Using the Power of Three to create Business, Legal and Technical Solutions
E-Book, Englisch, 362 Seiten
ISBN: 978-1-5439-8835-2
Verlag: BookBaby
Format: EPUB
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CHAPTER 2 Introduction to Blockchain Blockchain is the “new new” database and much more, i.e., it is a decentralized distributed ledger administered by a peer-to-peer network collaborating on a common consensus protocol for communication and validation of new blocks of data. Top that off with “smart contracts” i.e., programs which deploy to the block-chain network and are invoked to execute transactions. To make that happen the blockchain is a confluence of existing technologies including distributed database, public-key encryption, hashing and consensus protocols. It is a dramatic improvement in the landscape of information collection, distribution, and governance. That said, blockchain is over a decade old and still needs maturing. In this and the chapters to follow we will introduce concepts needed to understand the blockchain technology, as well as the tools used to write “smart contracts,” build and deploy distributed applications that interact with AI and IoT. The cryptocurrency Bitcoin, originally introduced by mythical Satoshi Nakamoto, see, https://bitcoin.org/bitcoin.pdf, in 2008 heralded the advent of the blockchain. Blockchains allow for a new distributed software and data architecture. It provides for networks of untrusted participants with the ability to establish agreements, i.e., “smart contracts” using decentralized and transactional data in a secure way and without requiring a central point of control and supervision. Public blockchains ensure trust among anonymous counterparts in decentralized systems without the need of a central authority to verify the validity of the transactions in the ledger. See, figure 2-1. The blockchain data typically transactional is stored in blocks that cannot be altered retroactively without alteration of all subsequent blocks. The blockchain is programmable and facilitates the so called “smart contracts” which are intended to digitally execute and enforce the performance of a contract. Smart contracts allow the performance of credible transactions without third parties. These transactions are trackable and irreversible. Figure 2-1 Central versus Distributed data As noted above, all the component technology to implement the blockchain had already been developed before the publication of the Bitcoin whitepaper in 2008. For example, the Merkle Tree using concatenated hashes in a tree for digital signatures has been used since the 1950s for cryptography for information security, digital signatures, and message-integrity verification. See, https://www.emsec.ruhr-uni-bochum.de/media/crypto/attachments/files/2011/04/becker_1.pdf. So briefly, how does a transaction in blockchain work. Let’s look at the Bitcoin network. Figure 2-2 Bitcoin transaction flow with “Proof of Work” consensus So, to send Bitcoin from one wallet address (similar to an account in financial institution) to another address, one would publish the intended transaction. See, figure 2-2. The transaction would be added to block. When this happens, the transactions in the block need to validated using the consensus algorithm. The nodes are incentivized to complete this result first. In this case, the “Proof of Work” consensus mechanism is used to validate the work. It ensures that no invalid transactions are passed into the blockchain. The nodes scan the entire Bitcoin network to validate that the sender address has enough Bitcoin. Once the sufficient balance is confirmed, the sender transaction gets included in a “block” which gets attached to the previous block hence the term “blockchain.” Again, transactions are immutable and tamper proof. The Bitcoin wallet doesn’t actually hold Bitcoin. It holds a Bitcoin address, maintaining a record of all transactions to create the balance. This address a string of letters and numbers known as a “public key.” Each address/public key has a corresponding “private key” of letters and numbers. This key is private and kept secure. That’s important, because any transaction, issued from a Bitcoin address needs to be “signed” with a private key. This transaction can be validated if the signature was made with the private key that corresponds to the public key, the program will validate the transaction, without knowing what the private key is. The network then confirms that transaction by examining the address history of all transactions on the Bitcoin ledger. Once the transaction has been validated, it gets included into a “block,” along with “n” other transactions. Blockchain just like any other DBMS, i.e., database management system is all about blocks. They are used to store transactions and other data that is required to operate the blockchain successfully. Timestamps are created to ensure that each transaction can be traced backed and verified by anyone. Each block includes, as part of its data, a hash of the previous block. So, if even one byte of the previous block was changed, the current block’s hash would have to change, i.e., any change in the input of the hash function changes the output. Note a hash is a function that converts an input of letters and numbers into an encrypted output of a fixed length. The function solves a math problem that reduces any amount of text or data to 64-character string. The SHA256 (“Secure Hash Algorithm”) is a cryptographic hash function hash produces a 256-bit, i.e., 32-byte hash value, typically rendered as a hexadecimal number, 64 digits long. Every time you input a particular data set through the hash function, you will get the exact same 64-character string. If you change so much as a comma, you’ll get a completely different 64-character string. This whole King James Bible could be reduced to a hash, and unless we change any part to the text, the same hash can be produced again and again. This is a very effective way to determine the integrity of the blockchain. The use of hashing to determine if data has been changed adds value and brings in new features such as transparency, immutability, and security. So let’s summarize, the blockchain is or provides: • Distributed Database. Each party on a blockchain has access to the entire database and its complete history. No single party controls the data or the information. Every party can verify the records of its transaction partners directly, without an intermediary. • Peer-to-Peer Transmission. Communication occurs directly between peers instead of through a central node. Each node stores and forwards information to all other nodes. • Transparency with Pseudonymity. Every transaction and its associated value are visible to anyone with access to the system. Each node, or user, on a blockchain has a unique 30-plus-character alphanumeric address that identi?es it. Users can choose to remain anonymous or provide proof of their identity to others. Transactions occur between blockchain addresses. • Irreversibility of Records. Once a transaction is entered in the database and the accounts are updated, the records cannot be altered, because they’re linked to every transaction record that came before them (hence the term “chain”). Various computational algorithms and approaches are deployed to ensure that the recording on the database is permanent, chronologically ordered, and available to all others on the network. • Smart Contract. The digital nature of the ledger means that blockchain transactions can be tied to computational logic and programmed via smart contracts, i.e., algorithms and rules that automatically trigger transactions between nodes. So far, cryptocurrencies and other transfer of property records are the most common usage of blockchain technologies. In cryptocurrencies, system participants who contribute to the verification process are awarded the possibility to issue a transaction without issuer (so called “coinbase”) to themselves. This is a customary way of introducing new assets into the system. It also introduces an incentive for users to participate of the verification process which leads to an increased trustworthiness on the system. The incentive scheme is to be provided in a token; whose value is assigned precisely because of the cost associated with its production. For example, Ethereum has a native token, Ether and arbitrary new tokens can be created and exchanged via smart contracts. Some systems implemented using blockchain technologies have an underlying native asset called, e.g., cryptocurrencies which are digital tokens whose owners assign a value. There are a number of varieties • None. Private blockchain implementations like Hyperledger Fabric (to be discussed) do not require a native asset within to incentivize participation. • Cryptocurrency. Typical implementations of cryptocurrencies only deal with transfer of property of its own tokens within the system. Bitcoin is an example of technologies with single asset compatibility. These technologies are limited to the underlying digital currency, but can also have off-chain solutions to interoperate with other currencies, e.g., US dollars, in order to execute transactions or blockchain smart contracts. • Convertible Tokens An...
