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Blockchain for business

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Pavel Kravchenko, PhD
Pavel Kravchenko, PhD

Presentation covers most common questions, myths, technologies and challenges about blockchain technology

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How to understand a BLOCKCHAIN? Let's find out!
What people mean when they say “blockchain”? 1. Particular Bitcoin (Ethereum etc) blockchain 2. Blockchain as a technology 3. Implementation of a technology in a certain use case or coin
Definition Blockchain is a shared database that is securely synchronised between parties who don’t trust each other.
Blockchain on a technical level Can use any database Blocks are constructed from transactions Transaction is a digital receipt that transfers ownership from one account to another Each account is represented by a public key In order to initiate a transaction digital signature is needed In order to connect blocks secure cryptographic function is used (hash function)
Structure of a blockchain
When it worth applying? When it stores a scarce digital asset: 1. value 2. identity 3. objective history of facts
Myths about blockchain Because of the hype in the media, people believe that blockchain can do following things: 1. blockchain can verify any data 2. blockchain enables instant transactions 3. blockchain is immutable 4. blockchain is encrypted 5. blockchain can replace enterprise servers
How do blockchains differ? People use different criteria: 1. Public & private 2. Permissioned & permissionless 3. Consensus used
Public vs Private Public usually means that everybody can view all transactions and participate in their validation Private usually means that only specific preselected parties can view all transactions and validate them
Permissionless vs Permissioned Permissionless usually means that everybody is able to become a validator for a blockchain Permissioned usually means that only specific preselected parties can validate transactions
What is consensus? It is a process of reaching an agreement between parties that don’t trust each other. Parties could be fully equal or have different voting power. The only thing matters is that in the end of the process everybody knows what decision has been reached.
Consensus types. Proof of work Proof of work assumes that: 1. amount of validators (miners) is unknown 2. validators are anonymous and have no reputation 3. in order to vote, proof of work needs to be presented, which requires hard computations 4. consensus is reached if parties that control majority (usually 51%) of computational power agree Examples: Bitcoin, Monero, Ethereum (currently)
Consensus types. Proof of stake Proof-of-stake (PoS) assumes that: 1 . validator of the next block is chosen in a deterministic way 2. chance that a validator is chosen depends on its stake 3. validator loses its stake if it commits an attack 4. as a result, consensus is reached if parties that control majority of wealth agree Examples: Ethereum (in the future), NXT, Peercoin.
Consensus types. BFT The Byzantine Fault Tolerance (BFT) assumes that: 1. amount of validators is known upfront 2. validators know each other 3. adding or removing of a validator requires approval of the rest Examples: Hyperledger (as an option)
Consensus types. FBA Federated Byzantine agreement (FBA) assumes: 1. validators are equal, not anonymous, their amount is not fixed 2. validators select other validators that they trust and don’t care about the rest 3. validators form groups that reach a consensus on transactions 4. as soon as groups intersect, a consensus is reached within the whole set of validators Example: Stellar
Relationships between consensus mechanisms Using the two criteria: - anonymity of the validators - trust to a particular validator blockchains can be viewed like on the picture. * Proof of stake requires ownership of coins - that’s why it belongs to permissioned. * FBA doesn’t require any particular join mechanism, that’s why it belongs to permissionless.
Ideal blockchain use-cases Decentralized reconciliation between banks Decentralized land registry Decentralized auction Decentralized DNS (domain name service) Decentralized exchange Decentralized reputation management Decentralized voting
Preconditions for blockchain usage Usage of cryptography Digitization of all processes Establishing uniform rules for participants Transparent decision making Satisfying all these preconditions requires a lot of efforts. Usually startups underestimate their complexity and fail during integration phase.
Regulation Blockchain itself is a technology (like cloud computing) and can’t be really regulated. Only particular business application can be regulated (like putting private data of the bank customers to the cloud). In case of blockchain, the biggest challenge is to define the rules, risks and responsibilities of each party in a decentralized environment.
What are the functions of a token in the blockchain?
Inherent challenges of blockchain projects Privacy - how to store all the transactions in a shared database but not to reveal the sensitive commercial information Performance - how to ensure sufficient speed of transaction processing if everybody is involved in the validation Governance - how to change the rules in a way that everybody agrees on in a decentralized environment Storage - how to store only minimum necessary amount of information Responsibility - how to define who is to blame in case of an error
Challenges of public & permissionless blockchain projects Decentralization - how to prevent a situation when a small group of validators controls the majority of voting power Self-regulation - how to reach a social consensus in an anonymous group that contains bad actors Manipulation of the market - how to deal with inside trading, fake news, fraud in a fully anonymous market
Contacts pavel@distributedlab.com https://distributedlab.com/

More Related Content

Blockchain for business

  • 1. How to understand a BLOCKCHAIN? Let's find out!
  • 2. What people mean when they say “blockchain”? 1. Particular Bitcoin (Ethereum etc) blockchain 2. Blockchain as a technology 3. Implementation of a technology in a certain use case or coin
  • 3. Definition Blockchain is a shared database that is securely synchronised between parties who don’t trust each other.
  • 4. Blockchain on a technical level Can use any database Blocks are constructed from transactions Transaction is a digital receipt that transfers ownership from one account to another Each account is represented by a public key In order to initiate a transaction digital signature is needed In order to connect blocks secure cryptographic function is used (hash function)
  • 5. Structure of a blockchain
  • 6. When it worth applying? When it stores a scarce digital asset: 1. value 2. identity 3. objective history of facts
  • 7. Myths about blockchain Because of the hype in the media, people believe that blockchain can do following things: 1. blockchain can verify any data 2. blockchain enables instant transactions 3. blockchain is immutable 4. blockchain is encrypted 5. blockchain can replace enterprise servers
  • 8. How do blockchains differ? People use different criteria: 1. Public & private 2. Permissioned & permissionless 3. Consensus used
  • 9. Public vs Private Public usually means that everybody can view all transactions and participate in their validation Private usually means that only specific preselected parties can view all transactions and validate them
  • 10. Permissionless vs Permissioned Permissionless usually means that everybody is able to become a validator for a blockchain Permissioned usually means that only specific preselected parties can validate transactions
  • 11. What is consensus? It is a process of reaching an agreement between parties that don’t trust each other. Parties could be fully equal or have different voting power. The only thing matters is that in the end of the process everybody knows what decision has been reached.
  • 12. Consensus types. Proof of work Proof of work assumes that: 1. amount of validators (miners) is unknown 2. validators are anonymous and have no reputation 3. in order to vote, proof of work needs to be presented, which requires hard computations 4. consensus is reached if parties that control majority (usually 51%) of computational power agree Examples: Bitcoin, Monero, Ethereum (currently)
  • 13. Consensus types. Proof of stake Proof-of-stake (PoS) assumes that: 1 . validator of the next block is chosen in a deterministic way 2. chance that a validator is chosen depends on its stake 3. validator loses its stake if it commits an attack 4. as a result, consensus is reached if parties that control majority of wealth agree Examples: Ethereum (in the future), NXT, Peercoin.
  • 14. Consensus types. BFT The Byzantine Fault Tolerance (BFT) assumes that: 1. amount of validators is known upfront 2. validators know each other 3. adding or removing of a validator requires approval of the rest Examples: Hyperledger (as an option)
  • 15. Consensus types. FBA Federated Byzantine agreement (FBA) assumes: 1. validators are equal, not anonymous, their amount is not fixed 2. validators select other validators that they trust and don’t care about the rest 3. validators form groups that reach a consensus on transactions 4. as soon as groups intersect, a consensus is reached within the whole set of validators Example: Stellar
  • 16. Relationships between consensus mechanisms Using the two criteria: - anonymity of the validators - trust to a particular validator blockchains can be viewed like on the picture. * Proof of stake requires ownership of coins - that’s why it belongs to permissioned. * FBA doesn’t require any particular join mechanism, that’s why it belongs to permissionless.
  • 17. Ideal blockchain use-cases Decentralized reconciliation between banks Decentralized land registry Decentralized auction Decentralized DNS (domain name service) Decentralized exchange Decentralized reputation management Decentralized voting
  • 18. Preconditions for blockchain usage Usage of cryptography Digitization of all processes Establishing uniform rules for participants Transparent decision making Satisfying all these preconditions requires a lot of efforts. Usually startups underestimate their complexity and fail during integration phase.
  • 19. Regulation Blockchain itself is a technology (like cloud computing) and can’t be really regulated. Only particular business application can be regulated (like putting private data of the bank customers to the cloud). In case of blockchain, the biggest challenge is to define the rules, risks and responsibilities of each party in a decentralized environment.
  • 20. What are the functions of a token in the blockchain?
  • 21. Inherent challenges of blockchain projects Privacy - how to store all the transactions in a shared database but not to reveal the sensitive commercial information Performance - how to ensure sufficient speed of transaction processing if everybody is involved in the validation Governance - how to change the rules in a way that everybody agrees on in a decentralized environment Storage - how to store only minimum necessary amount of information Responsibility - how to define who is to blame in case of an error
  • 22. Challenges of public & permissionless blockchain projects Decentralization - how to prevent a situation when a small group of validators controls the majority of voting power Self-regulation - how to reach a social consensus in an anonymous group that contains bad actors Manipulation of the market - how to deal with inside trading, fake news, fraud in a fully anonymous market