Demystifying blockchains

DEMYSTIFYING BLOCKCHAINS

PRESENTED BY

.

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RUBEN TAN

2

Co-Founder & CTO of Neuroware

Technologist for life

Close to 15 years of software development

Co-founded Javascript Developers of Malaysia Facebook Group

Frequent speaker on various technologists Ruben Tan

[email protected]

mailto:[email protected]

SLIDE # 3

… Malaysian company from 500 Startups

… to provide public blockchain APIs and toolkits

… Non-financial, blockchain-agnostic solutions

… Bank-backed Blockchain Hackathon in Singapore

1st

NEUROWARE - FIRST IN MANY THINGS

BLOCKCHAINSBroad definitions

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Bitcoin Blockchain

DIFFERENTIATING BITCOIN AND BLOCKCHAINS

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Bitcoin Blockchain

DIFFERENTIATING BITCOIN AND BLOCKCHAINS

A peer-to-peer payment system

Open participation Complete transparency

Identity/Audit obfuscation

A collection of technologies

Distributed by nature Has a consensus algorithm

Enabling innovation

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GENERAL TRAITS OF BLOCKCHAINS

Blockchain stores dataLedgers, DNS records, etc

Immutable once recorded

Everybody has a copy

Blockchain is a networkFully distributed

Peer to peer connection

Has a consensus algorithm

Blockchain is infrastructureEnables trust-less interaction

Enables high automation

Creates new business models

BITCOINThe first blockchain

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Released in 2009 by Satoshi Nakamoto

Nobody knows who Satoshi Nakamoto is - this is a good thing!

USD 13 per coin in 2013, USD 1000+ per coin in 2017

Processing over 200k daily transactions… and growing

Market capitalisation at USD 17 trillion!

HISTORY OF BITCOIN

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Bitcoin stores a ledgerEach node stores a complete copy of all transactions

Miner nodes work to secure the ledger from attacks and also mint new coins

Bitcoin is a networkFully distributed, no centralauthority controls it

Open participation whereanybody can join, or evenstart mining coins

Bitcoin is p2p digital cashEnables almost instant payments to anybody anywhere in the world

Has escrow and multi-signaturefeatures, thus making it possible toautomate settlements

BITCOIN TRAITS

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A bitcoin node stores a ledger of all transactions that has ever happened

The ledger is made out of blocks

Each block contains a series of transactions at a specific point of time

Each block contains condensed information about the previous block

This forms a chain of blocks which cannot be broken

DIVING DEEPER INTO BITCOIN

Block 1

T T T

T T T

T

Block 2

T T T

T T T

T T

Block 3

T T T

T T T

T T T

Block 4

T T T

T T T

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Each node is connected to one another, maintaining a list of peers

Nodes stay consistent with each other through a consensus algorithm called proof of work

New transactions can be created on any node, and once created is relayed to other nodes

Transactions are packed into new blocks on the blockchain through a process called mining

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PEER TO PEER GOSSIP

New transactions can be created on any node, and once created is relayed to other nodes

Any node can create a transaction

New transactions are relayed to other nodes using a gossip protocol

New transactions reside in a pool

Miner nodes eventually will receive a copy of the transaction

T my nodeminer

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Miners are special nodes with the capability to add blocks to the chain

Miners ensure that everybody’s data is always consistent

Miners are also a source of new coins

Every time a new block is added to the chain, the miner that added it is rewarded with newly created bitcoins

Miners must perform a proof-of-work to gain the right to add a block to the chain

Miner Miner Miner Miner Miner Miner Miner

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Thousands of miners race to solve a math puzzle

MINING PROCESS

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First to solve gets the right to add a new block

MINING PROCESS

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Miner is rewarded with new coins and transaction fees

MINING PROCESS

Block 1T T T

T T T

T

Block 2T T T

T T T

T T

Block 3T T T

T T T

T T T

Block 4T T T

T T T

New BlockT T T

T T

New block with proof-of-work is broadcasted to all other nodes

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Auto-adjusting difficulty acts as traffic control

AUTO-ADJUSTING DIFFICULTY

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EARLY MINING RIGS

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MODERN MINING RIGS

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BITCOIN

Completely autonomous and fully open

participation with no central authority

Comes with high programmability to allow for

the creation of smart contracts easily

Neutral platform with strong consistency

guarantees to allow trustless transactions

BITCOIN VS CONVENTIONAL

CONVENTIONAL

Low autonomy using highly propriety

infrastructure and subject to strict regulations

Hard to automate and digitise due to existing

infrastructure and regulations

Requires users to trust institutions that may or

may not have their best interests in mind

THE IMPLICATIONSBack to blockchains please?

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EVOLUTION OF TOPOLOGIES/BUSINESS MODELS

CloudCentralised Distributed

Single point of failure

Expensive to scale

Basically outsourced

infrastructure

Mitigates failure

Requires trust

More secure as more

nodes exist/join

Highly resilient to data

loss and attacks

Evolution

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EVOLUTION OF BUSINESS MODELS

CloudCentralised Distributed

Telephone Service

Walmart

Taxi Services

Whatsapp

Amazon

Uber

Firechat

Open Bazaar

Lazooz

Evolution

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PROBLEM WITH DISTRIBUTED TOPOLOGY

Distributed systems are subject to byzantine attacks where malicious nodes can issue faulty updates

Any distributed system (even centralised ones) need to have a consensus algorithm to ensure consistency

Consensus is always a tradeoff - there is no one single perfect algorithm for all situations

Blockchains is distributed by nature:

Needs a way to ensure consistency between nodes

Must have a consensus algorithm that works

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BENEFITS OF BLOCKCHAINS

Save cost - move from expensive client-server oriented structure (and cost of running/renting a complete data centre) to utilising commodity hardware

Enable innovation - blockchains can be used to create ecosystems with open participation, which in turn will create new business models/opportunities

Strong fundamentals - most blockchains have strong cryptography fundamentals, better base to work on than to rely on custom implementations

Trustless neutrality - blockchains are neutral, and can be used as a platform to conduct transactions without the need of an intervening third-party

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SAVING COST THROUGH DECENTRALISING


Data centre rental/building cost

Hardware cost

Electricity cost

Maintenance personnel salary

Security hardware cost

Security personnel cost

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SAVING COST THROUGH DECENTRALISING


Data centre rental/building cost

Hardware cost

Electricity cost

Maintenance personnel salary

Security hardware cost

Security personnel cost

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ENABLING INNOVATION THROUGH ECOSYSTEMS


Internal Services Firewall Business

Contracts

Integration System

Startup

VendorPublic API

Research

Roadblocks are

everywhere!

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ENABLING INNOVATION THROUGH ECOSYSTEMS


Internal Services

Blockchain Startup

Vendor

ResearchBlockchain

Blockchain

Blockchain

Lower barrier of

entry and better

ecosystem

Open participation

drives innovation

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RELY ON BLOCKCHAIN’S STRONG FUNDAMENTALS


SWIFT network lost 81

million USD to a cyber heist

in 2016

LinkedIn was breached,

more than 117 million

accounts compromised

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RELY ON BLOCKCHAIN’S STRONG FUNDAMENTALS


Immutable Data Strong Cryptography Strong Consistency

Blockchains

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STREAMLINE PROCESSES THROUGH NEUTRALITY


Corporate A

Corporate BDatabase DatabaseWhose data can I trust?

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STREAMLINE PROCESSES THROUGH NEUTRALITY


Corporate A

Corporate B

All nodes are equal and

consistent, no trust neededBlockchains Blockchains

LANDSCAPE ANALYSISThe monumental impact of blockchains

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Immutable, tamper-proof audit-trail

Data easily shared and verified, forced transaction through protocol

Vastly increased security, less vulnerable to attack or outage

Programmable contracts that can radically reduce human errors and costs

“While Fintech Disrupts Banks, the Blockchains Disrupt Fintech"

PwC, March 2016 Global FinTech Report

ENABLING AND DISRUPTIVE TECHNOLOGY

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As of January 2016, more than 60 banks and leading financial institutions have made statements confirming that they are actively working on blockchain projects.

TAKING THE FINANCE WORLD BY STORM

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multiple blockchains for cross-boarder payments and loyalty

Exploring KYC and AML via the blockchains

Patented a blockchain based wire transfer system

Blockchain based loyalty platform

Blockchain based remittance platform

Blockchain based trade finance platform

Custom blockchainfor settlements

BIG NAMES IN THE INDUSTRY

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BITCOIN TRADING VOLUME

39

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FINANCIAL GIANTS ENTERING THE FRAY

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CONSORTIUMS ARE FORMING WORLDWIDE

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BLOCKCHAIN EMBASSY ASIA

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BLOCKCHAIN ECOSYSTEM

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HONG KONG 2016 BUDGET PLAN

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‘Government will encourage the industry and relevant organisations to explore the application of “Blockchain”

technology in the financial services industry, with a view to developing its potential to reduce suspicious transactions and

bring down transaction costs.’

63rd paragraph, 2016 Hong Kong Budget Plan

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SINGAPORE

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There are other technologies, like blockchains, which is used for bitcoin, but can also be used for many other applications

like real-time gross settlement, or trade finance verification. So our banks and our regulators must keep up to date and up to

scratch with these developments

UOB 80th anniversary dinner, Prime Minister Lee

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ZUG, SWITZERLAND

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The city of Zug, Switzerland, has announced it will pilot a bitcoin payments project that will allow local citizens to pay for

public services using digital currency.

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DELAWARE, UNITED STATES

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‘Amendments to Sections 219, 224 and 232 and related provisions are intended to provide specific statutory authority

for Delaware corporations to use networks of electronic databases (examples of which are described currently as 'distributed ledgers' or a 'blockchain') for the creation and

maintenance of corporate records, including the corporation’s stock ledger’

Delaware moving towards accepting corporate records on the blockchain

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SENEGAL AND TUNISIA

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Placed national currency on the blockchain, or converted national currency into digital form on the blockchain

BLOCKCHAINS - Q&A?A gateway into distributed technologies

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Demystifying blockchains

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Transcript of Demystifying blockchains