Blockchain - Potentes Nexus

Introduction
Welcome to the cosmos of Blockchain, which is a trending buzzword making news in
all corners.

Recently, Walmart was able to reduce a food tracing process from 6 days to about
just 2 seconds by leveraging blockchain. Many such similar industrial applications
are achieved through Blockchain across different industries.

Is it a technology, culture or process change?

How is BlockChain able to achieve things quite faster?
How is Cryptocurrency linked to BlockChain?
What is the role of BitCoin in BlockChain?
Now such questions would be hanging around in your mind. Let's get all your queries
answered in this course.

Let's first understand intermediaries and their roles in-detail before we delve
into BlockChain.

Banks and Governments act as intermediaries creating trust and certainty by

facilitating the transaction of goods and services.

Example 1 - Electronic Payment

In case of an electronic payment, (by an individual or business), Banks track and

record the transaction.
While using credit or debit card to purchase from a store, third-party
intermediaries, the seller, and customer's bank approve, track and record the
transaction for each party in their private accounts.
Example 2 - Real Estate

Governments record the change of property ownership and land rights when an
individual buys a new home pertaining property ownership, land size and legal
rights.
If the records are not maintained, there would be complete chaos, and anyone could
potentially claim ownership of anything.

Issues with Prevailing System

Banks and governments often add delays and impede the free flow of business due to
the time it consumes to process transactions and regulatory requirements.

Let's understand the critical issues:

Centralized power - Currently, all the systems are managed by a central governing
authority.

Private ledgers - Every system has their own private ledgers.

Prone to corruption/hacking - At the time of reconciliation, the system is prone to

corruption or can get hacked by an external source.

Life Without Intermediaries

Let's imagine direct business-to-business or peer-to-peer transactions without the
involvement of any

Banks
Government
Intermediaries of any kind.
And what if a Technology could provide you the same experience without giving room
for any delays due to a process or regulation without compromising on the security
aspect.

But how?

Welcome to the World of Blockchain!

What is Blockchain?
Blockchain technology creates decentralised digital public record of transactions
which are

Secure
Anonymous
Tamper-proof
Unchangeable
In simple terms, consider BlockChain to be kind of new form of database.

Example: Imagine Blockchain as a Google spreadsheet, where everyone makes

changes/updates and shares with other users. Also, it has a unique feature, where
every update is final, and nobody can tamper with it.

Benefits

Unlike intermediary bodies, which maintain a private database of records,

Blockchain makes all records public with increased transparency.

Blockchain technology eliminates expensive intermediary fees thereby removing the

large burden on individuals and businesses.

Hacking attacks and fraudulent activities impacting large central intermediaries

would not be possible with blockchain technology.

Block it!
"Blockchain raised a business value, which will cross $3.1 trillion by 2030",
according to Gartner's Blockchain trend insight report 2017.

Evolution of Blockchain
Evolution of Blockchain
Now in this current era, Blockchain is been compared at the same level to where
internet was 20 years ago. The success of BlockChain could be best explained
metaphorically using internet.

The internet proved to be an unprecedented point in technology that provided

similar concepts of decentralization and open-source.

Blockchain would not only open up prospects to make processes more democratic,
secure, transparent and efficient but also has the potential to disrupt multiple
industries.

“What the internet did for communications, blockchain will do for trusted
transactions.” - Ginni Rometty, CEO of IBM

How can Blockchain Help?

How can Blockchain Help?
Blockchain addresses the intermediatory issues by providing the following features:
Decentralized Power - Blockchain uses Peer-to-Peer node networking system.

Public Ledgers - Every node has its own public ledger with details of all
transactions.

Immutable hacking - Since same data is available in the distributed network,

hacking is impossible.

Cryptography - Uses a complex mathematical algorithm to maintain the blocks in

Blockchain.

You will learn more about Cryptography in the next topic.

Block it!
Technologists believe it is the Digital immutability feature that makes blockchain
desirable across many industries. Digital immutability can be described as once a
record is committed on a blockchain, it is practically impossible to change the
record.

Building Blocks of BlockChain

Building Blocks of BlockChain
Block is a part of blockchain which records all the transactions.
Once the sequence of the transaction is over, it goes into the blockchain database
permanently.
Each time a block gets completed, a new block is generated.
Blockchain combines 3 existing technologies

Cryptography
P2P Networks
Game theory
to make sure that a disparate network of actors who do not know or trust each other
reach consensus over which transaction is correct, without a centralized party.

Let's study in detail about them in the coming sections.

Types of Blockchain
Types of Blockchain
Based on the evolution of Blockchain over the past few years, it is popularly
divided into three categories:

Public Blockchain
Private Blockchain
Consortium/Federated Blockchain
Let's understand in detail about the different types in this section and need for
such categorization.

Block it!
Blockchain is expected to disrupt the Banking and financial industry soon. Experts
claim banks could save $8-12 billion annually by leveraging blockchain technology.

Need for Different Types

The different types of BlockChain evolved to address several needs such as:

Cost-effectiveness and quick turnaround.

Reducing redundant work.
Dependency on huge servers.
Leveraging smart contracts, thereby reducing the number of trusted parties.
Generating distributed consensus among interested parties is faster irrespective of
geographical segregation.
Including additional options for rights and access management.

Public Blockchain
Public Blockchain
Public blockchain as the name suggests is open to all users in a distributed
network.

Open and transparent mechanism.

There is no one in-charge, and anyone can participate in reading, writing or
auditing.
Everyone has the read and write access to the ledger, and participate in the
decision-making process.
All the users maintain a copy of ledgers on their local nodes.
As there is no dedicated in-charge, decentralized consensus mechanisms like Proof
of work (POW) and Proof of stake (POS) are used to agree upon the final state of
the ledger.
Examples: Bitcoin, Ethereum, Dash, Lisk, Factom, and Blockstream

Private Blockchain
Private Blockchain
Private Blockchain as the name claims is a private property of an individual or an
organization.

It is not decentralized unlike public blockchain; it is just a distributed

database. However, all permissions are kept centralized to an organization.

This type of blockchain enables an organization to create its own currencies.

There will be an in-charge who manages read/write or provides selective access to

read or vice versa.

Consensus or mining rights are achieved through in-charge.

Main drawback of this kind of blockchain is the beauty of de-centralization, and

open protocols get lost.

Examples: Multichain, Blockstack

Consortium/Federated Blockchain
Consortium/Federated Blockchain
This model of Consortium blockchain evolved to remove the sole autonomy of Private
blockchains (single party vested interests).

The Consortium blockchain is controlled by a group of members. (Group of

companies/representative individuals come together and make decisions benefiting
the whole network).
This is partially a decentralized kind of blockchain.
Here, all or some of the members will have read access, but only few will have the
write access.
There are pre-defined set of nodes where the users have access to write the data or
block.
Quite faster with additional checks to avoid failures.
Examples: Ripple, R3

Do You Know?
Dubai is about to become the World's First Blockchain-Powered Government. By 2020,
all visa applications, bill payments and license renewals, which account for over
100 million documents each year, are to be transacted digitally using blockchain. -
Forbes

Snapshot
In this section, you read about:

Types of Blockchain
Public Blockchain
Private Blockchain
Consortium/Federated Blockchain
How they operate differently?
Comparison Analysis

Cryptography
Now let's explore and understand Cryptography and its significance in Blockchain.

What is Cryptography?
Cryptography is a technique which converts plain text into an encrypted text, thus
making it difficult for a third party to manipulate the data.

Cryptography ensures:

Security of the network

Transparency in transactions
Privacy of the individual users

Why Cryptography in Blockchain?

The term Cryptography means much more than just the process of encryption and
decryption.

Cryptography helps in:

Forming Digital Signature: A mathematical scheme that confirms the authenticity of

a Digital Message.
Converting a large message into small messages or even more complicated things.
Unlike old cryptography methods, modern cryptography warrants guarding data through
complex computation logic rather than keeping it just safe.

Blockchain view of point

As you are aware, in Blockchain every transaction is propagated between nodes, in a

peer-to-peer fashion so that, no one knows the origin of the transaction.

Blockchain uses advanced level encryption so that it can be completely secured.

Let us now understand the types of cryptography in forthcoming cards.

Block it!
According to Forbes, the global blockchain market is expected to be worth $20
billion by 2024.

90% of major North American and European banks are exploring blockchain solutions.

Types of Cryptography
Types of Cryptography
There are fundamentally two types of cryptography.

Symmetric Cryptography - This method uses only one mutually agreed upon 'Private
Key' (Secret key) by the sender and the receiver, both to encrypt and to decrypt
the data. Even though this process is faster, it is easily hackable.
Asymmetric Cryptography - This method uses a pair of Public key and Private key.
The public key is distributed amongst all the users in the network while each user
has their own private key(secret key).

Algorithms in Asymmetric Cryptography

Cryptography uses a complex algorithm for secure transmission of messages over the
network.

Asymmetric cryptography primarily uses two types of algorithms.

Sign-Verify

Encrypt-Decrypt

Sign and Verify algorithm uses the concept of Hashing.

Let's understand hashing in more detail.

Algorithms in Asymmetric Cryptography

Cryptography uses a complex algorithm for secure transmission of messages over the
network.

Asymmetric cryptography primarily uses two types of algorithms.

Sign-Verify

Encrypt-Decrypt

Sign and Verify algorithm uses the concept of Hashing.

Let's understand hashing in more detail.

Hashing
Hashing
What is Hashing?
Hashing is an algorithm that encrypts data of any arbitrary length to a fixed
length.

This fixed length output is a smaller representation of the original data and is
called Digest or HASH.

HASHes can be used to validate the data that came from as each digest is uniquely
tied to the original message.

Asymmetrical Cryptography: Sign-Verify

Sign-Verify algorithm uses the previously explained concept of Hashing, where the
original data could be validated using Digest.

The video below explains this algorithm in greater detail.

If you have trouble playing this video, please click here for help.

Here is the pictorial explanation of the sign-verify process.

Message: Mr. A pays ten coins to Mr. B

A creates the hash of the message.
A signs the hash using own private key (PRA).
B decrypts the hash using public key of A (PUA) and verifies against the hash of
the message.
C can also verify the message using the same method.
Combination of encryption and signing are used in secured messaging solutions.

Asymmetrical Cryptography: Encrypt-Decrypt

Asymmetrical Cryptography: Encrypt-Decrypt
Here let us understand an even more simple algorithm used in Asymmetrical
Cryptography called Encrypt - Decrypt.

• Message: Mr. A pays ten coins to Mr. B.

• A encrypts the message with a public key of B (PUB).

• B decrypts the message with the private key of B (PRB). Only B can decrypt the
message.

• C cannot understand the message as it does not have the private key of B.

Hash Chain
Hash Chain
Now that we have learned about Cryptographic Hash Function let's understand one of
its essential application known as Hash Chain.

Hash Chain is a repetitive application of Hash function over a given set of data.

Hash chain ensures greater data security - Successive hashing makes it impossible
for a hacker to manipulate the data by applying a single input.

Unlike linked list, in the hash chain, it is impossible to modify a block/message

in the middle without modifying all the blocks following that block.

What is Cryptocurrency?
So far, we have understood that blockchain technology utilizes cryptography to
protect the network.

Cryptocurrency is a combination of Cryptography and Currency.

Cryptocurrency is the digital currency that uses the encryption techniques
to regulate the generation of monetary units and
verify the transfer of funds independent of any central authority.
Cryptocurrency is still in a budding stage, but in years to come, it will grow
exponentially and significantly revolutionize the current financial ecosystem.

CoinCap
Do you think CoinCap is another cryptocurrency?
If you think it is, then the answer is No.

CoinCap is one of the leading official sites in the trading market of

cryptocurrencies which monitors these digital currencies.

It also, provides information on the continuous price change (+/-) of the

cryptocurrencies or instead you can say, the value of your holdings in real time.

Block it!
Bitcoin cannot be banned; it can be declared as illegal in some country though. As
long as one has internet and bitcoin wallet, bitcoins can be engaged.

Bitcoin
In this section, you will understand more about the famous Cryptocurrency Bitcoin.
Bitcoin was invented by a pseudonymous group of people under the name Satoshi
Nakamoto as open-source software in 2009.

First Decentralized cryptocurrency

Used cryptography to control its creation and management
Created and held electronically in a peer to peer open ledger (public blockchain).
How to procure Bitcoins?

Buying them on an Exchange.

As the exchange of products and services.
Creating new ones as a reward for a process (Mining).

Block it!
As of Jan 2018, the total Bitcoin count has reached to 16.83 million. Remember,
there will be only 21 million Bitcoins.

A Surge in Bitcoin
A Surge in Bitcoin
The evident geopolitical factors that contributed to the rise in popularity of
bitcoin in recent years are:

Legalization of bitcoin in major economies such as Japan.

Bitcoin is listed as among the top-30 global currencies
Global rise in debt levels
Rate hike by the Federal Reserve.
Monetary policy options available with the Central bank are exhausted to some
extent.

Breaking Down "Block Rewards"

With every mined block, new bitcoins are released called Block Rewards.

Block reward keeps diminishing to ensure a total release of bitcoin that approaches
21 million.

The block reward is halved for every 210,000 blocks or roughly every four years.

In 2009, block reward started at 50, and it decreased to 25 in 2014.

Computational power in mining is directly proportional to the difficulty level of

mining.

Mining in Bitcoin
Mining in Bitcoin
In simple words, mining is verification of bitcoin transactions.

Example:

Hemi wants to buy computer from David using bitcoin.

To make sure his bitcoin is genuine, miners begin to verify the transaction.
The transaction is approved only after Miners looks into the transaction history of
Hemi to verify if Hemi has enough valid bitcoins.
Once approved, this transaction is updated in the public ledger as a new block, and
the message is propagated to all the users in that blockchain/network.
The Miner who validates the transaction first gets to place the next block into the
blockchain. To incentivize mining, the miners are rewarded with newly released
bitcoins.

Did You Know?

The first Bitcoin purchase was for a Pizza.

To celebrate this, May 22 is celebrated as Bitcoin Pizza Day.

Block Size in Bitcoin

Have you ever wondered that for keeping the Bitcoin free and decentralized, the
number of blocks used has to be limited.

In the current version of bitcoin, the block size limits to 8 Mb. To know more
about this click on the below video.

Game Theory
Miners are responsible for validating a transaction and adding new blocks.

Miners could have a lot of inclination to use this power for their personal gains
and if they do choose to cheat, they can cause chaos in the system.

So why don’t they do that? Is it because they are all good and honest?
This is where the true genius of blockchain comes in. Blockchain uses Game Theory
mechanics to keep the system bulletproof.

tation of Bitcoin
Bitcoin, the most hyped digital currency, has some limitations.

Bitcoin value is highly volatile and keeps fluctuating.

As, it is a new digital currency, many businesses are skeptical to accept this as a
payment method.

It involves high risk of unknown technical flaws.

Lack of customer support.

Famous Blockchain Frameworks

Some of the most popular Blockchain frameworks include the following.

Ethereum
Hyperledger
R3 Corda
You will get to learn more about them in the following set of cards.

Ethereum
Ethereum is an open source distributed cloud platform that enables developers to
build and deploy decentralized applications.

Ether is the built-in cryptocurrency of Ethereum that works on public blockchain

network.

Ethereum is the first and the most popular smart contract platform that enables
users to define smart contracts in the form of code.

Block it!
Industry groups have started developing Enterprise distributed ledger solutions.

JPMorgan has developed Quorum, an open-source, enterprise-ready blockchain and

smart contracts platform for the financial services industry.
Smart Contract
Smart contract is a software that controls the movement of digital assets amongst
parties based on certain rules of negotiation.

Key features:
Elimination of a third party intervention
Traceable and Irreversible transactions
Self Executing and Self Enforcing
Smart contract in Bitcoin validates transaction only if certain predefined
conditions are met whereas ''Ethereum'' allows developers to program their own
smart contracts.

Hyper Ledger
Introduced by Linux foundation, Hyperledger is an open source, modular architecture
targeted at businesses that aim to streamline their process leveraging blockchain
technology.

Etherum vs Hyperledger:
As Ethereum is an open and distributed platform where it is impossible to hide a
transaction from anyone, on the other hand, hyperledger gives this flexibility.

R3 Corda
R3 Corda has a unique approach to data distribution where the data is shared only
between the genuine participants.

This concept makes Corda popularly known as Distributed ledger technology (DLT)
with a difference.

Financial service industry could best leverage this distinct feature of Corda.

Block it!
An organization, Decentralized autonomous organization (DAO) was created in 2016
with programming rules and smart contracts on blockchain with no management, no
CEO, no people.

Although the project was able to crowdsource a record-high ~ $169 million, later
this project was dropped due to a security concern.

Quick Comparison: Ethereum, Hyperledger, and R3 Corda

Ethereum

Permissionless and generic Blockchain platform

Governed by Ethereum developers
Mining based on Proof of Work (POW)
Consensus approached at Ledger level
Hyperledger

Modular and permissioned platform

Governed by Linux foundation
Multiple consensus approaches - at transaction level
R3 Corda

Specialized distributed and permissioned ledger platform

Governed by R3
Specific consensus at transaction level

Blockchain Frameworks
Having understood about Blockchain and Cryptocurrencies, let's understand the
Blockchain frameworks now.
In Blockchain, distributed ledger records are time-stamped/created using Consent
Mechanism.

As per industry requirements, we may need to customize visibility of transactions

to the different stakeholders.

There cannot be a "one technology that fits all" solutions.

The decision makers determine that the use of which type of Blockchain, would yield
them the intended output.:
permissionless (where all the users of the network have access to the details of
each transaction)
permissioned (wherein details of any transaction between two users could be
restricted from the rest of the network)
hybrid (a combination of permissionless and permissioned, according to the business
requirement)
To cater to such requirements, several Blockchain frameworks evolved.

Unprecedented Prowess: Blockchain, the Future

Blockchain has the capability to revolutionize the global economy.

Blockchain technology enables super-fast, super-secure, anonymous, and wholly

transparent validation of transactions.

Creation of an Egalitarian Economy -

The existing centralized economy is a one-way economy: it's one to many; controlled
by powerful forces with everyone else being the passive recipients.

Blockchain would provide a neutral platform for a one to one or a many to many,
distributed economy, where everyone is a participant.

This will build a prosperous society where everyone shares the wealth they create.

Boon to Industries
The blockchain is a globally distributed ledger where not just information but
anything of value like money, music, medical, ND scientific discoveries can be
secured.

The impact of blockchain goes way beyond the financial sectors.

Healthcare
Retail
Banking
Insurance
Telecom and so on
Let's understand few key areas, where it has cut across.

Usecase - Healthcare
Usecase - Healthcare
Often, the different healthcare service providers use their database system
(private), which contains crucial information about their patients.

This scattered and inaccessible (to other providers) is very dangerous in an

industry where even a few extra seconds to obtain critical information could
determine patients fate.

Blockchain makes healthcare-related data easily accessible amongst all providers,

which leads to better and faster treatment.
Usecases - Banking
Usecases - Banking
Global payments
Global Payments
Intra-group Payments
Domestic Payments
Securities
Issuance
Asset Servicing
Trading
DVP Settlement
Trade
Letter of Credit
Documentary Collections
Commodities Trading
Receivables Trading
Digital Notary
KYC
Reference Data
Registry

Block it!
The blockchain is believed to reduce banking infrastructure costs by around 30%.

Blockchain Summary
We have come to the end of this course.

In this course, you have learned:

Introduction to Blockchain
Types of Blockchain
Cryptography
Concept of Hashing
Cryptocurrency
Bitcoins in Blockchain
Frameworks of Blockchain
Smart Contracts
Blockchain Industrial Applications
Hope you enjoyed learning about Blockchain!