Blockchain

"Permissioned" vs. "Permissionless"

"permissioned" = private blockchains where participation is limited to approved parties only "permissionless" = public in the sense that anyone is allowed to participate in transaction processing by downloading software and a copy of the blockchain onto their computer Permissioned blockchain networks are different from public networks in that permissioned networks restrict the ability to participate in their consensus mechanisms. Permissioned blockchains allow the network to appoint a group of participants that are authorized to validate blocks of transactions. A laborious consensus method, such as proof-of-work, is not considered necessary or practical in a permissioned blockchain where all parties are known. Because all parties would be identified when logged into the system, any fraudulent activity could in theory be fully traced and the responsible parties held accountable.

limitations of permissionless (or consortium) blockchains

- Bitcoin's transaction volume is limited to seven transactions per second compared to the VISA credit card network's capacity of 10,000 transactions per second - The amount of electricity used to mine the Bitcoin network is significant - Sensitive data on public blockchains, such as transaction participants and volumes, can be inferred by anyone and everyone.

What is Deloitte doing with blockchain?

- Deloitte recently entered into arrangements with several prominent blockchain companies and developed 20+ fully functioning blockchain prototypes. Each arrangement yields distinct capabilities that enable Deloitte to provide a variety of blockchain solutions to its clients globally. - Deloitte is also involved with numerous other activities around blockchain. For example, Deloitte maintains an internal blockchain community which acts as a forum and collaboration platform for practitioners from 30 countries that provides internal educational resources, Deloitte maintains research arrangements with universities, and has entered into an arrangement with the World Economic Forum on blockchain initiatives.

proof-of-identity

- also in a very early stage of development -thought to be most applicable in permissioned, or consortium blockchains. - can be less strict in its consensus method, since each party in the blockchain network would be known and rigorously vetted before being allowed into the blockchain as a 'trusted' member - only works for consortium groups that have other mechanisms to establish trust, creating a role within the blockchain for a 'trust provider.'

Benefits of smart contracts

- they automate much of the contracting process and enable performance, monitoring, and enforcement of contractual promises with minimal human intervention, thereby improving efficiency and making transactions less susceptible to error -the parties to a smart contract agree to be bound by the rules and determinations of the underlying code, which in theory should lead to fewer contract disputes

all transactions:

-are logged in encrypted form -include time, date, participants, etc.

Falk blockchain class notes:

-can't add the block unless you have the hash pointer private key vs public key 9sealed envelope example: -public key = your mailbox/address -private key = individual transaction

Ethereum

-second largest blockchain network based on market capitalization - first platform to introduce the concept of a smart contract that could be deployed and executed on a distributed blockchain network

Unique characteristics of blockchain

1. *Near real time* (settles transactions in near real time --> also limits ability to charge back or cancel transactions) 2. *Trustless environment* (no need for trusted 3rd party) 3. *Distributed ledger* (public history of transactions) 4. *Irreversibility* (mitigates risk of double spending, fraud, manipulation/abuse of transactions, etc.) 5. *Censorship resistant* (incentives to continue validating blocks reduces possibility of external influencers to modify previously recorded transaction records)

When one party sends a bitcoin, the bitcoin blockchain is updated by the following process:

1. The transaction is requested 2. The transaction is broadcasted 3. Nodes form transaction blocks 4. The proof-of-work consensus mechanism resolves which block to add to the chain 5. Other nodes verify the new block 6. The new block is appended to the blockchain

In Bitcoin, it takes approximately __________ minutes to add a block, even with thousands of nodes working on the puzzle.

10

fundamental challenge of blockchain's disruptive potential:

Application of the technology still has not been proven at true scale

validation rules

As other nodes receive it, they check the solution and verify that the block meets all of the required validation rules before adding the block of new transactions to the ledger. With Bitcoin's unique incentive model for mining work, the winning node is given bitcoin as a reward for being the first to correctly mine and post the solution to the problem. This model is crucial to the validity and reliability of the blockchain because in theory it makes it more economically rewarding to earn bitcoin by mining legitimate transactions than to create fraudulent transactions on the blockchain, mostly due to the immense processing power and electricity required to generate fraudulent transaction records.

Blockchain v Bitcoin

Blockchain = underlying technology Bitcoin = famous application that uses it

next generation of potential applications of blockchain in consumer and industrial products

Blockchain solutions are being developed for diamond organizations to digitize and track diamond origins and history.

How can blockchain make traditional payment methods obsolete?

By eliminating the middleman and harnessing the power of distributed networks, blockchain technology has the potential to dramatically reduce transaction costs and increase transaction speeds

what nodes do with transactions when they are submitted

Each node collects the transaction, along with many other transactions happening at same time, running a series of checks to validate the authenticity of each one.

next generation of potential applications of blockchain in energy and resources

Energy firms are partnering with developers to explore using blockchain platforms for smart grid technology that would allow surplus energy to be used as tradable digital assets between consumers.

next generation of potential applications of blockchain in financial services

Global exchanges are piloting blockchain platforms that enable the issuance and transfer of private securities

next generation of potential applications of blockchain in life sciences and health care

Healthcare companies are exploring the use of blockchain to secure the integrity of medical billing, claims, and records.

why is it important to keep the private key confidential?

If the private key is compromised, anyone that knows it can freely transfer the associated account's value to other addresses. And in the case of Bitcoin, which is a pseudoanonymous network, it is difficult to trace the identity of users from their address to take recourse as a result of a compromised private key. (Note: Bitcoin transactions are not perfectly anonymous in that it has proven possible, with extensive analysis of the blockchain, to determine in some cases who is the likely owner of a bitcoin.)

"51 percent" attack

In order to manipulate the blockchain by mining fraudulent blocks of transactions and forcing consensus across the network, a miner would have to control a majority of the network's computational power

next generation of potential applications of blockchain in public sector

National governments are testing blockchain technology to create a land registry that could help minimize title mismanagement and fraud.

Public vs private key

Public keys are used to receive bitcoin, by acting as an address to which other participants in the network can send bitcoin. The private key is what allows a user to spend bitcoin. It is used to generate a "signature" for each transaction (via a signing algorithm) that proves to the network that the buyer possesses the correct private key— without actually revealing the private key to others, thus maintaining security and a high degree of anonymity

proof-of-work consensus mechanism

Since each miner has produced a candidate block, a protocol is required to select the block that will be added to the blockchain. To determine which miner gets to add its candidate block, each miner attempts to solve a complex computational puzzle that requires quadrillions of trial and error iterations. This requires a significant amount of computing power and electricity. The first miner to solve the puzzle alerts the network by immediately transmitting its block to peer nodes across the network for validation. This consensus method is called proof-of-work because "work"—in the form of computer processing power—is necessary to win the right to add a block to the blockchain. Across the network, it takes approximately 10 minutes for the puzzle to be solved, which means that a new block is added to the chain every 10 minutes.

How nodes form transaction blocks

Some nodes in the network—called "miners"—validate transactions for the network. They do this by collecting transactions and grouping them into "candidate blocks," based on a set of rules pertaining to the composition and size of a block

next generation of potential applications of blockchain in technology, media, and telecom

Technology and consumer products companies are partnering to develop blockchain-powered systems for the internet-of things.

how miners increase their likelihood of solving a block

The economic incentive of earning bitcoin for being the first to solve the puzzle drives miners to participate, and miners with more computational power have a greater chance of success. In fact, the likelihood of a miner successfully solving the block is directly related to its share of the computational power in the network

Where is blockchain applied?

The most promising applications of blockchain technology exist where transferring value or assets between parties is currently cumbersome, expensive, and requires one or more centralized organizations. i.e. fintech

checks performed by the nodes

These include integrity checks such as input and output values, and whether the coins are within an allowable range of value, ensuring the block size is not over a predetermined size limit and validating that the sender has sufficient funds in his/her wallet to complete the transaction.

oracle

a defined, trusted source

nodes

act as the notaries of the blockchain validating each transaction to ensure legitimacy

proof of work

all of the miners compete by solving these puzzles (algorithms) to be the person to add to the block and if you are this person you get paid in order to be able to "play the game" you have to agree that the block that is being added is correct

proof-of-stake

alternative consensus method that is gaining some traction in the blockchain community The general premise is that nodes in the network establish a security deposit, such as a bond, which gives them the right to serve as "validators" of blocks within the blockchain. A node's signature as validator will only work if the node has a current deposit. Validators earn a transaction fee for processing valid transactions. However, if a node authorizes a transaction that is later determined to be invalid, the node can lose its security deposit. In addition, some proof-of-stake protocols—such as those used by NXT, a cryptocurrency similar to Bitcoin—randomize the order of block miners to further impede fraudulent activity.

using blockchain to records transactions

auditors and all involved parties would have access to the information that is correct and can be updated in real time

how did blockchain first gain its notoriety?

bitcoin

smart contracts

computer code stored on the blockchain that can execute actions under specified circumstances. -enable counterparties to automate transaction tasks that are typically performed manually and that require the involvement of third-party intermediaries. -can result in processes that are faster and more accurate and cost efficient. For example: two parties could use a smart contract to place a bet on the price of oil at the end of the year—a common derivative contract. Once the contract is agreed to, it would be appended to the blockchain and the wagered funds would be held in escrow on the blockchain. At year end, the smart contract would read the price of oil by referencing an oracle, calculate the settlement amount, and then transfer funds to the winning party.

smart contracts

computer code that is part of the blockchain that will automatically execute what you want it to do

mining rig

computer system used to mine bitcoins

another reason blockchain works

consensus or agreement: ppl can't just add blocks willy nilly visibility: everyone can see exactly what is going on, but no one person can corrupt it

cryptographic hash

digital signature for the transaction

Etherium

furthest along for blockchain for business applications -open source blockchain -you can make your own cryptocurrency -integrated smart contracts into their blockchain

republic of georgia

has all of their property on the blockchain

reason it is uncorruptable

hash-pointers

private key

how the sender "signs" their transaction -(in essence their password, which should not be shared with anyone) - if a private key is lost or destroyed, it can never be recovered and the value or funds associated with the key cannot be spent. --> Private key management represents just one of the many new and interesting challenges created by the adoption of blockchain technology.

hash-pointers

if the hash pointer from the previous block does not connect to the block you want to add, you can not add it hash pointer is 256 characters -->no possible way to randomly figure out the hash number 2 to the 130th power is the chance of figuring out the hash

business applications of block chain

if you are a company and adding things to a ledger, you don't want everyone to see it -->permission block chain -->different form of the block chain will be used for businesses

reason info can be hacked and corrupted

it is all centralized

-->idea of blockchain

it is decentralized i.e. you control your records and who gets it

what makes blockchain special?

it uses peer-to-peer network technology—combined with cryptography and a sophisticated security protocol—to enable parties that don't know or trust each other to conduct financial transactions without involving a traditional trusted intermediary, such as a bank or payment processing network.

major advantage of blockchain technology

its distributed nature -a blockchain allows parties to transact directly with each other through a single distributed ledger, eliminating the need for centralized transaction processors and thereby potentially accelerating business processes and reducing transaction costs. Note: This is compared to the system now where the transfer of value between two parties generally requires centralized transaction processors, such as banks or credit card networks. These centralized processors each maintain their own separate ledgers, and the transacting parties rely on them to execute transactions accurately and securely

. It will be the responsibility of __________________ and __________________ to be able to test, validate, and verify the smart contract source code.

management and important for the external auditor

bitcoin: who are the ppl that add the blocks?

miners: batch system - group of transactions batched into a block then added to a chain -->miners add the block and get paid by bitcoin -takes a lot of computing power to do this

computers connected to the blockchain network are called:

nodes

the reason bitcoin is seen as secure

once the block is on there, it is tamper-proof (no going back in and messing with a block that has already been added to the chain)

place where we see blockchain doing some good

ownership of assets -putting ownership of real property on the blockchain is transparent -new: being able to put the whole supply chain on there ex: in Japan, they track the fish they catch all the way through the supply chain so that they can make sure its not fake sushi -Walmart is tracking their suppliers all the way through the supply chain to make sure they are being green

bitcoin block chain is called

permission-less bc anyone can join it and see every single transaction that is going on

public address of the seller (bitcoin)

public key -an alphanumeric string of characters that specifies the target destination for the bitcoin.

how did the word hash come about

real definition = abbreviation of something larger when you take marijuana and condense it down into powder form

blockchain

series of block

intellectual property

some artists have put their songs on the blockchain so they can control who uses it and thats it

why some people don't agree with the proof-of-work system

some people view Bitcoin's proof-of-work methodology as unnecessarily expensive and environmentally harmful because participants are solving arbitrary mathematical problems using increasing amounts of electricity.

Types of data provided by oracles

stock prices, currency exchange rates, or any other information relevant to an agreement between counterparties. Note: If a third-party source of information has been deemed reputable, relevant, and reliable by management—or by an external auditor—the information would generally also be considered reliable by the many blockchains referencing that particular oracle.

sacrifices made by making blockchain permissioned

such as wide distribution of the ledger, and a truly democratized environment without any intermediaries

one of the coolest things about blockchain

the idea of being able to control your own data ex: healthcare information -if it were on the blockchain, you can control who gets it and thats it -more secure, more control

Bitcoin

went over 10,000 for the first time

underlying premise of blockchain (problems b4 blockchain that make blockchain valuable)

what do you think of trust? in theory its good, but in the real world it stinks. every time you log in to a website, there is trust ppl have inequities in time and access timeliness issues with everything ^all things that are not ideal

potential problems that might arise with the use of smart contracts

when setting up a smart contract, the parties may decide not to address every possible outcome, or they may include some level of flexibility so they do not limit themselves to standard outcomes. Also, it remains to be seen what will happen if parties decide to renegotiate the terms of a deal, or what happens in the event of an unforeseen error, and how updates to the associated smart contract (perhaps through a side agreement) would be performed. oracles—the trusted information sources used by smart contracts—rely on the availability and accuracy of data from other sources and entities. If this data were to be manipulated, it could interfere with the proper execution of the smart contracts that depend on it.