Introduction to blockchain and smart contracts

Knowledge provider for blockchain
and smart contract technology

OUR TEAM
André Wolke Meher Roy Sebastian Bürgel

Train a generation of developers to
leverage blockchain technology in
order
to improve how we handle
financial assets, build
organizations and structure
societies.
OUR MISSION

The blockchain will be to
banking, law and
accountancy what the
Internet was to media,
commerce and
advertising.
Joichi Ito, Director of the
MIT Media Lab

YOUR INDUSTRY
Schedule a free 1 hour technology
evaluation session with us.
We understand your industry
and business need and tailor a
blockchain-driven course for you.

Decentralized
Autonomous
Organizations
Sebastian
Bürgel

From To Amount
1 2 15
3 1 10
2 3 20
3 2 200
2 1 10
1 3 50
2 4 20
LET‘S BUILD A BLOCKCHAIN
Use-case: logging of financial transactions

From To Amount
1 2 15
3 1 10
2 3 20
3 2 200
2 1 10
1 3 50
2 4 20
PROBLEM: MUTABILITY
No inherent security against:
Hacked database
Rogue admin
5000

From To Amount
1 2 15
3 1 10
2 3 20
3 2 200
2 1 10
1 3 50
2 4 20
From To Amount
1 2 15
3 1 10
2 3 20
3 2 200
2 1 10
1 3 50
2 4 20
BATCH TRANSACTIONS IN
BLOCKS

From To Amount
3 2 200
2 1 10
BATCH TRANSACTIONS IN
BLOCKS
From To Amount
1 2 15
3 1 10
2 3 20
From To Amount
1 3 50
2 4 20

CHAIN THE BLOCKS
Block Number - 1
From To Amount
1 2 15
3 1 10
2 3 20
Digital root of
block:
1 + 2 + 1 + 5 +
3 + 1 + 1 + 0 +
2 + 3 + 2 + 0
= 21
2 + 1
= 3

Block number – 2 / digital root of previous block - 3
From To Amount
3 2 200
2 1 10
CHAIN THE BLOCKS
Block Number - 1
From To Amount
1 2 15
3 1 10
2 3 20
Digital root of
block:
3 +
3 + 2 + 2 + 0 + 0
+
2 + 1 + 1 + 0
= 14
1 + 4
= 5

From To Amount
3 2 200
2 1 10
CHAIN THE BLOCKS
Block Number - 1
From To Amount
1 2 15
3 1 10
2 3 20
From To Amount
1 3 50
2 4 20

Block number – 2 / digital root of previous block - 3 ( actually 7! )
From To Amount
3 2 200
2 1 10
LET’S CHEAT AGAIN
Block Number - 1
From To Amount
1 2 15
3 1 10
2 3 20
Block number – 3 / digital root of previous block - 5 ( actually 9! )
From To Amount
1 3 50
2 4 20
5000

INHERENT VALIDITY
Changes in a block
invalidate all following blocks.

Ledger
Jon → Alice
Bill → Jon
Alice → Bob
2
0
3
0
1
0
Ledger
Jon → Alice
Bill → Jon
Alice → Bob
2
0
3
0
1
0
Ledger
Jon → Alice
Bill → Jon
Alice → Bob
2
0
3
0
Ledger
Jon → Alice
Bill → Jon
Alice → Bob
2
0
3
0
Ledger
Jon → Alice
Bill → Jon
Alice → Bob
2
0
3
0
1
0
Ledger
Jon → Alice
Bill → Jon
Alice → Bob
2
0
3
0
1
0
10 ETH
to Bob
BLOCKCHAIN + P2P
NETWORK

IMMUTABILITY
Nobody else will accept a
transaction which is based on a
modified version of the
blockchain.

“It is very possible that... one machine would
suffice
to solve all the problems... of the whole [world]”

BLOCKCHAIN PLUS
SMART CONTRACTS
Ethereum blockchain
with smart contracts
Bitcoin blockchain

Block number – 2 / previous block hash - 3eb571a…
From To Amount
3 2 200
2 1 10
ADDING CONTRACT TO OUR
BLOCKCHAIN
Block Number - 1
From To Amount
1 2 15
3 1 10
2 3 20
Block number – 3 / previous block hash - a97b130…
From To Amount
1 3 50
2 4 20

Block number – 2 / previous block hash - 61b49d1……
From To Amount Payload
3 2 200 “Hello World!”
2 1 10
ADDING CONTRACT TO OUR
BLOCKCHAIN
Block Number - 1
1 2 15 b1a12b4564…
3 1 10
2 3 20
Block number – 3 / previous block hash - 97bc510…
1 3 50
2 4 20 054e120380…
Contract
deployment
Send data to
contract
id 2 is a
contract
Contract sends money
to its creator!
Contract deploys
another contract!

SMART
CONTRACT
PROGRAM ON
A BLOCKCHAIN,
WHICH CAN
CONTROL
FINANCIAL
ASSETS
=

A NEW DIMENSION
FOR PAYMENTS
Since ~ 10.000 years
Transaction of financial
assets from and to:
- People
- Organizations

Since 07/30/2015 3:26 UTC
(Ethereum genesis block):
Transaction of financial
assets from and to:
- People
- Organizations
- Programs
A NEW DIMENSION
FOR PAYMENTS

SMART CONTRACT – Example
(Timelock)

SMART CONTRACT – Example
(Timelock)
https://github.com/SCBuergel/timeLock-smartContract

contract DAO_Creator {
function createDAO(
address _curator,
uint
_proposalDeposit,
uint
_minTokensToCreate,
uint _closingTime,
string _tokenName,
string _tokenSymbol,
uint8 _decimalPlaces
) returns (DAO
_newDAO) {
Decentralized Autonomous
Organizations
Smart contracts can be arbitrarily complex…
Like by-laws in corporations or investment funds.

Living on the Ethereum blockchain
Aimed at investing in sharing economy / IoT
Controlled by investors (“DAO token holders”)
Currently in possession of over $150 M (in Ether)
THE DAO (Experiment!)

Funding period: give Ether, get DAO tokens
Submission of funding proposals: have to be whitelisted by
curators
Voting period: votes according to investment
Receiving Ether: ROI
Splitting: spawning of child-DAO
CORE PROCESSES IN THE DAO

A range of security / market mechanism
endanger
assets in the current version of The DAO
E.g., the “Stalker attack”:
User A does not trust The DAO and initiates a “split”
User B has a lot of tokens and follows A
A cannot get their funds out since B can veto everything
B extorts funds from A: “give me 90% and I leave you alone”
CURRENT ISSUES OF THE DAO

Liability?
Link to the real world?
Incentive for paying back anything to DAO?
How can it protect physical assets
(e.g. copyright)?
THE DAO:
High Level Open Questions

THANK YOU!
http://validitylabs.
org
hello@validitylabs.
org
@validitylabs

Introduction to blockchain and smart contracts

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