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Blockchain overview, use cases, implementations and challenges

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Most know about Bitcoin, the well-known crypto-currency. Less know the details about the underlying and enabling technology, Blockchain.
Hopefully, this presentation provides enough insights to understand blockchain concepts and why it's perceived to potentially disrupt many market segments, from retail to governments, from finance to health care. At last, I hope to brush fairly the many challenges of this rather new technology.

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Blockchain overview, use cases, implementations and challenges

  1. 1. Blockchain: Overview, Use Cases and Challenges Sebastien Tandel sta@hpe.com March 2017
  2. 2. Agenda – Blockchain a Trend? – Blockchain Explained – Overview – Use Cases & Implementations – Challenges –Take Aways
  3. 3. Blockchain a Trend? 3
  4. 4. as a Trend
  5. 5. Blockchain by numbers 2015: 42 systemic financial institutions in a consortium 2016: $1.4+ billion invested in Blockchain By 2022: Blockchain business worth $10B✽ ✽ Gartner Top Predictions 2017
  6. 6. Blockchain Explained 6
  7. 7. Blockchain 101 Alice agreed on a transaction with Bob The transaction is signed and a block is created to represent that transaction The block is broadcast and validated by the blockchain network The block is added to the chain, providing a permanent non-repudiable and transparent record of the transaction
  8. 8. Blockchain 101 : What the hell is a Blockchain? –Blockchain is a database that is –De-centralized –Append-only (entries are immutable) –Recording transactions between 2+ parties (Alice & Bob) –Which parties trust because of a distributed consensus protocol –Achieved by a network of (untrusted) participants –And ultimately secured through some cryptographic work
  9. 9. Blockchain 101: OK, got it… but why? centralized ledger de-centralized ledger Santander : by 2022, could cut banks infrastructure costs by $15-20bn a year for cross-border payments, securities trading and regulatory compliance
  10. 10. What is a block? BLOCK Blocks are units of the Blockchain HEADER Version Merkle Root Difficulty Previous Block Hash Timestamp Nonce TRANSACTION COUNT BLOCK CONTENT Coinbase TX Bitcoin TX Total Bitcoin + Coinbase TX
  11. 11. How a block is added to blockchain? Proof Of Work : “mining” in bitcoin world • Participants create one block from the current transactions • and tries to solve a complex challenge: • hash of block header with X leading 0s, varying “nonce” Ø hard to compute, very easy to verify • Each 10 minutes (avg time for 1 node to find a valid hash), the block is added to the chain Ø Challenge Complexity is periodically adjusted to maintain the 10 minutes constant BLOCK Blocks are units of the Blockchain HEADER Version Merkle Root Difficulty Previous Block Hash Timestamp Nonce TRANSACTION COUNT BLOCK CONTENT Coinbase TX Bitcoin TX Total Bitcoin + Coinbase TX
  12. 12. Why is there any participant at all? –Indeed LOT of resources wasted to solve the challenge of 1 block –Keep in mind everyone competes on the same block, to get only 1 winner ! –Why would anyone participate? Economics! Well... money J –In Bitcoin world, the winning miner is awarded some coinbase –in 2015, it was 25BTC and worth US$6900 ; 2017, 12.5 BTC –Owner of a transaction may also give a tip to the winner.
  13. 13. Why is this secure? 1. Transactions are cryptographically signed • To ensure/verify ownership of a transaction!Owner 1’s Public Key Transaction Owner 0’s Signature Owner 1’s Private Key Hash Transaction Owner 1’s Signature Owner 2’s Public Key Owner 2’s Private Key Hash Transaction Owner 2’s Signature Owner 3’s Public Key Owner 3’s Private Key Hash
  14. 14. Why is this secure? 1. Transactions are cryptographically signed • To ensure/verify ownership of a transaction!Owner 1’s Public Key Transaction Owner 0’s Signature Owner 1’s Private Key Hash Transaction Owner 1’s Signature Owner 2’s Public Key Owner 2’s Private Key Hash Transaction Owner 2’s Signature Owner 3’s Public Key Owner 3’s Private Key Hash Better not lose that key or being stolen. This is what defines ownership of a transaction.
  15. 15. Why is this secure? 1. Transactions are cryptographically signed 2. Transactions encoded into a Merkle Tree • IOW, If you modify one bit of a transaction, “root hash” would change BLOCK Hash1 HEADER Version Merkle Root Previous Block Hash Timestamp Nonce TX1 Hash2 Difficulty Hash3 Hash4 TX2 Hash12 TX3 TX4 Hash34
  16. 16. Why is this secure? 1. Transactions are cryptographically signed 2. Transactions encoded into a Merkle Tree 3. Mining challenge based hashing block header • which includes the merkle tree root hash BLOCK HEADER Version Merkle Root Difficulty Previous Block Hash Timestamp Nonce TRANSACTION COUNT BLOCK CONTENT Coinbase TX Bitcoin TX Total Bitcoin + Coinbase TX
  17. 17. Why is this secure? 1. Transactions are cryptographically signed 2. Transactions encoded into a Merkle Tree 3. Mining challenge based hashing block header • which includes the merkle tree root hash • AND previous block header hash • hash chaining: with age, block becomes more secure BLOCK HEADER Version Merkle Root Difficulty Previous Block Hash Timestamp Nonce TRANSACTION COUNT BLOCK CONTENT Coinbase TX Bitcoin TX Total Bitcoin + Coinbase TX more secure
  18. 18. Why is this secure? 1. Transactions are cryptographically signed 2. Transactions encoded into a Merkle Tree 3. Mining challenge based hashing block header 4. Easy to validate and check integrity based on computed hashes and signatures • When a block is broadcast, all nodes verify its validity and integrity. If not valid, reject. BLOCK HEADER Version Merkle Root Difficulty Previous Block Hash Timestamp Nonce TRANSACTION COUNT BLOCK CONTENT Coinbase TX Bitcoin TX Total Bitcoin + Coinbase TX more secure
  19. 19. Blockchain Implementations & Use Cases
  20. 20. Blockchain Ecosystem for Financial Services
  21. 21. Blockchain Ecosystem for Non-Financial Services
  22. 22. Blockchain Implementations
  23. 23. Bitcoin 101 : Ecosystem A bitcoin client is used to generate addresses (keys) & performing transactions (purchases) Pool of bitcoin miners Businesses can accept bitcoin to sell to their customers through bitcoin addresses (keys) Market exchanges to sell/buy bitcoins for usual currencies global peer-to-peer decentralized network
  24. 24. Bitcoin 101 : Transaction Each transaction is a (list of) Bitcoin payment(s) BLOCK Blocks are units of the Blockchain HEADER Version Merkle Root Difficulty Previous Block Hash Timestamp Nonce TRANSACTION COUNT BLOCK CONTENT Coinbase TX Bitcoin TX Total Bitcoin + Coinbase TX Transaction TECHNICAL DATA Version #inputs Lock Time (delay) #outputs INPUTS OUTPUT Script Len Lock Script Previous TX Hash / Output Index Unlock ScriptScript Len Amount
  25. 25. Bitcoin 101: UTXO (Unspent Transaction Output) Transaction TX0 Input0 Output0 Output1 100k satoshis 40k satoshis 50k satoshis Transaction TX1 Input0 Output0 Transaction TX2 Input0 Output0 Output1 20k UTXO Transaction TX3 Input0 Output0 Transaction TX4 Input0 Output0 20k satoshis 20k satoshis 10k UTXO
  26. 26. Bitcoin Blockchain Challenges – Transaction Rate – Bitcoin block limited to 1MB, limiting #tx/block & 1 block added each 10min, limiting #tx/sec – Oh right, and what about forks? – All miners compete to solve the same Proof of Work. Forks happen when 2 miners solve it at the same time. – Largest chain is considered the one to be used by miners – Usually, it’s considered forks are solved by consensus within 6 blocks after the fork. (theoretical) Bitcoin 7 tx/sec VISA avg VISA peak 2000 tx/sec 56K tx/sec confirmed tx settled tx verified tx on avg 10 min 60 min 43 min Note: Some transactions remain permanently unverified (dependency on fee paid)
  27. 27. Bitcoin Blockchain Challenges – The previous consensus of selecting the longest chain is subject to 51% attack – If anyone controls more than 51% of total capacity Proof of Work power, she could alter the integrity of the blockchain ØLarge number of participants is critical for these blockchains based on Proof of Work – Currently for Bitcoin, it is admitted that not even governments could afford to build infrastructure able to represent 51% of the compute power of miners – HOWEVER, mining competition is harsh: –5 largest mining orgs >75% of total mining capacity (~1517 petahash/sec) – Main hashing power in China! ; What-if collusion?
  28. 28. Bitcoin Blockchain Challenges – Decreasing Profits for miners – ~= 545 million revenue a year for miners – Miner profits fall as the blockchain network expands. – New block reward cut in half every 210,000 blocks (~4 years) – Since transaction fees are presently around 50 times smaller than the block reward, reducing the block reward by half cuts total mining revenues if the bitcoin transaction fees and price remain unchanged – Some companies already filed bankruptcy last year because of that. Ø careful to the 51% attack …
  29. 29. Ethereum : Generalizing Bitcoin Blockchain – Step back to Bitcoin – Transactions authenticated through Lock/Unlock Scripts. – These are scripts running on top of a stack-based interpreter ! – Scripting language is pretty powerful BUT 1. not Turing-complete, 2. although could be used for other purpose, mainly there to validate monetary transactions – Ethereum generalizes Bitcoin initial concept of these scripts with a proposal of – providing a Turing-complete scripting language – enabling other use cases than crypto-currency! – Smart Contracts are born !
  30. 30. Ethereum : Smart Contracts • Transaction: An Ether payment transaction can be sent from one address to another address like in Bitcoin • Achieves 1 tx each 14sec ! • Contract: Insert code into transaction Data field, and send to null address – mined as a Contract • Contract is addressable (like call to execute a function) • Compute: On-chain calculations can be performed and data stored but costs Ether (measured in Gas) • Accounts: No UTXO, state stores a list of accounts (addresses), where each account has a balance • Balance: Transaction is valid if sender account has balance, then sending account debited and receiving credited Ethereum Transaction TECHNICAL DATA To (Null for Contract) Gas Price Ether to Transfer Start Gas DATA Smart Contract Code for Execution on Chain General Text Nonce Signature
  31. 31. Blockchain Implementations Comparison Blockchain Purpose Peer-to-peer (decentralized) Public/private mining Cryptographic trust Permissionless Centralized control Bitcoin Decentralized Money Yes Public Yes Yes No Ethereum Decentralized Apps Yes Public Yes Yes No Ripple Decentralized Payments Yes Private Yes No Yes Hyperledger Decentralized Apps Yes Private Yes No Yes
  32. 32. Blockchain Use Cases
  33. 33. Blockchain for a Liquid Democracy –Vote through your own (or a public) smartphone, laptop, desktop, … – Accounts and Votes are put on the blockchain – Votes are public and can be consulted by anybody ØAnybody can verify vote count of candidates Øprivacy preserved ‘cause no public association between public key à WHO voted (but for you). – Estimated cost reduction for 100M voters: – Blockchain voting costs: $50M (EC2 calculator) – Ballot based election: $2 per person => $200M Ø$150M vs $600M for US Ø$100M vs $400M for Brazil 34
  34. 34. Blockchain for Supply Chain –Provide ability to track/trace any operation done in a supply chain –Giving ability to trace product from inception : what, who, where, when, …? ØDetect (decrease) frauds, ØDetect stolen merchandise, ØEnsure no counterfeit, ØEnsure no slavery used, … – Everledger : track supply chain of diamonds ... 800.000 tracked to date. – BlockVerify : verify medicine authenticity by scanning QR code on a box – Kuovola Innovation: platform for smart “tendering”. Pallet with RFID tags to move from A to B... Companies bidding and one selected with blockchain as intermediate. 35
  35. 35. Blockchain for Sharing Economy –Creation of decentralized and “dematerialized” organizations –Sharing Economy on Blockchain governed by and for the people –Uber: why would Uber takes the largest share of profits generated? –Solution -> decentralized carpooling platforms (Lazooz, ArcadeCity) –Warning (food for thoughts): –30 years ago: Internet was announced to get rid of all intermediates –Today: Never in Human history, such level of centralization has been reached with a few big giants controlling large chunks of the Internet (and real) economy at “planet-scale” –Google, Apple, Facebook, Amazon, Uber, ... 36
  36. 36. Blockchain for Digital Identity –Secure and efficient tracking and management of Digital Identities (& docs) –Digital Identities, passports, e-residency, birth certificates, wedding certificates, online account logins, … ØResults in seamless sign-ons and reduced frauds –One step further for brazilian: ØImagine a world without “cartorios” ... What a dream! J 37
  37. 37. Blockchain for IoT Yesterday: closed and centralized Today: open and in the cloud Tomorrow: open and decentralized
  38. 38. Blockchain for IoT – Decentralization of IoT networks : current client/server architecture won’t scale in future – Filament – Autonomous mesh networks for data collection and asset monitoring – Blockchain to identify and authenticate devices – Chain of Things: Explore blockchain for scale and security issues in IoT – Hackathon related to solar energy in which they provide reliable and verifiable renewable data, speeding up incentive settlements and reducing opportunities for fraud – Company? – Connected cars exchanging traffic information between themselves
  39. 39. Decentralized Autonomous Organization miners validate smart permit regulates release & reporting smart permit automatically notifies government and records all activities on blockchain Firm is granted a permit IoT sensors monitor and record releases and variances smart permit is distributed via blockchain automatic warning or enforcement action
  40. 40. Blockchain Still Some Challenges Ahead
  41. 41. Blockchain Challenges cont’d – Security – Incidents: – Bitcoin: – 2013, man threw away his hard drive with his private key to unlock his wallet worth $7.5M – 2014: Mt Gox got robbed of $350M – 2016 study claims that between 2009 & 2015, 33% of Bitcoin exchanges have been hacked! – DAO: June 2016, organization drained of $60M of Ether. – DDoS on exchanges and mining pools – 51% attack still a real concern – Data integrity: – malleability attack where an attacker intercepts, modifies and rebroadcasts a transaction, causing the transaction issuer to believe that the original transaction was not confirmed. – Some have been able to attack Bitcoin wallets in practice, requiring some modification in their implementation. – Authentication & Cryptography issues: – Private keys stored by Mt Gox stolen … sic. – Proposal to use 2-factor authentication to increase authentication levels. – Issue : successful attacks on 2-factor authentication have already appeared a while ago.
  42. 42. Blockchain Challenges cont’d – Proof of Work = Tremendous Waste of Energy – Estimated to $15M a day => 5.5B a year ! – Proof of Stake has been proposed (and implemented) – which does not require to waste that much energy but smartly use bitcoins owned by miners – Also accelerate the time to add a block to the block chain – Proof of Stake still not used by Bitcoin and Ethereum though.
  43. 43. Blockchain Challenges cont’d – Bitcoin Blockchain Size: – 01/2015 : 30GB – 01/2016 : 50 GB – 01/2017 : 100GB – And all miners must download the whole blockchain… – potential solutions: hierarchy of chains or regional blockchains – Be careful of the 51% attack though. – Ethereum blockchain size is 17GB (as of May 2016) – Smaller than Bitcoin although it’s only after 9 months of existence and way less users than Bitcoin network! – proposed a lighweight node model (for lightweight devices such as smartphones) to be able to add blocks to the blockchain without downloading the blockchain.
  44. 44. Blockchain Challenges cont’d 45
  45. 45. Blockchain Challenges cont’d : “Peak of Inflated Expectations” 46
  46. 46. Take Aways – Blockchain creates trust between untrusted parties willing to agree on some kind of transactions – No intermediate required (note: does not mean they won’t exist anymore!) – Every transaction is authenticated – State changes are transparent – No single point of failure – Blockchain generalization with Smart Contracts creates a global trust shared execution environment – Potential to disrupt many businesses, from retail to govts, from finances to health care ($10B+ by 2022) – Already huge investments from largest financial institutions to disrupt financial use cases. ($1.5B+ in 2016) – Exciting technology to investigate although: – Still exist some pretty tricky challenges to overcome, both technological and legal – Still placed at Peak of Inflated Expectations in the Gartner hype cycle 2016
  47. 47. References
  48. 48. References – Blockchain 101: – When do you Need Blockchain? – Magic of Mining, The Economist – Bitcoin, Blockchain and the design elements explained – http://www.gartner.com/newsroom/id/3482117 – Banks seek the key to Blockchain, Financial Times – Blockchain Implementations: – A Beginner’s guide to Ethereum – Gentle Introduction to Smart Contracts – Ethereum whitepaper – Dragonchain: Disney’s blockchain – Hyperledger – Bitcoin stack machine scripts interpreter
  49. 49. References – Blockchain Use Cases: – Securing IoT with Blockchain – For Insurers, #blockchain is the New Black – Blockchain Voting System – Blockchain to Revolutionize Supply Chain – Smart Contracts: Innovation across Manufacturing Value Chains – What Blockchain means for Sharing Economy? – Blockchain Challenges: – 51% attack – Declining Profitability for New Bitcoin Miners – Alternatives for Proof of Work, Part 1 – Top 10 mistakes in Enterprise Blockchain Projects – Bitcoin blockchain transaction delays – Where is Current Research on Blockchain Technology – A Systematic Review

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