BlockchainIntro.com

Blockchain: Bitcoin and Beyond:
Move from Centralized to
Decentralized Trusted Framework
Sanjeev Verma

BREAKTHROUGH
25 years ago a breakthrough
technology that connected people
Connected people around the world,
foundation for modern growth.
Today the Internet gives a new
breakthrough-BLOCKCHAIN
Changes the way economy & businesses
work
Distributed Consensus without a
centralized Trust Entity.

BNP Paribas: Blockchain is a Disruptive Invention
‘Like The Steam or Combustion Engine’

Problem: Dependency on a Single
Trusted Entity
• Trust in Digital Economy is Broken:
– We depend on Email Server ( like GMAIL) for
secure delivery of our emails.
– Social network like Facebook to broadcast our life
events to our loved ones.
– CA for our Digital Certificates...
• We are living our life precariously by relying
on a Third Party for the security and privacy of
our digital assets.

Solution: Move Towards Decentralized
Trusted Framework
• Solution:
– Decentralized Trusted Framework instead of a Single
Trusted Entity.
• Bitcoin is the first Cryptocurrency that gave a Trusted
solution using Blockchain ( based on 2009 paper).

What is Money?
• Money is means for exchanging goods and
services & has 4 properties
– Divisible, Durable, Fungible and Verifiable.
• Bitcoin like other Fiat Currency like US $ is
based on trust.
• Bitcoin unlike US $ is deflationary since there
can be a maximum of 21 Millions Bitcoins in
Bitcoin network ( by year 2140).

Requirements of a Trusted
Cryptocurrency system
• Requirements of a Trusted Cryptocurrency
network:
– Verification of the entity initiating transaction.
– Trusted Ownership changes.
– Transaction ordering to prevent fraud ( double
spend).

Note
SignatureTo
From Amount
From Signature To Amount
RFloxXpoYC z0D8Pm9ITT z4ZFAMEl0i 300
z4ZFAMEl0i 04GNav84TI CHRouGK9WN 50
z4ZFAMEl0i fBC5cV0edM MlAClZmSX6 100
CHRouGK9WN mG6VnlKrQL MlAClZmSX6 200
... ... ... ...
#1 Signature Verification

#2 Trusted Ownership Changes
This pics taken from iponderablethings.com

#3 Transactions Ordering to prevent Double Spend
Double Spend problem
• Alice ( consumer) sends
cryptocurrency to Bob (
merchant to buy a product.
• Alice Waits for Bob to ship the
product.
• Alice conducts another
transaction referring the same
input to himself/herself.
• Due to propagation delay,
second transaction go
through. Bob ships the
product and does not get his
money too!
Bitcoin was the first cryptocurrency to address this problem using a
mechanism—now popularly known as Blockchain.

What is Blockchain?
• Blockchain is a decentralized public ledger
– Public Key is your A/C #
– Private Key your key to get access
– Entries verified by distributed computing entities
(called miners)

This pics taken from financialexpress.com

Miners work on unconfirmed transactions
and packages them into a Block.

Nonce is just a solution to a puzzle
e.g. Pick a number such that the hash of all the blocks
content has 5 leading zeros.
Last Block
Nonce
Metadata
Signature
Amount
To
From
Tx Id
Block Id
10^8 Gig hashes to solve a single Block.
How a Block is Generated?

Blockchain Blocks
Blocks are cryptographically linked together: A Block can’t be solved
until previous block is solved

Occasionally there could be more than one block solved at a time:
In Bitcoin Network it takes on average 10 minutes to solve a Block.
Bitcoin Network finally stabilizes to a single
chain that is trusted by everyone in the
network.

How Blockchain addresses the issue of double spending?
Mathematical Race starts

You need 50 % of the Computing Power to Break the System!

Blockchain Advantages
• Two Main Characteristics
– Distributed Consensus
• Past and Present events involving digital assets can be
verified by anyone by looking at Blockchain at any time.
– Anonymity
• Use of public cryptography ensures privacy of the
digital assets.

Applications of Blockchain
• Monetary Aspect is the tip of the iceberg-
Blockchain is ground breaking technology:
– Financial Applications
• Stock Exchange, Insurance,
– Non-Financial Applications
• Notary, Proof of Existence of Legal Documents, IoT,
Distributed Storage,
• Escrow Service

What is Smart Contract?
• Computer Programs that enforce the terms of
a contact:
– Self Enforceable
– Transparent
– Faster
– Cheaper

Example:
Smart Contract Betting
Escrow Service
BET
49 ERS Wins
2
11
Bob bets
on
Alice bets
on 3

Smart Property
• Smart Property is a physical property whose
owner is controlled by Blockchain using Smart
Contracts
– It also includes non-physical properties such as
shares in a company or access to a remote
computer.
– Examples include Cars, Houses, Diamonds etc.

Blockchain based AirBnB service
• Smart Property can be used to implement a Blockchain-based AirBnB service- From
Brokerage Service to Escrow service

Some Other Applications
• Decentralized Proof of Existence of Legal Documents:
– Cryptographic Hash or fingerprint of legal documents can
be stored in the Blockchain.
• Decentralized IoT
– Current implementation is based on a centralized hub or
broker.
– IBM’s ADEPT uses Blockchain as a general ledger to keep
secure messages exchanged between IoT devices.
– Filament a start-up provides a decentralized Software stack
that stores the digital identities of the IoT devices in a
Blockchain.

Blockchain based Peer-to-Peer Implementations of IoT

Conclusion
• Blockchain is a disruptive technology
– Distributed Consensus and Anonymity are its two
main characteristics.
– Finding newer applications in both Financial and Non-
Financial space.
– A new term Fintech has been coined to describe its
applications in financial space.
• Still has challenges in terms of scalability, govt
regulations and behavioral change in trade
without involving third party.
• https://www.youtube.com/watch?v=YIVAluSL9SU

The Emerging Technology Hype Cycle-2015

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