contents
  33. 33. 33 Resurfacing
  34. 34. 34 Bitcoin Blockchain – (Financial) Transactions 1. Bob (B) creates new bitcoin address for Alice (A) to send payment to. 2. Alice’s (A) bitcoin client signs a transaction (request) with private key of address transferring bitcoin from. 3. Bob (B) can use the related public key to verify transaction. Transactions are data structures that encode the transfer of value between participants in the bitcoin system. To ensure the ownership of funds, the whole transaction file is digitally signed with a private key by the user sending the funds
  35. 35. 35UBS - Global banks: Is FinTech a threat or an opportunity? – July 2016 5 BTC 2 BTC 3 BTC * Change AddrBob AddrAlice AddrAlice * The process of unlocking and spending funds, you expose the private key – To preserve unused funds (BTC) the client generates a new Bitcoin address, and sends the difference back to this address. This is known as change. Bitcoin Blockchain – (Financial) Transactions
  36. 36. 36 How a Blockchain Transaction Works
  37. 37. 37 Bitcoin Blockchain vs (IBM) Hyperledger Blockchain The bitcoin blockchain uses ‘Proof-of-Work’ (mining or hashing) consensus and generates a “currency” bitcoin, BTC. Hyperledger uses Proof-of-Stake (blockchain network asks users to prove ownership of a certain amount of an assets); in its current state has no native currency. The bitcoin blockchain ledger is unpermissioned —unpermissioned networks, any act may join the network, while Hyperledger is permissioned, participants see only appropriate transactions. —permissioned networks are described as those where validating and non-validating nodes are run by known whitelisted organizations, and where actors on the network are granted an identity from an issuing authority service on the network. “The technology behind Bitcoin is open source and over 1000 Blockchains exist today…” Simon Dixon, CEO of BnkToTheFuture
  38. 38. 38 The 3Ps of the Blockchain: platforms, programs and protocols
  39. 39. 39
  40. 40. ©2016 IBM Corporation Backup
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