This document provides an introduction to blockchain technologies. It discusses key principles like decentralization and transparency. It also covers cryptography primitives, consensus protocols like proof-of-work and proof-of-stake, economics of cryptocurrencies, smart contracts, and limitations of current blockchain platforms. The goal is to give the reader an overview of the major components that make up blockchain systems.

1. Introduction to
Blockchain Technologies

2. About Oded Noam
Chief Architect @ ORBS
Head of Blockchain Architecture @ Kik
oded@orbs.network
Developing blockchain infrastructure for
mass-market applications

3. Agenda
Cryptography
Primitives
Consensus
Protocols
Crypto-
Economics
Smart
Contracts
Principles of
Blockchain Tech
Limitations of
Current Tech
The Big Picture

4. Principles

5. Principles Public
Decentralized
Transparent
Permissionsless

6. Principles Public Decentralized Transparent Permissionless
Bitcoin ✔ ✔ ✔ ✔
Ethereum ✔ ✔ ✔ ✔
Ripple ✔ ✔ ✔ ~✘
Stellar ✔ ✔ ✔ ~✘
Chain.com ✘ ✔ ✘ ✘
Hyperledger ✘ ✔ ✘ ✘
IOTA ✘ ✘ ✔ ✔

7. Crypto
Primitives

8. Crypto
Primitives
Cryptographic Hash
● Hash any binary object to a fixed-size number
● Changing 1 bit completely changes the hash;
Impossible to reverse
● Uniformly distributed; the collision probability of
256-bit hash is 1:2128 (i.e. “never”)

9. Crypto
Primitives
Public-Key Cryptography
● Encrypt with public key
→ must have private key to decrypt
● Encrypt with private key
→ anyone with the public key can decrypt
● Latter method can be used for signing: hash a
message, encrypt the hash with your private
key. Now anyone who has your public key can
verify you are the signer
(this is in fact a more common use of PK than encryption)

10. Crypto
Primitives
State Machine
Replication
● Goal: Create a mechanisms for many
computers to agree on their memory contents
(e.g. ledger)
● Method: Start with a predefined initial state,
then periodically agree on a set of differences
● Blockchain: the initial state is the genesis block,
each set of differences is coded into a block
referencing the previous

11. Consensus
Protocols

12. Consensus
Protocols
Challenges of Consensus
● Must have consensus over
○ Content of blocks
○ Order of blocks
● Agreement on blocks has winners and losers
→ consensus is hard
● Decentralization opens the door to
Byzantine Faults
● Being permissionless opens the door to
Sybil Attacks

13. Consensus
Protocols
Proof-of-Work
● Mitigate sybil attack by requiring validator to
prove they spent money on signing a block
● Mostly, use a hash puzzle:
○ Block has placeholder for arbitrary data
○ Validators must find a number that yields
hash(block) < target number
○ Lower the target to make it harder to solve
(difficulty)
○ Solver gets fees (and optionally a reward)
● Drawbacks: Wasteful, carbon footprint, slow

14. Consensus
Protocols
Proof-of-Stake
● Mitigate sybil attack by allocating voting
power based on currency ownership (stake)
● Most implementations have validator put a
collateral;
if found cheating the collateral is confiscated
● Drawbacks: hard to engage all stake owners,
circular logic

15. Consensus
Protocols
Permissioned Protocols
● Not subject to Sybil attacks
● Byzantine fault tolerant algorithms exist
● Drawbacks: not entirely open

16. Economics

17. Economics Bitcoin Economics
● Predetermined supply, asymptotic to 21m
● Distribution through mining: PoW rewards
(decreasing in size; started at ₿50; today ₿12.5)
● Fees determined by market price
○ Transaction sender can determine the fee
○ Miners choose which transactions to
include
○ Block size is limited, price surges when
network busy

18. Economics General Monetary Principles
● Coins can be minted or mined
(or both - e.g. Ether)
● Supply can be
○ Fixed (most ICOs)
○ Predetermined schedule (Bitcoin, Ether)
○ Dynamic (Bancor)
● Mining also creates distribution
● Minting enables funding through crowd-sale

19. Smart
Contracts

20. Smart
Contracts
Blockchain Consensus is an
Infrastructure for Decentralized Apps
● Past: Decentralized Apps (protocols) needed
their own network
○ Fax
○ Internet
○ WWW
○ BitTorrent
○ Bitcoin
● Present: execute ĐApp code on Blockchain
○ Turing-complete virtual machine
○ Consensus on execution outcome

21. Smart
Contracts
Current Gen Smart Contracts
● Ethereum pioneers smart contract network
● Execution is duplicated on ~20,000 nodes
● Very slow and costly
● Killer app: crypto tokens; other uses very rare
● Naïve governance: immutable contracts

22. Incumbent
Limitations

23. Incumbent
Limitations
Bitcoin
● Low throughput (~6 tx/s)
● High latency (10 min/block, suggested 6-block
depth for high probability of confirmation)
● Monetary system unfit as means of exchange
● Limited privacy
● Questionable compliance with AML regulation
● Messy governance, forks

24. Incumbent
Limitations
Ethereum
● Low throughput (~20 tx/s)
● Variable latency (confirmation time between
few seconds to several hours)
● Very limited privacy
● Questionable compliance with AML regulation
● Centralized governance (hard fork controversy)

25. The Big
Picture

26. The Big
Picture
DApps
DAO
ICO

27. THANK YOU