Blockchain 101 - focused on public, tokenized blockchains

1. Blockchain 101
Brett Colbert

2. Two main types of Blockchains
Public Private or Permissioned
Bitcoin
Ethereum
Hyperledger
R3 Corda
Gem Health
Quorum
We will start
here…

3. Why the recent blockchain interest?
2 fairly recent events
• Satoshi Nakamoto’s White Paper -
https://bitcoin.org/bitcoin.pdf -
published October 31, 2008
• No one knows who Satoshi is
• Satoshi Nakamoto is a
pseudonym, possibly a name
made up from SAmsung,
TOSHIba, NAKAmichi, MOTOrola
• Bitcoin blockchain was born
• Vitalik Buterin launches
Ethereum blockchain July
2015
• Improved the programmability
of the blockchain
• Many startups are being built
on top of Ethereum
• Dapps = distributed apps
• Bitcoin’s blockchain primarily stores financial
transactions
• Ethereum’s blockchain primarily stores
contractual transactions
https://youtu.be/nGsPgBJ5tCw

4. What exactly is the blockchain?
• A decentralized, trusted public ledger of all transactions
• Characteristics
– Decentralized - nodes on the network manage and maintain the blockchain
– Trusted - distributed verification using math - immutable = unchanging over time
– Public - anyone can see the block, the transactions and
– Pseudononymous - kinda anonymous for the user
– Programmable - smart contracts
Block x Block x+1 Block x+3Block x+2
transactions transactions transactions transactions

5. Decentralized  network of nodes that
manage and maintain the blockchain
https://bitnodes.earn.com/

6. Public - Anyone can see all the blocks, how
big, when mined, found by, etc.
Go to www.blockchain.info
Go to www.etherscan.io
Bitcoin
blockchain
Ethereum
blockchain

7. Public - Anyone can see the
transactions in each block
Bitcoin
Ethereum
Bitcoin
blockchain
Ethereum
blockchain

8. Technical Underpinnings of Blockchain
• Hash - (eg SHA-256)
• Nonce
• Merkle Tree
• Hash chain
Understanding the Strengths of Blockchain Requires
Understanding the Technical Architecture
See section below for all the technical details

9. What is a hash?
1. A hash is an algorithm that takes an input and creates an output.
2. Bitcoin uses a hash algorithm called SHA-256 which was developed by the US National Security
Agency. The output is always a predetermined length, regardless of the input length. (256-bit
key can be expressed as a hexadecimal string with 64 characters)
3. SHA-256 is an algorithm - produces 256 bit hash. Deterministic. Same input = same output.
4. You cannot reverse a hash back to it’s original input. It only goes one-way. It scrambles text and
you can never unscramble it.
5. SHA stands for Secure Hash Algorithm. SHA-256 always outputs a string which is 64 characters
long. An example looks like the following: (Hello World)
1. a591a6d40bf420404a011733cfb7b190d62c65bf0bcda32b57b277d9ad9f146e
6. You can try SHA-256 out at: http://www.xorbin.com/tools/sha256-hash-calculator
7. Slightly changing the input, dramatically changes the output

10. Why do hashes and blockchain
matter?
Take transaction details and hash them, then hash all of them. Then, I would know
specifically whether those transaction details are unchanged… or not.
Transaction #1 details
(date, amount, etc)
Transaction #2 details
(date, amount, etc)
Transaction #3 details
(date, amount, etc)
Transaction #4 details
(date, amount, etc)
Transaction #N details
(date, amount, etc)
…
ada81ec5866838e620c
2b6451e5ef50fef65d99
854ead0a4abcd58b74e
1a2d4d
deed94bd87f940b245022ef29134da173afa1e26
ec7ca3d346622b1f9e2a294f
3bd793c148284486f96f0a7cf38f6970e66392e52
7bb8b5ca15038e5a6cad19d
1fd6dc4a485e21df9f0a649a4dbee483c76d3745
e10654482714c400367a7b21
e7ee3a7375e93802bab264936aab544e2f3b3476
bb0f4f847d13e669165f5edb
4d0e7a9abdcb8fa3a4b5773f919342224db31936
945be8cc332c6043b93ca587

11. Merkle Tree (aka hash tree)
A Merkle Tree has a root
hash or merkle hash
which is made up of
numerous other hashes.
All dependent on each
other.

12. Merkle Tree Applied to Blockchain -
Proof of Work
Really important to
notice here:
1) Previous hash
2) Nonce
3) Merkle root (of
approx 2000
transactions)

13. Decentralized Trust
• Using math to determine hash of next block
• This is called mining
• Why would someone spend money on electricity and computers to do
this?  Reward of 12.5 bitcoin for each block found or ‘mined’

14. Decentralized Trust - What is Bitcoin Mining?
…
Miners are trying to figure out the hash of the
next Block. They all start with the same info.
Miners repeatedly hash the current block
header only changing one parameter each time,
until the resulting hash matches a specific
target.
Why is it hard to figure out the next Block
header hash?
1) The hash cannot be determined in advance
2) No pattern can be created to determine the hash
Mining is the activity associated with figuring out
the next Block! It’s basically a puzzle.
Why would someone want to figure out the next
Block?
Because they get rewarded a certain number of
Bitcoins! Currently the reward is 12.5 Bitcoins.
??????

15. How mining works…
By Ritchie S. King, Sam Williams,
& David Yanofsky December 17,
2013
Mining a block is difficult
because the SHA-256 hash of a
block's header must be lower
than or equal to the previous
block hash, in order for the
block to be accepted by the
network.

16. bitcoin = verification reward for the
blockchain - reward cuts in half approx every 4 years
This is
referred
to as the
“halving”
Nov 28,
2012

17. Wouldn’t the number of blocks found
increase as compute power gets stronger?
• It would, except Satoshi anticipated this and put in a throttling
mechanism, referred to as difficulty.
• Throttling the difficulty of finding a block helps keeps block creation
to approximately every 10 minutes.
• Difficulty is recalculated every 2016 blocks, so approximately every
2 weeks.
• If more miners join, the rate of block creation will go up. As the rate
of block generation goes up, the difficulty rises to compensate which
will push the rate of block creation back down to the goal of a block
every 10 minutes.

18. Verification of new Blocks
A node on the Bitcoin network goes through numerous verification checks when
it receives a new Block:
• The block data structure is syntactically valid
• The block header hash is less than the target difficulty (enforces
the proof of work)
• The block timestamp is less than two hours in the future (allowing
for time errors)
• The block size is within acceptable limits
• The first transaction (and only the first) is a coinbase generation
transaction
• All transactions within the block are valid using the transaction
checklist discussed in Independent Verification of Transactions

19. http://fortune.com/2017/11/25/lost-bitcoins/
“Just as gold bars are lost at sea or $100 bills can burn, bitcoins can disappear from
the Internet forever. When all 21 million bitcoins are mined by the year 2040, the
actual amount available to trade or spend will be significantly lower.”

20. Ethereum
• A crypto-currency which includes a “smart contract” platform.
• The unit of currency is called the ether.
• Unlimited supply of currency unlike Bitcoin.
• Open source
• Microsoft’s Blockchain-as-a-Service is based on Ethereum

21. Brilliance of Blockchain
• Auto-throttling aka difficult - Satoshi anticipated that chips
would run faster clock speed (and ASICs) and built-in a
throttling mechanism
• Security/Trust is decentralized into the network vs a central
company or group like RSA, McAfee, Symantec, etc.
• Reward mechanism is bitcoin or ether - the reason why
miners mine
• Limited number of bitcoin makes it precious like gold
• Reward decreases every 4 years - Satoshi anticipated the
increase in value of bitcoin
• …

22. Credit: BTCS
Blockchain will affect every industry
Why
Revolutionary?
Simply put:
Blockchain takes
away the
middleman in
transactions.
No middleman =
cheaper, faster and
safer.

23. What’s going on with blockchain?
Blockchain as a Service
- Microsoft BaaS 2015
- SAP BaaS 2017
- Oracle BaaS 2017
- IBM Blockchain
- AWS Blockchain 2016
Alliances
- Enterprise Ethereum Alliance
- BankChain (20 Indian banks)
- Digital Trade Chain (7 of EU’s largest banks)
- …
Pilots
- Sweden is leveraging blockchain to track land registries called the Lantmäteriet.
- The second largest port in Europe, Belgium-based Port of Antwerp, announces a
blockchain pilot to automate and streamline the port’s container logistics operations.
- Visa has a blockchain effort called “Visa B2B Connect” partnering with Chain to
analyze the possibility of optimizing near real-time funds transfer system for high
value bank-to-bank and corporate payments.
- Maersk is investigating blockchain to track global trade and shipments.
- Jan Brecht, Daimler’s CIO said, "We see blockchain as a promising technology, not
fully mature yet, but continuously growing. Now is the right time to get into it, build up
knowledge and form a network of like-minded people to share experiences.”
- …

24. Blockchain - Examples of Usage
• Land Use - Ownership and history of property currently requires the investigation
of many different document sources such as Grantor-Grantee index, Land Records
or Deed Records. The goal is to find any records related to property liens,
easements, covenants, conditions and restrictions(CC&Rs), agreements,
resolutions and ordinances. This a time consuming and laborious process in which
it is easy to miss important information. Sweden is leveraging blockchain to track
land registries called the Lantmäteriet. They estimate a taxpayer savings of $106M
per year based on reduction of fraud, eliminating paperwork and accelerating the
process.
• Identity - Across the globe we use passports to identify people, which are
fundamentally paper-based identity cards similar to your driver’s license. ISIS is
reported to have the ability to manufacture fake passports. In 2013, almost 40
million "travel" documents were reported as lost or stolen since 2002, according to
Interpol. Dubai is working on a digital passport based on blockchain. Efforts to
reduce child trafficking are being built on the blockchain.

25. Blockchain - Examples of Usage
Healthcare - Where are your health records for the last 5 years? What were the
results of your most recent blood tests? Where are you most recent xrays?
Where are your parent’s medical records? Your kid’s medical records?
 What if your medical records were saved on the blockchain and ONLY you
could allow people access to those medical records?
Prescription medication - Do you take medications? Worldwide sales of
counterfeit medicines could top US$ 75 billion this year, a 90% rise in five years,
according to an estimate published by the Center for Medicine in the Public
Interest in the United States of America (USA). The FDA’s Drug Supply Chain
Security Act, signed into effect in November 2013, creates a requirement to
‘develop an electronic, inter-operable system to identify and trace certain
prescription drugs as they are distributed in the United States.’ A San Francisco-
based startup called Chronicled has launched a ‘track and trace’ pilot using
blockchain to build an electronic, inter-operable system to identify and track
prescription drugs as they are distributed in the United States.

26. Blockchain - Examples of Usage
•Land Use - Ownership and history of property currently requires the investigation of
many different document sources such as Grantor-Grantee index, Land Records or Deed
Records. The goal is to find any records related to property liens, easements, covenants,
conditions and restrictions(CC&Rs), agreements, resolutions and ordinances. This a time
consuming and laborious process in which it is easy to miss important information.
Sweden is leveraging blockchain to track land registries called the Lantmäteriet. They
estimate a taxpayer savings of $106 million per year based on reduction of fraud,
eliminating paperwork and accelerating the process.
•Identity - Across the globe we use passports to identify people, which are paper-based
identity cards similar to your driver’s license and therefore counterfeitable. ISIS is reported
to have the ability to manufacture fake passports. In 2013, almost 40 million “travel”
documents were reported as lost or stolen since 2002, according to Interpol. Dubai is
working on a digital passport with a London-based company called ObjectTech. The digital
passport is based on Blockchain. “This is an identity that is fit for the digital age,” said Paul
Ferris, co-founder and chief executive of ObjectTech. “Not only will it make international
travel quicker and safer, but it also gives people back control of their personal digital data.”

27. Blockchain - Examples of Usage
• Global Logistics and Shipping - The second largest port in Europe, Belgium-
based Port of Antwerp, announced a blockchain pilot to automate and
streamline the port’s container logistics operations. “According to the terminal
authority, moving containers from point to point often involves more than 30
different parties, including carriers, terminals, forwarders, haulers, drivers,
shippers and more. This process results in hundreds of interactions between
those parties, conducted through a mix of e-mail, phone and fax.” Maersk is
investigating blockchain to track global trade and shipments (see video below).
• Etherisc is creating Ethereum smart contracts to build decentralized insurance
applications to make the purchase and sale of insurance more cost effective and
provide greater transparency into the insurance industry. Investors are able to
buy and trade a decentralized insurance portfolio. Imagine a completely
decentralized insurance agency.

28. Blockchain - Examples of Usage
• Ujo is a music platform built on Ethereum. It leverages uPort for Identity
and provides licensing and payments through Ethereum smart contracts.
• Retail - Counterfeit goods. Tracking legitimate product on the blockchain.

29. The Bitcoin vs Gold Comparison

30. What are the four possible activities of
a bitcoin network node?
From Mastering
Bitcoin by
Andreas M.
Antonopoulos
Excellent book. I
highly
recommend
reading it if you
are interested in
learning the
details of how
bitcoin and
blockchain work.

31. How many Bitcoin nodes exist?
As of
Dec,
2015
As of Jan,
2017
As of Nov,
2017
https://bitnodes.earn.com/

32. Bitcoin blockchain nodes
https://bitnodes.earn.com/

34. How do I learn more?
I want to learn more
• Huffington post articles
• https://www.huffingtonpost.com/entry/blockchain-will-disrupt-every-
industry_us_5963868ce4b08f5c97d06b55
• https://www.huffingtonpost.com/entry/blockchain-innovation-in-healthcare-
and-life-sciences_us_59c91296e4b0b7022a646c4b
• @brett_colbert - twitter blockchain list
• Download the Bitcoin Core
• Download Ethereum
• Take a course on Coursera

35. Excellent technical video on hashing
and the bitcoin blockchain
https://youtu.be/fw3WkySh_Ho
Consensus Algorithms, Blockchain Technology
and Bitcoin UCL - by Andreas M. Antonopoulos

36. Upcoming capabilities to watch for
• Upcoming capabilities
– Cross-chain atomic swaps (very cool!)
– Lightning Network

37. Smart, trusted experts in this space
(you can follow them on twitter and youtube)
• Andreas Antonopolous - the bitcoin and currency genius
• Tone Vays - deep TA
• James Lopp - core developer
• Jimmy Song - bitcoin commentator
• Adam Back
• Peter Todd
• Elizabeth Stark - Lightning
• Eric Lombrozo
• Phil Komarny
• ...
• You can track them all on my “blockchain” twitter list which is public

38. Brett’s Favorite
Bitcoin/BlockchainTools
• www.blockchain.info
• www.bitcoinwisdom.com
• https://tradeblock.com/bitcoin
• http://bitcointicker.co/#