Intro to Blockchain Fundamentals (39

Introduction to
Blockchain Technology
Lesson One Fundamentals
By: Professor Lili Saghafi
proflilisaghafi@gmail.com
@Lili_PLS

Rights Reserved @PLS 2
Learning Objectives
• By the end of this lesson, you should be
able to:
– Discuss about blockchain, its characteristics and uses.
– Discuss about the roles and users in a blockchain.
– Explain how blockchain is using cryptography.
– Discuss about public and private blockchains:
differences, advantages/disadvantages, use cases.
– Explain what consensus is and why consensus is
needed in a blockchain.

Learning Outcomes
• By the end of this section, you should be
able to:
– Explain the concept of blockchain.
– Discuss the importance of blockchain.
– Understand how bitcoin is using blockchain.

What Is Blockchain?
• There's a new technology that has the power to
revolutionize how you, businesses, and the
world interact!
• Hearing the word "blockchain" is comparable to
hearing the word "internet" in the early 90s.
• more than 20 years later. Think about how the
Internet has transformed businesses, commerce,
communication, even music and video.
• The next technology to have that kind of impact
isn't some of the buzzwords you hear.It's not big
data. It's not artificial intelligence. It's not even
social media. It's BLOCKCHAIN!

Blockchain promises
• blockchain has vast promises for every
business, every society, and for everyone
listening today.

Example
• When you attach a file, a Word document, an
Excel sheet, a PDF to an email, you aren't
sending an original.
• You are actually sending the recipient a copy,
and that's a great way to move information
around.
• But it's not so great when it comes to things like
money, stocks and bonds, music, loyalty points,
intellectual property, tickets to a game or
concert. Then, sending a copy is suddenly a
very bad idea.

Example
• If I send you tickets to a concert, it's important
that I don't send you a copy.
• You now own the original asset and I can no
longer use or sell those tickets.
• Similarly, if I send you $100, it's important that I
still don't own the $100, or have the ability to
send it to anyone else.
• Both of these examples illustrate a double spend
problem, and those can be eliminated with
blockchain.

Outcome
• So now every kind of asset, from tickets,
to money, to music, can be stored, moved,
exchanged, and transacted without an
intermediary.
• People everywhere can transact peer-to-
peer and trust each other by using
collaboration and cryptography.

How did we get here
• It began when Satoshi Nakamoto, whose true
identity is still unknown, released a white paper
in 2008, introducing a purely peer-to-peer
version of electronic cash known as Bitcoin.
• It is here that blockchain technology made its
first appearance .
• Even today people believe Bitcoin and
blockchain are one and the same.
• They are not!

• Bitcoin is not Blockchain
• Blockchain has Far-Reaching Importance
for Many Networked Electronic Systems
Including IoT Devices

Bitcoin
• Bitcoin, another alternative currency,
utilize blockchain technology.
• While an important one, Bitcoin is only one
use case for blockchain.
• Blockchain allows people to exchange
assets and perform transactions without a
third party.

public uses for blockchain (exp.
Bitcoins )
• There’s a significant difference between
public uses for blockchain (think Bitcoin
and Etherium) and private uses.
• When public use is involved, anyone can
access the blockchain ledger and will see
every transaction on the network.
• That’s supposed to be part of the
attraction for these crypto-currencies.
• There’s a downside too.

public uses for blockchain (exp.
Bitcoins )
• Because these public uses are based on
public/private crypto-key technology, if you
lose your private key, you lose access to
all of your crypto-currency.
• It’s an anonymous network, so no one can
get your key back for you.
• Imagine running your bank account that
way.

Private uses for blockchain
• For private uses of blockchain, entities
must be invited to participate in the
network.
• Others are barred by strong cryptography
and crypto-key technology.
• Everyone participating in a private
blockchain network is known, at least to
the entity running the network.

Private uses for blockchain
• So use of the blockchain distributed ledger
is more like today’s accounting systems,
but with highly networked, distributed
ledger systems.

Example : Diamonds
• A blockchain ledger is nothing more than a
historical record of all transactions related
to a resource.
• Take diamonds for example.
• A diamond is mined, sorted, cut, polished,
boxed, mounted in a setting, sold, and
resold.

Example : Diamonds
• There are transportation events taking
place between many of these events.
Diamonds are valuable enough and
unique enough to track.
• In a private blockchain network for tracking
diamonds, every party in the network will
have the same blockchain ledger that
accounts for the diamonds at each stage.

Example: Food
• Another example is food. Whether it’s beef
or leaf lettuce, there have been food
scares and recalls.
• Instead of mass recalls, a blockchain
ledger system to track beef or vegetables
from grower to processor, to distributor, to
retailer, to restaurant or end customer
would allow targeted recalls to occur
quickly.

Example: Food
• Blockchain technology would also permit
investigators to determine why the food
was spoiled.
• For example, did the truck carrying the
food from one point to another maintain
the food at the proper temperature during
the entire trip?

Example: Food
• A blockchain ledger system creates a
master database that can be readily
queried to access that sort of information.
• It’s one short hop from this blockchain
scenario to one where the blockchain
ledger is partially or fully informed by a
swarm of IoT devices distributed
worldwide.

Example : Container Shipping
• Someone, somewhere fills a container with
metals, sliced granite, toys, car parts, tools, or
electronics.
• The container then goes on a truck to a port
where it’s loaded onto a ship, sent to some
intermediate port where it might be loaded onto
another ship, and then sent to a final destination
port where the container is unloaded, stacked
for a while, loaded onto a truck, sent on to its
final destination, and finally unloaded.

• There’s a lot of tracking involved in these
operations conducted by multiple entities,
and, consequently, there’s plenty of
opportunity for shrinkage, damage,
spillage, or spoilage.

• This is precisely the reason that cargo
carrier Pacific International Lines (PIL),
terminal operator PSA International (PSA,
based in Singapore), and IBM recently
conducted a pilot exercise based on IBM’s
Blockchain Platform —to investigate how
such a system might perform even at this
early stage in blockchain’s development.

McKinsey graph of all the commercial,
business, and government sectors that will
be affected by blockchain

Blockchain ledger runs on
Mainframe computers
• Blockchain ledgering simply doesn’t work
without the cloud and, in ibm’s case, it
runs on a mainframe.
• Mainframe computers provide the highest
level of security for blockchain
transactions.

No need for central authorities
• While traditionally we have needed central
authorities to trust one another and fulfill
contracts,
• blockchain makes it possible to have our
peers guarantee that for us.

“Crypto Anchor Verifier”
• IBM has developed something it calls the “Crypto Anchor
Verifier.”
• The Crypto Anchor Verifier uses a special lens attached
to a mobile phone to capture microscopic details of an
object’s surface, including optical characteristics such as
shape, viscosity, saturation value, and spectral values.
• These images go into the blockchain ledger with
everything else and can be used to verify that the object
that went into a container is the same object that came
out of the container.
• Now there’s a technology that’s ripe for development.

Preference
• We might want to prefers private blockchain
networks because the chances of someone
misbehaving in such a network is much less
than for the public networks that deal with
crypto-currency.
• Considering its reach, it’s highly unlikely that
something you’re doing won’t be touched by
blockchain technology.
• It solves multi-user database problems that we
have been trying to solve for decades.

How Blockchain Works
• Assets, like we've discussed, are no
longer stored in a central place, but
distributed across a global ledger, using
the highest level of cryptography.
• When a transaction is conducted, it's
posted across tens of thousands of
computers around the globe.
• These transactions are recorded as
blocks.

How it works
• Let's imagine a sheet of paper that has 25 lines.
• When a sheet is filled up with 25 transactions,
the block is validated via group consensus.
• Once the page has been validated, it is added to
a stack of previously validated sheets.
• Each sheet on the stack can be assumed to be
trustworthy because, once a sheet is validated, it
can't be changed.
• Because at this point, all the sheets are linked
together.

How it works
• And to link our sheets together, we embed
information from the previous sheet of paper into
the new, recently validated sheet.
• In blockchain, our sheet of paper is equal to a
block.
• The act of embedding a previous block of
information into the current block of information
is called chaining, hence, the name blockchain.

How it works
• In order to compromise or hack a
blockchain network, someone would have
to gain control of the majority of computers
in that network.
• This is extremely difficult to do.
• There is no longer a single point of failure,
and this is what makes blockchain
infinitely more secure than what we have
today.

Other use example : Contracts
• Blockchain isn't just for assets, though.
• It extends to contracts.
• These are called Smart Contracts.
• A smart contract self-executes and handles
enforcement, the management, and
performance of agreements between people.
• Examples of smart contracts include insurance
policies, copyrighted content, escrow and
lending, wills, and trusts.
• Smart contracts will revolutionize how we do
business.

Other use
• There are so many possibilities with
blockchain; not just in the now, but with
things we haven't begun to think about yet.

Comparing Blockchain to the
Early Internet
• When the internet first came along, we had no
idea how it would forever change our lives.
• From smart phones and text messages to
streaming movies and FaceTime visits with
loved ones, no one knew the ways the world
would change with the invention of the Internet.
• We are currently in the early phases of
blockchain and there is much potential yet to be
unlocked.

Comparing Blockchain to the
Early Internet

Blockchain Is NOT Bitcoin
• Bitcoin is transacted over an open, public,
anonymous blockchain network.
• Bitcoin and cryptocurrencies are great use
cases for blockchain, but there are many
more use cases that utilize blockchain
technology.

Blockchain Is NOT Bitcoin

Intro to Blockchain Fundamentals (39

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