introduction to blockchain technology.pptx

1
Introduction to Blockchain
technology

“
”
● Introduction
1. Quick history of Blockchains
2. Blockchain terminologies
3. Distinction between databases and blockchain ledgers
4. Why and when to use a Blockchain?
● Cryptographic component
1. Cryptography, hash functions and digital signatures
● Consensus components
1. Principles and paradigms of distributed systems
2. Blockchain consensus algorithms

3
● Blockchain structures
1. Blockchain structure
2. Types of blockchain
● Smart contract theory
1. Smart Contract
Theory and
architecture
2. Architectures and
decentralized
autonomous systems
● Smart contract
application
1. Existing blockchain applications, related structures and

4
● Introduction
● Smart contract application
● Research goals

4
Introduction
“To understand the power of blockchain systems, and the
things they can do, it is important to distinguish between
three things that are commonly muddled up, namely the
bitcoin currency, the specific blockchain that underpins it
and the idea of blockchains in general.”
The Trust Machine, THE ECONOMIST, Oct. 31, 2015

7
Quick history of Blockchains
● The idea of a shared ledger emerged a few decades ago
o Stuart Haber and W. Scott Stornetta made an immutable ledger in
1991
● But the first decentralized implementation appeared with Bitcoin in
2009
o Created by an unknown person called Satoshi Nakamoto
● Since then, thousands of different cryptocurrencies and blockchains
have been made
o New features (smart contracts, privacy…)
o Different approaches (Decentralized Autonomous Organizations, or
DAO)

7
Blockchain terminologies
● Blockchain – What is it?
o A blockchain is a distributed database that allows direct
transactions among two parties without the need for a central
authority.
o Technologically, it is :
• Distributed database – public ledger (you can insert,
select data, but can’t update or delete data.
• Distributed computer – execute digital contracts
• Based on p2p (peer-to-peer) technology, cryptology
and API

10
● Blockchain – What is it?
In fact, the blockchain is more than a technology, it
o Usually contains financial transactions
o Is replicated across a number of systems in almost real-time
o Uses cryptography and digital signatures to prove identity,
authenticity and enforce read/write access rights
o Can be written by certain participants
o Can be read by participants, often a wider audience
o Has mechanisms to make it hard to change historical records, or at
least make it easy to detect when someone is trying to do so
hash Block 3 hash Block
4
Block 1 Block 2
hash

11
● Centralization VS Decentralization Concepts
centralized system decentralized system
A single point of control over all administrative tasks No centralized control
Several clients are connected to a centralized server. Each node has equal authority.
simple to design, manage, establish trust, and govern Difficult to build, manage, govern, or impose trust
in such systems
single point of failure, so are less stable. if the server
is down, all clients get disconnected from the server.
More stable and fault resistant since they do not
have a single point of failure. If a client becomes
detached from the server, it doesn’t have any
effect on other clients of the server.

11
● Centralization VS Decentralization Concepts
centralized system decentralized system
Centralized systems are more vulnerable to attack
and hence less secured.
Each client manages their own transaction copy, and
they are responsible for their own security. So,
there is no single point to attack, the system is
more secure.
All authorities are provided to the server. This
centralization of power can make the server do
unethical operations.
Symmetrical system with equal authority for
everybody, limits the scope of unethical behavior
and is typically democratic in nature.
Limited numbers of clients can be connected to a
server for providing better performances.
Therefore, scalability of such systems is difficult
most of the time.

11
● Distributed ledger – What is it?

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● Distributed ledger – How it works?
Users initiate
transactions
using their
Digital
Signatures
Users
Broadcast their
transactions to
Nodes
One or more
Nodes begin
validating each
transaction
Nodes
aggregate
validated
transactions
into Blocks
Nodes
Broadcast
Blocks to each
other
Consensus
protocol used
Block reflecting
“true state” is
chained to prior
Block

13
● Transaction & blocks
o A transaction block is a collection of transactions on the bitcoin
network, gathered into a block that can then be hashed and added
to the blockchain.

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● Mining
o The process by which transactions are verified and added to a
blockchain.

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● Mining
o This process of solving cryptographic problems using computing
hardware also triggers the release of cryptocurrencies

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● Mining
o Miners on the network select transactions from pools and form them
into a ‘block’.

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● Forks
o The creation of an ongoing alternative version of the blockchain, by
creating two blocks simultaneously on different parts of the
network. This creates two parallel blockchains, where one of the
two is the winning blockchain.
o When does it happens?
• Block found at the same time
• Software incompatibility
• “We don’t agree” split

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● Forks

19
● Bitcoin
o Crypto currency, first asset based on Blockchain
o Used for drug/weapons e-commerce, ransom ware
o Used for remittance, speculation, store of value
“What is needed is an electronic payment system based on
cryptographic proof instead of trust, allowing any two willing parties
to transact directly with each other without the need for a trusted
third party.”
Satoshi Nakamoto – October 31st, 2008

20
● Bitcoin
o Monetary creation

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● Bitcoin
o Inside Bitcoin’s Blockchain
BLOCK
(Units of the blockchain, like pages of transactions in a
ledger)
Header
(It is hashed twice to create the fingerprint
which is referred to in the next block)
Transaction count
(How many transactions are in the block,
including the coinbase transaction)
Block content
Coinbase
transaction
Bitcoin
transactions

22
● Bitcoin
- Block Header : includes Technical
data, Previous block hash, Merkle Root,
Timestamp, Difficulty target, Nonce.
Here is an example:

23
● Bitcoin
- Block content : Transaction Flow
* Mining Coinbase * Regular Address to Address Transaction

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● Bitcoin
- Block Transaction example:

25
● Bitcoin
o How the
money transfer works

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● Ethereum
o Proposed in late 2013 by Vitalik Buterin (cryptocurrency researcher
and programmer)
o Online crowdsale during summer 2014
o Bitcoin on steroids!
“A blockchain is a magic computer that anyone can upload programs to
and leave the programs to self-execute, where the current and all
previous states of every program are always publicly visible, and which
carries a very strong cryptoeconomically secured guarantee that
programs running on the chain will continue to execute in exactly the
way that the blockchain protocol specifies.”
Vitalik Buterin

27
● Ethereum
o Decentralised app platform (dapps)
o Transaction & smart-contracts ledger
o Based on the Ethereum Virtual Machine (EVM)
o Cryptocurrency called ether ($ETH)

28
● Ethereum
o Smart Contract
How a “Traditional”
contract works:

29
● Ethereum
o Smart Contract
How a “Smart Contract”
contract works:

31
Distinction between databases and
blockchain ledgers
● Distinction between databases and blockchain ledgers
o It begins with architecture
● Databases
● Blockchain ledgers

32
Distinction between databases and
blockchain ledgers
● Distinction between databases and blockchain ledgers
Databases
Blockchains
No one is the admin or in-
charge
Databases have admins & centralized
control
Only entities with rights can access
database
Anyone can access (public) blockchain
Only entities entitled to read or write can Anyone with right proof of work can write on the
blockchain
do so
Databases are fast Blockchains are slow
No history of records & ownership of
digital records
History of records & ownership of digital records

33
● Introduction
● Research goals
Introduction à la technologie Blockchain

34
Why and when to use a Blockchain?
● Blockchain technology does not solve every problem
o Sometimes a centralized database is more suitable for a specific
project
o Many companies leverage the “Blockchain hype” to receive more
funding with unrealistic projects

35
Source: https://medium.com/@sbmeunier/when-do-you-need-blockchain-decision-models-a5c40e7c9ba1

introduction to blockchain technology.pptx

36
● Blockchain can help with accountability and traceability
o Everyone can see what transactions are made on a public
blockchain
o Everyone can check they are valid
o Example use case: the supply chain industry. You can easily track
the provenance of products.

37
● Blockchain can help with decentralization
o Nobody can control it
o Everyone can check they are valid
o Example use cases: currency creation, asset ownership
management,…

38
● Introduction
1. Cryptography, hash functions and digital signatures
● Research goals

40
Cryptography, hash functions and digital
signatures
● Cryptography: the encryption and decryption of data
o 2 main cryptographic concepts used in Blockchain:
- Hashing
- Digital Signatures
o 3 forms of encryption that are widely used:
Symmetric
cryptography
Asymmetric Hashing
cryptography
Same password to
encrypt & decrypt
one password to encrypt, Maps to fixed size
the other to decrypt
2 ways function Passwords come by pair 1 way function

41
signatures

42
signatures

43
signatures

44
signatures

45
● Introduction
1. Principles and paradigms of distributed systems
2. Blockchain consensus algorithms
● Research goals

46
● Introduction
 1. Principles and paradigms of distributed systems
 2. Blockchain consensus algorithms
● Research goals

47
Consensus components
● Principles and paradigms of distributed systems
o Byzantine fault tolerance (BFT): the dependability of a fault-
tolerant computer system, particularly distributed computing
systems, where components may fail and there is imperfect
information on whether a component has failed.
o The objective of BFT is to defend against failures of system
components with or without symptoms that prevent other
components of the system from reaching an agreement among
themselves, where such an agreement is needed for the correct
operation of the system.
o One example of BFT in use is bitcoin. The bitcoin network works in
parallel to generate a blockchain with proof-of-work allowing the
system to overcome Byzantine failures and reach a coherent global
view of the system’s state.

48
● Introduction
 1. Principles and paradigms of distributed systems
 2. Blockchain consensus algorithms
● Research goals

49
● Blockchain consensus algorithms
o Behind every cryptocurrency, there’s a consensus algorithm. No
consensus algorithm is perfect, but they each have their strengths.
In the world of crypto, consensus algorithms exist to prevent double
spending.
o Proof of Work (PoW)
o Proof of Stake (PoS)
o Delegated Proof of Stake (DPOS)
o Proof of Burn (PoB)
o Practical Byzantine fault tolerant Mechanism (PBFT)
o …

51
● Introduction
1. Blockchain structure
2. Types of blockchain
● Research goals

52
● Introduction
 1. Blockchain structure
 2. Types of blockchain
● Research goals

53
● Blockchain structure
o No more client/server architecture with name roles

54
o Peer-to-peer Architecture with pseudonymous client bearing key
pairs. Node each node as a database copy.

55
o Data structure:

56
o Blocks of data:

57
● Introduction
 1. Blockchain structure
 2. Types of blockchain
● Research goals

58
● Types of blockchain
o There mainly three types of Blockchains that have emerged after
Bitcoin introduced Blockchain to the world.
 Public Blockchain:
no one in charge, anyone can participate in reading/writing/auditing the
blockchain (i.e. Bitcoin, Litecoin, etc.)
 Private Blockchain:
a private property of an individual or an organization, there is one in charge of
important things such as read/write or whom to selectively give access to read
or vice versa (i.e. Bankchain)
 Consortium or Federated Blockchain:
More than one in charge. A group of companies or representative individuals
come together and make decisioins for the best benefit of the whole network
(i.e. r3, EWF)

59
● Introduction
1. Smart Contract Theory and architecture
2. Architectures and decentralized autonomous systems
● Research goals

60
● Introduction
 1. Smart Contract Theory and architecture
 2. Architectures and decentralized autonomous systems
● Research goals

61
Smart Contract Theory and architecture
● Smart Contract Theory
o A computer protocol designed digitally facilitate, verify, or enforce
the negotiation or performance of a contract.
o It allows the performance of credible transactions without the third
parties.
o The transactions are traceable and irreversible.

62
Smart Contract Theory and architecture
Check if it
is signed by
the
message
sender.
If yes
if
Check
there are
enough
coins
for the
payment
If yes
Message
will
be
added
to
the
blockchain
● Smart Contract architecture
* Transaction without smart contract
* Transaction with smart contract
Date:
before
31 Dec.
2019…
Price of
gasoline
>50$/
liter
Condi-
tion 3
…
Condi-
tion 4
…
Condi-
tion X
…
If yes

63
● Introduction
 1. Smart Contract Theory and architecture
 2. Architectures and decentralized autonomous systems
● Research goals

64
Architectures and decentralized
autonomous systems
● DAO (Decentralized Autonomous Organization)
o An organization represented by rules encoded as a computer
program, which is transparent, controlled by shareholders and not
influenced by a central government.
o It's notionally like the example for getting funds for a small
conference, except that it includes much more. Members buy shares
in the DAO and can vote on things according to the number of
shares they have. The dreamers have the idea they'll replace
Democracy and run entire countries this way.
o The DAO was the largest crowdfunding in history, having raised over
$150m from more than 11,000 enthusiastic members. (ICO)
o A DAO’s financial transaction record and program rules are
maintained on a blockchain.

65
● Introduction
architectures
● Research goals

66
● Introduction
architectures
● Research goals

67
Smart contract application
Payments
Terms &
conditions
Company
Statuses
Lottery
Terms &
conditions
● Example 1: Lottery
o Lottery without smart contract
Organizer
participants
Payment provider
Winner pick
Escrow account

68
● Example 1: Lottery
o Lottery with smart contract
Organizer
participants

69
● Example 2-1: Group wallets
o Enforcing at least 2 out of 3 people of a group to agree to create a
valid transaction
Bitcoin
transaction
Andrew Beth
Carl
Blockchain
2 <pubKeyAndrew>
<pubKeyBeth>
<pubKeyCarl> 3
CHECKMULTISIG

70
Bitcoin
transaction
Camille
Beth
Blockchain
● Example 2-2: Heritage wallets
o Enforcing that a transaction must be signed either by Camille OR by
Beth after 5 years
IF
<pubKeyCamille>
CHECKSIG
ELSE
<5 y> CLTV DROP
<pubKeyBeth>
CHECKSIG
ENDIF

71
Bitcoin
transaction
Mobile
Home Office
Blockchain
● Example 2-3: Secure storage
o Enforcing that a transaction must be signed by either 3 devices in
different locations OR a recovery key deposited in the bank after 8
months
IF
3 <pubKeyHome>
<pubKeyMobile>
<pubKeyOffice> OP_3
CHECKMULTISIG
ELSE
<8 m> CLTV DROP
<pubKeyBank>
CHECKSIG
ENDIF
Bank

72
● Example 3: Decentralized Autonomous Organizations
o A smart-contract that acts like a company!
o Human shareholders can vote to change the rules of the smart-
contract
o MakerDAO: Manages a “stablecoin” token called Dai. The currency
is issued when people want collateralized loans, and destroyed
when people do not have enough collateral to cover their loans.
This mechanism keeps Dai’s value pegged to $1.

74
● Example 3: Decentralized Autonomous Organizations
o Dash: Dash is a blockchain and a DAO at the same time. The DAO is
used to fund projects that can improve the Dash blockchain.

75
Existing blockchain applications, related
structures and architectures
● ERC-20
o Proposed on November 19, 2015 by Fabian Vogelsteller.
o A technical standard used for smart contracts on the Ethereum
blockchain for implementing tokens. (ERC: Ethereum Request for
Comment, 20: the number that was assigned to this request.)
o It defines a common list of rules that an Ethereum token has to
implement, allowing developers to program how new tokens will
function within the Ethereum ecosystem. These rules include how
the tokens are transferred between addresses and how data within
each token is accessed.
o + 142,200 ERC-20 token contracts (as of November 19, 2018): EOS,
Bancor, Qash, etc…

76
Existing blockchain applications, related
structures and architectures
● ERC-721: a class of unique tokens
o A free, open standard that describes how to build non-fungible or unique
tokens on the Ethereum blockchain. While most tokens are fungible (every
token is the same as every other token, i.e.ERC-20), ERC-721 tokens are all
unique.
o It defines a minimum interface a smart contract must implement to allow
unique tokens to be managed, owned and traded.
● ERC-725: Ethereum Identity Standard
o A proposed standard for blockchain-based identity which lives on the
Ethereum blockchain.
o It describes proxy smart contracts that can be controlled by multiple keys
and other smart contracts, it can describe humans, groups, objects and
machines.
o Users should be able to own and manage their identity instead of ceding
ownership of identity to centralized organizations.

77
● Introduction
● Research goals

78
● Introduction
● Research goals
 1. Current research and challenges faced by Blockchains

79
Current research and challenges faced by
Blockchains
● Blockchain scalability is limited
o Most decentralized blockchains don’t handle more than ~20 transactions
per second – for the whole network!
o You can increase scalability if you use a more centralized consensus
mechanism. There is always a tradeoff between decentralization and
scalability.
o Some solutions that are being worked on are sharding, state channels and
sidechains
● Blockchain interoperability is limited
o The blockchain industry is not very mature
o Different data structures, consensus mechanism and implementations are
not interoperable. With thousand of different ledgers, not everyone can
talk to each other!

80
Current research and challenges faced by
Blockchains
● Regulation is hard to implement
o Lawmakers do not know how to manage cryptocurrency assets
o Usual regulatory frameworks are not adapted to the blockchain tech
o For example, in theory you should check the ID and provenance of funds of
everyone you transact with on the blockchain for anti money laundering
purpose!
● Smart contracts security is hard to get right
o Hacks have caused hundred of billions of dollars of loss so far
o Formal verification tools and auditing solutions are actively being
developed

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