Part of the course on blockchain. Introduction of basic terms. Part of the course for lawyers.

1. 1 - BASIC CONCEPTS1 - BASIC CONCEPTS
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udkov

2. Base
 There are nodes, which compose the network.
 Th d h i f ti ith h The nodes exchange information with each
other.
 The historical data is identical and immutable
for every node.for every node.
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udkov

3. Basic scheme
8a8b8c8d
2 NodeP2P
1 3
Distributed
ledger1 3
8a8b8c8d
ledger
8a8b8c8d
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udkov

4. 2 – Decentralization / Distribution2 Decentralization / Distribution
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udkov

5. Decentralized system
 Th bl k h i t i d t li d The blockchain system is decentralized.
 There is no single center for all participants.
 Local centers could exist.
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udkov

6. Center
Decentralized system has more than one center.Decentralized system has more than one center.
Distributed system try to escape from any centralization onDistributed system try to escape from any centralization on
every level.
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udkov

7. Types of network
1. Decentralized – no common center.
2 F t l t i l d t li ti2. Fractal – symmetrical decentralization.
3. Distributed – no center at all at every level.y
4. Diversified – distribution of nodes’
characteristicscharacteristics.
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udkov

8. Decentralized system
In the decentralized
system, there is no
single center for all
participants.
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udkov

9. Fractal
Fractal - repeating pattern of expanding symmetry.
Sierpinski Triangle
In real life, the decentralization doesn’t spread evenly.
The network is asymmetric.The network is asymmetric.
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udkov

10. Distributed system
One of the features of blockchain technology is not
only decentralization but also distribution.only decentralization but also distribution.
Di t ib t d t m i t m i hi h iDistributed system is a system in which processing
and data are spread or share among multiple nodes.
Distributed system has no centre at all.
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udkov

11. Distributed system advantages
Distributed system is able to remove the certainDistributed system is able to remove the certain
intermediaries,
 to increase the speed of reconciliation; to increase the speed of reconciliation;
 reduce costs;
 manage data safely and efficiently manage data safely and efficiently.
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12. Distributed system
Common understanding of distribution
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udkov

13. Genuine Distributed system
Real Distribution
has many levelsy
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udkov

14. 3 – Problems with3 Problems with
Decentralization and Distribution
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15. Existing system for users
8888 Present business
system is decentralized
for users
2
BANK1 BANK2
for users
BANK1 BANK2
1 3
8888 8888
BANK3
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16. Existing system for intermediaries
BANK1 BANK2
Central
Existing system is
centralized for
Central
Bank
intermediaries
BANK3
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udkov

17. Is it really distributed?
Is the ethereum network really distributed?
 One principle of work. One principle of work.
 A few software.
 Big mining pools Big mining pools.
B k h l f l d hBitcoin network has element of centralization due to the
use of specialized hardware ASICs, which need to solve
computational problem (proof of work)computational problem (proof of work).
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udkov

18. Centralized mining - Bitcoin
The graph
shows the
5market share
of the most
popular
5
mining pools
has got
bitcoin mining
pools.
g
52%
of market
blockchain.info
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udkov

19. Country centralization
Chinese based mining pool:
 Antpool – 19.3%
5 6
p
 BTC.Top – 9.6%
 Bixin – 8.1%
5 out 6
the biggest
 ViaBTC -7.8%
 F2Pool – 7.3%
mining pools
based in China
Total 52% of market
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20. Centralized mining - ethereum
22mining pools
have gothave got
60%
of marketof market
https://blog.ethereum.org
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udkov

21. Possible problems with decentralization
We rely on the independence of nodes but the system has centralized elements. Let view some possible problems arising from
the centralized elements.
Possible problems due to centralized elements:
 Software
 The client software can have a bug, so we can get a problem as for all nodes in a blockchain run the same client software.
 Developers
 The crime of the development team, which developed a client software for all nodes.
 Researches
 The crime of the research team, which is proposing protocol upgrades turns out to be socially corrupted.
 Government
 The government of the country can seize all mining farms for national security purposes. As in a proof of work blockchain, 70% of
miners are in the same country, the net can stop work.
 Hardware manufacturer Hardware manufacturer
 As the majority of mining hardware is built by the same company the bribe in the company can lead to implementing a backdoor
that allows this hardware to be shut down at will.
 Exchange company
 In a proof of stake blockchain, 70% of the coins at stake are held at one exchange.
(Based on ButerinVitalik. “The Meaning of decentralization”)
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22. The future
BANK1 BANK2
CB
BANK3BANK3
The future blockchain
system will be centralized
due to legal requirements
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23. 4 -Distributed Ledger - Blockchain4 Distributed Ledger Blockchain
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udkov

24. Distributed Ledger Technology
 The distributed ledger is a way to record the transaction. In
the standard centralized system, the one ledger is a book or
computer file with number of copies. But cryptocurrencies use
distributed ledger the main features of which are duplicated
d d t li d E h i i l f th l d iand decentralized consensus. Each original of the ledger is
distributed to a peer-to-peer system with cryptographic
authentication and authorization.authentication and authorization.
 Distributed ledger data can be either "permissioned" or
"unpermissioned" to control who can view it.p
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25. Features of the decentralized network
 Decentralization – no single center.
 Sustainability – network is resistant Sustainability network is resistant.
 Anonymity – name is not given or known.
 Privacy there are secret personal matters Privacy – there are secret personal matters.
 Storage – data are stored in distributed ledgers.
A b l h k bl f Accessibility – the network is accessible for everyone.
 Speed – operations and transactions are relatively fast.
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26. Distribution in a legal sense
 Refusing from the legal system in favor of natural law.
 No government. No government.
 No control.
 Light disclosure Light disclosure.
 Escaping from punishment.
P bl i h h i f i h Problems with the protection of rights.
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udkov

27. Peer-to-Peer Networks
 Network in which peers are able to communicate with
each other directly, via the logical overlay links withouty g y
any central server.
 In P2P networks, nodes both provide and use resources., p
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udkov

28. Hyperledger
 Don’t mess Distributed ledger with Hyperledger, which is
an open source collaborative effort created to advancep
cross-industry blockchain technologies, hosted by The
Linux Foundation.
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29. Blockchain
Blockchain - sequence of blocks, which record the
transactions.
Blockchain is a type of distributed ledger / database.
Blockchain data is immutableBlockchain data is immutable.
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30. Trust and blockchain
 In contrast to common opinion, the Blockchain doesn’t
provide trust.p
 The Blockchain is the trustless system.
 It is guaranteeing an execution of transaction regardless It is guaranteeing an execution of transaction regardless
the personal relationship or trust.
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31. BlockBlock
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udkov

32. Block
A block is a software-generated container that bundles
together the messages relating to a particular transaction.
Information on transactions is included in a block.
Bitcoin block explorer https://blockchain.info/
Ethereum block explorer https://etherscan.io/
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33. Average Number of Transactions Per Block
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34. Block structure
A block in the ethereum blockchain consists of:
 a header,,
 a list of transactions,
 a list of uncle blocks.
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35. Block structure
BLOCKCHAIN
List of List of
BLOCK
Header transactions uncle blocks
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udkov

36. Header
Header includes
 Version of block
 Previous block (hash value of a previous block)
 Merkle root
 Timestamp (date and time of block creation)
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udkov

37. Header structure of bitcoin
Header of block
The hash
value of a
previous
Merkle root
Hash of
transaction
Version
of block
Timestamp
previous
block
transaction
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38. Timestamp
Timestamp can be different for different computers.
The valid timestamp must be less than network adjusted
timetime.
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udkov