blockchain fundamental

1. BLOCKCHAIN FUNDAMENTAL
ACHMAD BAHAUDDIN, ST., MT.
LECTURER & BLOCKCHAIN RESEARCHER, UNIV. SULTAN AGENG TIRTAYASA-BANTEN
MEMBER OF KIPMI
ADVISORY BOARD, ISCHAIN COMMUNITY
CERTIFIED BLOCKCHAIN TECHNOLOGY CONSULTANT (CBTC-TUV)

3. DISTRIBUTED LEDGER ANALOGY

5. WHAT IS BLOCKCHAIN?
• The blockchain is a permanent book of records that keeps a log of all transactions
that have taken place in chronological order.
• The blockchain also logs transactions between senders and receivers, except there is
no bank or central authority. Instead, the blockchain relies on a public network of
computers to verify the transaction.
• The blockchain is just an accurate, and permanent record of all the transactions that
have happened amongst the members in that blockchain’s network. In this analogy,
each block in the blockchain represents a transaction, and each transaction is
connected to the prior transaction to form the entire connected blockchain.

6. WHAT IS BLOCKCHAIN?
• Blockhain is a collection of linked blocks on a peer to peer network where
blocks are connected using cryptographic hash code because of which there is
no single point of failure. As even if a few nodes fail in the peer to peer
network, other nodes will continue to work which makes blockchain more
reliable to operate and maintain (Rabbani et al, 2020)

7. KEY TERMS
• Block: A block is an individual transaction or piece of data that is being
stored within the blockchain.
• Blockchain: A blockchain is a continuously growing list (“chain”) of records
(“block”), called blocks, which are linked chronologically and secured using
cryptography.

8. WHAT IS HASH FUNCTIONS?
• Hash function is a mathematical function that can take any number as an input
and produces an output in a fixed range of numbers.
• For example, 256-bit hash functions (which are commonly used in blockchain),
produce outputs in the range 0-2256.
• Blockchain relies heavily on secure hash functions to ensure that transactions
cannot be modified after being stored in the ledger.

9. Demo – https://andersbrownworth.com/blockchain/blockchain

10. WHAT IS NONCE?
• A nonce is an abbreviation for "number only used once," which, in the context
of cryptocurrency mining, is a number added to a hashed—or encrypted—
block in a blockchain that, when rehashed, meets the difficulty level
restrictions. The nonce is the number that blockchain miners are solving for.
When the solution is found, the blockchain miners are offered cryptocurrency
in exchange.

11. HOW DOES
BLOCKCHAIN WORKS?

12. Source: https://www.euromoney.com

13. ATTRIBUTES OF BLOCKCHAIN
• Blockchain is a system comprised of…
• Transactions
• Immutable ledgers
• Decentralized peers
• Encryption processes
• Consensus mechanisms
• Smart Contracts

14. TRANSACTIONS
• As with enterprise transactions today, Blockchain is a historical
archive of decisions and actions taken
• Proof of history, provides provenance
Notable transaction use cases
Land registration – Replacing requirements for research of Deeds (Sweden Land Registration)
Personal Identification – Replacement of Birth/Death certificates, Driver’s Licenses, Social Security Cards (Estonia)
Transportation – Bills of Lading, tracking, Certificates of Origin, International Forms (Maersk/IBM)
Banking – Document storage, increased back office efficiencies (UBS, Russia’s Sberbank)
Manufacturing – Cradle to grave documentation for any assembly or sub assembly
Food distribution – Providing location, lot, harvest date Supermarkets can pin point problematic food (Walmart)
Audits – Due to the decentralized and immutable nature of Blockchain, audits will fundamentally change.

15. IMMUTABLE
• As with existing databases, Blockchain retains data via transactions
• The difference is that once written to the chain, the blocks can be changed, but
it is extremely difficult to do so. Requiring rework on all subsequent blocks and
consensus of each.
• The transaction is, immutable, or indelible
• In Database terms, Blockchains are Write and Read only
• Like a ledger written in ink, an error would be be resolved with another entry

16. DECENTRALIZED PEERS
• Rather than the centralized “Hub and Spoke” type of network,
Blockchain is a decentralized peer to peer network. Where
each NODE has a copy of the ledger.
Legacy Network Blockchain Network
Centralized Database Distributed Ledgers

17. DECENTRALIZED
• Each member in the network has exact same copy of distributed ledger for
complete transparency
• Ensures that the entire system will not break down upon a single point of
failure
• Any data, once written on the blockchain cannot be changed or removed
• Enables record keeping in different field, like university degree, land registry,
etc. which will make it impossible to forge records

18. PEER TO PEER
• The interaction between two parties is accomplished without the need of any
third party
• Cross border transactions
• Blockchain removes the need for trust because all put in the code

19. ENCRYPTION
• Standard encryption practices
• Only as good as the next hardware innovation
• All blocks are encrypted
• Some Blockchains are public, some are private
• Public Blockchains are still encrypted, but are viewable to the public, e.g.
Bitcoin, Ethereum, Solana, Cardano, etc.
• Private Blockchains employ user rights for visibility, e.g. eZTracker, etc.
• Customer – Writes and views all data
• Auditors – View all transactions
• Supplier A – Writes and views Partner A data
• Supplier B – Writes and views Partner B data

20. DISTRIBUTED LEDGER

21. TYPES OF BLOCKCHAINS
• Public Blockchains
• Private Blockchains
• Hybrid Blockchains or Consortiums
• Sidechain

22. PUBLIC BLOCKCHAINS (PERMISSIONLESS
BLOCKCHAIN)
• Public blockchains are open, decentralized networks of computers accessible
to anyone wanting to request or validate a transaction (check for accuracy).
Those (miners) who validate transactions receive rewards.
• Two common examples of public blockchains are the Bitcoin (BTC) and
Ethereum (ETH) blockchains.
• https://bitcoin.org/en/
• https://ethereum.org/en/

23. PRIVATE BLOCKCHAINS (PERMISSIONED
BLOCKCHAIN)
• Private blockchains are not open, they have access restrictions. People who
want to join require permission from the system administrator. They are
typically governed by one entity, meaning they’re centralized. For example,
Hyperledger is a private, permissioned blockchain.
• https://www.eztracker.io/
• https://www.youtube.com/watch?v=sIL7XxyG4Fc

24. HYBRID BLOCKCHAINS OR CONSORTIUMS
• Consortiums are a combination of public and private blockchains and contain
centralized and decentralized features. For example, Energy Web
Foundation, Dragonchain, and R3.
• https://medicalchain.com/en/whitepaper/
• https://www.youtube.com/watch?v=cO-prfZBmyw

25. SIDECHAIN
• A sidechain is a blockchain running parallel to the main chain. It allows users
to move digital assets between two different blockchains and improves
scalability and efficiency.
• The main Ethereum 1.0 blockchain currently has a low speed of around 7-15
transactions per second (TPS). Layer 2 solutions can achieve much faster
speeds of up to 9,000 tps by handling most of the hard processing “off-
chain” on their sidechains to increase efficiency

29. Source: https://medium.com/practical-blockchain/use-cases-of-blockchain-tech-application-13a940edf6fb

33. Blockchain Applications
Use Cases
• Asset management
• Supply chain logistics & management
• Computing & storage
• Currency exchanges
• Media & adstech
• Online gaming
• Social media
• Lending & crowdfunding
• Healthcare data
• Insurance & underwriting
• Payments & banking
• Financial services
• Infrastructure
• Public records
Blockchain and Governance
• Transparent elections
• Ends identity theft
• Automation of land registries and title
transfers
• Criminal records
• Management of trial evidence
• Auditable universal basic income
• Transparent ownership of public
companies
• Replacement of taxes with monetary
policy

35. SOME DEFINITIONS
• Encryption: Encryption is a process of converting your message into code so
that only authorized parties can access it.
• Decryption: Decryption is reversing the encryption process so that the message
can be converted to the original message.
• Cryptography: This is using the techniques of encryption and decryption to
send and receive messages.
• Digital asset: can be anything of value, such as the combination to your home
safe, a secret password, a list, a message, electronic cash, a document, a
photo, and so on.
• Cryptocurrency: is a digital asset designed so that electronic cash is able to be
exchanged using strong cryptography (encryption and decryption) to ensure
the security of funds, transactions, and the creation of new funds.

36. SOME DEFINITIONS
• A cryptographic key can be used to encrypt a message. The encrypted
message can then be decrypted only by using the second key (a private key)
that is known only to the recipient.
• Bitcoin uses private keys (bitcoin calls these digital signatures) with the help of
an algorithm function to prove ownership.
• Hashing algorithms are used for holding the structure of the database ledger
data (or blockchain) via a hash generator called SHA256.
• The hashing algorithms are used to generate math puzzles that a computer
tries to solve for a prize. Once the puzzle is solved, the computer is selected to
help handle the transactions.

37. SOME DEFINITIONS
• Merkle trees which use the hashing keys of large data in small pieces. This is useful for
lightweight wallets that are needed on constrained hardware devices such as mobile
devices.
• Double spending Problem is the risk that digital currency can be spent twice because
the digital signature could be reproduced and one could prove ownership and send
a digital asset twice at the same time.
• Each computer that holds a copy of the shared ledger and is connected to the P2P
network is a node. A peer can help to add records and verify transactions. The
process is called crypto mining, and the peer that helps record and verify the
transactions is called a crypto miner or a miner.
• Each miner helps to verify and add transactions to the blockchain digital ledger. The
miners are often rewarded with a fee for the work, and to stay competitive with
other miners, the miner usually needs a computer with specialized hardware.

38. CRYPTO WALLET
• Cryptocurrency wallet stores one or multiple public key and private key
combinations and is used to receive or spend cryptocurrency.
• Two type of wallet:
• A hot wallet is directly connected to the Internet. Examples of hot wallets are mobile
app wallets and web app wallets.
• A cold wallet is not directly connected to the internet. Examples of cold wallets are
paper wallets, hardware wallets and brain wallets

40. TYPE OF BLOCKCHAIN WALLET

41. The P2P network works globally
using an Internet connection and
is able to provide a platform to
achieve a globally distributed
consensus mechanism. In blockchain,
the consensus/agreement is on
whether the blocks are valid or not.
If a block is valid, the block will be
added to the blockchain. If a block
is invalid, it will be rejected from
being added to the blockchain.

42. CONSENSUS MECHANISM
• Consensus mechanism is an agreement needed for the network to operate
properly even in the event of a failure. It needs to be able to achieve
agreement on the data of the network within the distributed P2P network.

60. KLASIFIKASI ASSET KRIPTO

62. ALTERNATIVE CRYPTOCURRENCY COINS
(ALTCOINS)
• Alternative cryptocurrency coins (altcoins for short) are coins that are derived
from bitcoin core source code by forking it (soft fork or hard fork). Examples
are litecoin (which was a fork of the bitcoin core client), dogecoin (dogecoin
1.10 is a complete rebuild based on the bitcoin 0.11 build), bitcoinX, bitcoin
cash, and bitcoin gold.
• This forking happens often when there is a disagreement of developers
regarding a direction. For instance, some developers would like to implement
changes that other developers disagree with or a major fix is needed to be
implemented.

63. WHAT IS A BLOCKCHAIN FORK?
• A fork is a blockchain (e.g. Bitcoin or Ethereum) protocol upgrade. With each
fork, rules of participating can be modified. Sometimes the rules are
backward compatible, other times the rules are not backward compatible.
Based on backward compatibility we can split the forks into two categories:
• Hard fork - is a blockchain protocol rules upgrade, which is not backward compatible
• Soft fork - is a blockchain protocol rules upgrade, which, contrary to the hard fork, is
backward compatible

64. WHAT IS A HARD FORK?

65. WHAT IS A SOFT FORK?

71. WHAT IS SMART CONTRACT?

72. WHAT BLOCKCHAIN TECHNOLOGY IS NOT?
• Blockchain technology is not entirely all about Bitcoins
• Blockchain is not a product: the utility of blockchain technology comes from an
appropriate set of applications built on top of it
• Blockchain is not needed in the absence of a business network
• Blockchain is not the replacement of a transaction processing system

73. BLOCKCHAIN VS
DATABASE
•Authority
•Integrity
•Write Access
•Cost
•Trust

74. BLOCKCHAIN TRILEMMA
Source: DOI:10.1109/WSC48552.2020.9383924

75. Source: https://intellipaat.com/blog/tutorial/blockchain-tutorial/why-blockchain-is-important/