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Agenda Background Advantages and disadvantages Process of adding a block to the blockchain Asymmetric cryptography Merkle trees Consensus methods Mining

Blockchain? What is Blockchain technology provides a distributed ledger Shared with a P2P FTP (file transfer protocol) The distributed ledger is made up of blocks of data that are chained together with cryptography Blockchain is immutable Provides a trustworthy database without a third party There is a slide with content behind this picture, the picture is an effect https://blockchainengineer.com/centralized-vs-decentralized-vs-distributed-network/

Introduction The core ideas of a distributed ledger were introduced in 1991 when a need for secure digitalized signatures emerged Blockchain was first introduced in 2008 by Satoshi Nakamota white paper Blockchain is not only bitcoin

Permissionless VS. Permissioned Permisionless: Public Everyone can read or write data Validated by the public Slower Permissioned: Private Used mainly by financial institutions Faster and Cheaper Ability to define read and write permissions

Influences of Blockchain Removes bureaucratic barriers Enhanced Security Encryption Decentralized technology Prevents hacking Time and energy efficient Terminates the need for a third party Transparency Tracing transactions

Disadvantages of Blockchain Complexity- many unknown terms that need to be learned by users in order to use blockchain Data modification- once data is added to the blockchain, it is almost impossible to modify it Security flaw- The ‘51% Attack’ Private keys

What is a block? Average size: 1 MB, containing more than 1500 transactions Identify a block through a cryptographic hash. Contains a merkle tree root Every block contains a hash of the previous block, creating a chain of blocks

https://blockgeeks.com/guides/what-is-hashing/

Tokens A digital token is capable of being traded or transferred between people without an intermediary Types of tokens: Cryptocurrency Utility Tokens Asset Token Security Tokens Tokens are usually built on Blockchains

Hashing and SHA-256 Function that maps data of arbitrary size to fixed size output (in SHA-256 the output is of 256 bits) Deterministic Fast Unique Irreversible Blockchain Mechanics- Terence Spies https://passwordsgenerator.net/sha256-hash-generator/

Cryptocurrency “A cryptocurrency is a digital or virtual currency that uses cryptography for security purpose. A crypto currency is difficult to counterfeit because of its security feature. A defining feature of a cryptocurrency, and arguably its most endearing allure, is its organic nature; it is not issued by any central authority, rendering it theoretically immune to government interference or manipulation.” Cryptocurrency: Its Risks And Gains And The Way Ahead- Krishna Kumar Thakur, Dr. G. G. Banik

Blockchain Keys Public and private key pair compromise of two mathematically related cryptographic keys. It is highly impossible to derive a private key from a public key The public key is made available to everyone The private key remains confidential to its owner Using asymmetric cryptography we can encode a message using a public key and decode it using a private key https://anders.com/blockchain/public-private-keys/keys.html

Asymmetric Cryptography

Bob decrypts with his private key

Merkle Tree Binary Hash Tree Used for storing large amounts of data They provide a means to prove the integrity and validity of data Their proofs and management only require low bandwidth to be transmitted across networks Costing only 2*log2(N) operations (where N is amount of data) Each block holds a Merkle root hash, containing summary of all data on block

Merkle Proof Used mainly by SPV nodes Uses a Merkle path, to concisely prove the validity of data being part of a dataset without storing the whole data set To ensure the validity of a certain data set being inclusive in a larger data set without revealing either the complete data set or its subset

Run Time

Consensus Methods “Consensus decision-making is a group decision-making process in which group members develop, and agree to support a decision in the best interest of the whole. Consensus may be defined professionally as an acceptable resolution, one that can be supported, even if not the “favourite” of each individual. Consensus is defined by Merriam-Webster as, first, general agreement, and second, group solidarity of belief or sentiment.” Blockgeeks.com Every type of Data Base needs a method of maintenance Central DB’s: Some central authority is in charge Blockchain: The public P2P network verify and authenticate changes There are two main types of consensus mechanisms in blockchain Proof of Work or POW Proof of Stake or POS

Proof of Work The first miner that solves a puzzle gets rewarded Miners compete with each other High use of resources Risk of a 51% attack

Proof of Stake A validator’s stake determines whether they can validate a new block PoS can neutralize the 51% attack risk posed by PoW A validator might only appear to have a stake in the network — called the “nothing-at-stake” problem No mining needed Faster Validations Can be much more cost affective

Mining Adding transactions to the blockchain while securing and validating them Miners are pc’s who run a special program This program competes with other miners to solve a mathematical puzzle The puzzle(for bitcoin) is to hash a value that means criteria The winning miner gets a reward(in PoW) https://anders.com/blockchain/block.html

Just to remind the audience about the content and structure of blockchain https://blockgeeks.com/guides/what-is-hashing/

Bitcoin Difficulty Adjustment The difficulty is the measure of how difficult it is to mine a new block It is recalculated every 2016 blocks This calculation will yield on average a new difficulty every two weeks Correlates to the networks “hash rate” https://bitcoinwisdom.com/litecoin/difficulty

Mining’s Energy Usage As of April 2018, at least 2.6 GigaWatts of energy is used to solve the mining puzzle and that’s over a third of the electrical consumption of Israel.

https://theaccountant. org https://theaccountant.org.mt/the-blockchain-revolution/blockchain-rev-2/

Future of Blockchain Optimization Using POS instead of POW Growth of DLT-based digital structures  World trade Transparency Across Industries Government cryptography Internet of Things

Sum Up A public and permanent distributed ledger Consensus Methods Merkle Hash Tree Faster settlements Transaction authentication by asymmetric cryptography A P2P network of broadcasted messages

Any Questions?

Bibiliography Dylan Yaga, Peter Mell, Nik Roby, Karen Scarfone. “Blockchain Technology Overview”, January 2018 Andreas M. Antonopoulos. “Mastering Bitcoin”, 2010 Ruzanna Chitchyan, Jordan Murkin. “Review of Blockchain Technology and its Expectations: Case of the Energy Sector”, March 2018 Krishna Kumar Thakur, Dr. G. G. Banik. ” Cryptocurrency: Its Risks And Gains And The Way Ahead”, March 2018 David Snyder “Blockchain for the Internet of things” , January 2017