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Blockchain Insider - Sample Chapter


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All things blockchain, ledger technology, and cryptocurrencies.

If you don't believe me or don't get it, I don't have time to try to convince you, sorry. I don't know the future. I didn't write this to tell you how this is going to end. I write about how it all begins. I'm going to show you a world without boundaries. A world where anything is possible. Where we go from here is a choice I leave to you.

This is part of my project related to Blockchain technology. If you like the work above, and would like to make a contribution to this work, you are welcome to make some Bitcoin donation in support of this project to this wallet:


You can also reach me at SteemIt community here, if you are a Steemian:

For project related updates, kindly visit the official website:

Thank you.

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Blockchain Insider - Sample Chapter

  1. 1. © 2017-2018. Koh How Tze. All Rights Reserved.
  2. 2. Preface If you don't believe me or don't get it, I don't have time to try to convince you, sorry. I don't know the future. I didn't come here to tell you how this is going to end. I came here to tell you how it all begins. I'm going to show people what the centralized authority don't want them to see. I'm going to show them a world without absolute power. A world without manipulated rules and controls, without borders or boundaries. ​A world where anything is possible. Where we go from here is a choice I leave to you. This is what we get when we combined Satoshi Nakamoto’s quote with that of Neo’s from the movie “The Matrix”, with a little bit of modification. This book works in similar way. It is not a crystal ball to tell you how the future will look like. It ain’t going to show you a clear path which you can take to get to your ideal world. However, it shall give you enough ideas and better pictures of what is happening to part of the Blockchain industry right now, in the year 2017, during the time of writing. It shall provide you with the building blocks of how you can actually take part in this revolution. How you want to put the pieces together will only be limited by your imagination. As I strongly agree that the Blockchain is the web, all over again, I would like to take this opportunity of a lifetime to record down what people are actually doing when something revolutionary is happening, once again. My choice to be part of the history is to make whatever relevant info or knowledge that I encounter during this project cycle into a documentary. This book will be one of the tools that jot down what people do, how people react and working towards a better world, besides the digital media channels that will be used to complement the project, to bring it to a global scale. The purposes of this project are: 1. To highlight and recognize the contributions of industry leaders and participants in the Blockchain industry. 2. To serve as a guide to general public and decision makers in Blockchain related matters. 3. To inspire, motivate and instill more people to be part of this revolutionary movement. I hope that readers will find Blockchain Insider an inspirational piece of work to read. Koh How Tze Kuala Lumpur, Malaysia October 2017 © 2017-2018. Koh How Tze. All Rights Reserved.
  3. 3. Chapter 1 Blockchain, Bitcoin, and Money To explore Blockchain, you need to study Bitcoin. To understand Bitcoin, you need to know what is money and how it works. © 2017-2018. Koh How Tze. All Rights Reserved.
  4. 4. Chapter 1 At A Glance He Who Controls The Money Controls The World Why do we need to care? Conspiracy Theory What is Money? Gold VS Bitcoin The Evolution of Money Money As A System-of-Control Money At Works What is Cryptocurrency? Why do we need to look into cryptocurrency? What is Bitcoin? How to Earn Bitcoins? What is Blockchain? The Market And The Community What is your position in the game? A Matter of Legality Regulatory Challenges Security, Scalability, Stability © 2017-2018. Koh How Tze. All Rights Reserved.
  5. 5. ______________________________________________________ SAMPLE CHAPTER ______________________________________________________ Chapter 2 The Name of The Game If history does repeat itself, you will be amazed by how similar it is the evolution of the blockchain to that of the internet. © 2017-2018. Koh How Tze. All Rights Reserved.
  6. 6. Dé Jà vu Being a computer engineer by profession, I started my software development business after I graduated from University of Technology (UTM) Skudai, Malaysia. I was supposed to pay back my scholarship by working for Intel, but I was lucky enough to be released from the company as they didn’t have the position for me back then. I completed my degree course partly due to the company’s scholarship. A grateful thanks to Intel. I am still using your products to date. I decided to develop web based retail management system, after completed a few customized software system. I saw that there was something with the internet, yet not so clear at that time. It was about real time communication and big data management, though it was still the early days of the internet, in my home country. Back in 1998-2000, it took me quite some time to convince a retailer to accept the concept of a connected, real time retail system, where multiple branches will be able to communicate with each other, through a centralized system. We called our software BizSuite (short form for Business Suite), and positioned it as a ​Web Based Retail Management System​. What was in our mind? Real time data and quick decision making. For instance, a check of certain stock’s balance for each outlet at any single point of time, where HQ is able to make better decision based on real time data presented, to relocate stocks, such as to transfer unmoving stocks from certain branch to another location that sells the stocks better. Sounds quite a bold idea back then. There are quite some challenges to be tackled. Not only that the concept sounds new and creative​, the technology involved was also quite geeky. It was an era where people were still using dial up if they were to connect to the internet, the most they can go is with a 56k modem, those where you can hear the “ringtone” as they were dialing up and hooking to the internet. It was a time that may took some 30 minutes to an hour long just to download an mp3 song! The connectivity was lousy, the speed was slow enough. Technically, we were proposing a LAMP (Linux, Apache, MySQL, PHP) based open source system. There were 2 major parts in the design - a front end Point of Sales (POS) System and a back office interface for branches and HQ. We called our Linux based POS System gPOS, of which I forgot what the ‘g’ stands for, perhaps general. The web interface part of it was named phpMyRetail, mimicking the naming of the popular phpMyAdmin web based MySQL database administration tool. Yes, the software we developed was meant to administrate the whole retail operation, that’s why we called it Web Based Retail Management System. Both hardware and software setup were quite a challenging task as technical personnel were not easy to find, while most business users were still on the Windows platform due to its friendly © 2017-2018. Koh How Tze. All Rights Reserved.
  7. 7. interface. Graphic user interface was just introduced in the latest version of Redhat Linux at that time. It wasn’t that user friendly either. Ironically, we got our first project after we compared the costing structure and long-term economic effect to our client. At the end of the day, dollars-and-cents count. The economic consideration triumph over the technical difficulties. What has all these got to do with Bitcoin and Blockchain? I am telling you all this because I need you to know that I had went through certain processes, personally. I sense some similarity between what I went through during the early days of the World Wide Web, and what is happening to the whole Blockchain thing right now. IPO, ICO and Market Hype If you ever invested in the share market, you will know what is an IPO (Initial Public Offering). According to Investopedia, an IPO is the first time that the stock of a private company is offered to the public. IPOs are often issued by smaller, younger companies seeking capital to expand, but they can also be done by large privately owned companies looking to become publicly traded. In an IPO, the issuer obtains the assistance of an underwriting firm, which helps determine what type of security to issue, the best offering price, the amount of shares to be issued and the time to bring it to market.1 In short, IPO is one of the way for businesses to get funding. With the advancement of technology, alternative ways of funding had been introduced, such as crowdfunding, equity funding, peer-to-peer funding etc. With cryptocurrencies coming into the picture, we now have quite a new way for businesses to raise fund, which is ICO (Initial Coin Offering). On the good side of it, the ability to raise funds through token sales simplifies the fundraising processes. ICO opens the markets by reaching out to global community at ease. It is a new and exciting frontier for startups and innovators. However, ICOs operate in legal grey area. They fall short from no standards in reporting and exchange listing, with little to no regulation at all in most countries, thus opening a large window of opportunity for scammers and pump and dump schemes. 1 ​ © 2017-2018. Koh How Tze. All Rights Reserved.
  8. 8. At the time of writing, ICO is still an unregulated and controversial means of crowdfunding via use of cryptocurrency. In an ICO a percentage of the newly issued cryptocurrency is sold to investors in exchange for legal tender or other cryptocurrencies such as Bitcoin .2 In short, ICO is one of the funding options, it can be a source of capital for startups. Indeed, most ICOs we can find in the market now are startups. Just like the time of the internet boom, ICOs are being offered almost everywhere, like mushroom sprouting after a heavy pour. Almost anything could be presented as blockchain related matters, and packaged and sold to investors (more likely speculators) via ICOs. Take note that while ICO is the fastest developing market in 2017, Crypto has just been in retail with enough liquidity for around 3 years. The stock market has existed for more than a decade. Let’s look at the general comparison for IPO and ICO in the table below: Particulars IPO ICO Documents Prospectus White Paper Regulation Regulated Not at the time of writing Speculative Somehow Highly Players Shareholders, Investors, Financial Institutions Stakeholders, Investors, Related Communities Listing Stock Exchanges Cryptocurrencies Market Exchange (Online) Maturity Matured Newborn Region Country Based Cross-borders During the dotcom boom, tech startups were listed and traded actively on Nasdaq, and Technology Boards were specifically set up in some countries, just to list and trade tech related counters. It is not much different with current situation. Under Cryptocurrencies hype, ICOs are being offered almost over the internet. A search on the term ICO and you find yourself bombarded with all kind of related ads and offers. To date, there had been more than 1300 counters listed on, a website that provides Cryptocurrency Market Capitalizations info. 2 ​ © 2017-2018. Koh How Tze. All Rights Reserved.
  9. 9. The criterias for a cryptocurrency to be listed on are:3 - Must be a cryptocurrency or a crypto token. - Must be on a public exchange with an API that reports the last traded price and the last 24 hour trading volume. - Must have a non-zero trading volume on at least one supported exchange so a price can be determined. - For market cap ranking, an accurate circulating supply figure is required. As you can see, the listing requirements (if it is considered so) are way far more loosen and unregulated compared to that of conventional IPO. If you noticed what we mentioned in previous chapter using the football game analogy, ICO, is part of the game. Documents Involved Before we decide whether to invest in a soon-to-be public listed company or not, we read through a prospectus, which is a formal legal document that is required by and filed with the Securities and Exchange Commission. In short, a prospectus provides details about an investment offering for sale to the public .4 Before invest into an ICO, people would go through the project white paper to decide whether a project or a startup is viable. Though Bitcoin was not started by issuing ICO, I would prefer to use it as an example as I don’t prefer to endorse any kind of ICO, let alone to use them as example. So, Bitcoin’s white paper will be the best fit for example here. The white paper was published on the internet back in 2009, and Satoshi Nakamoto's original paper is still recommended reading for anyone studying how Bitcoin works.5 Bitcoin: A Peer-to-Peer Electronic Cash System The paper that first introduced Bitcoin 3 ​ 4 ​ 5 ​ © 2017-2018. Koh How Tze. All Rights Reserved.
  10. 10. Speculation and Volatility Be it IPO or ICO, both speculation and volatility are inevitable. Prices may go up or down aftermarket, sometimes drastically. As what Tom Lee (co-founder, FundStrat Global Advisor) puts it, “When people talk about bitcoin’s volatility today, they’re forgetting that when we went off the dollar — the gold standard on the dollar, gold’s volatility for 4 years was about the same as bitcoin’s volatility today.” Take it to the extreme, and you may find yourself conned in a hit and run case, such as the case of a cryptocurrency start-up that disappeared with $375,000 from an ICO, where nobody can find the founders!6 Herd mentality, ignorance & greed drive the hype. In a free market, there will always be people trying to take advantage of whatever that falls in the legal grey area, there will always be people trying to make quick bucks through pump and dump projects. There is this joke saying that if you invest in the wrong ICO, you may land yourself in ICU. The difference between a coin and con is only an ‘i’. Therefore, before you part with your hard earned money, it is always advisable to do all the due diligence that you could, and seek as many professional advice as you can. Make your own decision based on your studies and advises you get, and be mature enough to take the responsibilities for every action you take. As a matter of advice, if Blockchain is the web all over again, take note that there was a dotcom crash after peaking in 2000 .7 Crossing Borders In ICOs, there are cross-border capital flows. This could be one of the reason why regulators are hard to step into the picture, as it involves multiple countries’ jurisdiction and law enforcement. However, the recent case of Tezos, a blockchain technology project that made headlines in July 2017 by raising USD 232 million, which turned sour could open doors for ICO litigation.8 If you read through the fine lines, there are some projects which restrict residents from certain countries to participate in their ICOs. A point to ponder. Will there be virtual borders being set up soon, be it through regulation or certain technical blockage? 6 Cryptocurrency start-up Confido disappears with $375,000 from an ICO, and nobody can find the founders 7 ​ 8 The Beginning? Tezos Could Open Doors for ICO Litigation © 2017-2018. Koh How Tze. All Rights Reserved.
  11. 11. Responsible Investment While this is definitely not a book on investment, some advice may still apply. A piece of advice my stock remisier told me nearly 20 years ago - ​no free lunch​, whatever investment it may be. People should be matured enough and take full responsibility for their investment decision. You may want to refer further to Andreas Antonopoulos’ sharing on ICOs and responsible investment in this video: ​ The video was recorded during a sharing session by Andreas on “Thoughts on The Future of Money”, which is part of a talk that took place on July 7th 2017 at a Bloktex event hosted by the Wisma BeeOn Group in Kuala Lumpur, Malaysia. For those holding a printed copy of this book, the info here might give you some ideas: So yes, people lose money at ICOs, I hope they learned lesson number one, don’t invest too much. In that way, they can learn. Two years from now, there will still be another round of ICOs that goes, ‘oh, what do you have? a white paper? And no team and no investment, or startup experience and you haven’t yet hire any developers and you have three slides in your presentation? Umm…NO.” How do you learn that? Because the first 3 things you invested in blew up in your face and you make no money. Lessons in life are only learned one way – by making mistakes. And if you try to prevent investors from making mistakes, they don’t learn, and then, the person responsible for preventing the mistakes gains all this power and they abuse it. Comparing Bitcoin To Tulip Mania While technology advanced, human behaviour stays the same . At the time of writing, Bitcoin9 just hit a record high. The cryptocurrency Bitcoin reached a new high on Thursday (November 2) when it surged past the $7,000 (£5,278) barrier and peaked at $7,355.35 (£5,604.04) .10 9 Bitcoin bubble dwarfs tulip mania from 400 years ago, Elliott Wave analyst says ​ 10 Bitcoin price soars to record high of $7,000: But why is bitcoin rising so high? ​ © 2017-2018. Koh How Tze. All Rights Reserved.
  12. 12. Take a look of the table below comparing Bitcoin and Tulip: Particulars Bitcoin Tulip Instance Virtual, Concept Plant Speculative Bubble Time Will Tell Burst Phenomena Global Europe Intrinsic Value Similar to Legal Tenders Beautiful Flower Functionality Money Decoration In my humble opinion, while the speculative part is quite similar, Bitcoin is not the tulip. Bitcoin was started with a much more noble purpose, which is to return the financial power to the people, where the time it was born happened to be around the brink of monetary system collapse. Whether it is a bubble pending to burst, or it will become the default cryptocurrency with status like the US Dollar being the reserve currency under the current system in its digital world, only time will tell. It looks more like the dot-com hype. It was a bumpy ride before we see the Amazon, Google, Facebook, and Alibaba of the Web. It will be more or less the same with the Blockchain. Bitcoin might not stay for long, just like what we had witnessed on ICQ, MSN Messenger, Yahoo, AOL etc. But the fundamental will stay, just like communication for World Wide Web, it will be ​trust for Blockchains. Bitcoin Is Only Tip of The Iceberg While Bitcoin is the first Blockchain, it is definitely not the only Blockchain. There will be all kind of Blockchains emerging, with each of their own consensus or inherited elements from that of Bitcoin and Ethereum, or other “ancestors of their time”. With the invent of the world wide web and the internet, we can scale information, we can scale communication, but not until 2009 that we found the way to scale trust and decision making through Bitcoin. Bitcoin brings to the table a way to scale trust and decision making, globally. The ​consensus algorithm​, which is the most fundamental of Bitcoin and other digital currencies, enables us to achieve trust at massive scale on a completely non-hierarchy, flat network. It is a © 2017-2018. Koh How Tze. All Rights Reserved.
  13. 13. market based game theory competition​. Anybody can participate but they have to commit something to guarantee that they will play fair and play by the rules so that they get rewarded. When we have a structure that allows us to scale trust, the best application would be money and payments. But we can do more. Since Bitcoin is the first programmable money, and it can be scaled down to 100 million units per Bitcoin , we can actually assign different properties to each unit. Each unit of Bitcoin can be11 programmed to represent a kilowatt hour of energy, a certificate of ownership in some form of entity, even a hundred barrels of oil etc. Of course, the most common and widely used representation in the business and investment scene today is none other than how much USD one Bitcoin represents. It is commonly used to anchor or judge the market value of Bitcoin at the moment. A vote in an election is another possible application for Bitcoin, or the Blockchain technology. There are possibilities to create global governance and global decision making network with such a method as presented via Bitcoin. Its programmable nature, open characteristic makes all these features possible. Not only it allows us to completely rebuild and innovate our financial services, it also streamlines our administrative processes. It significantly decrease bureaucracy, while making them more transparent at the same time.12 In the very near future, we shall be communicating more and more with machines, and these machines will interact with each others perhaps even more frequent than our inter-human communications. With more established Internet of Things networks and advancement of Artificial Intelligence, it won’t be simply about Big Data, Data Mining, or Business Intelligence anymore. Interaction among machines will become a norm, advanced Industrial Automation will be brought by 4th Industrial Revolution. Blockchains that manage and verify online data could enable us to launch companies that entirely run by algorithms, making self driving vehicles more safe, help protecting your online identity and track the billion of devices on the IoT.13 11 ​ 12 The Bitcoin and Blockchain Technology Explained 13 Understand the Blockchain in Two Minutes © 2017-2018. Koh How Tze. All Rights Reserved.
  14. 14. As we briefly walk through the capability of Blockchain applications in businesses, finance, governments, organizations, and Internet of Things, we are pretty sure that Bitcoin is only the beginning of all other possibilities. There is an exciting future awaits us. Let’s dig further into the Blockchain. Blockchain Is The Name of The Game Eventually, Blockchain technology will evolve. There will be more and more powerful implementations down the road, just like what the Web technology had brought us. When we talk about blockchains, ​trust is an important element that is embedded into the system. If the World Wide Web is about information, the Blockchain is about trust. Ironically, the very thing that keeps the blockchain secure and verified, is our mutual distrust. Using the blockchain, we can create a shared reality across non-trusting entities. All of these nodes in the network do not need to know each other or trust each other, because they each have the ability to monitor and validate the chain for themselves .14 Where does trust comes from? Pure mathematics and computer logics. What makes Blockchain so secure? Is it really that secure? 14 How the blockchain will radically transform the economy | Bettina Warburg nguage=en © 2017-2018. Koh How Tze. All Rights Reserved.
  15. 15. Military Grade Security The interesting thing about Bitcoin is since its inception, no one’s cracked it. Yet it’s completely in the open. Blockchain, or Bitcoin, to be specific, survived not because it had not been attacked. Indeed, it had been attacked 24/7 since day one. In order to understand how secure a blockchain could be, we shall look into the technical and system design part of it, namely Asymmetric Cryptography and Distributed System. Once you have the basic idea of how things are being construct, you shall have more confident on the security part of it. Let’s start with Asymmetric Cryptography. Asymmetric Cryptography Cryptography is not something new. Prior to the computer era, it is generally known as ​cipher​, where messages were turned into a code that could only be understood by intended parties. It is a method of communication, done secretly in disguised writing. Generally, cryptography is about constructing and analyzing protocols that prevent third parties or the public from reading private messages .15 For blockchains, one of the way to disguise messages is through ​hashing​. Hash Hashing is a way to cipher messages in the digital world. It ensures that transmitted messages are not compromised. A hash is a string of alphanumeric generated from a message, or data, by a formula in such a way that it is extremely unlikely that some other text will produce the same hash value. For instance, turning "Blockchain Insider" into a hash using SHA256 algorithm will produce this hash : ef225f48eace3ff0d92a4e597ced40af2fe6c932a761eedefc6c5785cd6aaa4f To visualise how a hash is being generated, visit ​​. 15 © 2017-2018. Koh How Tze. All Rights Reserved.
  16. 16. How it works in communication? The sender generates a hash of the message, encrypts it, and sends it with the message itself. The recipient then decrypts both the message and the hash, produces another hash from the received message, and compares the two hashes. If they're the same, there is a very high probability that the message was transmitted intact .16 Keys Asymmetric Cryptography is also known as Public Key Cryptography, which is a form of Encryption where keys come in pairs. What one key encrypts, only the other can decrypt .17 To illustrate the public and private keys concept, we shall use the home address analogy. Your home address is open to anyone who knows you. That is your public key. Anyone who would like to get intact with you would have that piece of information. However, if they want to enter your home sweet home, they will need to have the key to open your door. That, is your private key. Only those with your private key can gain access into your property. Never lose your private keys. Digital Signatures If you ever signed any paper documents with a pen, it is not much different in concept when it comes to the digital signature. Only this time, it is done in the virtual world, digitally. There are some technical stuffs going behind the scene, where authentication and timestamping are being done background to make sure that you are the genuine identity, which could be a person or an object (when it comes to Internet of Things), to authorize or acknowledge a document or approve a transaction. A valid digital signature gives a recipient reason to believe that the message was created by a known sender (authentication), that the sender cannot deny having sent the message (non-repudiation), and that the message was not altered in transit (integrity) .18 16 ​ 17 Definition of computer security terms: Asymmetric Encryption 18 ​ © 2017-2018. Koh How Tze. All Rights Reserved.
  17. 17. In Malaysia, digital signatures are issued by certification authorities under the regulation of the Communications and Multimedia Commission of Malaysia (MCMC) . Digital signatures are19 currently being used in many fields, involving millions of transactions, which include but not limited to the corporate and business banking, travelling documents, and filing of income tax returns. Distributed System In a centralized system, the point of attack is obvious. You can’t attack effectively when you don’t have a clear target. In other words, in a distributed system’s environment, hackers can’t just hack a computer and consider job done. They will have to hack every single node or computer in the network, almost at the same time, or in a very limited time frame, in order to make changes to the same piece of information. Image below clearly illustrates the differences between centralized and distributed system .20 In a distributed environment, no central company or person owns a system, yet everyone can use it and help running it. There is no single point of failure. 19 E-signatures and digital signatures, Emilie Low, in The Sun Daily 6th Nov 2017, page 11 20 Understand the Blockchain in Two Minutes (0:37) © 2017-2018. Koh How Tze. All Rights Reserved.
  18. 18. Conventional Database Design In conventional way of storing data, there are two options: ​file-based system​, and the database model. We shall use the database model for our illustration. As this is not a technical book, let’s look at it in a more generic way. When we talk abou​t database​, there are ​tables involved. Let’s do an example, by looking at it as though they are Spreadsheets. Say we have a real estate developer, and he wants to keep track of the transactions of his properties. We shall design a few tables for that purpose: 1 for list of properties (Property Table), 1 for list of owners (Owner Table), 1 for ownership info (Ownership Table), and 1 for transaction log (Transaction Table). The Property Table will keep track of informations regarding the piece of real estate. The Owner Table will keep track of house owners’ personal information. The Ownership Table is meant for recording the most updated owner info of a property, and the Transaction Table will log every trades which changes the ownership of a property. We shall look further into each of these table with some sample data to illustrate how things work as simple yet as clearly as possible. © 2017-2018. Koh How Tze. All Rights Reserved.
  19. 19. Property Table - holds information on what kind of property the developer holds, and their respective info such as the size, number of rooms, land area, remark etc. Property_ID Property_Size Remark ……………...……………... PID001 3000 sqf Illustration Only ……………...……………... PID002 3500 sqf Illustration Only ……………...……………... PID003 5000 sqf Illustration Only ……………...……………... PID004 5000 sqf Illustration Only ……………...……………... : : : : : : : : : : : : Owner Table - stores the information of owners, such as their name, their contact number, their address and other data that might be useful for the developer. Owner_ID Owner_Name Owner_Contact ……………...……………... OID1 Mr. A 60123456789 ……………...……………... OID2 Mr. B 60134567890 ……………...……………... OID3 Mr. C 60112345678 ……………...……………... OID7 Mr. H 60199999999 ……………...……………... : : : : : : : : Ownership Table - ​keep track of who owns what unit(s). Property_ID Owner_ID Remark Last Update ……………...……………... PID001 OID1 Owner OID1 owns PID001 1/1/17 ……………...……………... PID002 OID2 Owner OID2 owns PID002 1/1/17 ……………...……………... PID003 OID3 Owner OID3 owns PID003 1/1/17 ……………...……………... PID004 OID3 Owner OID3 owns PID004 1/1/17 ……………...……………... : : : : : : : : : : : : : : : © 2017-2018. Koh How Tze. All Rights Reserved.
  20. 20. Transaction Table - logged each and every transaction of the properties. Keep track of when and who were involved when property changed hands. Lets assume some transactions happened after 1/1/17, of which On 3rd March 2017, Mr.A sold his property PID001 to Mr.C, On 8th August 2017, Mr.B sold his property PID002 to Mr.C, On 10th October 2017, Mr.C sold his property PID004 to Mr.A, Transaction records will be kept in such a way: Trx_ID Trx_Date From_Owner _ID To_Owner _ID Property_ ID Remark ………… TRX001 3/3/17 OID1 OID3 PID001 OID1 sold PID001 to OID3 on 3/3 ………… TRX002 8/8/17 OID2 OID3 PID002 OID2 sold PID002 to OID3 on 8/8 ………… TRX003 10/10/17 OID3 OID1 PID004 OID3 sold PID004 to OID1 on 10/10 ………… : : : : : : : : : : : : : : : : : : : : : After 10th October 2017, besides his originally owned property PID003, Mr.C will owns two more properties, PID001 and PID002 which were sold to him on 3rd March 2017 and 8th August 2017 respectively. Since Mr.C sold his other property, PID004 to Mr.A, he will now owns only 3 properties as at 10th October 2017. The updated ​Ownership Table ​will look like this: Property_ID Owner_ID Remark Last Update ……………...……………... PID001 OID3 Owner OID3 owns PID001 3/3/17 ……………...……………... PID002 OID3 Owner OID3 owns PID002 8/8/17 ……………...……………... PID003 OID3 Owner OID3 owns PID003 1/1/17 ……………...……………... PID004 OID1 Owner OID1 owns PID004 10/10/17 ……………...……………... : : : : : : : : : : : : : : : © 2017-2018. Koh How Tze. All Rights Reserved.
  21. 21. This is how the tables are being linked up: If a hacker were to change the ownership of PID001, what he needs to do is simply hack into the database, make the changes in related tables and data field, and the frontend system will shows the hacked, or modified info. In this example, say the hacker is OID7, Mr. Hacken. As he hacked into the system, he only needs to amend 2 tables, namely the Transaction Table and the Ownership Table. He simplies need to insert a “valid record” in the Transaction table: Trx_ID Trx_Date From_Owner _ID To_Owner _ID Property_ ID Remark ………… TRX001 3/3/17 OID1 OID3 PID001 OID1 sold PID001 to OID3 on 3/3 ………… TRX002 8/8/17 OID2 OID3 PID002 OID2 sold PID002 to OID3 on 8/8 ………… TRX003 10/10/17 OID3 OID1 PID004 OID3 sold PID004 to OID1 on 10/10 ………… TRX004 11/11/17 OID3 OID7 PID001 OID3 sold PID001 to OID7 on 11/11 ………… : : : : : : : : : : : : : : : : : : © 2017-2018. Koh How Tze. All Rights Reserved.
  22. 22. Then, changed the ownership info in the Ownership table: Property_ID Owner_ID Remark Last Update ……………...……………... PID001 OID7 Owner OID7 owns PID001 11/11/17 ……………...……………... PID002 OID3 Owner OID3 owns PID002 8/8/17 ……………...……………... PID003 OID3 Owner OID3 owns PID003 1/1/17 ……………...……………... PID004 OID1 Owner OID1 owns PID004 10/10/17 ……………...……………... : : : : : : : : : : : : The front end system interface will reflect the changes when searches or listing are made. It will take some time for people to realize records were changed. Though there might be access log, hackers can still make relevant changes to the log as well. Of course, this is oversimplified example. The point to make here is that when things are centralized, the point for attack exists, clearly. All it takes is to buy some time to get into the system, locate the point, and make the changes. What if this is an insider’s job? Then, what makes the Blockchain immutable? A Chain of Blocks In a blockchain situation, data are logged in sequence, timestamped. Simply put, it is kinda like a chain of blocks organized chronologically. Did I mention encrypted? Image : Data logged and organized in a chronological way. © 2017-2018. Koh How Tze. All Rights Reserved.
  23. 23. In the case of Bitcoin, the transactions (Tx0, Tx1, ...) are appended to the block as time goes by. The first transaction generates new bitcoins and contains the coinbase field which includes an extraNonce to provide a larger search space for valid block hash values .21 Prev_Hash: hash value of previous block. The purpose is to chain all blocks together. Timestamp: creation time of block, as seen by block creator. The timestamp is checked by other clients and must be within a certain window (tolerates small clock skews). Tx_root: root hash value of a hash tree (w:merkle tree) over all transactions. Nonce: any number to make sure the resulting hash value of this block is below the target hash value. The Nonce is a 32 bit number and the 2^32 number space is exhausted during mining within less than a second. Image : Graphic of data fields in Bitcoin blockchain. Simplified depiction: some fields are missing. How Secure is Bitcoin? The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work. The system is secure as long as honest nodes collectively control more CPU power than any cooperating group of attacker nodes. To hack into a blockchain is a matter of speed and time. Let alone the democracy part of it where you have to convince the majority that the changes are valid. If each of the new blocks are appended to the chain every 10 minutes, imagine you want to change the record of what happened 8 hours ago. What if the transaction or data that you want to change is something happened few years ago? Not only you need to go back in time through thousands of blocks, at the time you are trying to do this, new blocks will be keep coming in every 10 minutes. In other words, you have 10 21 © 2017-2018. Koh How Tze. All Rights Reserved.
  24. 24. minutes to traverse back the chain to get to that intended block, make all the changes you want, reconstruct the chain, and convince all others that this is the valid chain. Mission impossible? There are sayings that Quantum Computing might be able to achieve this at the time of writing. Yet people are still waiting to see a solid proof. The design of the Bitcoin system is in such thinking that rather you spend all the resources in cheating, which could be very expensive and be punished real quick, it is always better to be on the right side of the system. This is how Satoshi put it in his original White Paper: If a greedy attacker is able to assemble more CPU power than all the honest nodes, he would have to choose between using it to defraud people by stealing back his payments, or using it to generate new coins. He ought to find it more profitable to play by the rules, such rules that favour him with more new coins than everyone else combined, than to undermine the system and the validity of his own wealth. Secure By Design Blockchains are secure by design. It is a distributed computing system with high ​Byzantine fault tolerance​. The consensus algorithm forms the very fundamental of how a blockchain works. By design, there are quite a lot of considerations involved, as it is an open system to transfer values, without any intermediaries. Where does trust comes from? How should responsibilities be shouldered? Things are well taken care of through computer logics and mathematical equations. Consensus Algorithm A consensus to a Blockchain is like a constitution to an organization. For any organization, a constitution serves as a reference point should any disputes happen among the community members. Disputes happen because the possibilities of people not playing according to rules exist. people are tempted to exploit the system to maximize their personal benefits, when loopholes are obvious. While no perfect solutions exist, precautionary measures should be put in place. When it comes to a computer system, think of it as a protocol to achieve overall system reliability in the presence of a number of faulty processes. For example, whether to commit a transaction to a database, agreeing on the identity of a sender or receiver, state machine replication, atomic broadcasts etc. 22 22 ​ © 2017-2018. Koh How Tze. All Rights Reserved.
  25. 25. Proof of Work is a consensus where some requirements need to be performed in order to create a new block of trustless transactions on a Blockchain. It is an expensive computer calculation, which is also known as mining, as it involves high computational power and burning a lot of energy in order to carry out the works. There are game theory and economic reasons behind. We shall look further into this when we explore more on mining in next chapter - Smart Money. Proof of Stake is a different way to validate transactions but it has the same purpose with that of Proof of Work, which is to deter cyber-attacks. It is a more greener and cheaper distributed form of consensus as it does not require as much energy needed to carry out computational jobs when compared to that of Proof of Work protocol. Proof of Work Proof of Stake Purpose To deter cyber-attacks through the costing of energy consumption. To deter cyber-attacks via ownership portion. Rules Miners compete to find a solution for mathematical problem. The first miner to give the solution become the block creator. The creator of a new block is chosen in a deterministic way, depending on its wealth, also defined as stake.23 Rewards First miner who solves each block’s problem get the reward. After defined number of coins are mined, transaction fees could become the reward. No block reward. Miners take transaction fees. Energy Consumption High Relatively lower compared to Proof-of-Work Game Theory Remember that million dollar question of “how do we achieve trust without authorities and intermediaries, in a widely distributed, non-hierarchy system?” What mathematicians John von Neumann and John Nash, as well as economist Oskar Morgenstern suggest - a model of optimality taking into consideration not only benefits less costs but also the interaction between participants, which is Game Theory, might give us a good answer. 23 ​ © 2017-2018. Koh How Tze. All Rights Reserved.
  26. 26. Wikipedia defines Game Theory as "the study of mathematical models of conflict and cooperation between intelligent rational decision-makers" , which pretty much fit into the24 Bitcoin, or Blockchain ecology. There are economics, political science, psychology, as well as logic, and computer science involved. That's why we mentioned that Bitcoin is more than money. It only happens that when we have trust and decision making system on a global scale, money is the best application to solid proof the concept. To better comprehend how Game Theory is being implied, let’s look at the few challenges that Bitcoin system solved. Rewards and The Sudoku Analogy Take the Proof of Work consensus as an example, while miners’ job is to record the transactions precisely (which is to verify the legitimacy of a transaction, or avoiding the so-called double-spending issues as in any monetary system) and chronologically, how should they be compensated? In the case of Bitcoin, new digital currencies will be created and be rewarded to the first miner who successfully completed the job. This is what happens behind the scene when transactions are being executed: 1) Transactions are broadcast to all nodes and bundled together into a block; 2) Miners verify that transactions within each block are legitimate through mathematical puzzle solving, which is, the proof-of-work. 3) The first miner who solves the block’s problem gets the reward; 4) Verified transactions are then stored in the public blockchain. 5) Nodes express their acceptance of the block by working on creating the next block in the chain, using the hash of the accepted block as the previous hash. Here comes another question, how to determine who gets the reward? The first one who gets the work done correctly. The work (which is the mathematical puzzle) is relatively complex on the requester side but easy to check for the network. 24 ​ © 2017-2018. Koh How Tze. All Rights Reserved.
  27. 27. If you ever played a Sudoku game before, you will get the idea of how things work when it25 comes to rewarding the workers (which is the miners in this case). If you were presented a 3x3 Sudoku grid, you can easily solve it within seconds, perhaps. When the difficulty increases, say from 3x3 grid to 9x9 grid, the time it takes to solve the puzzle will increase too, and perhaps, not proportionally but exponentially. However, if you were to check if a Sudoku puzzle is filled up correctly, the time it takes is not much different for that of a 3x3 and 9x9, or even 10x10. In other words, solving the problems is relatively difficult compared to checking if the solutions are correct. It’s a matter of how should workers be compensated, and how rewards should be distributed. Byzantine Fault Tolerance When you have millions, or even billions of node scattered over a wide network trying to coordinate to accomplish a certain task, you will have the Byzantine Generals' Problem .26 Imagine you are in a war situation, where you need to take down a city. You have 7 generals on your side, surrounding that city with each of their troops, and each of the generals now have a decision to make, to attack or to retreat. Say 3 generals decided to attack, and 3 others prefer a retreat. The 7th general, who has yet to make a decision, would affect the whole army’s upcoming action. He will be a crucial determining factor to what comes next. What if he decided to attack yet messages couldn’t pass through to some of the generals? How to synchronize the moves? How would you ensure that while he pass out an attack decision and yet in reality he is retreating his troops? Anything could happen. In a distributed system, nodes could go on and off, due to power failures, malfunctioning of system hardware, network errors etc. Among the failure modes, these are considered the most general and most difficult class, especially in a distributed system. Satoshi’s original white paper on Bitcoin addressed the problem solving in its abstract as such: 25 ​ 26 ​ © 2017-2018. Koh How Tze. All Rights Reserved.
  28. 28. Messages are broadcast on a best effort basis, and nodes can leave and rejoin the network at will, accepting the longest proof-of-work chain as proof of what happened while they were gone. How the system actually does it is described in section 5 of the white paper, concerning the Network part of it: New transaction broadcasts do not necessarily need to reach all nodes. As long as they reach many nodes, they will get into a block before long. Block broadcasts are also tolerant of dropped messages. If a node does not receive a block, it will request it when it receives the next block and realizes it missed one.27 Prisoner’s Dilemma The prisoner's dilemma is a standard example of a game analyzed in game theory that shows why two completely "rational" individuals might not cooperate, even if it appears that it is in their best interests to do so.28 Let’s assume that 2 criminals were arrested and imprisoned in separate location where it is impossible for them to communicate. There is a lack of evidence to convict the pair on the principal charge. However, the prosecutors would like to get both sentenced to prison on a lesser charge. They offer each prisoner a bargain at the same time, where each criminal is given the opportunity to betray the other by testifying that the other committed the crime. Here is an illustration of the possible outcome: Prisoner (Action) Prisoner B (Cooperates) Prisoner B (Defects) Prisoner A (Cooperates) Each serves 1 year in prison Prisoner A: 2 years Prisoner B: Goes free Prisoner A (Defects) Prisoner A: Goes free Prisoner B: 2 years Each serves 2 years in prison While it is pretty clear that if both Prisoner A and Prisoner B cooperate, each of them will only need to serve 1 year in prison, the actual outcome doesn’t work out this way, because the 27 ​​, page 4 28 ​ © 2017-2018. Koh How Tze. All Rights Reserved.
  29. 29. typical prisoner's dilemma is set up in such a way that both parties choose to protect themselves at the expense of the other participant. Two individuals acting in their own self-interest will pursue a course of action that does not result in the ideal outcome. In a computer system, consequences are predictable through logics and mathematics. “What if…” scenarios can be analyzed and best solutions can be chosen in a blink of an eye. If it will lead to a worse result when two parties are both acting in self-interest, we can avoid the situation through pre-programmed algorithm, and choose only the best outcome. 51% Attack Theoretically, if a group of miners can control more than 50% of the network's mining hashrate, or computing power, they would be able to prevent new transactions from gaining confirmations, allowing them to halt payments between some or all users. The attackers could double-spend the coins by reversing the transactions that were completed. This attack happens when a single adversary is controlling multiple nodes by forging identities in peer-to-peer networks. However, as Bitcoin’s model suggested since day one, the cost of hijacking the system in such a way will be way far expensive than to play it by the rules. All computer systems are prone to cyber-attacks, especially those monetary related systems. In summary, to have a better understanding of how a Blockchain stores secure data (such as coins) and how secure it could be, you can look at it from both the technical and the design related terms. Technical Terms By Design Asymmetric Cryptography Distributed System Hash Public and Private Keys Digital Signature Timestamp Consensus Algorithm Game Theory Byzantine Fault Tolerance Prisoner’s Dilemma 51% Attack © 2017-2018. Koh How Tze. All Rights Reserved.
  30. 30. Use Case If the World Wide Web is about information, the Blockchain is about trust. If the World Wide Web is about the transfer of information, the Blockchain is about the transfer of values. The web was about replacing some intermediaries. Now the blockchain is about replacing other intermediaries, once again. The blockchain will do to banking what the web did to media. In the near future, we will be doing 'Googling' equivalent over blockchains looking for truth and authentication. It’s doesn’t have to be pure Web or native Blockchain applications. We can build hybrid systems. Solutions that traverse between the web and blockchains. Of course, integration is one of the key concerns. Is there any real-life project for reference? Yes, Civic - a secure identity29 platform that verified identity, decentralized with blockchain technology. It is an identity management service that allows you to protect and authorize the use of your identity in real-time. A working example of how Civic works? Take as an example. It works30 somehow like 3rd party payment gateways, where users are directed away to a 3rd party system for some functionalities (in this case, identity verification), and brought back to the previous website after intended services are done. 29 30 © 2017-2018. Koh How Tze. All Rights Reserved.
  31. 31. You can now login some websites with your identity on FB, G+, Twitter, or Civic. The Blockchain technology brings to the World Wide Web a very important and critical element - trust​. People search for news, products and services information, and communicate over the internet. The problem with existing ecosystem is, people can’t be sure if the piece of information, or the party whom they are communicate with is the genuine or real person. Blockchain complements this part of the puzzle. With trust as a built in protocol, it delivers promises about the genuinity of identity, ownership and transactions. While the best use case is money and payment system, which we are seeing in place now, the applications could reach out to many other sectors, with even new industry being created. For instance, energy, law and enforcements, properties and belongings, etc. As we can see from the illustration below, when trust is in place, we shall have no issues with identity and ownership. The best place to prototype the concept by putting all pieces together would be through a small scale property development project, which we shall go through the design part of it, piece by piece. © 2017-2018. Koh How Tze. All Rights Reserved.
  32. 32. Chapter 2 Summary It's a matter of choice - to trust human being or to trust computational machines. The former can be corrupted by lust, greed, fear etc, where decision making could be emotional at some point of times. The latter is purely mathematics and logics, with high resistance to censorship, coercion and geopolitical manipulation. The highest risk for machines would be total offline when main energy supply stops. For instance, the complete shutdown of the whole internet. Technically, when it comes to hybrid solutions, it is important to know when to use a traditional database and when to use a blockchain, optimizing their dual operations will be critical for security, stability, and scalability. Of course, there are endless possibilities. To embrace technology and take the middle path could be a better option rather than to go extreme on both ends. © 2017-2018. Koh How Tze. All Rights Reserved.
  33. 33. THIS BOOK HAS BEEN MADE POSSIBLE THANKS TO OUR EARLY SUPPORTERS Special thanks to Kapten Malek (Founder), Adnan (Co-founder), En. Zamzuri (CEO), and En. Abdul Aziz (CMO) of ​BeeOnPay​ Group - D' PAYMENT SYSTEM BEYOND BOUNDARIES. With a dedicated and knowledgeable team in the cryptocurrencies world, the company is the first one to support this project by transferring some bitcoins to kickstart everything. Thank you Datuk Azman Ching Eu Boon (Chairperson), Mr. Low Kok Siang, Mr. Low Kok Hui, Mr. Low Kok Lin of GABEM​ - an association from Malaysia that is committed to promote the rich culture and resources of this country to the world. BLOCKCHAIN INSIDER  What Bitcoin and Blockchain Technology have to offer the world If you would like to pre-order the book: ​ If you prefer an online version: ​ If you would like to be part of this project or have some suggestions for the betterment of this project, please do not hesitate to drop us an email: ​ Your feedback and valuable inputs are most welcomed. © 2017-2018. Koh How Tze. All Rights Reserved.
  34. 34. Author’s Profile Koh How Tze, an entrepreneur with a Degree of Bachelor of Engineering (Computer) from UTM, Skudai, Malaysia, had been serving clients from retail and servicing industry since the dinosaur age of the internet. He started his career as a programmer working on Web Based Retail Management System, during an era where people are still using dial-up connections with 56k modem (the fastest that time) to go “online”. He witnesses how the ICT industry and the internet grew from DOS based system to the modern days’ mobile system, to what it is today. Serving clients from start-ups to MNC throughout his 20 years career path (since 1997), he understands clearly the in and outs of web-based systems, which he advises, consults and integrates for many of his clients. One of the most successful implementation was a retail chain who grew their businesses from 13 outlets to current public listed status with more than 200 outlets across the nation. This is one of the earliest web-based retail management systems in the market, running on open source LAMP (Linux, Apache, MySQL, PHP) environment. Another system development and implementation using similar framework were for a coach company, with hundreds of tickets issued daily through an online ticketing system. Many can be added but to cut a long story short, they are all customised software solutions. From ICT system development and integration, he went into consultation and currently moved into the digital media landscape. He is betting the future on this sunrise industry with strong confidence in Malaysia’s rich cultural heritage and multi-ethnics resources. He is currently a digital media strategist, specialized in transmedia content marketing. Never, Ever Give Up! Foo Kok Keong’s Biography Lions Centennial Services Excellence © 2017-2018. Koh How Tze. All Rights Reserved.
  35. 35. T H A N K Y O U http://www.BCInsider.MY © 2017-2018. Koh How Tze. All Rights Reserved.