Introduction to Blockchain Rick McMullin, bitheads, inc.

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2 Introduction to Blockchain Rick McMullin, bitheads, inc.

3 What we will cover What is blockchain? History and examples of a few blockchains The crypto craze Why use a blockchain?

4 What is a Blockchain? At the highest level a blockchain is an encrypted, distributed, ledger

5 More Technical Definition A list of records, containing transactions that are linked together and verified using cryptographic hashes. Each block contains a cryptographic hash of the previous block

6 Blockchain History

7 Blockchain is not just currency Many people equate blockchain with bitcoin but bitcoin is just an example of a blockchain app The easiest way to describe how a blockchain works is to use a transaction with Bitcoin as an example

8 Transaction First, a transaction is requested between two parties This can be goods, services, exchange of cryptocurrencies, etc.

9 Broadcasting the transaction The transaction is broadcast to a network of nodes Because the network is decentralized, the transaction doesn t get sent to just one server, but to multiple nodes on the network

10 Verifying the transaction Each node validates the transaction against a set of rules that are built into Bitcoin. Valid transactions are kept invalid transactions are discarded.

11 Grouping transactions Some of the nodes in the Bitcoin network are mining nodes The mining nodes take verified transactions and group them together into a block Mining nodes then attempt to validate the block by creating a hash that satisfies the current blockchain difficulty.

12 Completing the block The first mining node that solves the puzzle by computing a hash of the transactions and the previous block wins the block reward for the new block

13 Completed Transaction

14 Preventing double spending

15 Results

16 This is called consensus Types of consensus: Proof of Work is a requirement to define an expensive computer calculation also called mining Reward is given to first miner that solves the problem Proof of Stake the creator of a new node is chosen in a deterministic way depending on its wealth No block reward so miners get transaction fees

17 Bitcoin mining operations

18 On the inside

19 but enough about Bitcoin As cool as Bitcoin is, it really isn t all that exciting Blockchain is much more than just cryptocurrencies, but before we get too far away from them, we need to talk about Ethereum

20 Blockchain History

21 What is the Ethereum blockchain? Vitalik Buterin proposed extending the concept of Bitcoin by adding computer programs called smart contracts to the blockchain In addition to a blockchain, Ethereum has a contract focused language called Solidity This essentially makes Ethereum a programmable blockchain

22 Ethereum Transaction Validation Transaction validation on Ethereum happens in a very similar way to Bitcoin A proof of work consensus algorithm is used to validate the transactions and winning minor is awarded 5 ether and the transaction fees

23 How is Ethereum different In addition to being a tradable cryptocurrency, Ethereum is also used by developers to pay for the use of the Ethereum network. Because of the embedded programming language, transactions can be much more complex than buying and selling with Bitcoin

24 The Crypto Craze The introduction of Ethereum made it relatively simple to create new cryptocurrencies on top of the Ethereum platform These non-bitcoin cryptocurrencies are referred to as alt-coins and there are literally thousands of them Because of this new and easy way of creating cryptocurrencies and the hype about blockchain, the end of 2017 was a crazy time

25 Giving ICOs a bad name At the end of 2017, there were seemingly endless announcements of The World s First x ICO! or The World s First x on the Blockchain!" Because of the ease of creating a coin on the Ethereum network, people were creating currencies left and right with no real value Which means that there are thousands of tradeable coins out there from the ones that are ultimately not that useful but at least trying (florists, plumbers, towing companies, etc.) to the downright silly (Ponzicoin, Useless Coin, Doge Coin) There are even several mobile apps out there which let you create your own Ethereum-based ICO in less than 5 minutes

26 Real ICOs; real money As much as the ICO world is full of fluff, even the real ICOs are are hard to keep up with, such is their popularity and number Coindesk s ICO tracker shows hundreds of real ICOs that have been made each year (as of October, there have been over 450 ICOs in 2018 alone with over $14B USD invested) Almost half of that $14B was for just three ICOs EOS ($4.2B) An Ethereum replacement for contracting and Telegram ($1.7B) Decentralized internet for messaging, file storage, browsing, apps TTU ($600M) Social media entertainment platform that rewards content providers and consumers through crypto

27 The hype isn t just coins it s blockchain itself In the first four days of 2018, there were more than 110 corporate releases that contained the word blockchain, and not all of them had much to do with it Long Blockchain Long Island Iced Tea rebranded as Long Island Blockchain and saw its stock price triple just by renaming the brand Hooters Blockchain Hooters put its loyalty program on the blockchain ( Eating a burger is now a way to mine for cryptocoins ) Stock price went up 40% the next day

28 But not everything is just hype Blockchain and cryptocurrencies are suitable for many applications They are particularly good for situations with multiple parties without established trust, where you need to track the provenance of items or where there is utility for the currency outside of its tradable value Not every blockchain application needs to have a coin associated with it

29 Real-World Blockchain: IBM & Maersk Maersk and IBM have a JV for an entire shipment system based on the blockchain network Over 100 companies joined in, streamlining the industry through freight forwarding and trade finance The emphasis is on the end-to-end services, from manufacturers to end users using the pilot platform and blockchain as a mean of value transfer and evaluation of inventory

30 Real-World Blockchain: De Beers De Beers created a pilot system called Tracr based on the blockchain to track all shipments and payments in order to ensure diamond purity Five diamond manufacturers are in the program with a purpose to eliminate blood diamonds by trading only with suppliers that are willing to put all necessary information upfront and where all transactions are public

31 Real-World Blockchain: Kodak The KODAKOne platform will combine blockchain-based smart licensing and smart contracts, enabling highly automated and transparent license documentation for all images.

32 Real-World Blockchain: MedicalChain Medicalchain uses blockchain technology to securely store health records and maintain a single version of the truth.

33 So why use a Blockchain? At a high-level when multiple mistrusting parties want to interact to change the state of a system and either can t agree on a trusted third party or want to remove a trusted third party for some other reason (such as cost).

34 Types of Blockchain Permissionless Anyone can join and have full read and write access Bitcoin and Ethereum are examples. Permissioned Private or hybrid A centralized entity controls write access to the distributed network public can still read some or all of the data Hyperledger is the most commonly available.

35 Flow chart

36 KodakCoin Applying the flowchart

37 Applying the flowchart MedicalChain - blockchain-based Health record management

38 Applying the flowchart De Beers example:

39 Other Blockchain Considerations Permissionless Blockchain Permissioned Blockchain Central Database Throughput Low High Very High Latency Slow Medium Fast Number of readers High High High Number of writers High Low High Number of untrusted writers High Low 0 Consensus mechanism Mainly PoW, some PoS BFT protocols None Centrally Managed No Yes Yes

40 Future of Blockchain No one can predict the future. If you look at predictions for bitcoin as an example you will find they range from: Some crypto enthusiasts predict bitcoin will be $25,000 by end of 2018 and $125,000 by the end of 2021 Peter Schiff an admittedly very pessimistic economist predicts 0

41 Future of Blockchain, cont. Regardless of the value of bitcoin and the alt-coins blockchain as a technology will be around for good.

42 Contact Information Rick McMullin bitheads, inc.