Chapter 12 Notes

What are programmable in Ethereum?

"smart contracts" rather than hard coding a fixed business rule in Bitcoin to transfer only digital currency or tokens as specified in Nakamoto's paper (drew the attention of corporations and government agencies)

Selective Endorsement vs. Proof of Work

Corda has authorities that play the notary role; for the network to trust a transaction, the endorsement work should be done by these authorities instead of relying on the public to provide the proof of work; mining is not required in Corda because the validation is done by the notary; usually run in a secure and trusted network

Ethereum

a blockchain platform allowing exchange of more than cryptocurrencies

What are the key concepts behind Bitcoin?

a cryptocurrency that eliminates the ability to double spend, anonymous peer-to-peer transactions with no middleman involved, public blockchain - anyone can join or leave the blockchain network at any time, validation through proof of work and rewards as an economic incentive via a resource intensive computation called mining, immutable history of transactions, distributed ledger, one block is added to the blockchain approximately every 10 minutes, and the first mover - the first blockchain application in production

What did Nakamoto use to eliminate the need for intermediaries in trustless, online, peer-to-peer digital currency transactions?

a distributed ledger system through resource intensive mining

How long does an international wire transfer in the financial industry usually take?

a few days before the receiver can actually use the wired money; the relevant banks need to make sure that the bank accounts provided are valid, ensure there are sufficient funds in the sender's account, determine the currency exchange rate on the date of the transfer, and so on

What is a hash function?

a one-way function that converts an input into an output of fixed length; a unique signature for that particular input (the first miner to provide this hash broadcasts the valid block and receives a reward for mining the block)

What is chaincode?

a piece of code that is written in one of the supported languages such as Go or Java to represent the business logic that defines transactions instructions about an asset or assets

Description of a distributed ledger

a smart ledger you can rely on for doing your business that allows you to add journal entries to the ledger, once an entry is entered it cannot be altered or deleted from the ledger (finality of the entry is guaranteed), the entry is cryptographically saved in the ledger so it is highly secure such that only the related parties can view it and nobody can tamper with the entry, and shared among multiple parties to achieve a consistent view of the ledger

What are the major differences between a blockchain system and a traditional system?

a traditional system is centralized and generally requires a middleman to approve and record transactions

What is distributed safely at a high level with blockchain?

all data and everyone participating in the network has a copy of the data

What is the Proof of Work consensus algorithm designed for?

all miners in the network to compete to create the next block to be committed to the blockchain by solving a complex mathematical problem

What does blockchain automatically keep an immutable audit history of?

all transactions that have happened, which can help cut costs and resources that would normally be spent on manual efforts required to accomplish this

What does the access control list (ACL) provide?

an additional layer of permission around role-based access control

What does an audit involve?

an assessment that each recorded transaction is supported by evidence that is relevant, reliable, objective, accurate, and verifiable; auditors can benefit from blockchain technology to focus on collecting and evaluating evidence to support the transactions

Proof of Authority

another consensus algorithm that requires a few members in the network with known identities; designed for a subset of the participants in the network, called administrators, to be the ones creating blocks for the rest of the network (administrator identities are known and reputable)

Proof of Stake

another type of consensus algorithm that can be used in blockchain networks; it has a number of variations based on how the reward is distributed

Consortium Blockchain

another type of permissioned blockchain; allows several organizations to participate in its management; can be considered a kind of private blockchain, but its different permission structure can permit more complicated enterprise behaviors

Machine Learning

artificial intelligence applications where the computer learns from example and experience rather than specific instructions; subset of AI

What becomes more difficult with the emergence of blockchain technology?

audit and assurance tasks due to the complicated protocols involved in the distributed ledger system

What is one way to differentiate artificial intelligence applications?

based on the ability to perform task without using explicit instructions

What is the nascent technology with the most hype?

blockchain

What emerged in 2014?

blockchain 2.0 emerged as a more robust and sophisticated technology to pull together logic and business rules into contracts represented in code called "smart contracts" through Ethereum

In addition to untrusted networks, what are there many of?

blockchain applications in permissioned settings where identities of the participants are known and participation in the network is gated

For enterprise blockchain scenarios, what challenges need to be addressed?

blockchain protocols designed for public network cryptocurrencies are lacking in areas such as speed, confidentiality, and governance requirements that are critical to enterprise use cases, there may be a need for having certain transactions only visible to a part of the blockchain network; most enterprises are opting to state with permissioned or private blockchain networks which require a method to govern who is eligible to participate in the network

Privacy

business blockchain ensures appropriate visibility and that transactions are secure, authenticated, and verifiable

Asset vs. Cryptocurrency

business transactions generally involve some sort of asset transfer or an alteration to asset records; different assets require representations on the blockchain; it is impossible to represent all assets in the same form as cryptocurrency

What are the three type of nodes?

client, peer, and ordering

What are artificial intelligence applications also called?

cognitive technologies because it is the ability of computers to perform tasks that require features normally associated with human intelligence such as thinking logically and acting rationally

What is AI a broad field in?

computer science with foundations in philosophy, mathematics, economics, neuroscience, psychology, cybernetics, and linguistics

What does blockchain technology give users and corporations the ability to do?

create value, authenticate identities, and transfer digital assets in a secure and transparent way

What is just one application that can be built on top of the blockchain technology?

cryptocurrencies

Smart Contracts

define the terms, business rules, and transfer of assets in a piece of software code

What are the components that must be met to be characterized as blockchain?

distributed and decentralized, consensus, and immutability

Blockchain

distributed ledger system originally designed for Bitcoin exchange but now used to exchange a variety of digital assets

Why was Bitcoin not attractive to corporations?

due to the nature of the Bitcoin platform with no regulation, open participation in the network, and anonymous transactions

What is a simple way to implement proof of authority?

each round of getting consensus, one of the administrators is selected at random to create the next block, this administrator has nodes in the network that then create the block and add the block to the blockchain, administrator identities are known which prevent malicious behavior and the rest of the network can vote for admin removal in case of malicious behavior found in the network

What aspects of human thought and perception do machines struffle with?

emotions, intuition, and ethics, etc.

What is one major benefit of blockchain?

enabling multiple parties that do not fully trust each other to collaborate with a shared source of truth (a shared source of truth is the distributed ledger system deployed in a peer-to-peer cryptocurrency transaction network such as Bitcoin; multiple parties need to share and potentially manipulate the same data and blockchain allows these parties to see the latest updates in real time)

How long can escrow companies take to verify processes for real estate transactions?

even longer; they must put together the deed, lien, tax, and mortgage documents, while ensuring compliance with all the related regulations in order to close the transaction

Consensus

every transaction that is submitted to the network is validated by participants in the network and packaged into blocks; before the blocks are confirmed to be added to the network, agreement in the network must be reached among the parties; all parties will be aware of transactions that take place on the networks and agree to the transactions being written to the blockchain

What is the mathematical problem in Bitcoin?

finding a random number N such that SHA256 (transaction data, previous hash value, N) is less than a target value where SHA 256 is an industry standard hash function that generates a 32-byte digital signature of its input data

R3

formed in 2014, a software company utilizing distributed ledgers and database systems to apply blockchain technology focused on financial services scenarios to achieve more transparency, security, speed, and traceability with reduced cost

Public Blockchain

has no access restrictions in relation to the viewing or participation in the blockchain network; anyone interested in the public blockchain can join or leave the network at any time without disrupting the overall network; usually offers economic reward for the computational proof of work in mining; often called permissionless blockchain

What are many areas of blockchain applications under development?

healthcare, sharing economy, voting, crowdfunding, cryptocurrency, banking and payment systems, governance, supply chain management and auditing, file storage, prediction markets, protection of intellectual property, Internet of Things (IoT), insurance, identity management, private transport and ride sharing, energy management, music, data management, property records, stock trading

What is another aspect where blockchain can be useful?

in scenarios where there is a need for manual verification

When did the AI field begin?

in the 1950s but advances were limited by primitive computers and programming tools

What do we do a lot of business through in a traditional system?

independent, trustworthy, third-party intermediaries (help verify the validity of the business transactions and also keep ledgers of the transactions)

Artificial Intelligence

intelligence exhibited by machines or software rather than humans

What do we rely on as the trusted parties to ensure that transactions can occur as described in the business processes in traditional business?

intermediaries

What are escrow companies and banks in transactions?

intermediaries; they take time to verify that business transactions can occur without any errors; for these services, a fee is usually charged for every transaction which could total a significant sum (justified by the fact that the information required to complete the deal is often scattered throughout several different organizations which necessitates additional time and effort to pull together the related information)

What features does Hyperledger Fabric contain?

it can define the asset types and consensus protocol; a membership identify service provides permissioned networks, it manages user IDs and authenticates all participants in the Hyperledger network, ACL can be used to provide additional layers of role-based access control; there are three types of nodes: client node, peer node, and ordering node; ledger consists of a transaction log and a database for current state; assets are added, updated, and transferred with chaincode

Why is Bitcoin classified as an unregulated shadow currency and is often rejected in many business organizations and government agencies?

its anonymous nature

What areas does Corda differ from public blockchain protocols?

known identity vs anomymity, selective endorsement vs. proof of work, asset vs. cryptocurrency, smart contracts, access control rules, privacy

What does the membership-identity-service do?

manages and authenticates participants' identities

What can be built on the Ethereum network?

many applications (digital voting, banking and payment, shipping industry)

What work needs to be done as the miner is generating a valid block?

miner needs to give a hash of the transactions in the block as well as a hash which proves that the computer work was done to generate this block and solve the mathematical problem

What is not in a distributed system?

no central authority that can alter the existing transactions in the network, no middleman, information cannot be added or deleted without the knowledge of the entire network

Miners

nodes in the blockchain network creating and validating blocks

Immutability

once transactions are confirmed on the blockchain, they are tamperproof and cannot be altered

Bitcoin

one cryptocurrency; completely eliminated middlemen to achieve the peer-to-peer transactions (transaction only takes 10 minutes)

Hyperledger

open source blockchain platform created by the Linux Foundation; main objective is to achieve cross-industry collaboration with blockchain technology and distributed ledgers in a more efficient, reliable, and traceable environment so that it can be used in global business transactions prevalent in financial institutions or supply chain companies; permissioned blockchain and only members have access rights to interact with the information stored in the blockchain

What can the Ethereum network be utilized to build?

other applications, such as market predictions, super computing platforms, electronic sports, and social networks

What is the internal data structure in a distributed ledger system like?

packaged in blocks and chained together

What is Hyperledger Fabric?

permissioned blockchain with capabilities of handling smart contracts, configurable consensus, and member management services

What is one special feature in Hyperledger Fabric?

private channels and they provide restricted message paths to ensure privacy for participating parties only which allows competing business corporations to coexist in the same permissioned Hyperledger Fabric network

What are the most widely known blockchain applications?

public cryptocurrencies; these are possible through a public blockchain network that is secure enough to enable large-scale, trustless transactions

What are the three types of blockchain?

public, private, and consortium

What are some benefits of proof of stake consensus algorithm?

reduced computer costs and reduced centralization risks

Proof of Work

requires that the miners use computer power to solve this problem; prevents attacks as it requires either one bad actor to own tons of computer power to overcome all the other good actors in the network or requires a large number of participants in the network to be maliciously working together

Ordering Nodes

responsible for communication service with a delivery guarantee

Peer Nodes

responsible for executing and verifying transactions

What is the main incentive for the miner to act honestly in proof of stake?

so they will not lose their staked amount

What has emerged to develop different applications across a myriad of industries, such as finance, supply chain management, health care, government, and more?

startups (tracking food deliveries, medical records verification, mortgage/loan record history, crowd funding, voting, vehicle registries, land titles, birth/death certificates, wills, etc.)

What does a blockchain log file do?

store the sequenced transaction records in blocks, helps keep track of the provenance of transactions

Client Nodes

submit the transactions to the endorsers and broadcast the transactions to the ordering nodes

What does blockchain technology have the potential to affect?

the bookkeeping industry and how a transaction is initiated, authorized, executed, and reported

What do smart contracts help ensure once agreed and executed?

the business rules and processes are followed through in every step of the transactions as specified in the contract; it helps resolve disputes and provides end-to-end transparency for each transaction

Distributed and Decentralized

the data are distributed and synchronized among all the participants in the network; data are decentralized in the aspect that participation in the network is fair

What are the three important concepts involved in the transaction?

the middleman, the delay, and the service fee

What do some question about blockchain technology eliminating?

the need for a financial statement audit by a CPA (the blockchain technology verifies the occurrence of a transaction in each block)

What does Bitcoin introduce?

the proof of work algorithm through mining and rewards to ensure the finality of a block and to prevent the existing blocks from being tampered with

What is contained in the distributed copies?

the same transaction records and when a new transaction occurs the information is guaranteed to be propagated to all the participants to keep all nodes in sync

What are characteristics of a block in the Bitcoin network?

the size varies but usually contains thousands of transactions in one block; each block contains transaction data such as the sender, receiver, and the quantity of Bitcoin to be transferred; a block also contains a 32-byte hash value from SHA256, the digital digest of the block, the hash value from the previous block, and a timestamp of the block transaction in a chronological order (a small change of the data will completely change the digest, making it almost impossible to tamper with once a block is added to the chain)

What does the technology utilize cryptography to ensure?

there are no fraudulent transactions and consensus must be reached between the participants before transactions are committed to the blockchain

How does proof of stake work?

there is a set of validators in the network who work on proposing the next block to be added to the blockchain; these validators lock up an amount of their cryptocurrency as a deposit to ensure honest behavior; if others find that the block was not created honestly, then the block validators lose their staked cryptocurrency

Access Control Rules

these rules can be deployed to define the roles of the participants such as the access rights of everyone in the network

What is another perspective helpful in evaluating blockchain's usefulness?

through thinking about whether or not there are intermediaries involved in a particular business process; if there are third-party middlemen involved that control the data source, blockchain can help with eliminating these intermediaries, thus accelerating transaction settlement and verification (a voting system with blockchain technology can eliminate the middleman, reflect the voting result for all candidates in real time, and eliminate fraud or potential human errors in the vote counting process)

What can smart contracts be examined among?

trading partners and regulators

Corda

uses smart contracts for its business rules while ensuring privacy and security in the business transactions; consortium blockchain network where only relevant parties can join the network and only the related parties will be informed for each transaction; permissioned blockchain and access to each network is restricted to the participating companies or organizations

Private Blockchain

usually requires permission to join network, hence, it is permissioned blockchain; one cannot join unless he or she is invited to join the network; transaction data and validation are restricted; referred to as enterprise blockchain

What do intermediaries take time with?

validating the accuracies of transactions but they also charge a proportional fee for each business transaction (validation processes usually take time depending on the type of business transaction)

What other technologies related to other human characteristics does AI also include?

visual perception, speech recognition, and language translation

Known identity vs Anonymity

we need to know the identity of our business partners

What is it critical to evaluate for blockchain?

whether there truly are benefits (for completely internal scenarios you may want to consider whether blockchain can really add value or if it will simply increase complexity for the organization)

What do consensus algorithms determine?

whether to add a new block to the chain or to drop a fraudulent block (a new block is always added to the longest chain as seen by the majority of the computers)

What characteristics of a traditional ledger system does blockchain have?

you cannot edit or alter past information once it has been committed to the network; it is a write-once, read-many type of system

What is the white paper Satoshi Nakamoto published called?

Bitcoin: A Peer-to-Peer Electronic Cash System which introduced a concept for a new type of technology

What do changes in the business models with blockchain also affect?

CPAs in the financial reporting and tax preparation industries

How does Ethereum differ from Bitcoin?

Ether is the cryptocurrency that runs on the Ethereum network, which is used to pay for the computational resources and transaction fees; one block is added every 12 to 15 seconds, compared to 10 minutes in the Bitcoin platform; transaction fees differ by computational complexity, while Bitcoin transaction fees differ by block size; mining of Ether occurs at a constant rate, while Bitcoin mining reduces by 50 percent every 4 years; smart contracts (programmable business rules) are used rather than fixed business rules; uses Ethash algorithm to reduce the advantage of ASICs in mining machine vs. SHA256; mining reward is 3 Ether vs. 12.5 Bitcoins as of today; transaction fees are considerably lower for Ether than Bitcoin; account is debited/credited in Ethereum vs. Bitcoin's unspent transaction output system (spending cash and receiving change); the Ethereum virtual machine is used to run the Ethereum smart contracts