CST 20363 Session 7 - Blockchain

1. CST-20363-Intro-to-CS
“We have elected to put our money and faith in a mathematical
framework that is free of politics and human error”.
-Tyler Winkelvoss, Rower & Entrepreneur
Session 7 “Blockchain”

2. Disclaimer
This is not a Bitcoin introduction. This is a high-level introduction to Blockchain
technology. However, we should acknowledge that Satoshi Nakamoto (pseudonym)
and his/their creation, Bitcoin, popularized Blockchain technology. (There are
currently arguments that Bitcoin was not the first blockchain.)
Today there are various flavors of Blockchain. This paper attempts to generalize
Blockchain with samples in some of those flavors. Additional research, prototyping,
and due diligence should be exercised before making any long-term decisions.
Lastly, it is the opinion of the author, no single Blockchain solution will fulfill all
needs. As many of the Blockchain technologies are paradigm specific, one should
educate themselves on when and how to implement a Blockchain solution. Perhaps
more importantly, when NOT to implement a solution.

3. A Brief history of Blockchain
On October 31, 2008, Satoshi Nakamoto released the Bitcoin White Paper
outlining a purely peer to peer electronic cash/digital asset transfer
system. This is the first popular implementation of Blockchain and is
attributed as birthing today’s Blockchain industry. Since then, additional
Blockchains have been popularized, Ethereum, various Hyperledger project
solutions, as well as numerous others including “Blockchain like” solutions
such as GuardTime’s KSI products

4. A Brief history of Blockchain

5. What is Blockchain?
● Decentralized Digital Ledger
● Industry Standard High Encryption
● Transactional Trust and Nonrepudiation
● Low Latency Peer to Peer Transactions
● Public and Private Options
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6. Blockchain terminologies
● 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
Source: https://ccl.yale.edu/sites/default/files/files/A%20Brief%20Introduction%20to%20Blockchain%20(Final%20without%20Notes).pdf

7. Blockchain terminologies
● Transaction & blocks
o A transaction is a value transfer; a block is a collection of
transactions on the bitcoin network, gathered into a block that are
hashed and added to the blockchain.
Image source: https://pplware.sapo.pt/informacao/monero-xmr-uma-moeda-segura-privada-e-sem-rasto/

8. Blockchain terminologies
● Mining
o This process of solving cryptographic problems using computing
hardware also triggers the release of cryptocurrencies
Source: https://marmelab.com/blog/2016/05/12/blockchain-expliquee-aux-developpeurs-web-la-theorie.html

9. Blockchain terminologies
● Mining
o The process by which transactions are verified and added to a
blockchain.
Source: https://marmelab.com/blog/2016/05/12/blockchain-expliquee-aux-developpeurs-web-la-theorie.html

10. Blockchain terminologies
● Mining
o Miners on the network select transactions from pools and form them
into a ‘block’.
Image source:

11. Blockchain terminologies
● Forks
o A fork is 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
Source: https://medium.com/my-blockchain-bible/101-blockchain-terminology-874f007c0270

12. Blockchain terminologies
● Forks
Image source: Scorechain

13. BLOCKCHAIN USE-CASES

14. Transactions
As with enterprise transactions today, Blockchain is a
historical archive of decisions and actions taken
Proof of history, provides provenance
Notable transaction use cases
Land registration – Replacing requirements for research of Deeds (Sweden Land Registration)
Personal Identification – Replacement of Birth/Death certificates, Driver’s Licenses, Social Security Cards (Estonia)
Transportation – Bills of Lading, tracking, Certificates of Origin, International Forms (Maersk/IBM)
Banking – Document storage, increased back office efficiencies (UBS, Russia’s Sberbank)
Manufacturing – Cradle to grave documentation for any assembly or sub assembly
Food distribution – Providing location, lot, harvest date Supermarkets can pin point problematic food (Walmart)
Audits – Due to the decentralized and immutable nature of Blockchain, audits will fundamentally change.

15. Public Utilities Use-Case
● Financial Transactions
○ Retail consumers and utilities can benefit from timely and secure payments.
● Energy Generation and Distribution
○ Highly regulated by Federal and regional organizations.
● Renewable Energy
○ Blockchain “Renewable Energy Credit” tokens.
○ One platform to track calculations of carbon emissions.
● Infrastructure Management
○ Needs far more detailed tracking Blockchain can offer.
○ High Levels of security for complex service delivery infrastructures.
○ Automated metering infrastructure can integrate Blockchain to gain real-time usage data.
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16. Logistics and Supply Chain Use-Case
● Perfect geographical location to serve as a logistics hub
○ Within 600 miles of 54% of US population
○ CVG airport is the 8th largest cargo hub (Amazon + DHL)
● Blockchain can provide:
○ Advanced communication flows between untrusted parties
○ Paired with other technologies, increased data access and reliability
○ Reduces costly errors, decreases delivery time, lowers overall costs
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17. Healthcare Use-Cases
● Data Analytics
○ Ability to track outbreaks across diverse locations.
○ Aid in identification of outbreak hot spots, speed response times for containment and share
critical data to track community spread of disease.
○ Explore Blockchain grant opportunities with federal entities such as the CDC.
● Medical Research
○ The Commonwealth is home to leading healthcare research institutions.
○ Blockchain opportunities can act as a draw Healthcare business within the state.
● Controlled Substances
○ Add efficiency and security to eKasper with National data sharing capabilities
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18. Finance Use-Case: Cryptocurrency
● Empowers business and trade with highly secure and attestable financial transactions
● Removes need for currency conversion and clearing houses, increasing speed and
efficiency
● Bringing about the “Digital Dollar”
● Recommendation 1.0: Explore the benefits of creating
a new cryptocurrency to support a closed blockchain system.
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19. Finance Use-Case: Banking
● Wyoming House Bill 74 (2019)
○ These “institutions are banks that receive
deposits and conduct other incidental
activities, including fiduciary asset
management, custody and related activities.”
● Pursue legislation creating charters for special
purpose depository institutions during the 2021
Legislative season.
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20. Finance Use-Case: Payment Systems
● Crypto will change the “how” of
transactions
● Intermediaries take their “cut” of
transactions, increasing the cost of
business
● Ohio using Bitcoin to pay state taxes
(2018)
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21. Finance Use-Case: Public Finance
● Current Municipal Bonds:
○ Too expensive for small investors
○ Wall Street takes all the profits
● Blockchain-based bonds:
○ Fractionalize each bond
○ Increased wealth within the community
○ Ex: Berkeley Fire Truck “minibonds”
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22. Records Management: Contracts
● Physical signatures → Digital Signatures (DocuSign)
○ Lack of security and trust in the signer
● Blockchain Smart Contracts:
○ Validation of the signer using private keys
○ Increased security with decentralization
○ Automate the process
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23. Records Management: Accounting / Auditing
● Double-Entry Accounting
○ No transparency to outside parties
○ Managed by a single entity that can commit fraud
○ “Cooking the books”
○ Time-consuming and costly audits
● Blockchain’s “Triple-Entry Accounting” system
○ Transparent and immutable transaction trail
○ Interlinking all transactions together
○ Unable to be corrupted
○ No need for audits
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24. Records Management: Legal Records and Docs
● Locally-held records by clerks:
○ Vulnerable to concentrated cyber-attacks
○ Loss of information from shut down or corruption of server
○ Shared through direct database access or email
● Decentralized Blockchain Records:
○ Inability to tamper with records
○ Multiple copies to prevent loss of information
○ Shared source of truth with access to only necessary information
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25. Records Management: Licensing
● Interstate Compacts:
○ Only applies to states that are signed on
○ Managed by one state in a central location
○ May create conflicting data and have vulnerability to hacking
● Blockchain Record system:
○ Allows all states access to the system
○ Less corruption and theft
○ Access to all licensees that wish to practice in the state
○ Ability to share information with other states immediately when needed
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26. BLOCKCHAIN RISKS

27. Blockchain Risks
● Cost
● Lack of Standardization
● Lack of Centralization
● Regulation
● Garbage in, garbage out
● Over exuberance
● Environmental impacts
● Increased cyber threats
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28. BLOCKCHAIN CHARACTERISTICS

29. BLOCKCHAIN CHARACTERISTICS

30. Immutable
• As with existing databases, Blockchain retains data via transactions
• The difference is that once written to the chain, the blocks can be changed,
but it is extremely difficult to do so. Requiring rework on all subsequent
blocks and consensus of each.
• The transaction is, immutable, or indelible
• In DBA terms, Blockchains are Write and Read only
• Like a ledger written in ink, an error would be be resolved with another entry

31. Decentralized Peers
Rather than the centralized “Hub and Spoke” type of network,
Blockchain is a decentralized peer to peer network. Where each
NODE has a copy of the ledger.
Legacy Network Blockchain Network
Centralized DB Distributed Ledgers

32. Encryption
• Standard encryption practices
• Some Blockchains allow for “BYOE” (Bring Your Own Encryption)
• Only as good as the next hardware innovation
• All blocks are encrypted
• Some Blockchains are public, some are private
• Public Blockchains are still encrypted, but are viewable to the public, e.g.
https://www.blocktrail.com/BTC

33. Encryption
• Private Blockchains employ user rights for visibility, e.g.
• Customer – Writes and views all data
• Auditors – View all transactions
• Supplier A – Writes and views Partner A data
• Supplier B – Writes and views Partner B data

34. Consensus components
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)
Source: https://www.newgenapps.com/blog/8-blockchain-consensus-mechanisms-and-benefits

35. Consensus
• Ensures that the next block in a blockchain is
the one and only version of the truth
• Keeps powerful adversaries from derailing
the system and successfully forking the chain
• Many Consensus mechanisms, each with
pros and cons
Consensus Mechanism
Proof of Work
Proof of State
Proof of Elapsed Time
Proof of Activity
Proof of Burn
Proof of Capacity
Proof of Importance
And others….

37. 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.
Source: https://en.wikipedia.org/wiki/Byzantine_fault

38. Consensus components
Blockchain structure
o No more client/server architecture with name roles
Image source: Scorechain

39. Consensus components
Blockchain structure
o Peer-to-peer Architecture with pseudonymous client bearing key
pairs. Each node as a database copy.
Image source: Scorechain

40. Consensus components
Blockchain structure
o Data structure:
Image source: Scorechain

41. Additional Resources
Bitcoin White Paper – Satoshi Nakamoto
Blockchain Demo – Anders Brownworth
• Videos
Blockchain for Business - An Introduction to Hyperledger Technologies - edX.org
Ethereum White Paper
Guardtime – Blockchain like official site

42. Additional Resources
Hyperledger official site - Linux Foundation
IBM Blockchain for Business – IBM Dev Center
IBM Blockchain Essentials Course – IBM Dev Center
IBM Blockchain Foundation Developer – IBM Dev Center
• Many more and pages are always changing

43. Copyrights