Introduction to Blockchain
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The document provides an introduction to blockchain technology, detailing its structure as a chain of blocks that store transaction information and the concept of immutability, where data is unchangeable once written. It explores various use cases, such as smart contracts, supply chain auditing, and identity management, highlighting the differences between public and private blockchains, as well as their advantages over traditional centralized databases. Additionally, the text discusses the challenges of peer-to-peer networks and consensus mechanisms in blockchain systems.
Introduction to Blockchain
- 1. Introduction to Blockchain Heart of Bitcoin Revolution - Chintan Sheth & Akshit Jain
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- 4. β’ A blockchain is just a file, a data structure. β’ Blockchain = Chain of blocks β’ Where each block stores information of transactions and chained by storing meta-data about the previous block Blockchain 1
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- 6. β’ Immutable means that something is unchanging over time or unable to be changed, in our context, it means once data has been written to a blockchain no one, not even a system administrator, can change it. β’ In traditional systems, an end-user may have read-only access. He will not be able to change the contents of a row in that database. β’ However, someone with higher privileged access like a systems administrator may be able to change the data. β’ We try to create segregations of responsibility, so that no single person can do something bad undetected. However there is no control mechanism making the data immutable in the first place. Immutability 1
- 7. β’ A hash function is a type of mathematical function which turns data into a fingerprint of that data called a hash. β’ SHA-256(Ahmedabad-Java-Meetup) = 6ffacd79bc7bad8ecf50f0394f6eb16aa39167482a2717108bc157647fb92b 51 β’ Itβs hard to back-calculate the original data from the hash β’ If the input data changes in the slightest, the hash changes in an unpredictable way Immutability in Blockchain 1
- 8. β’ Each block contains: β’ Hash of contents of the block β’ Hash of the previous block β’ Data in a blockchain is internally consistent, that is you can run some checks on it, and if the data and hashes donβt match up, there has definitely been some tinkering. Immutability in Blockchain 1
- 9. Letβs first see what happens if you took Bitcoinβs Blockchain and copied it onto a USB stick (itβs about 120GB). What could you do with the data on the stick before passing it to someone else, like a regulator? Could you change the data and fool them? Bitcoinβs blockchain has nearly 470,000 blocks. Letβs say you remove a transaction from block 250,000 which is about half way through the blockchain, trying to pretend that a specific payment never happened. What would happen? What if someone wants to cheat? 1
- 10. 1. Hash of changed block fails, so he has to recalculate the hash of the block. 2. The chain fails, he will need to rebuild and rehash each block following the tampered block, replacing the contents of the previous-block-hash pointers. However, there are safeguards to make it very hard or impossible to rebuild a blockchain. These safeguards differ based on the block-adding mechanisms, two dominant schemes are target hashes for proof-of-work public blockchains; and specific signatures for (some) private blockchains. What if someone wants to cheat? 1
- 11. Proof-of-work : Block is only considered valid if the block hash follows a strict pattern - β namely the hash has to be smaller than a target number, often described by βstarting with a certain number of zeroesβ. Ex: SHA-256(block-data,previous-block-hash,nonce) must start with 0000 He needs to make sure that the recalculated hash is below a certain number. Need to re-mine the block by adjusting another part of the blockβs contents (called the nonce) repeatedly until you find a hash that is smaller than the target number. This takes some significant computational power. And then do this for each and every block in the blockchain. What if someone wants to cheat? 1
- 12. β’ Letβs say you manage to create an internally consistent blockchain by removing the transaction and recreating all the block hashes to all conform to the validation criteria. β’ All it takes now for the regulator is to check other copies of the blockchain β and check one single number β the hash of a recent block. β’ If the hash on the last block on the USB stick is different to the hash that they can find from any other (non-colluding) participant, then the regulator can immediately spot that something fishy is going on and the data on the USB stick is different to the data on the living blockchain. β’ In other words, it is extremely difficult to try to create a fake blockchain. What if someone wants to cheat? 1
- 13. Client-Server: β The server holds 100% of the data, and the clients trust that the data is definitive. β This is very efficient, and a traditional model in computing. How is new data communicated? 1
- 14. Peer-to-peer: β A gossip network where each peer has 100% of the data (or as close to it as possible), and updates are shared around. β In some ways less efficient than client-server, as data is replicated many times; once per machine, and each change or addition to the data creates a lot of noisy gossip. β Each peer is more independent, and can continue operating to some extent if it loses connectivity to the rest of the network. β More robust, as there is no central server that can be controlled, so closing down peer-to-peer networks is harder. How is new data communicated? 1
- 15. The problems with peer-to-peer: With peer-to-peer models, even if all peers are βtrustedβ, there can be a problem of agreement or consensus β if each peer is updating at different speeds and have slightly different states, how do you determine the βrealβ or βtrueβ state of the data? Worse, in an βuntrustedβ peer-to-peer network where you canβt necessarily trust any of the peers, how do you ensure that the system canβt easily be corrupted by bad peers? How is new data communicated? 1
- 16. β’ A common conflict is when multiple miners create blocks at roughly the same time. Because blocks take time to be shared across the network, which one should count as the legit block? Consensus 1
- 17. β’ Letβs say you see 81a first. You can start building the next block on that, trying to create 82a Longest Chain Rule 1
- 18. β’ However in a few seconds you may see 81b. If you see this, you keep an eye on it. If later you see 82b, the βlongest chain ruleβ says that you should regard the longer βbβ chain as the valid one and ignore the shorter chain. So you stop trying to make 82a and instead start trying to make 83b Longest Chain Rule 1
- 19. 1 Public vs Private BlockChain Public β’ Open read/write access to database β’ Slower in Speed β’ Proof-of-Work/ Proof-of Stake. β’ Anonymous identity. 19 Private β’ Permissioned read/write access to database β’ Faster in speed β’ Pre-Approved Participants β’ Known-identities
- 20. BlockChain vs Centralized Databases 1
- 21. 1 Disintermediation (No middle-man) BlockChain β’ Transactions contain their own proof of validity and their own proof of authorization β’ Offers a way to replace these organizations with a distributed database, locked down by clever cryptography β’ They leverage the ever-increasing capacity of computer systems to provide a new way of replacing humans with code, which is a lot cheaper 21 Centralized Databases β’ The contents of a database are stored in the memory and disk of a particular computer system, and anybody with sufficient access(mostly hired people in organisations) to that system can destroy or corrupt the data within β’ As a result, the moment you entrust your data to a regular database, you also become dependent on the human organization in which that database resides.
- 22. 1 Confidentiality BlockChain β’ Every node has full visibility into the databaseβs current state, the modification requested by a transaction, and a digital signature which proves the transactionβs origin, Such full transparency can be deal-killers in some use cases. β’ However there are some advances which provides confidentiality at the cost of computation (ex: zero knowledge proof, confidential transactions) 22 Centralized Databases β’ Just like blockchains, they restrict the transactions that particular users can perform, but these restrictions are imposed in one central location. β’ As a result, the full database contents need only be visible at that location, rather than in multiple nodes. β’ Requests to read data also go through this central authority, which can accept or reject those requests as it sees fit. β’ In other words, if a regular database is read-controlled and write-controlled, a blockchain can be write-controlled only.
- 23. 1 Robustness BlockChain β’ Extreme fault tolerance, which stems from their built-in redundancy. β’ Every node processes every transaction, so no individual node is crucial to the database as a whole. β’ Nodes connect to each other in a dense peer-to-peer fashion, so many communication links can fail before things grind to a halt. β’ External users can send their transactions to any node 23 Centralized Databases β’ High availability is achieved through a combination of expensive infrastructure and disaster recovery. β’ A primary database runs on high-end hardware which is monitored closely for problems, with transactions replicated to a backup system β’ If the primary database fails, activity is automatically moved over to the backup, which becomes the new primary. While all this is doable, itβs expensive and notoriously difficult to get right.
- 24. 1 Performance BlockChain β’ Will always be slower than Centralized databases, because of the nature of blockchains as it contains the following burden on top things centralized systems do: β’ Signature Verification β’ Consensus Mechanism β’ Redundancy 24 Centralized Databases β’ Once a connection has been established, there is no need to individually verify every request that comes over it β’ Centralized databases must also contend with conflicting and aborted transactions, these are far less likely where transactions are queued and processed in a single location. β’ It has to run the transactions just once (or twice)
- 25. β Smart Contract β Distributed ledgers enable the coding of simple contracts that will execute when specified conditions are met. β Ethereum is an open source blockchain project that was built specifically to realize this possibility. β For eg, a derivative could be paid out when a financial instrument meets certain benchmark, with the use of blockchain technology and Bitcoin enabling the payout to be automated. β Sharing Economy β Sharing Economy is already flourishing with companies like Uber and AirBnb β Currently, user who want to have a ride have to depend on intermediary like Uber, Ola β By enabling peer to peer payments, blockchain opens the door to direct interaction between parties. Use Cases 1
- 26. β Governance β By making the results fully transparent and publicly accessible, distributed database technology could bring full transparency to elections or any other kind of poll taking. β Ethereum-based smart contracts help to automate the process. β Supply Chain Auditing β Consumers increasingly want to know that the ethical claims companies make about their products are real. β Distributed ledgers provide an easy way to certify that the backstories of the things we buy are genuine β Transparency comes with blockchain-based timestamping of a date and location β on ethical diamonds, for instance β that corresponds to a product number. β The UK-based Provenance offers supply chain auditing for a range of consumer goods. Making use of the Ethereum blockchain, a Provenance pilot project ensures that fish sold in Sushi restaurants in Japan has been sustainably harvested by its suppliers in Indonesia. Use Cases 1
- 27. β File Storage β Distributing data throughout the network protects files from getting hacked or lost. β Eg. IPFS(Inter Planetary File System),makes it easy to conceptualize how a distributed web might operate. Similar to the way a bittorrent moves data around the internet, IPFS gets rid of the need for centralized client-server relationships (i.e., the current web). β Identity Management β Distributed ledgers offer enhanced methods for proving who you are, along with the possibility to digitize personal documents β Having a secure identity will also be important for online interactions β for instance, in the sharing economy. β Stock Trading β When executed peer-to-peer, trade confirmations become almost instantaneous (as opposed to taking three days for clearance. β Potentially, this means intermediaries β such as the clearing house, auditors and custodians β get removed from the process. Use Cases 1
- 28. β’ Ethereum is software running on a network of computers that ensures that data and small computer programs called smart contracts are replicated and processed on all the computers on the network, without a central coordinator. β’ Ethereum is for distributed data storage plus computations. The small computer programs being run are called Smart Contracts, and the contracts are run by participants on their machines using a sort of operating system called a βEthereum Virtual Machineβ. Ethereum 1
- 29. β’ A smart contract is some code which automates the βif this happens then do thatβ part of traditional contracts β’ With smart contracts running on a blockchain, the logic is run in parallel on all the participating computers, and the results are compared by all participants. Smart Contract 1
- 30. β’ Smart contracts are visible to all. This means anyone can look into a smart contract, and if you like the logic, you can use it. If you donβt, you donβt. Smart Contract 1
- 31. Why Smart Contracts Useful? β’ Lets say two banks have a trading agreement between them with some pre-agreed trade terms with some external dependencies. β’ Ideally they both should agree on the outcome of trade but it doesnt happen always due to reasons like mutual misunderstanding of trade terms, disagreement with what happened to external dependency etc. β’ Now, how smart contracts solve this? β’ There is only one set of trade terms, written in computer code, which is much less fluffy than legalese, and agreed upon up-front. β’ The contract will live on a blockchain, and run when an event happens or when the bet expires. 1
- 32. Why Smart Contracts Useful? β’ The external dependencies (price of oil, share price of Apple, etc) can be fed in via a mutually agreed feed. β’ The bet payout can be stored in the smart contract itself: the contract is βprimedβ by both parties funding the account with their maximum loss, and then the payout occurs at the event 1
- 33. β’ Ethereum has a blockchain, which contains blocks of data (transactions and smart contracts). The blocks are created or mined by some participants and distributed to other participants who validate them. β’ Ethereum network is a public, permissionless network β ie anyone can download or write some software to connect to the network and start creating transactions and smart contracts, validating them, and mining blocks without needing to log in or sign up with any other organisation. Ethereum 1
- 34. β’ Mining participants create valid blocks by spending electricity to find solutions to a mathematical puzzle.Hence, it is also a Proof-of-Work mining β’ Ethereum has its inbuilt cryptocurrency βetherβ just like bitcoin. β’ Ethereumβs block size is defined in terms of βgasβ limit per block in contrast to Mb size in BTC. β’ For eg. a block can have size of 1,500,000 Gas. And the basic transaction requires around 21000 gas so total of 1,500,000/21000 = 70 transactions can fit into one block. Ethereum 1
- 35. β’ Smart Contracts are written in solidity language that is created by ethereum organisation itself. β’ When you activate a smart contract, you ask all the miners in the whole network to each individually perform the calculations within it. This costs them time and energy, and Gas is the mechanism by which you pay them for that service. β’ Payment (in ETH) = Gas amount (in Gas) x Gas price (in ETH/Gas) Ethereum 1
- 36. DEMO 1
- 37. THANKS Any Feedback is Welcome! 1
- 38. 1. Create two payments with the same bitcoins: one to an online retailer, the other to yourself (another address you control) 2. Only broadcast the payment that pays the retailer 3. When the payment gets added in an honest block, the retailer sends you goods 4. Secretly create a longer chain of blocks which excludes the payment to the retailer, and includes the payment to yourself 5. Publish the longer chain. If the other nodes are playing by the βlongest chain ruleβ rule, then they will ignore the honest block with the retailer payment, and continue to build on your longer chain. The honest block is said to be βorphanedβ and does not exist to all intents and purposes. 6. The original payment to the retailer will be deemed invalid by the honest nodes because those bitcoins have already been spent (in your longer chain) Double-Spend 1
- 39. β’ What about trying to change the existing data in a blockchain that you are participating in? β’ How would you try to get an amended block accepted by others in the network? Changing a blockchain mid-flight 1
- 40. β’ So if you rebroadcast an amended block 250,000 you are in effect creating a blockchain βforkβ which is much shorter than the real chain (whose length is, say, 470,000). β’ There are now two competing blockchains, one which is 250,000 blocks long and contains your amended block, and another which is 470,000 blocks long. β’ Existing nodes will accept your block (if itβs valid) but then immediately ignore it because they already know about the existing longer chain. Changing a blockchain mid-flight 1
- 41. β’ The only way is to make the change and create a longer chain, requiring lots of computing power and push an entirely new lineage of blocks out, longer than the existing one. β’ You need a significant amount of computing power to be in with a chance of outcompeting an existing proof-of-work chain like Bitcoin. β’ And even if you manage to do this, although technically your new chain would be valid, realistically the community would notice if there was a block re-organisation more than a few blocks deep; this would get investigated. Changing a blockchain mid-flight 1