Blockchain is a decentralized approach to solving the double spend problem of digital currencies without a central authority. It uses a distributed ledger maintained on many computers to record transactions in blocks linked through cryptography. This allows participants to verify transactions without trusting a central party. Blockchain addresses issues like single points of failure, censorship, and high fees by achieving consensus across a peer-to-peer network through proof of work and an incentive for honest participation in maintaining the ledger. Potential applications include cryptocurrencies like Bitcoin and programmable platforms for smart contracts.

1. Blockchain
Presented By: Gopal Goel

2. Contents
• What is Blockchain and why do we need it?
• How Blockchain works?
• Data Structure
• Protocol
• Networking
• Applications of Blockchain
• Future of Blockchain

3. Internet Of Information
• Since the advent of Internet, we have been exchanging information
over the internet in the form of text, images, videos, etc.
• Everything we share over the internet is a copy. There is no
original.
• E.g. A digital image sent to a friend is a copy. I still have the image even after
sending it to a friend.

4. Internet of Value
• How do we exchange things of value over Internet?
• E.g. money, stocks, property ownership, etc.
• How do we create Digital Scarcity?
• A thing of value on the digital platform that is scarce or limited.

5. Double Spend Problem
• If a person has a digital asset, say money, he can give it to some
other person and still have a copy of the original digital asset which
he may spend again.
• How do we make sure that once an asset is spent, it cannot be spent
again by the previous owner?

6. Approaches to Double Spend Problem
• Centralized:
• This is usually implemented using an on-line central trusted third party that
can verify whether a token has been spent.
• Decentralized:
• Blockchain

7. Problems with Centralized Approach
• This approach normally represents a single point of failure from
both availability and trust viewpoints.
• E.g. In Banking,
• If the bank’s website goes down, no way to transact.
• Easy to be attacked by the hackers.
• Both parties have to trust that the bank transfers money securely without errors.
• The central party often charges us a hefty fee for using their service.
• E.g. Sending money cross-country using services like Western Union, etc.
takes a fee of 10-20% of the amount.

8. Blockchain
• It is a decentralized approach of solving the Double Spend
Problem.
• This approach was first introduced in 2008 and since then
hundred’s of different implementations have been done.
• Bitcoin is the first application that uses Blockchain technology.
• We will sometimes refer to its implementation to understand Blockchain.

9. What is Blockchain?
• In the decentralized approach, we use a public ledger to record the
transactions. This ledger was originally termed as Blockchain.
• It is like a giant data store that is used by everyone to read and
write transactions.

10. Properties
• Decentralized and Distributed
• No single point of failure from both availability and trust viewpoints.
• Immutable
• Once a transaction is recorded in this data store, it cannot be changed.
• Durability and Attack Resistance
• It is practically not possible to record false transactions.
• Fault Tolerance
• Service is available at all time.

11. Blockchain Data Structure

12. Hash Pointer
• Like a normal pointer but stores two things:
• Address
• Hash of the data in that address
• Benefit
• Verify data integrity
• In layman’s terms a liked-list using hash pointers instead of normal
pointer is the Blockchain.
• Each node is like a block and linked together forms the Blockchain.

13. Immutable Property

14. Immutable Property

15. Immutable Property

16. Immutable Property

17. Blockchain Data Structure
• An append-only immutable data structure.
• How to achieve decentralization?

18. Aspects of Decentralization
• Who maintains the ledger?
• Peer-to-peer network: open to anyone, low barrier to entry.
• Every peer maintain a copy of the ledger and remain in sync with each other.
• Who has the authority over which transactions are valid?
• Who creates the digital coins?
• Should be limited to achieve digital scarcity.

19. P2P Protocol
• Ad-hoc network with random topology
• All nodes are equal
• New nodes can join at any time
• A new node joining the network ask any existing node for neighbor addresses
and then ask neighbor’s neighbor and in this way gets connected to many
nodes.

20. Distributed Consensus
• Key technical challenge of a decentralized digital coin system is :
Distributed Consensus.
• How do all the nodes in the system agree on only one fact?
• Traditional motivation:
• Reliability in Distributed Systems like Distributed Databases, etc.
• Build a distributed key-value store.
• Not much progress in such models.
• Hard to reach consensus because network is imperfect, latency, etc.
• Nodes crash time to time.

21. Distributed Consensus in Blockchain
• Introduce Incentives
• Possible because it’s a currency.
• Embrace randomness
• Consensus happens over a long time.
• Consensus is probabilistic and not deterministic.

22. Algorithm
1. New transaction is sent to any of the nodes in the network.
• If the transaction is invalid, it is rejected.
• If valid, the node stores it in the list of unconfirmed transaction.
• The transaction is then broadcasted to neighbor nodes.
2. In each round a random node gets to broadcast its block.
• A block contains a list of unconfirmed but valid transactions.
• It also contains the hash of the previous block.
3. Other nodes accept the block after checking the block.
• Nodes express acceptance by adding the block to its own copy of the
Blockchain.
4. Nodes always maintain their copy with the longest valid chain.

23. Transaction Propagation – Flooding Algorithm

24. Transaction Propagation – Flooding Algorithm

25. Transaction Propagation – Flooding Algorithm

26. Transaction Propagation – Flooding Algorithm

27. Race Conditions
• Transactions may conflict
• Nodes may accept/reject the conflicting transaction.
• The transaction that ultimately ends up in the block chain is the one that is
finally accepted.

28. Consensus Protocol

29. Consensus Protocol
new added block

30. Double Spend Attack

31. Longest chain wins

32. Incentive for Honesty

33. Incentive for Honesty

34. Incentive
• Creator of the block gets to include a special transaction in the
block, the coin creation transaction.
• It creates coin and store it in the name of the block creator.
• Those coins are only useful if it ends up in the long-term consensus
branch.

35. Remaining problems
• How to pick random node?
• How to avoid a free-for-all due to rewards?
• How to prevent Sybil attack?

36. Proof of Work
• All the nodes who wants to propose the next block, needs to do
some work before they proposes the block and attach the proof of
their work in the block.
• Nodes need to make sure that the hash of the block is of form:
• “00000000ahdn48b37r3b…nbf7f48”
• Few zeros in the beginning.
• Try adding random string in the block so that the hash is of the above form.
• The node which find it first, broadcast the new block and all nodes accept after
check the block validity and the proof of work.

37. Sybil Attack
• The network is secure unless 51% of the nodes are malicious.
• Perspective:
• In case of Bitcoin, the amount of computing power required to attack the
network is more than the computing power of top 500 Supercomputers
combined.
• No person or organization have anything close to that amount of computing
power as of now.

38. Drawbacks of Blockchain
• Distributed consensus in probabilistic and no deterministic.
• We need to wait for few more blocks to consider a transaction to be truly confirmed.
• Probability increases exponentially but never 100%.
• Takes a long time for the block to get propagated to the entire network.
• Not suitable for instant payments.
• All nodes need to maintain an entire copy of the block chain since the genesis
block.
• The block only increases with time. Eventually, we will face storage issues.
• 51% attack possible.
• Bootstrapping problem.
• Difficult to make changes in the software.

39. Applications of Blockchain
• 1st Generation:
• Bitcoin: A decentralized cryptocurrency.
• Many other crypto-currencies. Together called Altcoins.
• 2nd Generation:
• Ethereum:
• It’s a programmable Blockchain. Instead of simply storing records in the distributed
ledger, we can have store code in the ledger.
• Able to deploy smart contracts.
• 3rd Generation:
• Uses Directed Acyclic Graph instead of a Linked List style block chain.
• E.g. Iota, Cardano, etc.

40. Blockchain at Present
• “Encryption and cryptocurrency take power from centralized
systems and put it back into people's hands. But they come with
the risk of being harder to control. I'm interested to go deeper and
study the positive and negative aspects of these technologies, and
how best to use them in our services.”, posted Mark Zuckerberg,
CEO of Facebook, on 4th Jan 2018.
• Other Big companies working on Blockchain Technology Include:
• IBM, Walmart, Visa, ING, etc.
• 100s of startups working on Decentralized Applications:
• Open-Bazaar, Eth-Tweet, etc.

41. References
• Bitcoin White Paper: https://bitcoin.org/bitcoin.pdf
• Books:
• “Bitcoin and Cryptocurrency Technologies” by Arvind Narayan and Andrew
Miller from Princeton University.
• “The Internet of Money”, by Andreas M. Antonopoulos.

42. Questions?