introduction to Blockchain

1. Introduction toBlockchains By ProfessionalGuru

2. Overview • Prologue: A chess-by-mailanalogy • What problem does a blockchainsolve? • How do theywork? • Hash chains • Deciding what blocks are valid on thechain • Deciding whether we have the currentchain • Permissioned blockchains, proof of work,etc. • Wrapup http://professional-guru.com

3. Warm-up: AliceandBobwanttoplaychessbymail • Alice sends Bob “1e4” • Bob sends back “1 ...e5” • Alice sends Bob “2Nf3” • ... • Each of these messages is one move in thegame • What’s necessary for them to be able toplay the game? http://professional-guru.com

4. Theyhavetoagreeonthestateoftheboard • Iftheydon’tagreeonthestateoftheboard,theycan’tplayagame! • Both know the starting positions of theboard. • Both know the sequence of messages sofar. • Those messages make up a transcript of thegame. • Thus, they can reconstruct the state of theboard. Ifweagreeonhistory, weagreeonthepresentstateoftheworld! http://professional-guru.com

5. What’s that got to do withblockchain? • We have some distributedsystem • We need to all agree on the state ofsome system • Weall agreeontheinitialstateofthesystem • A blockchain contains a history of individualtransactions • Thus: We can all agree on the current state of thesystem • A blockchain lets mutually-distrusting entities agree onhistory... • ...which lets them agree on the state of the systemnow. http://professional-guru.com

6. Why is thisimportant? • Example:Bitcoin • Suppose I want to transfer 100 BTC toyou. • You need to know whether my account has 100 BTC init. • Forthat,you need toknowthecurrentstateofthesystem. • Note: You need to know the currentstate • Ifyou’relookingatanoldstateofthesystem,Imightbepayingyouwith money I’ve alreadyspent! http://professional-guru.com

7. What problem does a blockchainsolve? • A blockchain lets us agree on the state of the system, even if wedon’t all trust eachother! • Ultimategoal:Weallneedtoagreeonthestateofsomesystem. • How much BTC in eachaccount? • Who owns whichproperty? • What’s the current state ofmy program? • We can all agree on that if we agree onhistory. • Starting state + history currentstate • Wedon’twantasingletrustedarbiter ofthestateoftheworld. • We want some level of decentralization—not a single point offailure or compromise. http://professional-guru.com

8. TrustedArbiter • If we had a completely trusted arbiter, we wouldn’t needa blockchain! • We could just define reality as whatever TA said itwas. • For a payment system, imagine TA as thebank • Bank provides the official sequence of transactions and accountbalances • When you want to spend your money, you send a message tobank • Bank permits transaction if you have money, and updates accountbalances. http://professional-guru.com

9. Why not just have a trustedarbiter, then? • Single point offailure • If the TA goes down for a week, the system stopsworking! • Concentration ofpower • “Hewhocontrolsthepast,controlsthefuture” • TA can censor transactions, impose new conditions to gettransactions included in history,etc. • Maybe there’s nobody we alltrust http://professional-guru.com

10. Sowhatdoesablockchainbuyus,again? • Distributedsystem • We don’t all trust each other orany single entity • We want to agree onhistory • ...so we can agree on the state of oursystem... • ...so we can dosomething. • We get the functionality of a trustedarbiter... • ...without needing a trustedarbiter http://professional-guru.com

11. Blockchains: How do theywork? http://professional-guru.com

12. How does itwork? • A blockchain is a sequence of hash-chainedrecords • Once you’ve seen record N, you can’t change anything in thepast. • Some procedure for adding blocks toblockchain • Who gets to addblocks? How is itdone? • Validity conditions for newblocks • Aretransactionsvalid? Are digitalsignatures correct? Etc. • Enforced by consensus-–chains with invalid blocks won’t beaccepted. • Some procedure for deciding between alternativecandidate blockchains. • When Alice and Bob have different pictures of history, there’ssome way for themtoeventuallycometoagreementaboutwhoisright. http://professional-guru.com

13. Building Block: Cryptographic hashfunctions • A cryptographic hashfunction: • Takes any bitstring as an input* (Like a 10 MBfile) • Produces afixed-lengthoutput (Typically 256 or 512bits) • Nobody can findcollisions. • Examples: SHA256, SHA512, SHA3-256,RIPEMD-160 • *Sometimes there’s a (really huge) maximum input length. http://professional-guru.com

14. What’s acollision? • Suppose I can find two different inputs X and Y so that Hash(X) =Hash(Y) • That’s acollision. • For a cryptographic hash function to be any good, it needs tobe • collision-resistant. • That just means it’s impossible in practice to findcolliding inputs. http://professional-guru.com

15. Why is collision resistanceuseful? • If nobody can find X != Y such that Hash(X) ==Hash(Y), • ...then we can use hash(X) as a kind of message digest ofX. • Digital signatures actually sign hash(message) instead ofmessage. • Nobody can change X without changinghash(X) • Iftheycoulddothat,theycanfindcollisionsfor hash() • hash(X) also commits toX. • Once I’ve seen hash(X), later, you can show me X, and I’ll know it’s thevalue you committedto • ...youcan’tshowmesomeotherX*,becauseitwon’thavethesamehash. http://professional-guru.com

16. Building block: Hashchains Figure: A sequence of records linked together; each record contains the hash of the previousrecord. http://professional-guru.com

17. What’s a hashchain? • A hash chain is a sequence of records in which each record contains thehashoftheprevious recordinthechain,andthehashofallthe current record’scontents. Figure: A sequence of records linked together; each record contains the hash of the previousrecord. http://professional-guru.com

18. What does that buyus? • We’re using a cryptographic hash function likeSHA256. • That means nobody can find two inputs with the same hashvalue. • ...and that means that record N contains a commitment to recordN-1 • ...which contains a commitment to record N-2, which containsa commitment to record N-3, and soon. Figure: A sequence of records linked together; each record contains the hash of the previousrecord.

19. Figure: A change in one record in the hash chain propagates forward to change the hashes in all futurerecords.

20. Hash chains and blockchains • Hash chains have the property that every record containsa commitment to all previousrecords. • If you change record N, this changes the final hashes ofrecords N+1, N+2, ... • Result: Once we all accept record N, we have locked in the contentsof record 1, 2, 3, ..., N-1 as well. • Blockchains use hash chains as acomponent • Hash chains are also useful in a lot of othercontexts • For example, a system with a trusted arbiter can use a hash chain to limitthe arbiter’s power—even the arbiter can’tchange history. http://professional-guru.com