An introduction to Blockchain with underlying technology and current state of development. Various blockchain implementation such as public, private, and semi-private blockchain.

1. Blockchains
Sanjeev Mishra
Jan 22, 2018

2. Blockchain
• Blockchain is not Bitcoin
• It’s a technology
– the foundation of Bitcoin and other cryptocurrencies
– that enables transferring an asset from one party to another in a secure
manner
– is akin to an distributed and open ledger
• provides a permanent and complete record of every transaction that has taken
place.
• needs no central gatekeeper that controls how transactions are recorded,
allows anyone on the network can verify and record the transactions
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3. Use case: Transferring Money
• Traditional way
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3rd
Party
• Blockchain way
• Alice sends money to 3rd party
• 3rd party
• verifies Alice has enough funds
• verifies identity of Bob
• transfers the money to Bob
• charge commission
• Bob receives the funds
• The transfer time depends on the
system
• No 3rd party
• Alice sends money directly to Bob
• Cheaper than transferring using
traditional route
• Funds are immediately available to Bob

4. Ledger
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• A general ledger (using double-entry bookkeeping method)
– maintains a list of financial transactions
– each financial transaction affects at least two general ledger accounts
– and each entry has a debit and a credit transaction
– transactions are posted in two columns, with debit postings on the left and
credit entries on the right

5. Use Case: Transferring Money
Concept of Open Ledger
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Tx $10
Tx $5
• Anyone on the network can
see the transactions and verify
• If Alice tries to transfer $10
again to Charlie (double
spending) it can be verified
that Alice does not have
enough funds and so the
transaction does not get
recorded.
Tx $10
X

6. Pillars of Blockchain
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Append-only
distributed system of
record shared across
business network
Distributed
Ledger
Ensuring appropriate
visibility; transactions are
secure, authenticated
& verifiable
Transactional
Integrity
Computational logic
executed as part of
transactions
Smart
Contract
All parties agree
to network verified
transaction
Consensus

7. Distributed Ledger
• A blockchain is continuously growing chain of blocks
• Blocks are linked using cryptographic hashes
• Each block contains
– A hash pointer to previous block
– A nonce (proof of work)
– A list of transactions
• Any node on the network can have a copy of the ledger – these
special nodes are called miners
• It’s analogous to a distributed ledger controlled by no single party
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8. Use Case: Transferring Money
Blockchain way: Alice transferring $5 to Bob
• Alice publishes the transaction Tx A -> B $5 on the network
• All miners receive the notification
• They compete among themselves to validate
– Verify that A has enough funds
– Find a special key that enables this new transaction to existing transactions –
this is done using proof of work
• The first miner (M1) that accomplishes this updates the ledger and
publishes this on the network (along with the proof of work)
• M1 receives a reward for the work
• Other miners can verify the work and sync their ledger (consensus)
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9. Challenges of Distributed Ledger
• Transactional Integrity
– Ability to detect tempering
• Consensus among the replicas
– Updates to the ledger must must be agreed by all parties
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10. Transactional Integrity
Transactions are stored as Merkle Tree
• Merkle tree is a binary tree in which
– Every leaf node is labeled with hash of data node
– Every non-leaf node is labeled with cryptographic hash of labels of its child
nodes
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BlockchainMerkle Tree

11. Transactional Integrity
Malicious user tries to inserting fraudulent transaction
• Merkle tree comes to rescue
• Merkle tree is a binary tree in which
– Every leaf node is labeled with hash of data node
– Every non-leaf node is labeled with cryptographic hash of labels of its child
nodes
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Transacti
on-A
Transacti
on-B

12. Consensus: Proof of Work
Validation of Transactions
• Based on the
– Hal Finney’s Reusable Proofs or Work
– Adam Back’s computationally difficult Hashcash puzzles
• It is breakthrough simultaneously solving two problems.
1. It provided a simple and moderately effective consensus algorithm,
allowing nodes in the network to collectively agree on a set of canonical
updates to the state of the ledger.
2. It provided a mechanism for allowing free entry into the consensus process,
solving the political problem of deciding who gets to influence the
consensus, while simultaneously preventing sybil attacks.
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13. Byzantine Generals’ Problem
• 5 Generals - each with 100 men - to attack a castle having 300 men
inside.
• 500 can easily overpower 300 if they attach simultaneously
• There is a traitor among Generals - can sabotage the attack given a
chance by not attacking at the same time as others are attacking
300 outside men may not be enough to overcome 300 inside men
• Any General can start the attack by sending a note through a rider
to others. Rider is not allowed to see the note details
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14. Byzantine Generals’ Problem
Before Proof of Work
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15. Byzantine Generals’ Problem
After Proof of Work
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9
9
Finish 30 minutes
of work in 10 minutes, or
accept the time of attack,
spend 10 minutes on new
message and forward

16. Proof of Work based on Hashcash
Puzzles
• Uses partial hash inversion to prove that work was done
• Creation
1. Prepare the header, e.g: X-Hashcash: 1:20:1303030600:uid::McMybZIhxKXu57jd:ckvi
2. Increment the counter (initialized to a random number) and append to the
header
3. Compute 160-bit SHA-1 hash of the above header
• if the first 20 bits of the hash are not zeros go to 2
• (Chance of getting 20 zeros in randomly selected header is 1 in 220)
4. Use the header
• Verification
– Compute SHA-1 hash of the header and if first 20 bits are not zero reject it.
Note:
Bitcoin POW: double-SHA256 hash of every block, treated as a 256-bit
number, must be less than a dynamically adjusted target, which as of the this
time is approximately 2187 (an average of ~269 tries before a valid block is
found)
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17. Smart Contract
• A computation logic executed when a transaction is performed
• Its similar to a database trigger (stored procedure that is
automatically executed in response to certain events)
• The inputs, outputs, and status affected by smart execution are
agreed on by every node.
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18. Blockchain: State Machine
• State A -> Transactions -> State B
• State: collection of all assets ("unspent transaction outputs" or
UTXO) with each UTXO having a denomination and an owner
(defined by a 20-byte address a cryptographic public key[1]).
• Transaction: contains inputs, each referencing to an existing UTXO
and a signature (using owners private key), and one or more
outputs, each containing a new UTXO to be added to the state
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19. Blockchain: Myth and Reality
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20. Flavors of Blockchains
• Public Blockchains
– Fully public and uncontrolled network and state machine secured by proof of
work: Bitcoin network, Ethereum
– Anyone in the world can participate in the consensus process (Miners)
• Fully Private Blockchains
– Write permissions is centralized to one organization
– Public read permissions can be use case based
• Consortium Blockchains (Hybrid of public and fully private)
– Partially decentralized: Public read access to the ledger and which part of
ledger to be read enabled is controlled
– The consensus process is controlled by a pre-selected set of nodes: similar to
US senate voting rules.
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21. Public and Private Blockchains
Additional Differences
Public Private/ Consortium
Blockchaine rules can’t be altered. For
example, once transaction is registered in
the block, the records can’t be altered.
Blocchaine rules can be altered by the
consortium or the owner of the blockchain,
modify or revert a transaction etc.
The transaction verification is slow – proof of
work takes time.
The transaction verification is based on
voting so it can be fast.
Consensus is slow: 99.9999% finality needed
by Bitcoin that takes about 2 hours
Consensus is fast: it can be in seconds
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22. Current Blockchain Systems
Name Consensus
Mechanism
Smart Contract
Language
Application
Type
Hyperledger 0.6.0 PBFT Golang, Java General
Hyperledger 1.0.0 Kafka (Ordering service) Golang, Java General
Ethereum* PoW Solidity, Serpent, LLL General
Quorum* Raft Golang General
Parity* Trusted validators Solidity, Serpent, LLL General
Sawtooth Lake PoET (Elapsed Time) Python General
Corda Raft Kotlin, Java Digital assets
IOTA IOTA’s Tangle Digital assets
Bitcoin PoW Golang, C++ Crypto-currency
Litecoin PoW Golang, C++ Crypto-currency
ZCash PoW C++ Crypto-currency
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* Ethereum derivatives

23. Why Blockchain is important to Us
Blockchain is not replacing traditional
business model with lower-cost solutions but
it has a potential to create new foundations
for our economic and social system.
(The Truth about Blockchain, HBR)
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24. Blockchain can be a Foundational
Technology like TCP/IP
• TCP/IP introduced in 1972, turned then established
telecommunication model on its head
– Opened a shared public network with no central authority for its
maintenance
– Transmitted information by breaking into small packages
– The packets can take any route on the network
– They can be reassembled/disassembled on receiving nodes
– Gave rise to World Wide Web in 1990
– Birth and development of
• Plumbing companies
• Browser/Server companies
• Service/Application companies
• eCommerce, news, search etc.
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25. Blockchain Adoption
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26. Putting Things in Perspective
Performance Benchmark
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• YCSB: Benchmark used for NoSQL database performance
• Smallbank: Benchmark used for OLTP workload
• H-Store: An In-Memory database

27. Blockchain Development
• Cloud
– Azure Blockchain Service
• Ethereum Consortium Blockchanin
• Hyperledger Fabric Blockchain
– Azure Blockchain Templates
• R3 Corda
• Quorum and
• others
– IBM Blockchain Platform
• Hyperledger Fabric
– Oracle Blockchain Service
• Coming soon…
– AWS
• Its still working on with different partners such as Quorum, Corda etc.
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28. Resources and acknowledgements
• Wikipedia
• https://github.com/ethereum/wiki/wiki/White-Paper
• http://nakamotoinstitute.org/finney/rpow/
• https://www.investopedia.com/terms/g/generalledger.asp
• Byzantine Image
• https://blog.ethereum.org/2015/08/07/on-public-and-private-blockchains/
• The truth about blockchain
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29. Q & A