Workshop 1 -

What is Blockchain?
Blockchain at Berkeley

Overview

1. Intro and Basic Concepts

2. Understanding Bitcoin and Consensus
3. Blockchain Types and Platforms
4. DOA Energy Example
5. Conclusion

blockchain.berkeley.edu 2 | October 2016

Blockchain at Berkeley

Blockchain at Berkeley

Intro and Basic Concepts

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Blockchain at Berkeley

Terminology

Bitcoin is the technology that started it all

● Bitcoin is a cryptocurrency
Blockchain is the technology underlying Bitcoin
● Enables distributed consensus
Community terminology
● "crypto", "cryptocurrency" - Bitcoin, Ethereum, more technical
● "private blockchains", "permissioned ledgers", or just "blockchain"
● "distributed tech" or "decentralized tech" - umbrella term

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Blockchain at Berkeley

Blockchain at Berkeley

Understanding Bitcoin and

Consensus

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Blockchain at Berkeley

A Bitcoin Transaction - Basic

Version
● Bitcoin exists as software
○ Transactions are conducted through wallet
software
○ Wallet creation generates a Bitcoin address
● To receive money, you share your address
○ Sender specifies address and amount
● The transaction is broadcast to the network, where
"miners" verify it and add it to the transaction history

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Blockchain at Berkeley

Basic Concepts - Transaction

● Maps inputs addresses to output

addresses
● Typical tx: one input, two outputs
● Contains signature of owner of funds

Source: Bitcoin Developer Guide

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Blockchain at Berkeley

Basic Concepts - Blocks + Blockchain

Blocks
● Contains an ordered bunch of transactions
○ Timestamps the transactions, are immutable
● Each block References a previous block
Blockchain
● The entire series of blocks 'chained' together

Source: Bitcoin Developer Guide

Source: Bitcoin Developer Guide

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Blockchain at Berkeley

Merkle Trees

● Makes transaction history immutable

● PoW to add chains

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Blockchain at Berkeley

The Innovation of Satoshi Nakamoto

Bitcoin was created by Satoshi Nakamoto in 2009

● First ever decentralized, trustless system for transactions
○ A low cost financial system that only requires an
internet connection
● Nakamoto solved the Double Spending problem
○ Prevent someone from spending the same asset
twice
○ Solution? The blockchain + Proof-of-Work

Dorian Satoshi Nakamoto

(not actually Satoshi Nakamoto)
Source: Bitcoin Developer Guide

Source: Bitcoin Developer Guide

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Slide by Viget

v1
Alice writes and signs a message describing her transaction

A “I, Alice, am giving Bob one bitcoin.”

G A
Slide by Viget

v1
C E
Alice sends her message to the world
F

A B

J H
G A
Slide by Viget

v1
C E
Alice sends five identical messages
F

A B ?

J H
G A
Slide by Viget

v2
C
Introducing uniquely identifiable serialE
numbers
F

A 8732 B

J H
Slide by Viget

v2
Where do serial numbers come from?

8732 ?
Slide by Viget

v2
A central bank manages transactions and balances

E
D G

B H

A I
C
Slide by Viget

v2
Centralization

E
D G

B H
01 01

A I
01 C 01
Slide by Viget

v3
Making everyone the bank

E
D G

B C

A I
Slide by Viget

v3
Alice sends her transaction to Bob

E
D G

B C

A I
Slide by Viget

v3
Bob announces the transaction to the world

E
D G

B C

A I
Slide by Viget

v3
Alice double spends on Bob and Charlie

E
D G

B C

A I
Slide by Viget

v4
Everyone verifies transactions

E
D G

B C

A I
Slide by Viget

v4
Alice is prevented from double spending

E
D G

B C

A I
Slide by Viget

v4
Alice sets up multiple identities

A
A A

B C

A A
Slide by Viget

v4
Alice double spends with her multiple identities
Sybil Attack: Done by creating many fake identities
A
A A

B C

A A
G A
Slide by Viget

v5
CProof-of-work E
F

A B

J H
Slide by Viget

v5
Pending transactions

1. I, Tom, am giving Sue one bitcoin, with serial number 3920.

2. I, Sydney, am giving Cynthia one bitcoin, with serial number 1325.
3. I, Alice, am giving Bob one bitcoin, with serial number 1234.
Slide by Viget

v5
Verifying transactions

1 2 3
Slide by Viget

v5
Why the math?
Slide by Viget

v4
Alice double spends with her multiple identities

A
A A

B C

A A
Slide by Viget

v5
Proof-of-work as a competition
Slide by Viget

Summary

Version Major feature Value added

1 Signed messages announced to the Basis of entire system
network

2 Serial numbers Uniquely identifiable transactions

3 The block chain Shared record of transactions

4 Everyone verifies transactions Increased security

5 Proof-of-work Prevents double spending

Blockchain at Berkeley

Bitcoin Mining

● Solution to Double Spending: Proof-of-work (PoW)

○ “Miners” continuously compete to solve a very computationally difficult problem
○ Proof of work is an example of a "Byzantine consensus algorithm"
○ Private blockchains tend to use alternative algorithms, but are not trustless

Mining functions as:

● A mining mechanism that ensures coins are distributed in a fair way

● An incentive for people to help secure the network
● Key component that enables you reach consensus in a decentralized currency

Proof-of-work is one of a plethora of consensus algorithms

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Blockchain at Berkeley

Sketch of Bitcoin Mining - Finding blocks

● Finding the PoW => 'found' a block; can add block to blockchain
○ Miner who found block adds "coinbase transaction"
■ contains mining reward (currently 12.5 BTC)
○ Miner broadcasts block
○ Other nodes verify, then add to their own copy of the blockchain
● Timeline + stats
○ This happens roughly every 10 minutes
■ Difficulty of the problem adjusted every 2 weeks
○ Block reward halving every 4 years (recently halved on July 9th)
■ Bitcoin is in limited supply - 21 million bitcoins by 2140
● Deflationary
○ 15.2 million bitcoins currently in circulation today
○ ~$9.6 billion market cap
○ Price is currently ~$600 per bitcoin

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Blockchain at Berkeley

Blockchain at Berkeley

Blockchain Types and

Platforms

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Blockchain at Berkeley

Types of Blockchain

Public Blockchain - A public blockchain is a blockchain that everybody in the world can read,
anyone in the world can send transactions to and expect to see them included if they are valid, and
anyone in the world can participate in the consensus process.

Consortium Blockchain - A consortium blockchain is a blockchain where the consensus process is

controlled by a preselected set of nodes; for example, one might imagine a consortium of 15
financial institutes, each of which operates a node and of which 10 must sign every block in order for
the block to be valid.

Fully Private Blockchain - A fully private blockchain is a blockchain where write permissions are kept
centralized to one organization. Read permissions may be public or restricted to an arbitrary extent.

(From Vitalik Buterin: https://blog.ethereum.org/2015/08/07/on-public-and-private-blockchains/)

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Blockchain at Berkeley

Platforms - Open vs. Private

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Blockchain at Berkeley

Public (open) vs. Private Blockchains (Closed)

Public Private

Access Open read/write access Permissioned read/write access to

to database database

Speed Slower Faster

Security Proof-of-Work/ Pre-approved participants

Proof-of-State

Identity Anonymous/Pseudonym Known identities

ous

Asset Native Assets Any asset

Costs Expensive Cheaper

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Blockchain at Berkeley

Future of Blockchain

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Blockchain at Berkeley

Blockchain at Berkeley

Smart Contract Example

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Blockchain at Berkeley

Smart Contracts & Property

“Smart contracts as smart contract code”
(a) Expressing Business logic as a computer program
(b) Representing the events which trigger that logic as
Blockchain
message to program
(c) Using digital signatures to prove who sent the message
Block 0
(d) putting all above on the Blockchain

Block 1

Contract Contract code Block 2

Timestamp

Block 3

Signature
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Blockchain at Berkeley

Example

Alice Bob

Tobias Max

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Blockchain at Berkeley

Example

Alice Bob

So if Max wants
to make a
change the whole
chain gets a
message.
Everybody needs
to approve.
Tobias Max

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Blockchain at Berkeley

Example

Alice Bob

Tobias Max

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Blockchain at Berkeley

Pro’s / Con’s

Pros:
- It is secure, if somebody wants to change a contract everybody gets a warning
- Self executing,
- Distributed/Decentralized
- M2M (Machine to Machine)

Cons:
- Scalability of the chain
- Difficult for legal contracts, which need human interpretation
- Computation power
- Difficult to update a smart contract

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Blockchain at Berkeley

Dapps, DAOs, DACs, DASs

Decentralized applications (Dapps)

- Is an application that runs on a network in a distributed fashion with participant information
securely protected and operation execution decentralized across network nodes.

Decentralized Autonomous Organizations & Corporations (DAOs & DACs)

- In a DAO/DAC, there are smart contracts as agents running on Blockchains that execute ranges of
prespecified or preapproved tasks based on events and changing condition.
- Storj, Smart Contracts operated, decentralized file storage

Decentralized Autonomous Societies (DASs)

- For in the future this can be a DAS where a fleet of smart contracts, or entire ecosystems of Dapps,
DAOs, DACs operating autonomously

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Blockchain at Berkeley

DAO - DASH

A decentralized autonomous organization (DAO), sometimes labeled a decentralized autonomous

corporation (DAC), is an organization that is run through rules encoded as computer programs
called smart contracts. A DAO's financial transaction record and program rules are maintained on a
blockchain.

- Dash formerly known as Darkcoin and XCoin, rebranded in 2015

- People who communicate via a network protocol
Reward
Two principles: 45% 45% 10%
1. Consensus
2. Execution
Miners Masternodes All other Job
- - that is
What makes it so special? →
Generate the Privatesent necessary
Blockchain Instant sent

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Blockchain at Berkeley

Blockchain at Berkeley

DAO - Energy Example

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Blockchain at Berkeley

Hyperledger

1. Finance
i. community of more than 50+ of the biggest banks in the world
ii. Altoros Hyperledger Demo: Distributed Clearing Platform For Derivatives
iii. Altoros Hyperledger Demo: Bond Issuance and Trading
iv. HACERA: Accounts You Can Count On
v. IntellectEU Demo: Smart Correspondent Banking

2. Healthcare (in development)

3. Supply Chain (coming)

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Blockchain at Berkeley

R3 - Project (Private)

1. Software/Platform
2. Consortium of 50 of the largest banks in the world
3. Corda Project - the distributed ledger for all 50 banks
Let’s watch a video!

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Blockchain at Berkeley

R3 - Project (Private)

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Blockchain at Berkeley

Chain.com (Private)
Delivers three different options for companies:

1. Open Standard - Financial Asset registration

2. Chain Core - An enterprise-grade distributed system that powers secure, scalable, and highly
available blockchain networks.
Enterprise software in the blockchain.
3. Chain Sandbox - private blockchain network designed for rapid prototyping. It allows
development teams to begin building blockchain applications in a hosted environment without
deploying Chain Core on-premise.

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Blockchain at Berkeley

Chain.com (Private)

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Blockchain at Berkeley

Ripple

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Blockchain at Berkeley

Next week

● Please fill in this check-in form: http://www.tinyurl.com/project-bb DUE BY MIDNIGHT

● Expectations
● Team forming - also in the form
○ Please fill in the form and give your preference
○ Start meeting with your team this week
○ Team leaders
○ Define work structure
○ Team leaders inform Tobias & Ronen about the (scrum) meeting
■ How did it go
■ Questions
■ Can we help you?
● Dev:
○ Make a Dev environment for Ethereum and start using solidity
● Con:
○ 5 min presentation
○ Central database vs. Blockchain
○ 3 slides

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Thanks!
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