This document provides an overview of blockchain technology. It defines blockchain as a distributed digital ledger of records linked through cryptography. Each new record is hashed and linked to previous entries, allowing data to be recorded but not altered. The document discusses how blockchain is used in Bitcoin to record transactions in a decentralized manner. It also describes how smart contracts can be implemented on blockchain to automate processes like payments, insurance claims, and more based on predefined rules and conditions. While blockchain may face challenges around identity, data corrections, and bureaucratic resistance, the technology of smart contracts is seen as its most promising application.

1. Blockchain
Blockbuster or Bullshit?
23rd
March 2016

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Flow
What is a Blockchain?
What is Bitcoin?
Smart Contracts
Distributed Ledgers
Blockbuster or Bullshit?

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Blockchain or Ledger?
In most cases we can interchange the word blockchain with ledger
• Distributed Ledger, Permissioned Ledger etc. refer to distribute and permission
blockchains respectively
Blockchain is the digital form of a ledger (not the only one though)
I will generally refer to blockchain today, I could use either
=

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What is Blockchain?
A blockchain is like a simple database - Records are linked in a
chain, the chain forms a block. We can also refer to is as a ledger
In some ways a blockchains are like genes running
through a generation
• Once the genes are mixed at conception there’s no going back
The key asset of a blockchain is, like your own
DNA, each record is uniquely linked to its parent(s)
Once written and accepted it can not be changed
• Your parent’s and your grandparents DNA is locked in you

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Hash examples
The SHA-256 hash of “C24 Technologies Ltd.” is…
•0EE19D3551F3CC21D269BB7CBF9808BD2E14149A76C498B56FE8E33DD8C43D24
The SHA-256 hash of “C24 Technologies Ltd” is…
•A0DE2800299C8F5966AE270E6255E8D6EFFD42C761BEED659AC6D4E7EBCE5FB6
Google “482C811DA5D5B4BC6D497FFA98491E38” and you’ll find it’s an
MD5 hash for “password123”
• This isn’t reverse-engineers but simply a dictionary previously known hashes
Hashes can be used for almost anything to “represent” large or
complex files, document or contracts

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How do we add a new contract to the chain?
With our contract…
• Take the hash from the previous record
• Add the details of the contract
Hash everything to create a new hash
• All done
We can now either replicate the block or just distribute the hash
• Or naturally we can do both
We have a blockchain (pretty much)…
Previous Hash
Transaction
New Hash
Previous Hash
Transaction
New Hash
Previous Hash
Transaction
New Hash
Previous Hash
Transaction
New Hash

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Blockchain Distribution
We can keep the blockchain and distribute the hashes (centralised)
We can distribute the
blockchain to trusted
parties (de-centralised)
Or everyone can have a
copy of the blockchain
(distributed)
Source: On Distributed Communications Networks - Paul Baran 1962

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Permissioned or Unpermissioned
Unpermissioned
Since a distributed blockchain has no owner there can be no access
controls, everyone must have access and identical copies
• This is the case for Bitcoin
• Consensus is slow and requires an anti-hacking mechanism
Permissioned
This is the more common model, additions to the blockchain must
be checked by the owner(s) of the blockchain
A permissioned ledger has better integrity and is faster than an
unpermissioned one

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Blockchain in Bitcoin
BitCoin is a specific implementation of blockchain
• Sometimes called Blockchain 1.0
• It is distributed and unpermissioned
A bank or banks could have hosted BitCoin but avoiding
“nasty” banks was the main ‘raison d’être’
BitCoin transactions are anonymous, this is achieved with another
mathematical feature called Public Key Infrastructure (PKI)
Effectively the owner of the private key is owner of the bitcoins

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Anarchy?
Bitcoin started after the financial crisis of 2007/8
Volumes have increased but it’s not exponential - watch this space!
• Also worth noting is the tendency towards gold rather than Bitcoin in the recent (early
2016) market jitters
0
50,000
100,000
150,000
200,000
250,000
2008 2009 2010 2011 2012 2013 2014 2015 2016
Daily volume

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How does it work?
Only the owner of the private key (part of PKI) can unlock the coins in the
public key account (BitCoin address)
Every BitCoin transaction is public, the sender, recipient, amount and
date/time
• But the parties are anonymous (by choice)
With the sender initiating the transaction this is the opposite to
traditional eCommerce
• The PSP starts by debiting of the card member (buyer)’s account first

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Who holds the blockchain for Bitcoin?
Every record in the Bitcoin blockchain has a “proof of work”
The “work” is a seriously huge amount of computation
• Basically computers generate hashes with as many leading 0s as possible
• Given that the generated hash is “random” the chances of one leading 0 is 1:58, the
chances of two are 1:582
and so on
Each hash can be verified so “proof of work” is verifiable
• This is similar to SETI and requires huge computing resources
This is called Bitcoin “mining” and the effort is rewarded by bitcoins
• The reward must always be more than the potential gain from hacking bitcoin
• Almost any computer can mine but some are now designed with a specific purpose of
BitCoin mining
10 leading 0s has a 1:430,804,206,899,405,824 chance

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Now you understand most of it
Blockchain at its most basic is a linked list of hashed records where
the hashes become the proof
Bitcoin is a decentralised blockchain using PKI to secure ownership
of coins
• There are a few other things like Merkle trees, difficulty level, nonces etc. but you have the
basics
• New additions and alternatives like SideChains, LiteCoin, DogeCoin, NameCoin, Colored
Coins, MetaCoins etc.
So why is everyone so excited about blockchain?
Smart Contracts

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Smart Contracts
Smart Contracts are effectively a small program that can be
attached and executed with the contract
• It becomes digitally signed with the rest of the contract
In a programming world it’s like an ultra-
immutable Object with methods that resides
in the blockchain
It can be triggered externally by an event, at a
specific time or run at the contract owner(s)
request
BitCoin’s smart contracts are not very smart and have very limited
functionality
• This is why so many companies are looking to provide a better alternative

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The Niche for Smart Contracts
Almost any blockchain usage can be really enhanced by using smart
contracts
The name is quite fitting however you might like to think of it as
smart messaging too
• I.e. Actions that need to be performed when a message arrives
Workflow (contract) automation
• In fact anything that has or requires some complex automation based on events
(additional information, changes, time etc.) could lend itself to Smart Contracts
Smart contract can also manage access to the contract
• Who can read or change what

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Blockchain and Smart Contracts
Insurance - as I’ve attempted to demonstrate
Land and property registry
• Land often gets divided and sold in parts with leases
Software contracts
• How many CPUs, cores, users, duration, MIPS etc.
Peer to peer lending - Crowd funding
• Many to many relationships and money changing hands
Music rights
• How many times was that played and how much do Google own me?
Medical and pharmaceutical
• IDs, treatment, medical history, who operated on who etc.
• Medicare - Bundled payments
There are several players in this space
• Codius - Ripple
• Ethereum
• Many many others

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Potential social resistance
While technically a blockchain is the perfect ledger it raises some
issues that need some serious consideration
Identity theft
• Once someone has stolen your ID and destroyed your credit the history can not be erased
• Today you can work with your bank to “correct” your history, while this is already difficult
today, it will be impossible with a blockchain
History “correction”
• Anything from witness relocation, wrongful arrest/conviction, cyber bullying, personal
changes, with a blockchain you cannot “correct” history
• Many people have fought of the right to have their history “corrected” or deleted on Google for
example, this would not be possible in a blockchain
Loss of private key or payment to wrong account
• Lose your key and your money is gone forever end of story,
there’s no going to the bank to prove your identity
• Pay into the wrong account or an account without an owner and it’s gone forever…

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Bureaucratic resistance
This apparently is the killer app for the banks
It might be a great idea but so was GSTPA
• Bureaucracy killed the bureaucracy killer
• A distributed ledger would remove a lot of the bureaucracy
and reduce cost but then that was the selling point behind GSTPA too
Europe’s adoption of the SEPA had to be delayed because the banks
simply weren’t ready
• Writing a distributed ledger is the easy part the real skill in getting distributed ledgers
adopted in the banks as a standard
• Legislation may do the trick but that didn’t work for SEPA, the cost of change is the short-
term pain that banks don’t want right now
To move forward with distributed ledgers banks need vision

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In conclusion
Bitcoin
• A thought experiment taken too seriously
Blockchain
• On its own it’s just a linked list and rather dull
• As a collection of tech it’s a little more interesting
Smart Contracts
• This is probably the coolest part of “blockchain”
Blockchain is not up there with Cloud, IOT or even NoSQL &
Microservices
We will see it in the future but it’s not a revolution, it’s a an old
technology with a new name, just like Hadoop

20. Thank you!
@jtdavies