BlockChain Public

Understanding
Blockchain
Marie-Paule Odini – HPE CT Office
PUBLIC

Basics to understand Blockchain
Public Key Cryptography. Alice has a public key and private key. She can use her private key to create a
digital signature, and Bob can use Alice’s public key to verify that a signature is really from Alice’s private
key, i.e., really from Alice. When you create an Ethereum or Bitcoin wallet the long ‘0xdf…5f’ address is a
public key and the private key is stored somewhere. A Bitcoin wallet service like Coinbase stores your
wallet’s complementary private key for you, or you can store it yourself. If you lose your private key for a
wallet with real funds you’ll lose all your funds forever, so it’s good to back up your keys. It hurts to learn this
the hard way! I’ve done it.
Peer-to-Peer Networking. Like BitTorrent, all Ethereum nodes are peers in a distributed network, there’s no
centralized server.
[In the future, there’ll be hybrid semi-centralized services for Ethereum as a convenience to users and
developers, more on that later.]
Smart Contracts.
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Blockchain Overview
Whenever a transaction happens
between A & B, an encrypted
record of the transaction is sent out
to all other nodes in the Blockchain
network. The other nodes verify the
transaction by performing complex
cryptographic calculations on the
data in the record, and notify one
another each time a new “block” of
transactions is confirmed as
legitimate . When a majority of the
nodes agree that a block passes
muster, they all add it to the ledger
and use the updated version as a
cryptographic basis for encrypting
and verifying future transactions.

Blockchain versus traditional server architecture
On traditional server architectures, every application has to set up its own servers that run their own
code in isolated silos, making sharing of data hard.
– If a single app is compromised or goes offline, many users and other apps are affected.
– On a blockchain, anyone can set up a node that replicates the necessary data for all nodes to
reach an agreement and be compensated by users and app developers.
– This allows user data to remain private and apps to be decentralized like the Internet was
supposed to work
This is for permissionless blockchain where’anyone’ can set up a node
In permission oriented blockchain, only authorized entity can set up a node and access the
blockchain
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Public vs Private Blockchain
– Public blockchains (unpermissioned): a public blockchain is a blockchain that anyone in the world can read,
anyone in the world can send transactions to and expect to see them included if they are valid, and anyone in
the world can participate in the consensus process – the process for determining what blocks get added to the
chain and what the current state is. As a substitute for centralized or quasi-centralized trust, public blockchains
are secured by cryptoeconomics – the combination of economic incentives and cryptographic verification using
mechanisms such as proof of work or proof of stake, following a general principle that the degree to which
someone can have an influence in the consensus process is proportional to the quantity of economic resources
that they can bring to bear. These blockchains are generally considered to be “fully decentralized”.
– Consortium blockchains: a consortium blockchain is a blockchain where the consensus process is controlled
by a pre-selected set of nodes; for example, one might imagine a consortium of 15 financial institutions, each of
which operates a node and of which 10 must sign every block in order for the block to be valid. The right to read
the blockchain may be public, or restricted to the participants, and there are also hybrid routes such as the root
hashes of the blocks being public together with an API that allows members of the public to make a limited
number of queries and get back cryptographic proofs of some parts of the blockchain state. These blockchains
may be considered “partially decentralized”.
– Fully private blockchains (permissioned) : a fully private blockchain is a blockchain where write permissions
are kept centralized to one organization. Read permissions may be public or restricted to an arbitrary extent.
Likely applications include database management, auditing, etc internal to a single company, and so public
readability may not be necessary in many cases at all, though in other cases public auditability is desired.
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Private & Public keys
approach for a digital token. We create an obfuscated smart
contract which contains a private key, and accepts instructions
encrypted with the corresponding public key. The contract stores
account balances in storage encrypted, and if the contract wants
to read the storage it decrypts it internally, and if the contract
wants to write to storage it encrypts the desired result before
writing it. If someone wants to read a balance of their account,
then they encode that request as a transaction, and simulate it
on their own machine; the obfuscated smart contract code will
check the signature on the transaction to see if that user is
entitled to read the balance, and if they are entitled to read the
balance it will return the decrypted balance; otherwise the code
will return an error, and the user has no way of extracting the
information.
Source: https://blog.ethereum.org/2016/01/15/privacy-on-the-
blockchain/
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Blockchain use cases
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Ethereum
The project was crowdfunded during August 2014 by fans all around the world. It is developed by the Ethereum Foundation, a Swiss nonprofit
Ethereum has at its core a way to apply arbitrary rules for :
• Ownership
• transaction formats and
• state transition functions
taking both the state of a blockchain and a transaction for that chain, and then outputting a new state as its result. It does this by way of an internal
scripting language that is aware of a system’s state while being Turing-complete, which means it can encode any computation that may be performed
by the system.
The state is made of objects called accounts, which have a 20-byte address and state transitions that exist between accounts. Accounts have four
fields: a nonce, so each transaction is processed only once; a balance of ether, or the internal numbers used to pay fees; a contract code that may be
empty; and storage, which may also be empty.
There are two kinds of Ethereum accounts: externally owned and contract accounts.
– Externally owned accounts are controlled by private keys and contain no code. Sending messages from an externally owned account is done by creating and signing a
transaction.
– Contract accounts are controlled by their contract code. Every time the contract account receives a message, its code activates, allowing it to read and write to internal
storage, send other messages or create contracts in turn.
– must be understood that contract here does not mean a legal arrangement: It is instead an agent inside the framework that executes code when it
is stimulated by a message or transaction. It also has control over its own ether balance as well as other internal variables.
Code inside of contracts is written in Ethereum virtual machine (EVM) code, a series of bytes each representing an operation. It is much like assembly
code in concept. Serpent is a higher-level language that compiles to EVM
The Ethereum Wallet is a gateway to decentralized applications on the Ethereum blockchain. It allows you to hold and secure ETHER and other
crypto-assets built on Ethereum, as well as write, deploy and use smart contracts.
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Blockchain/Ethereum key terms
Blockchain. Like a global ledger or simple database of all
transactions, the entire history of all transactions on the
network.
Ethereum Virtual Machine. So you can write more powerful
programs than on top of Bitcoin. It refers to the blockchain,
what executes smart contracts, everything.
Node. Using this to mean you can run a node and through it
read and write to the Ethereum blockchain, i.e., use the
Ethereum Virtual Machine. A full node has to download the
entire blockchain. Light nodes are possible but in the works.
Miner. A node on the network that mines, i.e., works to
process blocks on the blockchain. You can see a partial list of
live Ethereum miners here: stats.ethdev.com.
Proof of Work. Miners compete to do some math problem.
The first one to solve the problem (the next block on the
Blockchain) wins a reward: some ether. Every node then
updates to that new block. Every miner wants to win the next
new block so are incentivized to keep up to date and have the
one true blockchain everybody else has, so the network
always achieves consensus. [Note: Ethereum is planning to
move to a Proof of Stake system without miners eventually,
but that’s beyond noob scope.]
– Ether. Or ETH for short. It’s a real digital currency you
can buy and use! Here’s a chart from one of several
exchanges for it. On July 21, 2016, 1 ETH is worth about
12$ in USD.
– Gas. Running and storing things on Ethereum costs
small amounts of ether. Keeps things efficient.
– DApp. Decentralized App, what applications using smart
contracts are called in the Ethereum community. The
goal of a DApp is (well, should be) to have a nice UI to
your smart contracts plus any extra niceties like IPFS (a
neat way to store and serve stuff in a decentralized
network, not made by Ethereum but a kindred spirit).
While DApps can be run from a central server if that
server can talk to an Ethereum node, they can also be
run locally on top of any Ethereum node peer. [Take a
minute: unlike normal webapps, DApps may not be
served from a server. They may use the blockchain to
submit transactions and retrieve data (important data!)
rather than a central database. Instead of a typical user
login system, users may be represented by a wallet
addresses and keep any user data local. Many things
can be architected differently from the current web.]
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Ethereum applications
Ethereum has been used as a platform for decentralized applications, decentralized autonomous organizations and smart contracts.The
scope of applications include projects related to finance, the internet-of-things, identity management, farm to table produce, electricity
sourcing and pricing, and sports betting.Decentralized autonomous organizations may enable a wide range of possible business models
that were previously impossible or too costly to run.
Notable Ethereum applications include:
– Augur decentralized, distributed prediction market software.
– ConsenSys, a blockchain startup focused on Ethereum technology is developing both enterprise software and Dapps The DAO with the
objective to "provide a new decentralized business model for organizing both commercial and non-profit enterprises".The DAO was
funded with Ether.
– Backfeed, socioeconomic platform
– Ethcore, an Ethereum-based private venture focusing on light clients and Internet of Things (IoT).
– FreeMyVunk, a gaming value platform.
– The Rudimental, an equity crowdfunding portal for arts and media.
– TransActive Grid
– Slock.It, a system for building smart locks with Ethereum.
– Etheropt, a decentralized options exchange.
– Digix A value token, called DigixDAO has also been created and the token began trading on exchanges on 28 April 2016.
– Ujo Music : Imogen Heap used the technology with her single "Tiny Human".
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Ethereum enterprise adoption
– Ethereum is also being either tested or implemented by enterprise software companies for various
applications.
– Deloitte and ConsenSys announced plans in 2016 to create a digital bank called Project ConsenSys.
– R3 Project, which connects 11 banks to distributed ledger using a private Ethereum blockchain running on
Microsoft Azure.
– IBM ADEPT, an IoT system using Ethereum for smart contracts support.
– Microsoft Visual Studio is making the Ethereum Solidity language available to application developers.
– Ethereum Blockchain As a Service (EBaaS) on Microsoft Azure, which provides enterprise clients and
developers with a cloud-based blockchain developer environment.
– Innovate UK provided 248,000GBP in funding to Tramonex to develop cross border payments prototype
using Ethereum.
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Ethereum block structure
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In 2014, Ethereum founders Vitalik Buterin, Gavin Wood
and Jeffrey Wilcke began work on a next-generation
blockchain that had the ambitions to implement a general,
fully trustless smart contract platform.

Contract Creation Transaction with Ethereum
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??No Notification
• Contract posted
• Contract update
??No Subscribe
• Potential users can
Retrieve updates

Hyperledger
Linux Foundation Project
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Linux Foundation Hyperledger project
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Feb 16, 2016 - IBM has open sourced a significant chunk of the blockchain code it has been working
on, putting its weight behind the Linux Foundation and its Hyperledger project.
Big Blue has dumped the Apache 2.0-licensed source on GitHub, providing a limited but functional
dev environment to build on. The IT giant has pledged to maintain the code as others build on top of
it, including big-name Hyperledger partners that include Intel, Fujitsu, Cisco, JP Morgan, Accenture
and others.
Key elements in the code dump are a "consensus algorithm" which is vital for proper functioning of a
decentralized system, and a contract template that helps people code agreements into the system in
Java.

Hyperledger
Hyperledger’s current goals are to combine three projects into practical blockchain applications:
• Rippled, a public distributed ledger written in C++ that handles cross-currency payments using order books
• IBM’s Open Blockchain, a low level fabric that implements smart contracts, digital assets, record
repositories, consensus oriented networks, and cryptographic security
• Digital Asset’s Hyperledger, which is a ready to deploy blockchain server with a client API currently
intended for use by financial services enterprises. It works by using an addition-only log of transactions
that are designed to be replicated across multiple separate organizations all without a nexus of control.
(The parent company, Digital Asset Holdings, lent the Hyperledger trademark name to the open source
project as part of its contribution.)
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Hyperledger Reference Architecture
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Blockchain & IoT
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IoT Use Case
use case: connected device A (car A) wants to exchange information with connected device B
(car B) about traffic – via a blockchain
assumption: Car A is a full node+Dapp, Car B is only a Dapp and talks to a node
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miner
miner
miner
node
Dapp
node
Dapp
Car A
Car B
Private Network A
To build Car A request
Private Network B
keys
keys keys
keys
Question? Where are the keys stored

Potential use cases
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Electric car and charging station
Transactions
Processed
& stored in
blockchain
Home Care remote monitoring
Records
Processed
& stored in
blockchain
?? Missing Notification
Subscribe mechanism
Autonomous Car anti-collision
Each car is a node of the blockchain
All transactions are secured, stored,
Time stamped etc
Missing localization, broadcast,
Or notification/subscribe
mechanism??

Blockchain in OSI Stack
Application Layer
Blockchain is at the application
Level
The underlying layers for
communication remain the
same – ex Telco network

IoT, Blockchain & Telco
25
Ex: M2M
Mobile
LPWAN
SDN Switch
SDN controllers
Core network
NW applications
M2M/IoT
device
Traffic Control
Policies
Traffic
PGW
Fixed
Access network
Service provider
Blockchain
Service
Providers/Telco
Provide
Connectivity
They
carry blockchain
packets like any
other packet
If unlicenced
spectrum is used,
some ad-hoc
networks could be
used that are not
Telco
Note: even
LPWAN
unlicenced is often
Telco (ex Sigfox,
Orange LORA)

Different Models
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1- Device to Device – no Telco
Telco Telco
Server/
Application
2- Device to Device – via Telco
3- Device to Server/application – via Telco

IBM IoT ADEPT project
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IBM has unveiled its proof of concept for ADEPT, a system developed in partnership with Samsung that uses
elements of bitcoin’s underlying design to build a distributed network of devices – a decentralized Internet of
Things.
The ADEPT concept, or Autonomous Decentralized Peer-to-Peer Telemetry, taps blockchains to provide the
backbone of the system, utilizing a mix of proof-of-work and proof-of-stake to secure transactions.
IBM and Samsung chose three protocols – BitTorrent (file sharing), Ethereum (smart contracts) and TeleHash
(peer-to-peer messaging) – to underpin the ADEPT concept. ADEPT was formally unveiled at CES 2015 in Las
Vegas.

Autonomous Device Coordination: The devices would be able to
autonomously authenticate peers and self-maintain
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To implement these contract-based device interactions and to achieve
consensus based device coordination across a global network of devices, the
blockchain technology platform was chosen.

Blockchain in ADEPT
The blockchain is a long ledger of transactions shared by participants of the network. A full copy of the
blockchain will have a record of every transaction ever completed in the network. Every participant in the
blockchain can maintain its own copy of this ledger of transactions, though ideally, the amount of data stored
would vary based on capability, need and preference. Every block contains a hash of the previous block.
This enables the blocks be traced back even to the first, the genesis block. It is computationally prohibitively
difficult and impractical to modify a block once it is created, especially as the chain of subsequent blocks get
generated. Blocks in shorter chains are automatically invalidated by virtue of there being a longer chain – all
participants adopt the longest chain available.
Blocks are generated by a computation-intensive process called mining. Mining allows nodes to reach a
secure, tamper-resistant consensus. Mining is also the mechanism used to introduce new coins or tokens of
transaction into the system: Miners are paid any transaction fees as well as new tokens, based on the
specific implementation model. There are various mining algorithms, primarily based on Proof of Stake or
Proof of Work approaches. The cryptocurrency space is actively engaged in investigations on optimizing
different aspects of the technology including addressing challenges like scalability.
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Light Peer: The light peers are devices with low memory and
storage capabilities
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Standard Peer: A standard device, at the core protocol level is
very similar to a light device, but it would retain a part of the
blockchain based on its capabilities.
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Peer Exchange: Peer exchanges are high end devices with vast
compute and storage capabilities.
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The peer exchange will be able to offer commercial business solutions in the new decentralized IoT world.
It would have core services that enable features like Blockchain analytics and running payment exchanges.
It would also have marketplace components

EthCore
Ethcore is a new venture built by many of the people who brought Ethereum from an initial whitepaper to the
first global smart-contract network administering over $200m of value.
Founded by Dr. Gavin Wood (Co-designer of the Ethereum protocol and the EVM, and Inventor of the
Solidity language) together with Dr. Jutta Steiner (Chief Security Manager, Ethereum, and Co-founder,
Provenance), Dr. Aeron Buchanan (Head of Operations, Ethereum), Kenneth Kappler (Communications
Manager, Ethereum) and TJ Saw (CEO, OxLegal), Ethcore will be working with trail-blazing startups and
global industry leaders alike to help unleash the immense potential of the Ethereum protocol throughout key
verticals such as energy, IoT, finance and asset-tracking.
Ethcore has secured funding of US$750,000 in April 2016 in a preliminary, pre-seed funding round. The
funding round is led by San Francisco-based Blockchain Capital and Shanghai-based Fenbushi Capital
Despite this growth, there have been concerns that until issues around scalability and privacy are tackled
there are limits to the potential impact blockchain could have.
=> Ethcore is addressing this directly and working on modifications to the blockchain architecture to enable
large scale and higher value transactions as well as to allow for the preservation of privacy when institutions
or individuals deal with each other over a blockchain.
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EthCore Parity
Ethcore recently released the first version of their premium Ethereum client, Parity, the fastest and lightest
Ethereum client available.
The Parity software client forms the bedrock for the company’s continued innovation in concert with the Ethereum
community. Ethcore’s software technology roadmap includes light-client technology for secure IoT applications,
permissioned chains, scalability and confidentiality features as well as application level libraries for use by
developers and third-party projects.
Free software licence GNU GPL v3, exactly the same as the Linux kernel
Parity is actively developed as an open source project on github
Currently available for Ubuntu/Debian, OSX and as a Docker container, Parity can be used to sync with both
Homestead and Morden networks, can mine when used with ethminer, can power a Web3 Javascript console
when used with eth attach and can be used for Ethereum JSONRPC applications such as a netstats client
(allowing you to show off on the Ethereum public network page).
Parity is available through Rust Cargo
git clone https://github.com/ethcore/parity.git && cd parity
cargo run --release
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Blockchain Challenges
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1- Security Holes
A blockchain-based smart contract is visible to all users of said blockchain. However, this leads to a situation
where bugs, including security holes, are visible to all but may not be able to be quickly fixed. Such an
attack, difficult to fix quickly, was successfully executed on The DAO in June 2016, draining US$50 million in
Ether while developers attempted to come to a solution that would gain consensus.
The DAO is a digital decentralized autonomous organization and a form of investor-directed venture capital
fund created in May 2016.
There may be multiple security holes:
• At the node or Dapp level : the code may be corrupted or hacked, spoofing etc
• The private keys may be hacked, or corrupted preventing the user to access the blockchain
• The miners may be corrupted or hacked too. The blockchain is supposed to be self-healing based but if
>50% of the miners are attacked, the service may come down
• etc
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Security Risks
use case: connected device A (car A) wants to exchange information with connected device B
(car B) about traffic – via a blockchain
assumption: Car A is a full node+Dapp, Car B is only a Dapp and talks to a node
Confidential 38
miner
miner
miner
node
Dapp
node
Dapp
5
1
2
4Car A
Car B
Private Network A
Private Network B
4
3
keys
keys keys
keys
Question? Where are the keys stored

2- scalability & Performance
– With millions/billions of nodes (IoT, money transfers etc), the blockchain needs to be highly scalable
– Either processing & storage capacity of the miners
– Or number of miners
– Scalability of the databases storing the keys (public and private keys)
– Scalability of underlying networks to carry the traffic
– The latency between the node and the blockchain, and between the miners needs to be very low
– It would be good if the node was able to connect to the closest miner at a given time
– The node needs to be able to access the blockchain anytime anywhere:
– Connectivity requirement
– Availability of the blockchain itself in terms of capacity to process the request
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3- potential feature gaps
– No Notification mechanism
– No Localization mechanism of the closest miner (latency issue)
– No Localization of the stored information (regulation issue)
– No subscribe mechanism
– No broadcast mechanism
– etc
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4- management
– Management system to upload/update/configure the client devices app
– Management of the different nodes, ?NFV Management for VM
– Management of the miners , configuration etc
– Management of the storage/databases, cleaning old records, old keys never used etc ??
– Backup
– Many ‘cloud management’ functions …
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Blockchain stack
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Bitcoin block structure
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