Layman's terms description of what Blockchain technology is.

1. WTF is Blockchain???
Retro Friday Talk
Guy Kloss
guy.kloss@qrious.co.nz
Enterprise Architect
Qrious Limited
7 October 2016

2. Nuts’n’Bolts Explanation Beyond Money Issues
What’s Money?
Token, representing value
By social contract
Without acceptance, people won’t care.
Law doesn’t matter!
Guy Kloss | WTF is Blockchain??? 2/33

3. Nuts’n’Bolts Explanation Beyond Money Issues
Outline
1 Nuts’n’Bolts Explanation
2 Beyond Money
3 Issues
Guy Kloss | WTF is Blockchain??? 3/33

4. Nuts’n’Bolts Explanation Beyond Money Issues
Outline
1 Nuts’n’Bolts Explanation
2 Beyond Money
3 Issues
Guy Kloss | WTF is Blockchain??? 4/33

5. Nuts’n’Bolts Explanation Beyond Money Issues
Building a Digital Currency: Infocoin
The protocol: “Infocoin”
The money: “infocoin”
Guy Kloss | WTF is Blockchain??? 5/33

6. Nuts’n’Bolts Explanation Beyond Money Issues
First Step: A Signed Letter of Intent
The problem: Double spending
(using the same money multiple times)
Procedure
Statement of transaction
Sign that statement (with a crypto signature)
→ No-one else could have created that statement
Announcement of that statement “to the entire world”
Guy Kloss | WTF is Blockchain??? 6/33

7. Nuts’n’Bolts Explanation Beyond Money Issues
Using Serial Numbers: Unique Coins
Problem
What if a statement is sent multiple times?
More money, or a “stutter”?
Solution
Introduce identifiers (serial numbers) for infocoins
Needs a trusted source of serial numbers (e. g. a bank)
“Bank” keeps track of all infocoins
& verifies all transactions are legit
Procedure
Bob checks back with bank
(A) The serial number belongs to Alice
(B) The infocoin hasn’t been spent, yet
Guy Kloss | WTF is Blockchain??? 7/33

8. Nuts’n’Bolts Explanation Beyond Money Issues
Making a “Collective” Bank
We don’t want anyone to be in control of the currency
→ Let’s eliminate the bank
Procedure
Everyone keeps a complete record of
transactions/ownerships
A shared public ledger
→ The Blockchain
(not quite, yet, but we’ll call it that way already)
Bob checks the transaction from Alice
against (his copy of) the blockchain
If it checks out:
Bob sends the transaction to the entire network
Everyone updates their copy of the blockchain
Guy Kloss | WTF is Blockchain??? 8/33

9. Nuts’n’Bolts Explanation Beyond Money Issues
Making a “Collective” Bank
The Problem:
What if Alice sends the same infocoin to Bob and
Charlie within a brief period time?
→ Double spending problem
Broadcast a transaction to the entire network
Only accept on collective OK
(when “enough” people have confirmed it’s OK)
What’s “enough”?
We don’t know who’s all on the Infocoin network!
Guy Kloss | WTF is Blockchain??? 9/33

10. Nuts’n’Bolts Explanation Beyond Money Issues
The Cheating Problem
Scenario:
Alice wants to take over the Infocoin network
She creates a large number of “bots” (identities)
Alice’s sock puppet identities swamp the network,
announcing the transaction is OK
One or both (Bob and Charlie)
are fooled into accepting the transaction
Guy Kloss | WTF is Blockchain??? 10/33

11. Nuts’n’Bolts Explanation Beyond Money Issues
Proof-of-Work
Idea: Proof-of-work
Make it hard to validate transactions
(computationally costly)
Reward validated transactions
Why does that help?
Costly effort:
Not feasible to influence with many identities
Reward is to incentivise others to still do it
→ Impractical to cheat
Guy Kloss | WTF is Blockchain??? 11/33

12. Nuts’n’Bolts Explanation Beyond Money Issues
Proof-of-Work Details
Impractical to apply proof-of-work to every transaction
Queue unapproved transactions
Validate transactions against own copy of blockchain
Solve a hard computational puzzle – the proof-of-work
The puzzle is related to the queued transactions
The network accepts a validation only with the solution
Guy Kloss | WTF is Blockchain??? 12/33

13. Nuts’n’Bolts Explanation Beyond Money Issues
Block by Block
Guy Kloss | WTF is Blockchain??? 13/33

14. Nuts’n’Bolts Explanation Beyond Money Issues
The Puzzle
Bitcoin uses a hash function – SHA-256
(also other functions will do)
Queue has a label l
A random number x (a nonce) is appended
This is hashed h(l|x)
If the hash starts with n zeros, the puzzle is solved
If not, choose a new nonce x, rinse and repeat
Guy Kloss | WTF is Blockchain??? 14/33

15. Nuts’n’Bolts Explanation Beyond Money Issues
The Puzzle
h("Hello, world!0")
1312af178c253f84028d480a6adc1e25e81caa44c749ec81976192e2ec934c64
h("Hello, world!1")
e9afc424b79e4f6ab42d99c81156d3a17228d6e1eef4139be78e948a9332a7d8
x = 2, 3, . . .; At x = 4250 we get:
h("Hello, world!4250")
0000c3af42fc31103f1fdc0151fa747ff87349a4714df7cc52ea464e12dcd4e9
Number of leading zeros is adjusted regularly
Caters for increase in compute performance
Normalises new block frequency
(Bitcoin: average 10 min per block)
Guy Kloss | WTF is Blockchain??? 15/33

16. Nuts’n’Bolts Explanation Beyond Money Issues
Rewarding the Sweat & Tears
Competition with “the world”
Successful block wins a reward
(in bitcoin, ether, infocoin, . . . )
→ This is mining
Acts as an incentive for the hard work
Keeps the network honest
Adjustments to rewards system
Halving events
Superceding with transaction fees for miners
→ Capping of total number of coins ever
Guy Kloss | WTF is Blockchain??? 16/33

17. Nuts’n’Bolts Explanation Beyond Money Issues
Rewarding the Sweat & Tears
Guy Kloss | WTF is Blockchain??? 17/33

18. Nuts’n’Bolts Explanation Beyond Money Issues
Another Block in the Chain
We’d like to retain order of transactions
Otherwise:
Uncertainty on who owns which infocoin at a time
A linear chain: Next block refers to the previous
→ A new block is added to the chain
Guy Kloss | WTF is Blockchain??? 18/33

19. Nuts’n’Bolts Explanation Beyond Money Issues
Another Block in the Chain
Guy Kloss | WTF is Blockchain??? 19/33

20. Nuts’n’Bolts Explanation Beyond Money Issues
Concurrency Causes Forks
Occasionally a fork happens
If two miners succeed in solving the puzzle
(nearly simultaneously)
Guy Kloss | WTF is Blockchain??? 20/33

21. Nuts’n’Bolts Explanation Beyond Money Issues
What now?
This is what we’re trying to avoid
Keep track of both paths
Miners only work on the longest fork
One will eventually get longer
“B” gets the next block first, work on “A” will cease
Outstanding transactions on “B” will be integrated
→ Agreed upon ordering in time will be achieved
Guy Kloss | WTF is Blockchain??? 21/33

22. Nuts’n’Bolts Explanation Beyond Money Issues
Dishonesty on Forking
Back to the double spending problem:
Forks can be a chance to double spend
Will be detected once both blocks are available
Variant on double spending if Alice = Bob
(multiple identities)
Forking intentionally after Charlie accepts the coin
Community will continue on longest/earliest branch
Not feasible to “catch up” with the legit branch
Guy Kloss | WTF is Blockchain??? 22/33

23. Nuts’n’Bolts Explanation Beyond Money Issues
Outline
1 Nuts’n’Bolts Explanation
2 Beyond Money
3 Issues
Guy Kloss | WTF is Blockchain??? 23/33

24. Nuts’n’Bolts Explanation Beyond Money Issues
Content of Records
For money, a block contain payment records.
What if it contained . . .
Multiple columns?
“Documents” (e. g. JSON)?
Code?
Guy Kloss | WTF is Blockchain??? 24/33

25. Nuts’n’Bolts Explanation Beyond Money Issues
Private Chains
Within organisations
Within user groups
Guy Kloss | WTF is Blockchain??? 25/33

26. Nuts’n’Bolts Explanation Beyond Money Issues
“Non-Chains”
Just the hash trees (Merkle trees)
Not using cryptographic signatures
One-sided assurance only (from the CA side)
→ No assurance from the client/user
Only proving the positive (document exists)
→ Not the negative (document does not exist)
Guy Kloss | WTF is Blockchain??? 26/33

27. Nuts’n’Bolts Explanation Beyond Money Issues
Side Chains?
What is the biggest, most used
and most secure blockchain in operation?
→ Bitcoin
So we should be using that one, right?
Can’t do. Not useful for non-payment purposes.
→ Pegging a “side chain” to another (e. g. Bitcoin)
Also possible for private chains
→ Federation approach
Guy Kloss | WTF is Blockchain??? 27/33

28. Nuts’n’Bolts Explanation Beyond Money Issues
Visions
New take on identity management
Ownership
Land registries
Assets
Transparency for KiwiSaver & weapons/tobacco/. . .
NZX trading for (smaller) companies
Proof of ownership
Instant trading any time
Simplified Support Contracts
Guy Kloss | WTF is Blockchain??? 28/33

29. Nuts’n’Bolts Explanation Beyond Money Issues
Outline
1 Nuts’n’Bolts Explanation
2 Beyond Money
3 Issues
Guy Kloss | WTF is Blockchain??? 29/33

30. Nuts’n’Bolts Explanation Beyond Money Issues
Proof of Work
Waste of energy?
US$ 1 million in electricity for every day
10–100 times Google’s global compute capacity
Scalability?
Alternatives
Proof of Stake
Hybrids
Centralised
→ May defeat the purpose
Guy Kloss | WTF is Blockchain??? 30/33

31. Nuts’n’Bolts Explanation Beyond Money Issues
Which Chain?
Which chain to adopt for use?
The scene is still much in flow
Not all problems are solved, yet
Guy Kloss | WTF is Blockchain??? 31/33

32. Nuts’n’Bolts Explanation Beyond Money Issues
Resources
Videos & talks:
David Birch
“A new way to stop identity theft”
http://www.ted.com/talks/david_birch_identity_without_a_name
Don Tapscott
“How the blockchain is changing money and business”
http:
//www.ted.com/talks/don_tapscott_how_the_blockchain_is_changing_money_and_business
Introduction:
Michael Nielsen
“How the Bitcoin protocol actually works”
http://www.michaelnielsen.org/ddi/how-the-bitcoin-protocol-actually-works/
Guy Kloss | WTF is Blockchain??? 32/33

33. Nuts’n’Bolts Explanation Beyond Money Issues
Questions?
Be Safe!
Guy Kloss
guy.kloss@qrious.co.nz
Guy Kloss | WTF is Blockchain??? 33/33