Blockchain: The slowest, most fascinating “database” you’ll ever see

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Blockchain: The slowest, most fascinating “database” you’ll ever see Stefan Tilkov, innoQ  @stilkov

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a.k.a.  “I don’t know Blockchain (and you can, too)” Stefan Tilkov, innoQ  @stilkov

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Bitcoin > Practical application of cryptography to > maintain a pseudonymous, global history of transactions > with guaranteed consistency > without centralization or intermediaries > resistant to forgery and fraud > Created in 2009 by Satoshi Nakamoto > Most successful crypto-currency to date

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Cryptography?  Oh no! Don’t worry.

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Hashing Hashing Algorithm 0100101001001 01011111100101 0010101001010 11010101001011 1000100101001 00101011111100 12CA0219FABC1236

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Hashing Algorithm 0100101001001 01011111101101 0010101001010 11010101001011 1000100101001 00101011111100 ABC8329FF129878E Hashing

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0100101001001 01011111100101 0010101001010 11010101001011 1000100101001 00101011111100 12CA0219FABC1236 Hashing

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Bitcoin: Vocabulary Transaction Block Wallet Address Node Blockchain Private Key Public Key maintains copy of creates consists of inputs encumbered with derived from derived from maintains validated by includes creates references previous Bitcoin contains

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Bitcoin > The technology > The currency > Created via “mining” (coinbase tx) > 1 Bitcoin (BTC) = 1,000 mBTC = 1,000,000 uBTC = 1,000,000,000 Satoshi > Coins are maintained as part of transactions (not anonymous) Transaction Block Wallet Address Node Blockchain Private Key Public Key maintains copy of creates consists of inputs encumbered with derived from maintains validated by includes creates references previous Bitcoin contains

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Bitcoin: Wallet > Maintains private keys, public keys, addresses > Used to sign transactions (sort of) > Implementations for mobile devices, Mac, Windows, Linux > “Online wallets” a.k.a. “a very bad idea” > Offline wallet Transaction Block Wallet Address Node Blockchain Private Key Public Key maintains copy of creates consists of inputs encumbered with derived from derived from maintains validated by includes creates references previous Bitcoin contains

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Bitcoin: Transactions > Multiple inputs (unspent transaction output, UTXO) > Inputs can only be spent by owner > Multiple outputs > “Unspent” outputs are “encumbered” with recipient key > Can be sent to any node > Will be included in (validated by) block Transaction Block Wallet Address Node Blockchain Key Public Key maintains copy of creates consists of inputs encumbered with derived from maintains validated by includes creates references previous

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Bitcoin: Blocks > Reference transactions > Include proof of work > Reference previous block > Number of blocks relate to level of trust Transaction Block Wallet Address Node Blockchain maintains copy of creates consists of inputs encumbered with maintains validated by includes creates references previous

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Bitcoin: Nodes > Form a peer-to-peer network > Relay messages > Validate transactions and blocks > Maintain a copy of the blockchain Block Address Node Blockchain maintains copy of creates consists of encumbered with validated by references previous

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Bitcoin: Blockchain > Linked list of all blocks ever created > Can and will be validated by every node > History of every transaction ever performed > Not actually a ledger Block Address Node Blockchain maintains copy of creates consists of encumbered with validated by references previous

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Bitcoin: Mining & proof of work > Proof: Find a SHA256 input that meets network “difficulty target”) > Cheaper to play by the rules than to cheat > Difficulty adjusted over time > Only way for new bitcoins to get introduced > Optional transaction fee

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Bitcoin: Validation/Consensus > Blocks chain – the more blocks reference a block, the better > Transactions considered immutable after 6 blocks > Consensus by means of “longest chain” Demo

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Merkle Trees 12CA0219 0100 1100 0110 0101 1011 1010 1001 0001 3AF0CA32 AB198EE0 C391AABE 098AF1531 392ACD011 34999AFEE

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12CA0219 0100 1100 0110 0101 1011 1011 1001 0001 3AF0CA32 AB198EE0 C391AABE 098AF1531 392ACD011 34999AFEE Merkle Trees

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12CA0219 0100 1100 0110 0101 1011 1011 1001 0001 3AF0CA32 CA13092AF C391AABE 098AF1531 392ACD011 34999AFEE Merkle Trees

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12CA0219 0100 1100 0110 0101 1011 1011 1001 0001 3AF0CA32 CA13092AF C391AABE 098AF1531 AAF0139F 34999AFEE Merkle Trees

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12CA0219 0100 1100 0110 0101 1011 1011 1001 0001 3AF0CA32 CA13092AF C391AABE 098AF1531 AAF0139F AFE03801 Merkle Trees

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Bitcoin: Script > Intentionally limited scripting > P2SH (“pay to script hash”) address (as opposed to P2PKH) > Usage e.g. for multi-signature (joint accounts) > Challenge: To spend, provide valid input to script > Base script: Ensure recipient has correct private key

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Ethereum vs. Bitcoin > Blockchain as technical basis > Currency: Ether > 1 Block approx. every minute > Currently proof of work, change to proof of stake planned > Platform for arbitrary contracts > State as part of the blockchain

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Ethereum: Contracts & Code > Accounts can externally owned > Accounts can be embodied by code (“contract account”) > Contracts specify rules for interactions

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“Here, run that code for me, will ya?”

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Ethereum: Gas > Computation requires payment (“gas”) > Amount determined by caller > Execution of instructions consumes gas

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Ethereum: Programming > Low-level byte code: EVM > Multiple languages > LLL (Lisp-like, low-level) > Serpent (Pythonesque) > Solidity (similar to JavaScript, but statically typed) > Executed by every node mining or validating blocks

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3. Alternatives

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Alternative approaches > Altcoins (Namecoin, Dogecoin, Devcoin, Bytecoin, …) > Colored coin > Metacoin

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Sidechain approach > Create additional/parallel state model > Anchor in blockchain for validation Bitcoin Network Exchange

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Bitcoin Network Exchange User Address Exchange Address Sidechain approach > Create additional/parallel state model > Anchor in blockchain for validation

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Bitcoin Network User Address Sidechain Address Side chain SC Address 1 SC Address 2 Sidechain approach > Create additional/parallel state model > Anchor in blockchain for validation

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Private (“permissioned”) ledgers > Used internally or with trusted partners > Lots of startups: clearmatics, Eris, Peernova, BigchainDB, … > OSS initiative: HyperLedger (Fabric, Sawtooth Lake)

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4. What’s cool about it?

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Distributed Consensus > Trustable, secure > Immediate > (Mostly) Unbreakable

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Open access > Anyone can participate > No centralized control > Globalized

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Disrupting intermediaries > Intermediaries provide consistency as a service > Risk of monopolies > Expensive > Possibly influenced by politics > Blockchain cuts out the middle man

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Cost reduction for clearing > Collaborations rely on clearing e.g. in finance, logistics, energy > Reduced cost due to “permissioned” model (more trust)

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Bitcoin: Fraud > Every bitcoin theft due to exchanges > Not a single successful attack on the blockchain itself > Much less vulnerable than any other currency

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5.  What about the bad parts?

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Vulnerabilities > TheDAO on Ethereum: 150 million USD investment > Theft (?) of 60 million USD due to bug in contract code > Ethereum Hard-fork “If code is law, what’s wrong with bugs?”

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Scalability > 1 block every ten minutes > Current size limit: 1 MB – 5,000 tx – 600 sec – 8.3 tx/s > Current visa tx rate: 5,000-50,000 tx/s > Possible solutions: > Increase block size > “Segregated witness”

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Bitcoin: Volatility > Exchange rate with other currencies (real and crypto) > Much more stable in recent months > Will likely calm down even more > Has hurt “the brand” significantly

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6. Use Cases

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Property Management > Record (partial) ownership > Trade property/shares > Identity > DRM > Access Control > Digital Assets

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Obligations > Emission fees > Debt > Clean energy fares

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Distributed Autonomous Organizations > Complex interactions among participants > Multi-tiered > Corporation contracts as code

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7. Summary (a.k.a. what I believe today)

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Trusted, distributed, decentralized platforms will play a significant role in many industries

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Don’t dismiss Bitcoin, Ethereum or public, permissionless blockchains in general just yet

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Permissioned ledgers may be the future – or just an intermediate step to a new shared platform  (similarly to the Internet)

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The barrier to entry has never been this low – commercially as well as from a technical perspective

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Stefan Tilkov  [email protected]  Phone: +49 170 471 2625 innoQ Deutschland GmbH Krischerstr. 100 40789 Monheim am Rhein Germany Phone: +49 2173 3366-0 innoQ Schweiz GmbH Gewerbestr. 11 CH-6330 Cham Switzerland Phone: +41 41 743 0116 www.innoq.com Ohlauer Straße 43 10999 Berlin Germany Phone: +49 2173 3366-0 Ludwigstr. 180E 63067 Offenbach Germany Phone: +49 2173 3366-0 Kreuzstraße 16  80331 München Germany Phone: +49 2173 3366-0 Thank you. Questions?  Comments? @stilkov