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Blockchain 101
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Contents• Introduction
• Blockchain Overview
• Hash and Cryptography
• Blockchain Consensus Algorithm
• Challenges
• Next Generation Blockchains
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Introduction• Transaction
• An instance of buying or selling something
• Based on mediation from a trusted arbiter
• Fiat money
• Bank or credit
• What happens if the trusted arbiter fails?
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Bitcoin• Introduced in 2008 by Satoshi Nakamoto
• Bitcoin: A Peer-to-Peer Electronic Cash System
• No financial institution
• Open source
• Blockchain is a technology implementing Bitcoin protocol
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Blockchain AbstractCase study: Bob buys a house from Alice
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Transaction• Alice sends 1 house to Bob
• Contract is verified with signature
• Validation
• Conventional system
• Notary, lawyers, government, etc.
• Blockchain
• Every participant in the network
• Gets the copy of contract
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Decentralised Ledger• Validation of transaction
• Fault-tolerant
• Exists backup copy of the ledger
• Security
• Difficult manipulate the transaction record
• Information sharing
• Distribution of power
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Packaging Transactions• Block
• Packaging transactions in fixed interval
• E.g. 10 minutes for Bitcoin
• Blockchain
• Pile of blocks in chronological order
• Solves the problem of double spending
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Preliminary
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Hashing• A function generating a fixed size output
• Examples
• Modulo 7
• MOD7(10) = 10%7=3
• SHA-256(Secure Hash Algorithm)
• SHA-256(10) = 4A44DC15364204A80FE80E9039455CC1608281820FE2B24F1E5233ADE6AF1DD5
• Collision: MOD7(17)
• One-way
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Public Key Cryptography• Provides secure communication channel
• Pair of keys
• Public key
• Encrypts the content
• Shared with the public
• Private key or secret key
• Decrypts the content
• Secret
• Digital signature
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Public Key Cryptography• Signing
• Who is sending the data?
• Confidentiality
• Nobody knows what is in the transit
• Tamper-proofing
• No one can manipulate the data in transit
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Public Key Cryptography• Sender(S) wants send data(D) to
receiver(R)
• Sender generates digital signature
• SHA-256(D) = D_HASH
• Enc(S.sk, D_HASH) = S.DS
• Sender encrypts data and signature with receiver’s public key
• Enc(R.pk, D + S.DS) = D_ENC(confidentiality)
• Sender sends D_ENC to receiver
• Receiver receives D_ENC
• Receiver decrypts received data with private key
• Dec(R.sk, D_ENC) = D + S.DS
• Receiver checks sender’s signature
• Dec(S.pk, S.DS) = D_HASH
• Receiver generates SHA-256 of received data and compare it with received hash
• SHA-256(D) == D_HASH(signing, tamper-proofing)
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Blockchain Consensus Algorithm
Proof-of-Work
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Transaction• Verification with digital signature
• A complete history of transaction or Ledger
• Cryptocurrency
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Decentralised Ledger• Transactions are announced in the network
• Transactions are packaged into a block
• New block is chained with the previous block
• Question
• Who is making a new block?
• Where is the most recent valid ledger?
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Mining• Act of gathering transaction and producing a
block
• Anyone can generate a block as long as it meets the requirement
• Number of leading zero bits in the block header
• Reward 12.5BTC = 119,150,000KRW
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Proof-of-Work• The most recent valid ledger is the one with the
longest chain
• Longest chain means majority of resources(work)
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Block
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Merkle Tree
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Nonce and Difficulty
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Next Generation Blockchains
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Average Number of Transactions Per Block
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Mining Factory
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Mining Pool
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Challenges• Small block size and long interval
• Bitcoin blockchain handles 2 transactions where VISA system at peak Handels 4,700 transactions per sec
• Increase block size >1MB
• Decrease block production interval <10minutes
• Proof-of-Work
• Waste of resources
• Exchanges
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Next Generation• Smart contract
• DAO (Decentralized Autonomous Organization)
• Sharding
• Divide packaging workload
• Lightning network or Raiden
• Delayed packaging
• Delegated proof-of-stake
• Limiting number of block producers
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End