BLOCKCHAIN

Presented By:

Martin Parmar

DEFINITION

• A Blockchain allows
• untrusting parties with common interests to
• co-create
• permanent,
• unchangeable and transparent
• record of exchange and processing without relying on a central authority.

-Catherine Mulligan

DEFINITION

• A blockchain is a decentralized, distributed and public digital ledger that is used to record transactions across many computers so that the record cannot be altered retroactively • This allows the participants to verify and audit transactions inexpensively.
• A blockchain database is managed autonomously using a peer-to-peer network and a distributed timestamping server.
• They are authenticated by mass collaboration powered by collective self-interests.

-Wikipedia.

DEFINITION

• A Block-Chain is a distributed, decentralized transaction ledger.
• Block-Chain is also immutable, resilient and secure.
• Block-Chain as a record of everything such as a transaction, or even an exchange of value, data, goods, and services.
• The chain puts that data into non-modifiable, encrypted blocks, and distributes those pieces across the network of distributed computers or nodes.
• Each block is put at the end of a chain of blocks, and every new block includes details of every block in the chain that came before it.
• In blockchain, transactions are combined and a hash is computed and linked.
• Blockchain provides an immutable transaction history that allows consumers to validate consistency of their chain against other members.

BIT COIN & BLOCK-CHAIN

• “Bitcoin Is A Blockchain, But Blockchains Are Not Bitcoin”
• Bitcoin, an application that uses Block-Chain technology to implement a cryptographic currency mechanism.
• Electricity is a significant factor in the Bitcoin mining process.
• For blockchains that use mining, this is referred to as a Proof of Work.
• As the blockchain grows, more and more computations are required by computing nodes, therefore more electricity is used.

PEER TO PEER

• A unique feature of Block-Chain’s distributed nature is that it is not a central data store on a single server. Rather, the Block-Chain data is replicated across all the nodes in the distributed system. Nodes in the system communicate with each other using a peer-to-peer network topology.

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HASHING

• It is used extensively in blockchain.
• A hash function is mathematical, taking an input (any data, any length) and transforming it into a fixed-length output.
• The process of taking some data and applying a hash function to it is called hashing . The result is a hash .
• In blockchain, transactions are combined and a hash is computed. It is a part of what forms a block.
• A Secure Hashing Algorithm (SHA) is used to generate the hash. This is a one-way and non-reversible process.
• A key aspect of cryptographic hash functions is their collision resistance: nobody should be able to find two different input values that result in the same hash output.

MERKLE TREES

• A Merkle tree connects data using SHA-256 hashes in a tree structure. An initial root hash is generated; this is the Merkle Root. As nodes or child leaf nodes are added, the main root nodes will contain a list of their child node hashes.

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• Blockchains will create a Merkle tree of hashes derived from block data and transactions.

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TRANSACTIONS

In a blockchain, blocks contain a Merkle tree of transaction objects. Transactions contain any kind data object a hash, a parent hash, timestamp, and other audit information.

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A BLOCK

• A block is the elemental unit of a blockchain.
• It consists of a block header and transactions in a block.
• Multiple blocks make up a blockchain.
• As blocks are confirmed, they are added to the end of the chain.
• Blocks are linked so they can be traversed.

A CHAIN OF BLOCKS

HOW ARE BLOCKS CREATED?

• Nodes create transactions in the the peer network, transmitting them to other nodes.
• A consensus mechanism puts transactions into a block, sending the block to nodes in the network to confirm and validate.
• Transactions are immutable, which is due to the SHA-256 hash of the transactions and that it also contains the previous block’s hash in the blockchain.
• Nodes can confirm and validate blocks from the consensus easily.

NONCE (HOW IT IS SO SECURE AND MAGICAL?)

• You might think “I could just go as far back as I wanted and re-write the chain to be malicious.” That is where the nonce comes in.
• A nonce , ("number only used once"), is a number added to a hashed block that, when rehashed, meets the difficulty level restrictions. The nonce is the number that blockchain miners are solving for.
• One would have to have enough computational power to re-evaluate the nonce for every block in the chain up to the existing block.
• Going back to any block before the current one makes this process highly improbable due to the nature of transaction syncing.

CONSENSUS

• Consensus is the method in which the blockchain network can validate and trust transactions before they are added to the chain.
• Blockchains are deployed in consensus-based protocol which is either public or permissioned.
• Public consensus means anyone can attempt to add transactions and participate in consensus. Users participate in an anonymous manner. (Think Bitcoin.)
• Permissioned-based protocols require nodes to be authorized and identified to participate in the consensus or to add transactions to the chain. Users are not anonymous. (Think some enterprise applications.)

PROTOCOLS

• Four types of consensus algorithms are commonly used to implement a protocol:
• 1. Practical Byzantine Fault Tolerant (PBFT) Algorithm
• This method of consensus is used by Hyperledger , Stellar , and Ripple .
• This approach scales faster, but at the cost of anonymity.
• 2. Proof of Work (POW)
• A Proof of Work system requires its users to actually perform some type of work to participate. This is utilized by Bitcoin, Ethereum , and other crypto-currencies in the form of “miners” working to solve a block and have that block accepted into the blockchain.

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SMART CONTRACTS�

• Smart Contracts are an important feature of a decentralized ledger like Block-Chain.
• They are also called self-executing contracts, blockchain contracts, or digital contracts.
• Smart contracts are coded, self executing digital contracts which help you exchange money, property, shares, or anything of value in a transparent, conflict-free way.
• It avoids the services of a middleman.

BLOCK-CHAIN USE CASE : INSURANCE

• Automated claims processing
• Removal of middle men and third parties
• All personal data is bought together (no more policy silos)

BLOCK-CHAIN USE CASE: PAYMENTS

• International payment services have offered the most promising starting point for Block-Chain from a speed, cost and security point of view.
• Global payments nowadays take days to settle for a number of reasons, including manual processes and cumbersome regulatory compliance. They also lack transparency and often fail on account of messaging errors.
• Santander is leading the way here in the UK

BLOCK-CHAIN USE CASE: ENERGY

• From a business perspective Block-Chain can be used to store smart meter stats, allowing consumers to know how much money they have spent.
• Businesses can also use this information to forecast sales and revenue based on the data these smart readers are storing on the Block-Chain.

BLOCK-CHAIN USE CASE: KYC AND AML

• When it comes to ‘Knowing Your Customer’ (KYC) and Anti-Money Laundering (AML) use cases the Block-Chain will drastically reduce operational costs by auto-verifying an individual’s identification using a wide range of available data sources.
• As a result, Block-Chain can streamline account opening process and reduce fees, fraud and time spent on verifying identification (hence why fully digital banks are already launching).
• However, some noted that your data can be made public if your private keys are leaked, making your personal data and identification vulnerable.

BLOCK-CHAIN USE CASE: TRADE FINANCE

• Existing supply chains are complex, slow, distributed, involve many parties across the world and they usually don’t even trust each other (hence the need for trusted third parties such as banks and clearinghouses to mediate).
• Automatically executing Smart Contracts on the Block-Chain to transfer titles to goods and money removes the need for banks to provide products such as Letters of Credit, drastically reduces costs by cutting out the middlemen (and their fees) and creates a trusted network of assured authenticity and origin of products being supplied.

BLOCK-CHAIN USE CASE: HEALTHCARE

• Health data is extremely sensitive and must always be kept up-to-date and secure.
• Falsified or misplaced health records and prescriptions can cause major issues when accurate information is needed.
• Block-Chain can create a strong centralized system for storing patient information where their data is secure and cannot be tampered with.

BLOCK-CHAIN USE CASE: MUSIC

• Nearly everyone who listens to music now downloads it online, many pay per track or via subscription services.
• But there is still an issue with illegal downloads.
• Storing music on the Block-Chain will prevent this widespread industry problem, meaning artists, producers and record labels can get paid instantly for the music they own, without any conflict.

BLOCK-CHAIN USE CASE: REAL ESTATE

• In the real estate industry Block-Chain can be used to store and manage asset information and ownership.
• All transactions can happen on the Block-Chain promoting trust, efficiency, transparency and reduce operational and HR costs by cutting out third parties and their fees.
• As each block on the Block-Chain is unique the end-to-end transactions can be stored and verified making it tamper proof.

BLOCK-CHAIN USE CASE: GOVERNMENT

• The government can use Block-Chain for many different purposes both with Government-to-Consumer and Government-to-Government processes.
• One very simple, but ground-breaking use case is in the UAE - by 2020 the UAE want to store all of their documents on the Block-Chain.
• The UK is also exploring the use of Block-Chain to manage the distribution of grants.
• Monitoring and controlling the use of grants is incredibly complex, and subject to potential fraud or abuse.
• A Block-Chain, accessible to all the parties involved, is a better way of solving that problem.

SPEED OF BLOCK-CHAIN ADOPTION

• Block-Chain is in the very early stages and people first need to understand clearly what the Block-Chain use cases are before mass adoption begins.
• At the moment the speed of development is very slow as a result of knowledge gaps and limited talent in the Block-Chain industry.

BLOCK-CHAIN AS A SERVICE (BAAS)

• No one owns the Block-Chain, instead we envisage Block-Chain being used as the foundation for many different, customizable off-the-shelf solutions from a vast amount of vendors globally.
• Service providers such as Microsoft and Amazon AWS have already started to deploy Block-Chain as a Service.

THE BLOCK-CHAIN REVOLUTION IN BANKING

• Many of the top global banks are adopting blockchain and are heavily investing in research and development.
• Block-Chain promises to optimize and automate all back-end operations.
• Some major use cases for the banking sector are customer lending, corporate payments,p2p, and cash pooling.
• The mortgage industry also has a use case for Block-Chain whereby banks can store valuation data and make issuance of loans much quicker.

SUMMARY

• So now we have a combination of using Merkle trees, a consensus-based nonce value to validate work, and a peer network of nodes to share. This gives us a transaction log with the following:
• A Distributed, Immutable Data Store
• Shared Transaction History
• Cryptographically Verifiable
• No Centralized Control or Single Point of Failure
• With these underlying blockchain architecture fundamentals, there are endless opportunities to introduce it to other business domains other than cryptocurrency.

THANK YOU