BLOCKCHAIN AND

CRYPTOCURRENCY WORKSHOP
SERIES 1- BLOCKCHAIN
FUNDAMENTAL
WORKSHOP PRESENTER:
ASSOCIATE PROFESSOR ABU ZAFAR SHAHRIAR (MONASH UNIVERSITY)
DR MICHAEL WANG (RMIT UNIVERSITY)
• CLAY TABLET FROM ANCIENT
MESOPOTAMIA: A LEDGER DOCUMENTING
FINANCIAL TRANSACTIONS BETWEEN
PARTIES
• FOR MORE THAN 7,000 YEARS PEOPLE HAVE
USED LEDGERS TO RECORD ECONOMIC
TRANSACTIONS.
THE IMAGE OF A LEDGER BOOK GENERAL LEDGER IN THE DIGITAL
IN 1911 ERA
DISTRIBUTED LEDGER: THE TECHNOLOGY OF THE FUTURE
• 2017 DELIOTTE SURVEY OF TOP EXECUTIVES OF US FIRMS
• NEARLY 40% OF EXECUTIVES KNOW LITTLE OR NOTHING ABOUT BLOCKCHAIN.
• AMONG SURVEYED EXECUTIVES KNOWLEDGEABLE OF BLOCKCHAIN,
• 21% HAVE ALREADY BROUGHT BLOCKCHAIN INTO PRODUCTION
• 25% PERCENT PLAN TO DO SO WITHIN THE NEXT YEAR
• 28% HAVE ALREADY INVESTED $5M OR MORE
• 25% WILL INVEST $5M OR MORE IN 2017

SOURCE: HTTPS://WWW2.DELOITTE.COM/HR/EN/PAGES/PRESS/ARTICLES/BLOCKCHAIN-2017.HTML
 WHAT IS A BLOCKCHAIN?
• BLOCKCHAIN IS A NEW TECHNOLOGY ENABLING AN IMPROVED ABILITY TO
VERIFY AND RECORD THE EXCHANGE OF VALUE AMONG AN INCORPORATED
SET OF USERS. IT IS A SECURE AND TRANSPARENT WAY TO TRACK THE
OWNERSHIP OF ASSETS BEFORE, DURING, AND AFTER ANY TRANSACTION.
EACH TRANSACTION BETWEEN PARTIES IN THE NETWORK IS A “BLOCK,” AND
THE CUMULATIVE SET OF TRANSACTIONS ACROSS THE ENTIRE NETWORK IS
THE “CHAIN:” BLOCKCHAIN.
• HTTP://BLOCKCHAIN.MIT.EDU/HOW-BLOCKCHAIN-WORKS
 WORKSHOP OUTLINE

1. GFC AND THE DECENTRALISED FINANCIAL SYSTEM

2. CRYPTOGRAPHY IN BITCOIN
3. BITCOIN’S CONSENSUS MECHANISM – PROOF OF WORK
4. ISSUES IN BITCOIN
5. THE DEEP THINKING OF BITCOIN
6. ETHEREUM’S CONSENSUS MECHANISM - PROOF OF STAKE
7. SMART CONTRACT AND HYPER-LEDGER
8. BLOCKCHAIN TECHNOLOGY TOWARDS THE FUTURE
 GFC AND APPEAL OF DECENTRALIZED FINANCIAL
SYSTEM
• THE GFC IN 2008 SHOOK PEOPLE’S FAITH IN BANKS AND CENTRALIZED FINANCIAL SYSTEM
(DEFI).
• ON 1 NOVEMBER 2008, ‘SATOSHI NAKAMOTO’ PUBLISHED ‘BITCOIN: A PEER-TO-PEER
ELECTRONIC CASH SYSTEM’, DECLARING THE BIRTH OF BITCOINS.
• BITCOIN IS A DECENTRALIZED DIGITAL CURRENCY, THAT DOESN’T RELY ON ANY TRUSTED THIRD
PARTY.
• DEFI IS ANOTHER KIND OF FINANCIAL SYSTEM, ONE BASED ON DENCENTRALISED CONSENSUS,
NOT CENTRALISED FIAT.
 CRYPTOGRAPHY AND KEYS

1.) CRYPTOGRAPHY: ELLIPTIC CURVE CRYPTOGRAPHY (ECC) IS ASYMMETRIC CRYPTOSYSTEM AND

A KEY-BASED TECHNIQUE FOR ENCRYPTING DATA. ECC FOCUSES ON PAIRS OF PUBLIC AND
PRIVATE KEYS FOR DECRYPTION AND ENCRYPTION OF WEB TRAFFIC.
2.) PUBLIC AND PRIVATE KEYS ALLOW YOU TO SEND AND RECEIVE CRYPTOCURRENCY WITHOUT
REQUIRING A THIRD PARTY TO VERIFY THE TRANSACTIONS. THE PUBLIC AND PRIVATE KEYS FIT
TOGETHER AS A KEY PAIR.
 HASH FUNCTION

3.) HASH FUNCTION: A HASH FUNCTION TAKES AN INPUT OF ANY SIZE THE OUTPUT OF A HASH
FUNCTION IS OF FIXED SIZE. IN HASHING, GIVEN AN INPUT, IT IS EASY TO COMPUTE THE OUTPUT. BUT IT
IS PRACTICALLY IMPOSSIBLE TO REVERSE ENGINEER A HASH OUTPUT AND DERIVE THE INPUT. HENCE A HASH
FUNCTION IS ALSO CALLED A ONE-WAY FUNCTION.
THE VERSION OF YOUR PUBLIC KEY THAT YOU GIVE TO OTHER PEOPLE SO THAT THEY CAN SEND YOU
BITCOINS. IT’S SHORTER THAN THE ORIGINAL PUBLIC KEY, AND IT MAY PROVIDE AN EXTRA LAYER OF
SECURITY FOR YOUR BITCOINS COMPARED TO GIVING OUT YOUR PUBLIC KEY DIRECTLY.
 DIGITAL SIGNATURE

A DIGITAL SIGNATURE CAN BE USED TO UNLOCK OUTPUTS, BECAUSE IT SHOWS THAT WE KNOW THE PRIVATE KEY OF AN ADDRESS. BUT
THE BEST THING IS, USING A DIGITAL SIGNATURE MEANS THAT WE DON’T GIVE OUR PRIVATE KEY AWAY TO THE NETWORK.
THE DIGITAL SIGNATURE IS BASICALLY A ONE-WAY HASH (OR MESSAGE DIGEST) OF THE ORIGINAL DATA THAT WAS ENCRYPTED WITH THE
SIGNER'S PRIVATE KEY. TO VALIDATE THE DATA'S INTEGRITY, THE RECIPIENT FIRST USES THE SIGNER'S PUBLIC KEY TO DECRYPT THE DIGITAL
SIGNATURE. THE RECIPIENT THEN USES THE SAME HASHING ALGORITHM THAT GENERATED THE ORIGINAL HASH TO GENERATE A NEW
ONE-WAY HASH OF THE SAME DATA. INFORMATION ABOUT THE HASHING ALGORITHM USED IS SENT WITH THE DIGITAL SIGNATURE;
FINALLY, THE RECIPIENT COMPARES THE TWO HASH VALUES. IF THEY MATCH, THE DATA HAS NOT CHANGED SINCE IT WAS SIGNED. IF THE
HASHES DO NOT MATCH, THE DATA MAY HAVE BEEN TAMPERED WITH SINCE IT WAS FIRST SIGNED OR THE DIGITAL SIGNATURE MAY HAVE
BEEN CREATED WITH A PRIVATE KEY THAT DOES NOT CORRESPOND TO THE PUBLIC KEY PRESENTED BY THE SIGNER.
IF THE HASHES MATCH, THE RECIPIENT CAN BE ASSURED THAT THE PUBLIC KEY USED TO DECRYPT THE DIGITAL SIGNATURE CORRESPONDS
TO THE PRIVATE KEY USED TO CREATE THE DIGITAL SIGNATURE.
 BITCOIN’S CONSENSUS MECHANISM - POW

• A CONSENSUS MECHANISM IS A FAULT-TOLERANT MECHANISM THAT IS USED IN COMPUTER

AND BLOCKCHAIN SYSTEMS TO ACHIEVE THE NECESSARY AGREEMENT ON A SINGLE DATA
VALUE OR A SINGLE STATE OF THE NETWORK AMONG DISTRIBUTED PROCESSES OR MULTI-
AGENT SYSTEMS.
• ON THE BITCOIN BLOCKCHAIN, FOR INSTANCE, THE CONSENSUS MECHANISM IS KNOWN AS
PROOF-OF-WORK (POW), WHICH REQUIRES THE EXERTION OF COMPUTATIONAL POWER IN
ORDER TO SOLVE A DIFFICULT BUT ARBITRARY PUZZLE IN ORDER TO KEEP ALL NODES IN THE
NETWORK HONEST.
 BITCOIN’S CONSENSUS MECHANISM - POW

• POW REQUIRES A PARTICIPANT NODE TO PROVE THAT THE WORK DONE AND SUBMITTED BY
THEM QUALIFIES THEM TO RECEIVE THE RIGHT TO ADD NEW TRANSACTIONS TO THE
BLOCKCHAIN. AS THE REWARD, THE FIRST NODE WHO ADDS A NEW BLOCK ONTO THE CHAIN,
WILL GET A FIXED NUMBER OF BITCOINS.
• THE LONGEST CHAIN’S RULE: THAT IS THE CHAIN OF BLOCKS THAT TOOK THE MOST EFFORT
TO BUILD. A BLOCKCHAIN WITH MORE BLOCKS IN IT WILL HAVE TAKEN MORE ENERGY TO
BUILD THAN A CHAIN WITH FEWER BLOCKS IN IT, AND AS A RULE NODES WILL ALWAYS
ADOPT THIS CHAIN OVER A “SHORTER” ONE.
 THE ISSUES IN BITCOIN

• DOUBLE SPENDING ATTACK/51% ATTACK/FORK ATTACK: A BAD ACTOR COULD SPEND THE SAME
BITCOIN TWICE OR MORE. TO ACHIEVE A DOUBLE-SPEND, THE BAD ACTOR WOULD NEED TO MAKE UP
51% OF THE MINING POWER OF BITCOIN.
• THE LARGER THE BITCOIN NETWORK GROWS, THE LESS REALISTIC THIS BECOMES AS THE COMPUTING
POWER REQUIRED WOULD BE ASTRONOMICAL AND EXTREMELY EXPENSIVE. NO ONE NEEDS TO KNOW
OR TRUST ANYONE IN PARTICULAR IN ORDER FOR THE SYSTEM TO OPERATE CORRECTLY. THE
CRYPTOGRAPHIC PROTOCOLS ENSURE THAT EACH BLOCK OF TRANSACTIONS IS BOLTED ONTO THE LAST
IN A LONG, TRANSPARENT, AND IMMUTABLE CHAIN.
 THE ISSUES IN BITCOIN

• HALVING: MINERS ARE REWARDED WITH BITCOIN FOR VERIFYING BLOCKS OF TRANSACTIONS. THIS
REWARD IS CUT IN HALF EVERY 210,000 BLOCKS MINED, OR, ABOUT EVERY FOUR YEARS. THIS EVENT IS
CALLED THE HALVING OR "THE HALVENING”.
• THIS PROCESS IS DESIGNED SO THAT REWARDS FOR BITCOIN MINING WILL CONTINUE UNTIL ABOUT
2140. WHEN ALL BITCOIN IS MINED FROM THE CODE AND ALL HALVINGS ARE FINISHED, THE MINERS
WILL REMAIN INCENTIVIZED BY FEES THAT THEY WILL CHARGE NETWORK USERS.

• BITCOIN HAS A LIMITED TOTAL NUMBER, SO AS TO BE RESISTENT AGAINST INFLATION (21 MILLION IN
TOTAL).
 DEEP THINKING ABOUT BITCOINS

1. THE SECURITY OF THE PRIVATE KEY: FOR EXAMPLE, A COUPLE EACH SHARED HALF OF THE PRIVATE KEY, AND CRACKING HALF
OF THE PRIVATE KEY WILL BE MUCH MUCH EASIER (I.E. THE POSSIBLE COMBINATIONS OF THE PRIVATE KEY 2256 ≫ 2128 ). THE
POSSIBLE SOLUTION IS ’MULTI-SIGNATURE’.

2. INSFFICIENCY OF BITCOINS: THE TOTAL NUMBER OF BITCOINS IS FIXED, SO BITCOIN IS NOT A GOOD CURRENCY CANDIDATE.
BUT, DOES THAT SAY BITCOIN IS LIKE A GOLD? THE YEARLY INCREASING AMOUNT OF BITCOIN AND GOLD ARE MUCH LESS
THAN THE WEALTH THAT THE SOCIETY CREATES.

3. COULD QUANTUM COMPUTERS CRACK THE PRIVATE KEYS OF BITCOINS? IF IT DOES, THE TRADITIONAL FINANCIAL INDUSTRY
WOULD BE MORE VULNERABLE.
 SMART CONTRACT

• A "SMART CONTRACT" IS SIMPLY A PROGRAM (EXECUTABLE CODE) THAT RUNS ON THE ETHEREUM
BLOCKCHAIN. IT'S A COLLECTION OF CODE (ITS FUNCTIONS) AND DATA (ITS STATE) THAT RESIDES AT A
SPECIFIC ADDRESS ON THE ETHEREUM BLOCKCHAIN.
• ETHER WORKS MORE LIKE FUEL THAN A NORMAL CRYPTOCURRENCY. IN THE SAME WAY THAT YOU
NEED GASOLINE OR DIESEL FOR YOUR CAR, YOU NEED ETHER TO RUN THE SMART CONTRACTS AND
APPLICATIONS ON THE ETHEREUM BLOCKCHAIN.
 THE SECOND GENERATION OF BLOCKCHAIN-
ETHEREUM
• ETHER (ETH) IS THE SECOND MOST POPULAR DIGITAL TOKEN AFTER BITCOIN (BTC). ETHEREUM PROPOSED TO UTILIZE
BLOCKCHAIN TECHNOLOGY NOT ONLY FOR MAINTAINING A DECENTRALIZED PAYMENT NETWORK BUT ALSO FOR
STORING COMPUTER CODE THAT CAN BE USED TO POWER TAMPER-PROOF DECENTRALIZED FINANCIAL CONTRACTS
AND APPLICATIONS (THE 2ND GENERATION OF BLOCKCHAIN).

• ETHEREUM APPLICATIONS AND CONTRACTS ARE POWERED BY ETHER, THE ETHEREUM NETWORK’S CURRENCY. IT WAS
INTENDED TO COMPLEMENT RATHER THAN COMPETE WITH BITCOIN, BUT IT HAS NONETHELESS EMERGED AS A
COMPETITOR ON CRYPTOCURRENCY EXCHANGES.
 ETHEREUM’S CONSENSUS MECHANISM - PROOF OF
STAKE
• IN 2022, ETHEREUM WILL BE MOVING TO A DIFFERENT SYSTEM CALLED PROOF OF STAKE (POS) AS PART OF ITS ETH2
UPGRADE, A SET OF INTERCONNECTED UPGRADES THAT WILL MAKE ETHEREUM MORE SCALABLE, SECURE, AND
SUSTAINABLE.

• A MAJOR CRITICISM OF PROOF OF WORK (POW) IS THAT IT IS HIGHLY ENERGY INTENSIVE BECAUSE OF THE
COMPUTATIONAL POWER REQUIRED. PROOF OF STAKE SUBSTITUTES COMPUTATIONAL POWER WITH STAKING—
MAKING IT LESS ENERGY INTENSIVE—AND REPLACES MINERS WITH VALIDATORS, WHO STAKE THEIR
CRYPTOCURRENCY HOLDINGS TO ACTIVATE THE ABILITY TO CREATE NEW BLOCKS.
POW VS POS
THIRD GENERATION OF BLOCKCHAIN - HYPERLEDGER

• HYPERLEDGER IS AN OPEN-SOURCE PROJECT CREATED TO SUPPORT THE DEVELOPMENT OF BLOCKCHAIN-BASED

DISTRIBUTED LEDGERS. HYPERLEDGER CONSISTS OF A COLLABORATIVE EFFORT TO CREATE THE NEEDED FRAMEWORKS,
STANDARDS, TOOLS AND LIBRARIES TO BUILD BLOCKCHAINS AND RELATED APPLICATIONS.

• HYPERLEDGER FABRIC IS ONE OF THE MOST POPULAR PROJECTS IN HYPERLEDGER. IT IS A PERMISSIONED BLOCKCHAIN
INFRASTRUCTURE USED TO BUILD BLOCKCHAIN-BASED PRODUCTS, SOFTWARE AND APPLICATIONS. HYPERLEDGER
FABRIC WAS MADE IN COOPERATION WITH IBM AND DIGITAL ASSET. IT PROVIDES A MODULAR ARCHITECTURE THAT
DEFINES ROLES BETWEEN NODES, EXECUTION OF SMART CONTRACTS AND CONFIGURABLE CONSENSUS SERVICES.
APPLICATIONS OF BLOCKCHAIN
 CROSS-BORDER PAYMENTS

• BLOCKCHAIN TECHNOLOGY FOR CROSS-BORDER PAYMENTS:

1. IBM’S BLOCKCHAIN WORLD WIRE – THIS BLOCKCHAIN-ENABLED CONDUIT USED THE STELLAR
PROTOCOL AND ALLOWED FOR BANKS TO CLEAR AND SETTLE CROSS-BORDER PAYMENTS ALMOST
IMMEDIATELY.
2. PAYSTACK – PAYSTACK CREATES PAYMENT INFRASTRUCTURES AND CONNECTS PAYMENT
PROCESSORS WITH EACH OTHER WITH THE GOAL OF MAKING IT QUICKER AND EASIER TO
FACILITATE ONLY
3. RIPPLE AND PYYPL – SAN FRANCISCO-BASED SOFTWARE VENDOR RIPPLE HAS BEEN SPECIALIZING
IN GLOBAL REAL-TIME PAYMENTS, BASED ON BLOCKCHAIN TECHNOLOGY, SINCE 2014. NE
PAYMENTS.
 CROSS-BORDER PAYMENTS IN BLOCKCHAIN V.S. IT IN
BANKS
MANY OF THE ISSUES WITH TRADITIONAL CROSS-BORDER PAYMENTS STEM FROM THE HIGH NUMBER OF INTERMEDIARIES
IN THE FORM OF CORRESPONDENT BANKS THAT ARE INVOLVED IN PROCESSING A TRANSACTION. EACH ADDITIONAL
INTERMEDIARY DRIVES UP THE PROCESSING FEE, INCREASES THE NUMBER OF FAILURE POINTS, AND ADDS TO THE RISK OF
FRAUD SOMEWHERE ALONG THE PAYMENT PATHWAY. (E.G., SWIFT).

BLOCKCHAIN ALLOWS BANKS TO BYPASS THESE TRADITIONAL PAYMENT RAILS BY OFFERING A SECURE WAY TO RECORD
TRANSACTIONS IN A DISTRIBUTED LEDGER WITHOUT DIRECTLY INVOLVING ANY INTERMEDIARIES. BLOCKCHAIN ALSO
DECREASES THE RISK OF FRAUD AND CREATES A HIGHER CHANCE OF COMPLIANCE WITH CONSUMER DATA PRIVACY
REGULATIONS, AS THE TRANSACTION INFORMATION IS STORED ACROSS A DISTRIBUTED LEDGER NETWORK THAT IS VERY
DIFFICULT TO MODIFY WITHOUT THE PERMISSION OF ALL NETWORK MEMBERS.
 CROSS-BORDER PAYMENTS IN BLOCKCHAIN V.S. IT IN
BANKS
IBM WORLD WIRE, ALLOWING MEMBERS TO TRANSFER FUNDS AND EXCHANGE CURRENCIES IN
THE STELLAR CRYPTOCURRENCY. AT THE TIME OF ITS LAUNCH, IBM CLAIMED THAT THE NETWORK SUPPORTS PAYMENTS
ACROSS 70 COUNTRIES, IN 50 CURRENCIES AND 45 BANKING ENDPOINTS. STELLAR ALLOWS USERS TO ACCESS ITS
OPEN SOURCE NETWORK AND UTILIZE THEIR API TO ADOPT THEIR TECHNOLOGY TO SPECIFIC USE CASES. DESPITE
SERVING CORPORATE CLIENTS, IBM’S OFFERING IS HOPEFULLY GOING TO DECREASE THE COST OF CROSS-BORDER
REMITTANCES FOR END USERS.
 BUSINESS MODEL

• ADOPTING BLOCKCHAIN TECHNOLOGY IN BUSINESS:

1. CONSENSYS QUORUM – ORIGINALLY DEVELOPED BY JP MORGAN, QUORUM IS AN ENTERPRISE-
GRADE SERVICE THAT HELPS COMPANIES GROW AND MANAGE LARGE-SCALE BLOCKCHAIN
NETWORKS.
2. LVMH – THE LUXURY GOODS COMPANY IS TRACKING GOODS AND FIGHTING COUNTERFEITING
THROUGH BLOCKCHAIN.
3. MEDIACHAIN – THIS BLOCKCHAIN DATABASE WAS ACQUIRED BY SPOTIFY TO MANAGE
COPYRIGHTS AND ROYALTY PAYMENTS, AND RESOLVE RIGHTS HOLDER ISSUES.
 LAW AND PROPERTY MARKET

• IN LAW, BLOCKCHAIN TECHNOLOGY CAN BE USED TO CREATE SMART CONTRACTS, AS WELL AS VALIDATE OWNERSHIP
DOCUMENTS SUCH AS TITLE DEEDS. IF USED TO VALIDATE, AUTHENTICATE, AND SECURE COURTROOM EVIDENCE,
BLOCKCHAIN COULD IMPROVE EFFICIENCY IN THE CRIMINAL JUSTICE SYSTEM.

• SMART CONTRACTS ARE DIGITAL CONTRACTS THAT UPHOLD THE NATURE OF A LEGAL CONTRACT. THE TERMS OF THE
CONTRACT ARE WRITTEN IN CODE AND AUTOMATICALLY EXECUTED WHEN THE AGREED CONDITIONS HAVE BEEN

• REAL ESTATE TRANSACTIONS ARE USUALLY EXPENSIVE, PAPERWORK-HEAVY, AND REQUIRE THE ASSISTANCE OF
AGENTS. BLOCKCHAIN HAS THE POTENTIAL TO EASE THE PROCESS OF FINDING AND BUYING REAL ESTATE THROUGH
TOKENIZATION, USING DIGITAL REAL ESTATE TOKENS TO REPRESENT PHYSICAL ASSETSMET, WITHOUT THE NEED FOR
ANY INVOLVEMENT OR INTERMEDIARY.
 SUPPLY CHAIN

• IMPROVING LOGISTICS AND SUPPLY CHAIN THROUGH BLOCKCHAIN - WHEN GOODS ARE TRANSFERRED
TO A NEW STEP IN THE SUPPLY CHAIN, THE PROCESS CAN BE LOGGED SECURELY AND PERMANENTLY,
CREATING AN IMMUTABLE, AUDITABLE HISTORY FROM ITS POINT OF ORIGIN TO THAT OF SALE.
• BLOCKCHAIN’S OPEN YET HIGHLY SECURE NATURE MAKES IT A NATURAL FIT FOR IMPROVING
HEALTHCARE. PATIENT INFORMATION, FOR EXAMPLE, CAN BE STORED IN AN INCORRUPTIBLE,
DECENTRALIZED, AND TRANSPARENT DATABASE, MAKING IT SAFE BUT ACCESSIBLE TO PATIENTS AND
HEALTHCARE PRACTITIONERS ALIKE.
THANK YOU AND Q&A TIME