The New Industrial Revolution(s)?

The New Industrial Revolution(s)?

Blockchain and Distributed Ledger Technology (DLT) Daniel Hao Tien Lee http://danieleewww.yolasite.com/2018-mgb070.php [email protected] Blockchain was a priority topic at Davos 2018; a World Economic Forum survey suggested that 10 percent of global GDP will be stored on blockchain by 2027. Multiple governments have published reports on the potential implications of blockchain, and the past two years alone have seen more than half a million new publications on and 3.7 million Google search results for blockchain. Most tellingly, large investments in blockchain are being made. Venture-capital funding for blockchain start-ups consistently grew and were up to $1 billion in 2017. The blockchain-specific investment model of initial coin offerings (ICOs), the sale of cryptocurrency tokens in a new venture, has skyrocketed to $5 billion. Leading technology players are also heavily investing in blockchain: IBM has more than 1,000 staff and $200 million invested in the blockchain-powered Internet of Things (IoT). Despite the hype, blockchain is still an immature technology HEADLINE OF BLOCKCHAIN 2018

(INTERNET OF VALUE) https://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/blockchain-beyond-the-hype-what-is-the-strategic-business-value Blockchain opportunities by industrial sector Strategic Value of Blockchain Blockchain does not have to be a disintermediator to generate value, a fact that encourages permissioned commercial applications. Blockchains short-term value will be predominantly in reducing cost before creating transformative business models. Blockchain is still three to five years away from feasibility at scale, primarily because of the difficulty of resolving the coopetition paradox to establish common standards. https://www.mckinsey.com/business-functions/digital-mckinsey/ourinsights/blockchain-beyond-the-hype-what-is-the-strategic-businessvalue Nuts and Bolts of Blockchain Blockchain is a distributed ledger, or database, shared across a public or

private computing network. Each computer node in the network holds a copy of the ledger, so there is no single point of failure. Every piece of information is mathematically encrypted and added as a new block to the chain of historical records. Various consensus protocols are used to validate a new block with other participants before it can be added to the chain. This prevents fraud or double spending without requiring a central authority. The ledger can also be programmed with smart contracts, a set of conditions recorded on the blockchain, so that transactions automatically trigger when the conditions are met. For example, smart contracts could be used to automate insurance-claim payouts. Two Fundamental Functions of Blockchain Record Keeping Transacting Blockchain does not need to be a disintermediator to generate value Benefits from reductions in transaction complexity and cost, as well as improvements in transparency and fraud controls can be captured by existing

institutions and multiparty transactions using appropriate blockchain architecture. The economic incentives to capture value opportunities are driving incumbents to harness blockchain rather than be overtaken by it. Therefore, the commercial model that is most likely to succeed in the short term is permissioned rather than public blockchain. Public blockchains, like Bitcoin, have no central authority and are regarded as enablers of total disruptive disintermediation. Permissioned blockchains are hosted on private computing networks, with controlled access and editing rights. The degree to which incumbents adapt and integrate blockchain technology will be the determining factor on the scale of disintermediation in the long term. Uses Case of Permissioned Blockchain Australian Securities Exchange, for which a blockchain system is being deployed for equities clearing to reduce back-office reconciliation work for its member brokers. IBM and Maersk Line, the worlds largest shipping company, are establishing a joint venture to bring to market a blockchain trade platform. The platforms aim is to provide the users and actors involved in global shipping transactions with a secure,

real-time exchange of supply-chain data and paperwork. In the short term, blockchains strategic value is mainly in cost reduction Blockchain might have the disruptive potential to be the basis of new operating models, but its initial impact will be to drive operational efficiencies. Cost can be taken out of existing processes by removing intermediaries or the administrative effort of record keeping and transaction reconciliation. This can shift the flow of value by capturing lost revenues and creating new revenues for blockchain-service providers. Strategic Business Value https://www.mckinsey.com/business-functions/digital-mckinsey/ourinsights/blockchain-beyond-the-hype-what-is-the-strategic-businessvalue More Certain industries fundamental functions are inherently more suited to blockchain solutions, with the following sectors capturing the greatest value: financial services, government, and healthcare. Financial services core functions of verifying

and transferring financial information and assets very closely align with blockchains core transformative impact. Major current pain points, particularly in cross-border payments and trade finance, can be solved by blockchain-based solutions, which reduce the number of necessary intermediaries and are geographically agnostic. Further savings can be realized in capital markets post-trade settlement and in regulatory reporting. As with banks, governments key record-keeping and verifying functions can be enabled by blockchain infrastructure to achieve large administrative savings. Public data is often siloed as well as opaque among government agencies and across businesses, citizens, and watchdogs. In dealing with data from birth certificates to taxes, blockchain-based records and smart contracts can simplify interactions with citizens while increasing data security. Within healthcare, blockchain could be the key to unlocking the value of data availability and exchange across providers, patients, insurers, and researchers. Blockchain-based healthcare records can not only facilitate increased administrative efficiency, but also give researchers access to the historical, nonpatient-identifiable data sets crucial for advancements in medical research. Smart contracts could give patients more control over their data and even the ability to commercialize data access. For example, patients could charge pharmaceutical companies to access or use their data in drug research. Over time, the value of blockchain will shift from driving cost reduction to enabling entirely new business models and

revenue streams. One of the most promising and transformative use cases is the creation of a distributed, secure digital identityfor both consumer identity and the commercial know-your-customer processand the services associated with it. However, the new business models this would create are a longer-term possibility due to current feasibility constraints. Feasibility at scale is likely to be three to five years away Common standards are essential for examples R3 consortium for global bank US Securities and Exchange Commissions recognition of ICOs as securities brought ICOs under the agencys regulation and into the mainstream. Technology must advance Power consumption Transaction speed

Assets must be able to be digitized Digitized asset and equity Secure tagging system with IoT and Biometrics The coopetition paradox must be resolved Blockchains major advantage is the network effect, but while the potential benefits increase with the size of the network, so does the coordination complexity. For example, a blockchain solution for digital media, licenses, and royalty payments would require a massive amount of coordination across the various producers and consumers of digital content. Natural competitors need to cooperate, and it is resolving this coopetition paradox that is proving the hardest element to solve in the path to adoption at scale. Blockchain: Basics Slide materials: courtesy of Bikramaditya Singhal, Beginning Blockchain, Apress 2018 Transaction through an intermediary vs. peer-to-peer transaction

Stocks trading through an intermediary clearing house A typical stock transaction happens in seconds, but its settlement takes weeks. Is it desirable in this digital age? Peer-to-peer stock trading Concept of Blockchain Blockchain is a peer-to-peer system of transacting values with no trusted third parties in between. It is a shared, decentralized, and open ledger of transactions. This ledger database is replicated across a large number of nodes. This ledger database is an append-only database and cannot be changed or altered. It means that every entry is a permanent entry. Any new entry on it gets reflected on all copies of the databases hosted on different nodes. There is no need for trusted third parties to serve as intermediaries to verify, secure, and settle

the transactions. It is another layer on top of the Internet and can coexist with other Internet technologies. Just the way TCP/IP was designed to achieve an open system, blockchain technology was designed to enable true decentralization. In an effort to do so, the creators of Bitcoin open-sourced it so it could inspire many decentralized applications. The blockchain data structure Every node on the blockchain network has an identical copy of the blockchain as shown, where every block is a collection of transactions, hence the name. As you can see, there are two major parts in every block. The header part links back to the previous block in the chain. What it means is that every block header contains the hash of the previous block so that no one can alter any transaction in the previous block. Practical Example: Assume that there are three candidates Alice, Bob, and Charliewho are doing some monetary

transactions among each other on a blockchain network. Step-1: Let us assume that Alice had $50 with her, which is the genesis of all transactions and every node is aware of it, as shown in Figure (The genesis block). Step-2: Alice makes a transaction by paying $20 to Bob. Observe how the blockchain gets updated at each node, as shown in Figure (The first transaction). Step-3: Bob makes another transaction by paying $10 to Charlie and the blockchain gets updated as shown in Figure (The second transaction). Please note that the transaction data in the blocks is immutable. All transactions are fully irreversible. Any change would result in a new

transaction, which would get validated by all contributing nodes. Every node has its own copy of blockchain. cont. If there are many questions popping up in your mind, such as What if Alice pays the same amount to Dave to double-spend the same amount, or what if she is making a payment without having enough funds in her account?, How is the security ensured?, A distributed system with centralized control A centralized system Trust issues Security issue

Privacy issuedata sale privacy is being undermined Cost and time factor for transactions A decentralized system Elimination of intermediaries Easier and genuine verification of transactions Increased security with lower cost Greater transparency Decentralized and immutable A decentralized and peer-to-peer system Various layers of blockchain

Application layer is the layer where you code up the desired functionalities and make an application out of it for the end users. It usually involves a traditional tech stack for software development such as client-side programming constructs, scripting, APIs, development frameworks, etc. For the applications that treat blockchain as a backend, those applications might The Layer where theservers executions of instructions needExecution to be hosted onissome web

and that might ordered by the Application Layer take place on all the nodes require web application development, server-side in a blockchainand network. The instructions could be simple programming, APIs, etc.

instructions or a set of multiple instructions in the form of a smart contract.Layer is a logical layer because there is an The Semantic orderliness in the transactions and blocks. A transaction, whether valid or invalid, has a set of instructions that gets through the Execution Layer but gets validated in the Semantic Layer. If it is Bitcoin, then whether one is spending a legitimate transaction, whether it is a doublespend attack,layers whether one is authorized to make this The previous were

more of an individual transaction, etc., phenomenon: notare much validated coordination in this with layer.other nodes in the system. The Propagation Layer is the peer-to-peer communication layer that allows the nodes to discover each other, and talk and sync with each other with respect The Consensus Layer usually the base layer for most of

to the current state ofisthe network. the blockchain systems. The primary purpose of this layer is to get all the nodes to agree on one consistent state of the ledger. There could be different ways of achieving consensus among the nodes, depending on the use case. Safety and security of the blockchain is accertained in this layer. Blockchain: friction removal In the 1990s, mass adoption of the Internet changed the way people did business. It removed friction from creation and distribution of information. This paved the way for new markets, more opportunities, and possibilities. Similarly, blockchain is here today to take the Internet to a whole new level by removing friction along three key areas: Control, Trust, and Value. Control: Blockchain enabled distribution of the control by making the system

decentralized. Trust: Blockchain is an immutable, tamper-resistant ledger. It gives a single, shared source of truth to all nodes, making the system trustless. What it means is that trust is no longer needed to transact with any unknown person or entity and is inherent by design. Value: Blockchain enables exchange of value in any form. One can issue and transfer assets without central entities or intermediaries. How Blockchain Works! Blockchain at its core Cryptography Confidentiality: Only the intended or authorized recipient can understand the message. It can also be referred to as privacy or secrecy.

Data Integrity: Data cannot be forged or modified by an adversary intentionally or by unintended/accidental errors. Though data integrity cannot prevent the alteration of data, it can provide a means of detecting whether the data was modified. Authentication: The authenticity of the sender is assured and verifiable by the receiver. Non-repudiation: The sender, after sending a message, cannot deny later that they sent the message. This means that an entity (aisperson or a Symmetric key cryptography

referred tosystem) as private cannot refuse the ownership of a key cryptography previous commitment or an action. Asymmetric key cryptography is called public key cryptography. Digital Signature Algorithm (DSA) DSA provides the following security properties: Authenticity: Signed by private key and verified by public key Data integrity: Hashes will not match if the data is altered. Non-repudiation: Since the

sender signed it, they cannot deny later that they did not send the message. Non-repudiation is a property that is most desirable in situations where there are chances of a dispute over the exchange of data. For example, once an order is placed electronically, a purchaser cannot deny the purchase order if non- Game Theory: Byzantine army attacking the city The Byzantine Generals Problem is widely used in distributed storage solutions and data centers to maintain data consistency across computing nodes.

Computer Science Engineering Blockchain: blockchain is actually a blockchain data structure; in the sense that it is a chain of blocks linked together. Hash pointeris the basic building block of blockchain data structure. Hash pointers point to the previous data block and provide a way to verify that the data has not been tampered with. The purpose of the hash pointer is to build a tamper resistant blockchain that can be considered as a single source of truth. How does blockchain achieve this objective? The way it works is that the hash of the previous block is stored in the current block header, and the hash of the current block with its block header will be stored in the next blocks header. Merkle Binary Tree Similar to the hash pointer data structure, the Merkle tree is also tamper-proof. Tampering at

any level in the tree would not match with the hash stored at one level up in the hierarchy, and also till the root node. It is really difficult for an adversary to change all the hashes in the entire tree. It also ensures the integrity of the order of transactions. If you change just the order of the transactions, then also the hashes in the tree till the Merkle root will change. As discussed, if we were to find a transaction through its hash, or check if a transaction had happened in the past, how would we get to that transaction? The only way is to keep traversing till you encounter the exact block that matches the hash of the transaction. This is a case where a Merkle tree can help a great deal. Verification in Merkle tree

Merkle trees provide a very efficient way to verify if a specific transaction belongs to a particular block. If there are n transactions in a Merkle tree (leaf items), then this verification takes just Log (n) time. To verify if a transaction or any other leaf item belongs to a Merkle tree, we do not need all items and the whole tree. Rather, a subset of it is needed as we can see in the diagram in Figure left. One can just start with the transaction to verify along with its sibling (it is a binary tree so there would be one sibling leaf item), calculate the hash of those two, and see if it matches their parent hash. Then continue with that parent hash and its sibling at that level and hash them together to get their parent hash. Continuing this process all the way to the top root hash is the quickest possible way for transaction verification (just Log (n) time for n items). In the figure, only the solid rectangles are required and the dotted rectangles can be just computed, provided the solid

rectangle data. Since there are eight transaction elements (n = 8), only three computations (log2 8 = 3) would be required for verification. Summary of Blockchain Basics Cryptographic functions are one-way and cannot be inverted. They are deterministic and produce the same output for a given input. Any changes to the input would produce a completely different output when hashed again. Using public key cryptography, digital signatures are possible. It helps in verifying the authenticity of the person/entity that has signed. Considering the private key is kept confidential, it is not feasible to forge a signature with someone elses identity. Also, if someone has signed on any document or a transaction, they cannot later deny they did not. Using game theoretic principles and best practices, robust systems can be designed that can sustain in most of the odd situations. Systems that can face the Byzantine Generals Problem need to be handled properly. Our approach to any system design should be such that the participants play by the rules to get the maximum payoff; deviating from the protocol should not really benefit them. The blockchain data structure, by using the cryptographic hashes, provides a tamper resistant

chain of blocks. The usage of Merkle trees makes the transaction verification easier and faster. Overview of Blockchain Next Level of Information Transfer Evolution: Blockchain Productivit y PreIT IT Interne t

Firms who adopted IT became more efficient at accomplishing normal business tasks, leading to linear improvement on productivity. Firms that fully embraced the internet era drove down distribution cost, and fundamentally changed the way business was conducted, allowing them reach exponential scale and drive out other competition. Facebook, Amazon, Netflix, Google companies are examples of

successful firms here. Blockchain 44 Understanding Blockchain Blockchain Cost Saving Laws Blockchain solution is expected to be cost effective and reduce operational cost generally on the long run including for the insurance industry when compared to centralized solution as it supports three downward sloping exponential cost curves Moores law (cost of processing digital information, i.e. speed, halves every 18 months) Kryders Law (cost of storing digital information, i.e. memory, halves every 12 months) Nielsens Law (cost of shipping digital information, i.e. bandwidth, halves

every 24 months) 2.1 WHAT IS THE BLOCKCHAIN? The blockchain is a global distributed ledger, which facilitates the movement of assets across the world in seconds, with only a minimal transaction fee. These assets can be any type of value, as long as they can be represented digitally. Up until Bitcoin and its distributed ledger was invented, digital currencies were seen as unfeasible due to the relative ease of which digital information can be copied. This is know as the double-spend problem where each transaction carries a risk of the holder sending a copy of the digital coin to the merchant while retaining the original. The traditional way of mitigating this risk has been to have a trusted third party, such as a bank, to act as a centralised authority keeping track of all transactions. Bitcoin has shifted this responsibility to a whole network. To exchange ownership of a digital coin, a centralised database is no longer required. Instead, a distributed ledger keeps a history of all transactions, and requires validation from its users to verify each change of ownership.

LAB S PAGE 8 Recent block Simplified blockchain network diagram transa ction s Blockchain Figure 2: Simplified illustration of a distributed ledger

Transaction network. Each member of the network, called a node, holds a chain of blocks which constitutes a total history of transactions performed on the network. Each block holds a set of transactions, which size Encryption code: depends on how many transactions were completed in a given time interval. PAGE 9 LAB S 2.2

HOW DOES IT WORK? 1 Transaction definition 2 Transaction authentication 3 Block creation Encryption code: 5 Block chaining

4 Block validation Validated block: Figure 3: Generalized overview of a blockchain transaction. LAB S PAGE 10 1

Transaction definition 4 Block validation The Sender creates a transaction and The validator nodes of the network receive transmits it to the network. The transaction the proposed block and work to validate it message includes details of the Receivers through an iterative process which requires

public address, the value of the transaction, consensus from a majority of the network. and a cryptographic digital signature that Different blockchain networks use different proves the authenticity of the transaction. validation techniques. Bitcoins Block chain uses a technique called proof-of-work, 2 Transaction authentication Ripple uses Distributed Consensus, and

The nodes (computers/users) of the network Ethereum uses proof-of-stake. The various techniques have different pros and cons. receive the message and authenticate the The common denominator is that they validity of the message by decrypting the ensure that every transaction is valid, and digital signature. The authenticated make fraudulent transactions impossible.

transaction is placed in a pool of pending transactions. 3 Block creation 5 Block chaining These pending transactions are put together in If all transactions are validated, the new an updated version of the ledger, called a block is chained into the blockchain, and

block, by one of the nodes in the network. At the new current state of the ledger is a specific time interval, the node broadcasts broadcast to the network. This whole the block to the network for validation. process can be completed in 3-10 seconds. PAGE 11 LAB S

2.3 TWO REVOLUTIONS FOR THE PRICE OF ONE The blockchain revolution is so fascinating because it could actually be TWO completely different revolutions both profound in their implications: 1) Industry-level systems of record providing massive efficiency gain for incumbents. 2) Censorship-resistant digital cash providing a new platform for open, permissionless innovation. 2 Bitcoin and its Block chain was successful because it inefficiencies being removed and a prime system did not ask for permission. It was built upon the idea

of record being introduced to the financial of a system where a central authority and oversight world. is to be avoided, and that the network itself should This led to the development of what is now be resistant to all forms of censorship. At the same, commonly called permissioned ledgers. In contrast time the network should be open to all, and all to the permissionless ledger of Bitcoin, the nodes

members should be able to transact anonymously. doing block validation (see p. 11) are known and trusted, meaning that they can be held This meant that the idea of Bitcoin was initially accountable according to laws and regulations. scorned and avoided by financial institutions, and its Another difference is that normal member nodes, Blockchain technology was seen as too slow and meaning those who can only initiate and receive too risky for traditional finance 3. As the technology

transactions, are also required to identify themselves matured, however, more and more people began when they join the network, similar to how a bank to see the potential of a distributed ledger account is opened today. (More details are technology, just in a more controlled setting. If the presented on page 14 and 15.) distributed ledger technology could be adapted to fit into existing laws and regulations, this could lead to a lot of costly

LAB S PAGE 12 2: http://gendal.me/2015/07/23/bitcoin-and-blockchain-two-revolutions-for-the-price-of-one/ 3: https://www.eba.europa.eu/documents/10180/657547/EBA-Op-2014-08+Opinion+on+Virtual+Currencies.pdf Validator node (Can both initiate/receive and validate transactions) Member node (Can only initiate/receive transactions) Permissioned Blockchain (Private)

Permissionless Blockchain (public) How do you get access to the network? Authorized access Open access How are their approach to Aims to follow financial regulations such as AML/ Aims to create censorship resistant, laws and regulations?

KYC anonymous transactions, outside current legal framework Who are the validators? Pre-selected, trusted validators Anonymous, fully decentralized validators What ca n it be used for? Enterprise-level systems Permissionless innovation,

open- access applications PAGE 13 LAB S Permissioned Ledgers: Industry-Level Systems of Record In a permissioned ledger, also commonly called a private or consortium ledger, the validation process is after all, that they are required to take on a great deal of responsibility. Banks are given an important task to controlled by a pre-selected set of nodes. One can fulfil, and they are heavily regulated and scrutinized

here imagine a system run by a consortium of and will be held responsible for their actions. The financial institutions, where a certain majority have to population of the entire country, as represented by sign every block in order for it to be valid. The access the government, stands behind bank deposits and rights to read the blockchain might be public or promises to honour them even if the bank goes bust. restricted to just a certain number of participants,

such as government- approved auditors. The main benefits offered by employing a permissioned ledger approach over a permissionless This is an example of how an industry-level system have been suggested to be: cheaper energy cost might be implemented, and as of the time of writing for transactions, greater privacy, and a faster the main development focus for companies backed validation process 4. by financial institutions seems to lean towards such

an approach. Permissioned ledgers replicate the high degree of transparency and accountability in traditional banking systems. It is because we place so much trust in banks, LAB S PAGE 14 4: https://blog.ethereum.org/2015/08/07/on-public-and-private-blockchains/ Permissionless Ledgers: Censorship resistant What characterizes the permissionless ledgers is that Although a strong argument is presented for the drive

there is no gating or authorizing process to enroll into towards permissioned ledgers, financial institutions the transactions scheme, they are in theory a public would be remiss to ignore the ideas and concepts ledger. Everyone is free to download a copy of the adopted by the permissionless ledgers. Their openness blockchain ledger, and they are able to join as means they are likely to be used by various people anonymous validators by performing computationally

and gain unforeseen network effects. intensive proof-of-works. It has also been argued that these public ledgers Disruptive innovations usually find their first customers are practical for primarily on-chain assets, meaning at the bottom of the market, as their unproven and assets that are endogenous and created on the unpolished products cannot command a high price. ledger (e.g Bitcoin). This argument is based on the

But as iterative improvements allow them to gain new fact that off-chain assets are not controllable by the validators grounds and attract new customers, they may end up reshaping entire industries. in the same way as the native assets, and any conflicts in a transaction would need to be solved by an outside party or legal entity. PAGE 15 LAB S What is a

blockchain? A distributed immutable ledger of transactions The underlying technology behind the cryptocurrency known as Bitcoin What TCP/IP (internet protocol) has been for the exchange of information, blockchain can be for the exchange of value The following introduction slides are courtesy of Tom Savel, MD, CDC Health Information Innovation Consortium Forum 2018 What is a blockchain? A set of tools for cryptographic assurance of data integrity, standardized auditing, and formalized contracts for data

access A technology which empowers participating members to exchange items of value through a distributed ledger - that each member owns - and whos content is always in sync video No really, whats is a blockchain: Principles* Distributed Database Peer-to-Peer Transmission Irreversibility of Records Computational Logic (automated) Transparency with a degree of

anonymity (pseudonymity) * Harvard Business Review Halamka et al., 2017 5 Blockchain: Is it of value to me? It is most useful when multiple loosely coupled distinct organizations or entities want to confidently share and audit information

and automate mutually beneficial processes What is a blockchain?One more timeit Distributedis Decentralized, shared, etc. Affording high availability Immutable Write only Extremely hacker resistant Affording high Integrity

Ledger Transaction record (e.g., of financial data, contractual data, physical assets) Uses a validation process (consensus protocol) Is Blockchain new? Nobut it is now gaining rapid popularity Over $4.5 Billion in private funding for Blockchain-related projects in

2017 (Forbes) Dramatic increase in number of Blockchain patents filed (coindesk.com) Still in its early stages of development and implementation similar to the internet itself in the late 1990s Blockchain development activity Significant activity in the Corporate, Academic and Federal spaces: IBM, Microsoft, MIT, GA Tech, GSA, FDA, DHS, DOD, ONC, OMB, NIST, OPM, Postal Service, State Dept., Treasury Dept., Federal Reserve, and hundreds of blockchain startups. https://emerging.digital.gov/blockchain-programs

New Magazines / Journals: Traditional (e.g., Wired): DISTRIBUTED (2017) Peer-reviewed: Blockchain in Healthcare Today (2018) Digging a bit deeper into Blockchain: All hype? No. Leverages and expands existing capability of the internet Based on mathematics and cryptography (not magic):

(Tech speak: merkle trees, cryptographic hashes, public and private keys, etc.) Can be used for many different purposes When used in finance it finally solves the very challenging double spend problem Why is it called Blockchain? The power of the technology to be a trusted source of truth - is based on its ability to permanently connect groups of validated

transactions [connection = called a chain] [group = called a block] Remember: the blockchain data continues to grow and is automatically replicated to every connected node to potentially thousands of nodes. Sound Why does an internet-based trusted source of truth matter? You dont need a trusted 3rd party with a blockchain infrastructure Critical ledgers / databases are ubiquitous in our society and most always require a trusted 3rd party Examples: For financial transactions: Bank For drivers license, auto tags, etc.: DMV Why does an internet-based trusted

source of truth matter? Blockchain technology can enhance the internet - from an internet of knowledge and information sharing - to an internet of value and value exchange where trust and security are baked in Blockchain: There isnt just one There are 3 general categories of blockchains: Similar to the idea of internet vs. intranet web sites Public (full access by anyone) Permissioned (consortium) Private (i.e., within an organization)

Blockchain: There isnt just one There are many different types / configurations of blockchains with more being created every day Similar to the idea of using different operating systems (iOS, Android, Windows, Linux, etc.) Examples: Bitcoin Blockchain Ethereum Blockchain Hyperledger Fabric IOTA Tangle Blockchain: A foundation for new ecosystems

Blockchain technology can support a wide variety of unique use cases Decentralized file sharing, Digital asset exchange, Real estate transactions, Proof of authorship, Laboratory / pharmaceutical asset tracking, etc. Examples: Bitcoin - single purpose - exchange and store value Ethereum - distributed application platform i.e., an app store for blockchain-based apps (dApps) Offers custom tokens, smart contracts, etc. Blockchain: A foundation for new ecosystems The Blockchain Token: Unit of value exchange

Public blockchains (almost always) leverage a token (not required with private/permissioned blockchains) A token (i.e., digital asset) can be many thingsand have different purposes: Digital Currency To support the creation of a marketplace A unit of value to be exchanged within distributed app ecosystem Initial Coin Offering (ICOs) to be exchanged for fiat currency (e.g., USD) Proxy for physical asset Exchangeable for other digital assets / fiat currencies Using the Blockchain: making a transaction What is involved in a transaction event recorded on

blockchain? Unique Sender Wallet (can be explicit or hidden from the user) Using the Blockchain: the transaction a deeper Inherent look to a standard

blockchain- every transaction is storedevery oneforever. With, for example, the public (Bitcoin) blockchain transactions are grouped and processed in blocks (thousands of transactions) Blocks are then tied together with 1-way digital fingerprints (cryptographic hashes) Using the Blockchain: the transaction a deeper Transactionslook

take time (which varies based on the blockchain type/platform) Huge area of development / activity to improve transaction efficiency There are significant challenges which need to be rapidly overcome (e.g., projects: plasma, lightning network) Transactions can have fees (for public blockchains) to prevent spam, misuse of resources e.g., Ethereum requires Gas All transactions require validation (consensus protocol) Many types Also, a very rapidly evolving area

Blockchain: Validation (have you heard of mining?) Blockchain technology elegantly leverages computer science, mathematics, cryptography, & game theory For a public blockchain the goal is to incentivize unknown, untrusting participants to work with the system and not try to break it Blockchain: Validation (have you heard of mining?) There are many types of consensus protocols Proof of Work classic but incredibly costly (electricity, etc.)

Mining Competing to solve a computationally intensive problem to validate transaction GPU, ASIC (Application Specific Integrated Circuit),etc. With the winner of the competition receiving a financial reward Proof of Stake Ownership Proof of Authority Proof of Space-Time

Proof of Capacity Proof of Elapsed Time (e.g., Intel) With more being studied and tested every day Blockchain: Quick recap and breather. Blockchain doesnt solve every problem Most useful when loosely coupled distinct organizations / entities want to confidently share and audit information and automate mutually beneficial processes Removes the need for intermediaries and thus gives control back to the users / original data / asset owners Blockchain: Where is it ideal?

It excels in 3 general types of activities in a non-centralized / distributed environment: Tracking and Tracing of Assets / Value i.e., chain of custody (provenance) Data Exchange Blockchain: Once last piece the data Important issue: Can / should I put all my data on the blockchain? No, no and no You will hear the terms on chain and off chain

Remember- what you put on the chain is replicated to all the nodes Its important to keep the blockchain light Blockchain: Once last piece the Theredata are other on chain/off chain issues to consider: Privacy / Transparency PII, etc. Storage Capacity Issues (IPFS, Minio, etc.) Large files: e.g., chest x-rays, etc. This issue must be carefully evaluated for each unique blockchain implementation

Important Note: It is possible to link off-chain data (encrypted PII, large files, etc.) to the blockchain and ensure data integrity (via digital fingerprint / cryptographic hashing) Blockchain: Its impact on the digital global economy Accounting Digital Identity Smart Contracts Data Provenance eGov Supply Chain Management Internet of Things (IoT) Trade Finance Clearing And Settlement

Blockchain Startup Landscape Blockchain: Challenges The challenge is that the shift to blockchain is a fundamental change on many levels Historically:

Centralized system Single point of failure Manual Processes Sending / Receiving data messages Blockchain: Challenges The challenge: the shift to blockchain is a fundamental change Decentralized / Distributed data / value exchange ecosystem Control is given back to the data owner / stakeholder Increased transparency Increased Security Post/Link data to blockchain not to specific stakeholders Automated Processes Improved Efficiency Works well with

microservices Enhanced Metrics Blockchain: Next steps Overall Goals: Reduce costs & Improve efficiencies Improve transparency and security Make blockchain-based solutions invisible to the users--- IT JUST WORKS (just like our phones) If users see cryptographic hashes- we have failed How Blockchain Works: Closer Look At A Transaction User A sends funds to User B There needs to be an

application or platform where the users create their own entity, and initiate their asset. For example with bitcoins, a user can join a mobile or web app called Coinbase where they create an account, convert currency like US Dollars to Bitcoin and then send out those funds. The transaction is configured into a block The app compiles relevant data for the transfer into a

transaction. The transaction contains the owner address, the sender address, a private key or password to verify rightful ownership, and the hash of the previous block. Each block has several transactions. The transaction is broadcast across the entire network which validates it Theres a requirement to solve the blocks hash function or simply or guess the inputs of the block before the block gets added to the

chain. This check keeps the system secure. Several computers around the world spend their processing power trying to solve the hash for a reward, mostly monetary. This is called Mining. The block is then added to the chain which records the entire non-reversible history of transactions in a public ledger After one computer solves the hash, it broadcasts its solution to thousands of

other computers to validate the result. Validation is a much simpler problem. Once validated by greater than 50% of the network, the block gets added to the chain. User B receives funds from User A The universal chain is updated so user Bs account is credited with the fund, which he/ she can do whatever she pleases with. 85

Why Blockchain: 7 Driving Key Principles Transparency & Visibility - No one should be able to cover their tracks. Accountability - Every action should be attributable to its owner. Privacy - Security should be afforded without giving up confidential information. Scalability - Must be able to scale to trillions of digital assets. Portability - Security must move with the data, wherever the data goes. Permanence - Security must not be ephemeral it must exist as long as the data exists, and ideally longer. Open - It must not rely on traditional closed trust anchors. 86 Blockchain Benefits to Industries TECHNICA

L Secure Transaction Ledger Database Eliminates Error Handling and Reconciliation MARKET/BUSINESS Automation of Execution and Settlement Cost Reduction in Infrastructure and Transaction LEGAL/

REGULATORY Smart Controls i.e. Self Enforcing Contracts Trusted Third Party Elimination 87 Common Complaints about Blockchain

TECHNICA L Underdeveloped ecosystem infrastructure Lack of mature applications Immature middleware and tools Scalability of transactions Legacy system migration Tradeoffs with databases Privacy of public data New security threat Lack of Standards MARKET/BUSINESS

Moving assets to the Blockchain Quality of project ideas Critical mass of users Volatility of cryptocurrency

Onboarding new users Few poster companies Not enough qualified individuals Infrastructure Cost issues Innovators dilemma BEHAVIORAL/ EDUCATIONAL

Lack of understanding of potential value Limited executive vision Change management Trusting a network Few best practices Low usability factor LEGAL/ REGULATORY Unclear regulations Government interferences

Compliance requirements Hype Taxation and reporting 88 Levels Companies Operate in: Value Chain Applications designed for the end user to solve particular use-cases Payroll Financial data providers Brokerage services

Insurance Compliance and Cryptocurrency exchanges Investments & Loans identity Software wallets Global/ Local money Payments integrations Hardware wallets Trading platforms services Merchant and retail Brokerage services Capital markets solutions services Entry point APIs for developers who want to build applications and innovate on top of the underlying protocols

Technology services General purpose providers APIs Blockchain platforms Special purpose API Software Smart contracts tools development For core developers well versed into cryptology-based environments software technologies Public consensus blockchains

Private consensus blockchains Microtransactions infrastructure Miners 89 Fact 1: Bitcoin is not equal to Blockchain! Blockchain is technology behind Bitcoin. Fact 2: Internet of the 1990s Blockchain discussions today are like talking about

the internet in the early 1990s. Everyones talking about bitcoin. But the killer applications are yet to see the light of day. Fact 3: In a hype cycle A recent study by Deloitte, 92% of the 26,000 blockchain-based projects that have been created over the last two years are now dead. https://www2.deloitte.com/insights/us/en/industry/financial-services/evolution-of-blockchain-github-platform.html

Fact 4: Web 3.0 Blockchain can bring us true P2P transactions without a middleman. Blockchain-based networks, decentralized apps (DApps), and distributed ledgers are becoming the foundation of much of your digital life. https://blockchainhub.net/web3-decentralized-web/ https://www .pcmag.com/article/351486/blockchain-the-invisible-technology-thats-changing-the-wor Distributed Ledger Technology (DLT) Whats a Ledger Ledgers are the foundations of accounting a system by which people establish who owns

what, who has what, and who owes what to whom. While the concept has remained the same, the medium used to record transactions has varied over time and through technological advances. From cowry shells to papyrus, books to computers the goal has always been to keep records as efficiently and effectively as possible. Humans have been maintaining ledgers for thousands of years, and while the medium and methods have changed over time, one element of ledger-keeping has not. From Mesopotamia to McGladrey, a third party party has always had to register and oversee transactions and maintain accounts. This makes sense as it provides a basis for validation, and allows people conducting a trade of value to trust one another. The growth of global trade and commerce has led to the creation of a vast network of ledger systems, which are vulnerable to downtime, misinterpretation and fraud, the repercussions of which can be catastrophic and far-reaching just think back to the 2008 Financial Crisis. https://medium.com/nakamo-to/what-is-dlt-5554cd5bd5ac Distributed Ledger Technology (DLT) Distributed Ledger Technology is the first form of ledger to eliminate the need for a third party. It makes it possible for a ledger to be distributed among all those using it, putting the responsibility to maintain and validate it in the hands of those using

it. The result is a decentralized system of data registry where transactions are instant, transparent, reliable and incorruptible. DLT is the first system to bypass the need to trust one another when conducting transactions of value the implications of which will be profound and far-reaching. Note: DLT do not have to be decentralized or public, they are malleable systems and can exist in many states, including centralized and private. This article focused more on the decentralized aspect as achieving digital decentralization is a huge breakthrough in itself. https://medium.com/nakamo-to/what-is-dlt-5554cd5bd5ac Distributed Ledger Technology vs Blockchain Blockchain is a type of DLT, a subcategory of a more broad definition, much like how the word car falls under the umbrella term vehicles. https://medium.com/nakamo-to/what-is-dlt-5554cd5bd5ac DLT and The Autonomous Cars

DAG for Internet of Thing (IoT) The distributed ledger technology-directed acyclic graph (DAG) has the potential to eliminate the drawbacks of Blockchain. In DAG system, there are no blocks and miners. Users can confirm each others transactions through a process that involves confirmation of previous transactions with each new transaction. As there are no blocks, block size is no more an issue and hence, the block scaling debate seen in cryptocurrencies such as Bitcoin no more exist. DAG: Peer-Confirming System Instead of having mining firms confirming transactions via proof of work, DAG exercises the transactions made by users to confirm each others transactions. As DAG is a peer-confirming system, it can address some limitations of blockchain technology, for example: Improved Reliability The DAG system provides multiple confirmations of transactions. This leads to an improved level of security and decreased possibility of double-spending, compared to transactions made on the blockchain. Simplified Mining Blockchain cryptocurrency (Bitcoin) mining has led to an oligopoly issue. Much of

mining power is sent to mining pools and by joining it, miners considerably increase their chance of profitability. This leads to a centralization which directly breaks the main principle of cryptocurrencies. --Disrupt centralization of mining issue! Blockchain-free solutions such as DAG solve this issue. DAG presents less power in a technological sense to miners as individual transactions are coupled with the speed at which transactions are processed. Increased Speed low speed challenges are said to be solved by DAG by confirming transactions on a transaction to transaction basis instead of a block to block basis. DAG as Blockless Distributed Ledgers for IoT IOAT: use a mechanism called Tangle whose mission is to be the backbone of IoT and to accelerate the proliferation of The Economy of Things concept in the market. offer zero transaction fees https://www.iota.org/ ByteBall: non-blockchain smart payments network DagCoin: fastest and scalable network with very low transaction fees DAG as Blockless Distributed Ledgers for IoT IOAT: use a mechanism called Tangle whose mission is to be

the backbone of IoT and to accelerate the proliferation of The Economy of Things concept in the market. offer zero transaction fees https://www.iota.org/ ByteBall: non-blockchain smart payments network DagCoin: fastest and scalable network with very low transaction fees What is Blockchain https://www.youtube.com/watch?v=3xGLc-zz9cA https://www.youtube.com/watch?v=3xGLc-zz9cA https://www.youtube.com/watch?v=SSo_EIwHSd4 https://www.youtube.com/watch?v=qOVAbKKSH10&t=277s

Learning Blockchain by Doing https://www.youtube.com/watch?v=zVqczFZr124 https://www.ethereum.org/ https://github.com/blockchain Reference https://cyber.stanford.edu/bpase18

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