Blockchain, what is it, how does it work and what can it do? · Kind of blockchains When describing...
Transcript of Blockchain, what is it, how does it work and what can it do? · Kind of blockchains When describing...
Improving performance,managing risk.
Blockchain introduction
Blockchain, what is it, how does it work andwhat can it do?
Ir. Olivier Rikken MBA
22 juni 2017
Blockchain - Bitcoin - bitcoin
Ir Olivier Rikken MBA © AXVECO 2017. All rights reserved
Since 2008
May 2017
What is blockchain
Most widely known for bitcoin
Is a technology that provides an
electronic public transaction
record of integrity
but,
It is a decentralized legder of all
transactions that have taken
place. The distributed data is
shared and maintained by all
nodes (computers) that
participate in the network.
Prevention of double spending
and duplicate transactions and
ledger integrity insurance is
provided by cryptographic
problem solving block validation,
without the requirement of a
central authority of trusted 3rd
party.
without central authority.In essence, blockchain is a(very special kind of) database
May 2017Ir Olivier Rikken MBA © AXVECO 2017. All rights reserved
How does it work (process-technically)New transactions are broadcast
to all nodes. (all nodes have the
complete history of transactions)
Person A → Person B 5BTC
Each node collect new
transactions into a block. First
transaction is always on the
miners behalf!
Person A → Person B 5BTC
Person C → Person D 10 BTC
Person X → Person Y XX BTC
Each node works on finding a
difficult Proof of Work for its block*
When a node finds the answer to
a proof of work, it broadcasts the
block to all nodes
Person A → Person B 5BTC
Person C → Person D 10 BTC
Person X → Person Y XX BTC
=??
=!!
Nodes only accept the block if all
transactions in it are valid and
not already spend
Person A → Person B 5BTC
Person C → Person D 10 BTC
Person X → Person Y XX BTC
Nodes express their acceptance of the
block by working on creating the next
block in the chain using the hash of the
accepted block as input of the new
hash#-X #-1 #
* Needed to create a timestamp in a p2p distributed network. As incentive, the one
that solves the PoW gets BTC in return. This is done by the so called miners.
The puzzle they need to solve is a SHA256 hash. They have to hash the previous
block in combination with a nonce in order to find a certain amount of zero’s at the
beginning of the hash.Ir Olivier Rikken MBA © AXVECO 2017. All rights reserved May 2017
Benefits blockchain?
Provenance (SC’s) – you can always check who send themessage (e.g. could be important in audit trails!)
Transparency – full historyof transaction is visible/retrievable
Irreversability / immutability – Oncein the blockchain it can’t bechanged (SC’s the code)
Permanence and immortality –the data is permanent and cannever be externally deleted
Robust as result of decentralisation (no single point of failure, no single point of control, no bottleneck)
Beside cutting out any middleman:
Ir Olivier Rikken MBA © AXVECO 2017. All rights reserved May 2017
How does it work (in practice)Example of a standard credit transaction
Current transactions Blockchain transactions
Bank A
Bank B
Equens /
Swift /
Etc
Current transactiontime payments 2 hrs – 3 days
Settlement securities T+3 daysBlockchain transactiontime ~ 10 min
Example was for credit transaction but is applicable forany financial area where a trusted third part is used nowadays,
security transactions, (commodity) trade finance, trade reportingEscrow, depository receipts etc, etc...
Ir Olivier Rikken MBA © AXVECO 2017. All rights reserved May 2017
What is the potential use of blockchainBlockchain can be used to virtually change everything to peer-to-peer. The most interesting use
cases in the short term are:
Besides the above, many other possibilities for blockchain technology, from Dapp’s to DAO’s!
Cryptocurrencies. There arecurrently many (600+), bitcoinis just the biggestaround at the moment.
“Coloured coins” can representanything (commodities, securities)and can be used for trading in adecentralized way. (NASDAQ ispiloting!)
The decentralized distributedledger as a truth machine. Forexample, a mortgages or identitydatabase.
Besides trading in securities,placement of stocks and bondswithout the need of a bank.
Crowdfunding in a peer to peerway with the use of blockchain.
Smart contracts, easy self-programmable self-executing contracts that execute and pay out if the right conditions are met.
Blockchain 1.0
Blockchain 2.0
Ir Olivier Rikken MBA © AXVECO 2017. All rights reserved May 2017
Smart contracts
7
ETH
10110010
A smart contract (or better, contract account) can be seen
as a “box” that has the following elements:
• The nonce, a counter used to make sure each
transaction can only be processed once
• The account's current ether balance
• The account's contract code,
• The account's storage
Note that "contracts" in Ethereum should not be seen as something that should be "fulfilled" or
"complied with";
Contains operational semantics e.g. Transfer of Payment (when do we pay and to whom)
Ir Olivier Rikken MBA © AXVECO 2017. All rights reserved May 2017
Kind of blockchainsWhen describing blockchains, various classifications can be made. The first classification
that can be made is between Public and Private.
Public blockchains: open to everyone. Anyone can
become a participant, can read and write! Fully
decentralized
Consortium or hybrid blockchains: a consortium blockchain is a blockchain where the
consensus process is controlled by a pre-selected set of nodes. The right to read the
blockchain may be public or restricted to the participants. These blockchains may be
considered “partially decentralized”.
Private blockchain: write permissions are kept centralized to
one organization. Read permissions may be public or
restricted to an arbitrary extent. Not decentralized.
Ir Olivier Rikken MBA © AXVECO 2017. All rights reserved May 2017
Blockchain characteristicsBesides the division between public, hybrid and private one can also classify them on other
elements.
Smart contracts (Turing complete or not) vs no smart contracts –
Blockchains without smart contracts are focussed on distributed
storage, with smart contracts on distributed compute. Contracts can
be turing complete or not (can solve any computation problem)
Permission-less vs permissioned – In permission-less blockchain,
the nodes can be anonymous. With permissioned, the nodes must be
legally known.
Tokenized vs non-tokenized – Tokenized means that the blockchain
has tokens (currencies, securities etc). Most blockchains have tokens,
unless used as oracle (truth machine)
Ir Olivier Rikken MBA © AXVECO 2017. All rights reserved May 2017
Challenges – Open questions for the future!
Regulation - is still in early
stages. Regulators don't
even agree if a
cryptocurrency can be
seen as a real currency.
Risk management and
compliance in general:
- Pseudonimity, currently all
public accounts are
pseudonimes
- Transaction screening and
KYC?
Public character
and full transaction
history – how will
clients react?
Secure storage of
blockchain products
(private keys) and solid
smart contracts. Prevent
Mt Gox & bitfinex and
DAO incidents
Accessibility – at the
moment a high “IT-nerd”-
value is needed in order to
access and master the
various products &
services
Scalability - Can blockchain
handle
millions of transactions per
minute in order to become
a true competitor with eg
payment services.
Ir Olivier Rikken MBA © AXVECO 2017. All rights reserved May 2017