Blockchains are distributed ledger technologies that are not well understood outside of cryptography experts. They consist of three main elements - a contract that specifies how users can interact, an immutable transaction history, and cryptography. Zerocash is a cryptocurrency that uses zero-knowledge proofs to allow transactions to occur while keeping private all details of the transaction such as sender, recipient, and amount. In conclusion, blockchains have significant potential but also hype, with security and privacy properties that can be configured through their technical design.

1. Understanding
Blockchains

2. Overview
• Hype
• Categorizing blockchain systems
• Elements of a blockchain
• Putting it together – Zerocash
• Conclusion
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3. Hype
• Blockchain is a hot technology but it is not well
understood.
• Based on cryptography – obscure except to experts
• Initial usages are driven by political motives (libertarian)
• Still in its infancy – many variants
• It has multiple different portions that interact.
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4. Blockchain on the Gartner Hype
Cycle (2016)
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Blockchain

5. Interest in Blockchains*
© Len Bass 2015*World Economic Forum: “The future of financial infrastructure”, August
2016
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6. World Economic Forum use cases
1. Global payments
2. Insurance – claims processing
3. Syndicated loans
4. Capital raising - Contingent convertible bonds
5. Investment Management – automated compliance
6. Market provisioning
7. Trade/Finance – international trade and supply chains
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7. Identify management blockchain
startups from Angells list
• Voatz – smart phone votng: biometrics for id to
smartphone,blockchain for irrefutability.
• Shocard – identity management
• Stampery – digital notarization service
• Authenticiti
• Vchain – airport security; passenger identification
information,custom checks
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8. Energy market startups
• Sun exchange – solar energy market
• Volt markets – energy trading market
• Transactive grid – home energy networks
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9. Other startups
• Ascribd – sales tax compliance
• Chainlink – real estate titles
• SimplyVital Health – blockchain secured health records
• Scorechain – compliance and CRM
• Aekraes Kodex – supply chain
• Mediachain – connects media to its creator
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10. Observations - 1
• Anticipated benefits for financial use cases are primarily
derived from “removal of friction” from the processes
• Single source of truth – no need for reconciliation
• Simplifies compliance
• All of the World Economic Use Cases use cases require
• coordination among diverse parties
• Revising existing practices and supporting systems
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11. Observations – 2
• Startups are targeting
• Individuals interactions with large monopolies such as electric
companies
• businesses – identity management, supply chain, health record
• Compliance with government regulators or insurance companies
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12. Blockchains and the cloud
• A number of organizations have been reluctant to put
their data into the cloud.Applications include:
• IOT
• Banks’ financial applications
• Medical applications and health data
• Blockchains provide an additional layer of security for all
of these application areas.
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13. Terminological aside
• Platforms vs networks
• Blockchains run on a software platform – frequently open
source.
• There exist networks of users using these software platforms.
• Bitcoin
• Ethereum
• Multichain
• Ethereum is actually both. It is a platform but also a
network of users for the Ethereum cryptocurrency.
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14. Overview
• Hype
• Categorizing blockchain systems
• Elements of a blockchain
• Putting it together – Zerocash
• Conclusion
© Len Bass 2015 14

15. Categorizing blockchain systems
• Trust model
• Public/private
• Customizability
• On chain/off chain
• Incentive structure
• Permissions/no permissions
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16. Trust model
• Some blockchains have no central authority and rely on
consensus mechanisms within the network of users – e.g.
Bitcoin, Ethereum
• Other blockchains have users with special privileges – e.g.
Multichain
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17. Public/private
• Anyone can use a public network such a Bitcoin or
Ethereum.
• Public networks have rules regarding fees for use.
• Since the platform is (mostly) open source, you could
create a private network using one of the existing
platforms.Then you can set up your own rules.
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18. Customizability
• Some blockchains have hard coded transaction rules–
e.g. Bitcoin or other non government backed digital
currencies.
• Other blockchains allow you to set up your own
transaction rules. E.g. Ethereum has aTuring complete
language to specify transaction rules.
• Programs in these languages are called “smart contracts”
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19. On chain/off chain
• Some blockchains allow you to import/export some data
not on the chain for computational or verification
purposes.
• Such data is no longer protected by encryption or
guaranteed to be immutable although recording a hash
of exported/imported data can provide some guarantees.
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20. Incentive structure for public
networks
• Creating a new block in Bitcoin is computationally
difficult.This is referred to as “mining”
• In public networks, some of the power of blockchain is
due to replication and having new blocks validated.
• The incentive structure is intended both to incentivize
creation of new blocks and to replicate existing blocks.
• If you are a successful miner, you are allocated new Bitcoins
• Collected fees are also allocated to encourage participation.
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21. Permission/no permission
• Private networks require permissions to access
• Public networks can be used for private purposes. E.g.
executing a smart Ethereum contract to manage a supply
chain.
• Public networks that are used for private purposes
require permissions to access the private portions.
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22. Overview
• Hype
• Categorizing blockchain systems
• Elements of a blockchain
• Contract
• Immutability
• Cryptography
• Putting it together – Zerocash
• Conclusion
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23. A blockchain has three elements
1. A contract . Every blockchain is based on one or more
contracts. If more than one, the contracts should be
logically connected.
2. An immutable history of valid transactions within the
contract.
3. A cryptographic encoding of the contract.
Elements of a blockcahin
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24. Element 1: blockchain contract
• A contract in a blockchain is a specification of how
individuals or entities can interact with the blockchain
and their obligations and rewards from this interaction.
• Contracts can be
• explicit or implicit
• hard coded into the platform or programmable
• (Smart contracts are a special case of this general notion
of contract)
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25. Bitcoin contract
• Hard coded
• Key concepts:
• Accounts – an individual may have one or more accounts within
the bitcoin network
• Spending – an individual owning an account can transfer bitcoins
to another account
• Mining – a new bitcoin can be created by finding a valid new
block (complicated process)
• Consensus validation.A transaction is not “accepted” until it has
been validated by participants in the network.
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26. Ethereum
• The Ethereum platform supports aTuring complete
programing langage
• You write a “smart contract” in this programming
language that specifies the rules of your contract.
• There are other rules for using the platform that govern
costs and fees.
• The contract for Ethereum users is similar to Bitcoins.
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27. Element 2: An immutable history
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• Immutable public ledger
• Time stamped transactions
• Audit trail of what happened
• Distributed and replicated

28. How is immutability achieved?
• Immutability rests on two foundations
• Hash functions
• Difficulty of modifying blockchain
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29. Use of Hash Functions
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Transaction data +
hash of prior block
Transaction data +
330810
Hash of contents 330810 Hash of contents 3430809
Blocks are linked by hash values
so In order to change contents of
one block, must change all of the
subsequent blocks

30. What prevents someone from
changing the whole blockchain?
• It depends on the trust model
• Consensus model. Each block must satisfy mining
constraints – computationally very difficult.
• It is possible for collusion among a majority of users to modify
blockchain (51% attack).
• Special user model. Each block is signed by one of the
special users. Rules exist to prevent rogue special users
from modifying data.
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31. Element 3: Cryptography
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contract Key
Generator
Prover key
Verifier key
Comments:
• Everything is public to
users of the blockchain
except the internals of
the key generator
• Figure might be slightly
different when a
different theoretical
basis is used. This
figure is based on
Quadratic Span
Programs
• All details of the provers
assertion such as
who/what/when can be
kept secret.
• There may be elements
of the contract outside
of the prover’s control.
E.g. Bitcoin consensus
process
Prover – I have
complied with all
elements of the
contract under my
control
Compliance
Token
Compliance
Token
Verifier – Prover
has (has not)
complied

32. Building blocks of cryptography
• NP completeness
• Zero Knowledge proofs
• Quadratic Span Programs
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33. NP completeness
• An NP complete problem is one in which there is no way
to locate a solution in polynomial time.
• It may be possible, however, to verify a solution in
polynomial time.
• The Boolean satisfiability problem is NP complete.
• Given a statement in Boolean logic, finding an assignment of
True or False to the variables in that statement that makes the
statement evaluate toTrue is computationally difficult.
• Verifying that a particular assignment evaluates toTrue is
computationally easy.
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34. Zero Knowledge Proofs
• We begin with the Diffie Hellman algorithm
• Diffie Hellman is the basis of the SSH protocol.
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35. Start by choosing p and g
• p is a large prime
• g is a base such that gp = 0 (mod p)
• Computing y = gx (mod p) is easy but finding x when given
y, g, and p is NP difficult.
• So y, g, and p can all be made public without
compromising the ability to find x.
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36. Using p and g to implement Diffie
Hellman
• Alice (or Bob) select p and g.These are publically shared.
• Alice and Bob each select random numbers rA and rB.They
keep them secret (even from each other)
• Alice computes mA = grA (mod p) and sends it to Bob
• Bob computes mB = grB (mod p) and sends it to Alice
• Bob computes s = (grA)rB (mod p). I.e. mA raised to his
secret number. Alice does a similar computation. Because
exponents are commutative (xAB = xBA) they both arrive at
the same s but an eavesdropper cannot derive s.
Furthermore, rA and rB are kept secret.
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37. Moving to Zero Knowledge (ZK)
proofs
• Alice generates two keys using techniques similar to
Diffie Hellman. One she keeps secret and one she shares
with Bob.
• Alice claims knowledge of some fact and encodes that
knowledge using her secret key. She shares the encoding
with Bob.
• Bob uses the shared key to verify the truth of the fact that
Alice is claiming.
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38. Security
• It is not possible for Bob to derive Alice’s fact from their
communication without either factoring large numbers
(an NP complete problem) or knowing Alice’s secret key.
• That is, Alice can convince Bob that she knows the fact in
question without divulging the fact – zero knowledge
proof.
• More importantly, there is an efficient way to generate
zero knowledge proofs for any NP complete problem.
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39. Quadratic Span programs
• Roles:
• Prover (Alice in prior examples).
• Verifier (Bob).
• Generating prover/verifier tokens
• Input Boolean expression into the key generator. Output is two
publically available tokens– one for the prover, one for the
verifier
• Proof/verification
• Prover uses prover token to assert a particular string is true for
the Boolean expression.
• Verifier uses verifier token to check prover’s assertion
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40. Cheating
• Prover cannot cheat because then their assertion cannot
be verified.
• Verifier cannot cheat because verifier token is public,
verifier algorithm is public, and assertion is public.
Anyone can verify if assertion is true.
• Tokens are based on secret choices.These choices must
be kept secret.
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41. How do quadratic span prorams
work?
• Key idea – for any Boolean expression can generate a
function that will determine whether an input satisfies
that expression.
• Function can work in linear time
• Function does not find satisfying input, only verifies if a given
input satisfies
• Function is derived by generating vectors that span
possible inputs and modeling each gate in Boolean circuit
associated with Boolean expression as a vector.
• Two different functions – one for input wires (for proving)
and one for internal wires (for verification)
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42. Applying encryption
• Boolean satisfying problem is NP complete so there
exists Zero Knowledge proofs to determine validity. This
is a part of creating a quadratic span program.
• A key generator creates the tokens based on choice of
large primes.These primes must be kept secret but are
only used in the generation phase.
• Prover asserts particular string is true.Verifier uses
verifier token to verify but because quadratic span proofs
and verification are zero knowledge, no information
about the string is available to theVerifier (or anyone
else).
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43. Overview
• Hype
• Categorizing blockchain systems
• Elements of a blockchain
• Putting it together – Zerocash
• Conclusion
© Len Bass 2015 43

44. Zerocash
• Zerocash (Zcash) is a crypto currency (like bitcoin) such
that transactions can be verified without disclosing any
information about the person initiating the transaction or
the recipient of the transaction.
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45. What is a transaction?
• A transaction describes the transfer of money from one
account to another. It has the following items:
• From account
• To account
• Amount of money to transfer from sender to recipient
• Verification that the from account has sufficient funds
• Verification that the person initiating the transaction owns the
from account
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46. Pieces of zerocash
• Setup – create public tokens
• CreateAddress – open an account
• Mint – create a new zerocash coin
• Verify transaction – verify that a reported transaction
satisfies conditions
• Pour – spend coins
• Receive – add spent coins to your account
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47. Zerocash properties
• Relies on the public tokens
• Relies on an immutable public ledger
• Keeps private (encrypted) all of the elements of the
transaction
• Account identifiers – from and to
• Owners of accounts
• Amount of accounts
• Amount of transaction
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48. Overview
• Hype
• Categorizing blockchain systems
• Elements of a blockchain
• Putting it together – Zerocash
• Conclusion
© Len Bass 2015 48

49. Conclusion
• Blockchains are widely (over?) hyped for many financial
applications
• They rest on solid technical bases
• Security and privacy properties can be chosen and then
enforced.
• Key cryptographic enablers are
• Zero Knowledge proofs
• Quadratic Span programs
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50. Sources - 1
1. https://www.weforum.org/reports/the-future-of-
financial-infrastructure-an-ambitious-look-at-how-
blockchain-can-reshape-financial-services
2. https://bitsonblocks.net/2016/02/29/a-gentle-
introduction-to-immutability-of-blockchains/
3. http://zerocash-project.org/media/pdf/zerocash-
extended-20140518.pdf
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51. Sources – 2
4. https://eprint.iacr.org/2012/215.pdf
5. https://blog.cryptographyengineering.com/2014/11/27/z
ero-knowledge-proofs-illustrated-primer/
6. http://design.inf.usi.ch/sites/default/files/biblio/icsa2017
-blockchain.pdf
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