BLOCKCHAIN TECHNOLOGY
By: Engineer Paul Bogdan Ionescu
Translated by: Guillermo A. Arango J.
ARTDOT–TECH™©
ACADEMY
Medellin, Antioquia
21 November, 2022
INTRODUCTION
BLOCKCHAIN HISTORY
1991
•
The first work of a BLOCK CHAIN using CRYPTOGRAPHY.
•
P2P (Peer-to-Peer) technology is developed,
•
The door is opened for the evolution of Blockchain
technology.
2008
•
Officially launched within the BITCOIN Project.
•
Combination of the P2P (peer to peer) System and
advanced cryptographic techniques.
•
Evolved by a team under the pseudonym SATOSHI NAKAMOTO.
2015
•
The first version of the ETHEREUM PLATFORM (technology
derived from the initial blockchain).
2022
•
Currently there is a great diversity of
"BLOCKCHAIN" both public and private or hybrid. Among the best known
are BITCOIN, ETHEREUM, DASH, MONERO, ZCASH.
BLOCKCHAIN
PRINCIPLES
SAFETY
•
Public Key Infrastructure (PKI) – asymmetric
cryptography mechanism.
•
The blockchain network is the largest PKI deployment
in the world.
•
Guarantees the confidentiality and authenticity of all
activities.
•
Resolves known issues such as identity theft, fraud,
hacking etc.
•
Bitcoin – asymmetric cryptography mechanism (2 keys
per user to encrypt and decrypt: public and private).
PRIVACY
•
Blockchain technology does not store private data
about users such as names, address, emails.
•
Respects the Right to Privacy.
ALL RIGHTS
RESERVED
•
The use of SmartContract (smart contracts) ensures to
preserve our rights.
•
Applies to all sectors within the Company.
INCLUSION
•
Free technology (Opensource) available to everyone.
•
Anyone can participate in ecosystems based on
blockchain technology.
•
System designed to work even with the least
sophisticated equipment, including Mobile phones.
•
Favors Distributed Capitalism.
VALUE AS
INCENTIVE
•
Participants are rewarded for their support according
to the rules of each ecosystem.
•
The cost of a transfer is distributed among the miners
who worked in the confirmation of it.
DISTRIBUTED
POWER
•
Each NODE within the blockchain network has the same
functions and rights.
•
Data is replicated in copies.
•
There is no one center to control everything.
•
Miners have the same opportunities depending on
processing power.
INTEGRITY
•
The use of a consensus mechanism ensures the
transparency of activities within the blockchain network.
•
The problem of double spend is resolved.
•
Avoid the use of third parties.
TYPES OF
BLOCKCHAINS
PUBLIC
•
Anyone can join and participate in a public
blockchain.
•
Little privacy for transactions.
•
Weak security.
PRIVATE
•
Access restricted / controlled by a single
organization.
•
Increases trust between participants.
•
Increased security and privacy.
Currently
there are other types of blockchain:
- Mixed (combination between public and private blockchain)
•
Each block has a fixed size depending on the
configuration of each cryptocurrency (2Mb BITCOIN, BITCOIN CASH.
•
Through each block created, new COINS are introduced
into the BLOCKCHAIN network as a reward for the miner who first solved the
block.
•
Within each block are a certain number of
transactions. (In the BITCOIN network there is an average of 2100 transactions).
•
A block is formed by
•
Header (header)
•
Version
•
Previous Block Hash
•
Merkle Root (hash of all transactions of the same
block).
•
Timestamp (time stamp) + Nonce (additional random
number added by the miner).
•
Transactions
•
Coinbase Tx (it is the first transaction in a block
and contains the reward for the miner who solved the block + fees corresponding
to each of the transactions between Wallets).
•
Wallet Tx – All cryptocurrency transactions from
Wallet A to Wallet B
NODES
•
Computer connected with others forming a network of
participants who share information.
•
Full Node – Maintains an exact, complete and updated
copy of all blocks in the blockchain network.
•
Mining Node – Full Node + mining software.
•
Each blockchain network determines the rules of
creating/adding a Node to the Blockchain network.
Consensus Rules
•
They are the basis of
Blockchain technology.
•
They help verify that the
information added to the blockchain network is valid.
•
They determine the size of
each block (The size of a block in Bitcoin initially was 1Mb, currently expanded
to 2MB).
•
They constantly update the
DIFFICULTY of the mining algorithm depending on the computational power in
order to keep THE CREATION of the blocks constant (in Bitcoin the time of each
block is 10 minutes).
•
Avoid Double Spend (do not
send/pay the same amount of cryptocurrency 2 or more times – validation BY THE NODES)
•
Changes in the consensus
rules and/or updates can cause divisions in the blockchain network, which can
cause a Hard Fork. (in the case of BITCOIN,
the BETTER-KNOWN case is Bitcoin Cash on August 1, 2017)
BLOCKCHAIN GLOSSARY
HASHRATE
•
The amount of encryption
operations that a miner/node can execute per second. It is the most important
element in THE BLOCKCHAIN world. (In the Bitcoin network the total current
hashrate is around 250 Ehash/s).
SHA-256
•
It is an encryption algorithm
that is used within the BLOCHCHAIN technology. The result is a string of text
with a maximum length of 256 characters.
“My first
class on BLOCKCHAIN technology”
In SHA-256
Encryption code
“6E965F530E20F384B3AC8AC7BC9BD065ADBB52672EF88235A731F9428922BA84”
PUBLIC KEY
•
Key that is shared with other users in the blockchain
network in order to receive a message from another user
1A1zP1eP5QGefi2DMPTfTL5SLmv7DivfNa
PRIVATE KEY
BLOCKCHAIN INTEGRATION
CONSENSUS ALGORITHMS
Ø
PoW (Proof of Work)
Ø
PoS (Proof of Stake)
Ø
DPoS (Delegated Proof of Stake)
Ø
LPoS (Leasing Proof of Stake)
Ø
PoET (Proof of Elapsed Time)
Ø
HPoS (Hybrid Proof of Stake)
Ø
PoC (Proof of Capacity)
Ø
PoA (Proof of authority)
PoW (Proof
of Work)
•
First consensus algorithm developed on Blockchain
Technology, introduced with the first Bitcoin cryptocurrency.
•
The network proposes an objective to be calculated
based on the difficulty determined by the total number of connected nodes and
the total computing power (HashRate).
•
The first Node that performs the calculation and meets
the conditions of the consensus rules wins the right to create the next block
and a reward is earned.
•
If more than one Node solves the calculation, the
winner is decided by consensus by the rest of the Nodes. The block of the
losing Node becomes orphaned and all information contained is lost.
• This algorithm needs to have a larger number of permanently connected nodes to avoid malicious attacks (51%, DDoS, Sybill etc.).
•
The POW algorithm creates branches that are naturally
removed the moment consensus participants accept a single blockchain.
PROS
§ Very secure algorithm (advanced hash encryption SHA-256, SHA-2, SHA-3).
§ The software is free, easy to install and use.
§ It can be used in computers with different hardware characteristics (CPU, GPU, ASIC etc.).
§ Very resistant to malicious attacks.
CONS
§ It
needs enormous energy and computational resources (only the cryptocurrency uses
more than 120 TWh – Terawatts/hour – of electricity per year. Colombia consumes
around 72 GWh – Gigawatts/hour – of electricity per year.
§ Computational
power is exclusive, the computer/node cannot be used to develop, execute other
tasks.
§ The
constant increase in difficulty is useless on computers with less computing
power.
§ Accelerates
centralization in the medium or long term, limiting the number of Nodes with
REAL capacity to earn the reward with each new block.
PoS (Proof
of STAKE)
§ First
developed in 2011. Peercoin was the first cryptocurrency to use this consensus
mechanism in 2012.
§ The
most important factors that determine the right to create a new block are the
residence time and the commitment of each Node to the blockchain network.
§ The
allocation to create a new block is random among the eligible nodes with the
highest participation in the network.
§ Other
criteria can be defined to determine the most committed participants. One of
the criteria could be the amount of reserved currency that each Node owns.
PROS
§ Improved
performance of the blockchain network.
§ Greater
control of the time in creating a new block.
§ Significantly
reduces energy consumption and the need to increase computing power.
§ It
ensures an active participation within the blockchain network of a large number
of Nodes.
§ Reduces
the risk of attacks or malicious actions by participants.
CONS
§ Vulnerable
to 51% attacks. More participations equal more decision-making power within the
blockchain network.
§ Slow
to process transactions. The greater the number of participants with a similar
level of commitment, the greater the time to choose the Node that will have to
create the new block.
§ Extremely
vulnerable to 51% attacks.
§ Lack
of scalability. The growth of the total
number of Nodes can be affected by the participation criteria in the blockchain
network.
§ In
some cases, an identification process is required in order to participate. Anonymity as the basis of the blockchain
philosophy disappears.
DPoS
(DELEGATED Proof of STAKE)
§ Variation
of the PoS method with certain differences.
§ It
appears for the first time in 2014 promoted by Daniel Larimer.
§ The
participants in the blockchain network vote for the Delegate Nodes to represent
them in decision making (between 21-101).
§ The
Delegated Nodes elect a Lead Node that is responsible for making decisions and
creating new blocks.
§ Delegate
Nodes usually take turns creating a new block and earning the reward.
§ The roles of the Delegated Nodes include the validation of the transactions that will be added to the new block. They receive the reward for the validation work.
§ Currently
used by cryptocurrencies such as EOS, Cardano, Tezos, Tron among others.
PROS
§ Higher
Security than PoS network.
§ High
scalability. High computing power equipment is not needed.
§ Improves
energy efficiency compared to previous PoW and PoS mechanisms.
§ Low
risk of attacks type 51% or Double Spend attack (Node that tries to modify
transactions within a block).
CONS
§ High
risk of centralization due to the limited number of Delegate Nodes in the
blockchain network.
§ The
basic principle of INCLUSION and DISTRIBUTED POWER decreases or disappears.
PoET (PROOF
OF Elapsed Time)
§ Developed
by Intel in 2016 for its private blockchain network.
§ Nodes
must identify themselves and be authorized to join the blockchain network.
§ Choose
randomly through an algorithm the Node that will create the new block.
§ All
Nodes have the same probability.
§ The
algorithm determines a random Wait Time for each of the nodes in the
network. The Node remains inactive for
the assigned period.
§ The
first Node to activate will be in charge of creating the new Block.
§ Currently
its use is focused at the business level in Logistics and Distribution Chains
where large amounts of information are handled.
PROS
§ Considered
the highest security mechanism. Each Node must be registered and authenticated.
§ High
Performance of the blockchain network.
§ Low
energy consumption and computational power.
§ Low
risk almost zero towards type attacks 51%.
CONS
§ There
is no anonymity within the blockchain network.
§ Vulnerable
towards Sybill attacks. More malicious Nodes, greater probability that one of
them will have to create the new block.
§ Focused
on private, corporate blockchain networks. Little applicability for public
blockchain networks like Bitcoin.
THE BITCOIN TRANSACTION LIFE CYCLE
BLOCKCHAIN
GLOSSARY
51%
•
It is an attack that occurs when a person or group
controls a minimum of 51% of the computing power of the blockchain network.
•
It will have the highest computational capacity of all
the other miners, altering the functionality of the network.
•
It is mentioned in the Bitcoin whitepaper itself.
•
In 2014 the cloud mining company Ghash.IO was very
close to reaching 50% of the total mining power on the Bitcoin network.
DDoS
•
Distributed denial of service attack.
•
The objective of the attack is to reach the capacity
limit of the blockchain network.
Sybil
•
A single person or small group tries to gain control
of the blockchain network by creating multiple Accounts/Nodes, altering the
data of each Node to appear independent and not arouse suspicion.
BLOCKCHAIN
FUNDAMENTALS
GOVERNANCE
of technology blockchain
What is
Governance?
•
Set of Rules and Principles that form a structure
accepted by all the participants using a system.
Types of
Governance:
• STANDARD
•
Direct – everything the participants take part in
decisions.
•
Representative – the participants select a group of
representatives.
• BLOCKCHAIN
Is
governance necessary in a BLOCKCHAIN ecosystem?
Blockchain
is a technology new in continuous development. It is important that it works
efficiently while keeping up its Development.
Participants
in governance:
•
Developers – Maintain and update the main code of the
blockchain.
•
Node Operators – Responsible for records of the operations
on the net.
•
Token Holders – People/ organizations who own tokens
and get the right to vote in the ecosystem. Mainly influence in the prices!
•
Blockchain team – non-profit organizations that have
different roles in the administration of a blockchain network focused toward
Marketing (get funds, mediators between Node Developers and Operators, etc.)
Elements
of Blockchain Governance:
•
CONSENSUS – Consensus
algorithms.
• INCENTIVES
– Rewards that allow the participants stay and run the
blockchain.
• INFORMATION
– Important that every one of the participants of a
decentralized network have access to all information.
• GOVERNANCE
STRUCTURE – More flexible than a traditional structure acting from
above towards down. Must be fluid to adjust to dynamics changing of a
blockchain network.
Smart Contract
§
Agreement between 2 or more parts that defines what
can be done, when and how it can be done or what happens if something is not
done.
§
AUTONOMOUS – No intermediaries neither mediators.
§
AUTOMATIC – It is able to run by itself according to
the established criteria.
§
TRANSPARENT – Is a code visible to all but you can't
modify it as it exists in the Blockchain technology.
§
ANONYMOUS – Both parties can be anonymous.
§
SECURE – The blockchain network offers security.
§
SAVINGS – Avoid the participation of intermediaries.
§ SUSTAINABILITY
– Reduces travel expenses (less contamination) and materials as paper, etc.
IMPACT OF
BLOCKCHAIN TECHNOLOGY IN COLOMBIA
§ Investments in Blockchain in the last 10 years:
o
DAVIVIENDA – $35 Million USD
o
BANCOLOMBIA – $100 Million USD
o
SCOTIABANK – $220 Million USD
o
GUARANTEE GROUP – $100 Million USD
o
BBVA – $30 Million USD
o
It is estimated that the Blockchain growth in Colombia
will reach more than $10.000 million USD by 2024.
• ADVANTAGES
•
Transparency – Perhaps the most important.
•
transactions – At low cost.
•
Security – High against frauds – very hard to hack.
•
Automation – Can be program from payments until events
automatically under criteria preset.
•
Traceability – Facilitates the data tracking since these
data cannot be altered.
•
Less intermediaries.
• DISADVANTAGES
•
Tool insufficient – There is concern that the
blockchain is insufficient and that it could collapse.
•
The danger of attack 51% – If the community forms an
alliance that is greater than 51% could modify the blockchain network by
putting in endanger the safety and integrity of the data.
•
Decentralization – Is an advantage for the blockchain
network but can turn into an important disadvantage implementing it in an
economic and social level. Difficult to reach a consensus among all the
participants.
• USE
CASES
•
Buenaventura Container Terminal – Implement the
TradeLens Platform that worldwide processes 10 million events per week on
global container traffic.
•
Superintendence of Notaries and Registry – Work on a
blockchain solution to add authenticity, reliability, integrity and usability
to notarial and registration documents.
•
Rural Agricultural Planning Unit – Seeks to use a
blockchain solution to facilitate the monitoring of product prices at each stage
and for all agents involved.
•
Attorney General of the Nation – Advances with the
National University of Colombia a blockchain alternative that allows
transparency in the awarding of contracts and minimizes cases of corruption in
School Feeding programs.
•
Las Americas Clinic Auna de Medellín – Blockchain
solution for monitoring, control and supply of medical devices.
BLOCKCHAIN
GLOSSARY
Hard Fork
•
“Hard fork” – Update important part of the blockchain
network protocol.
•
All the users are forced to install the new version of
the software to be able to continue using the blockchain network.
•
The participants must choose between using the new
version or the previous one.
•
Can trigger a new cryptocurrency.
Soft Fork
•
Updates to the Program Code that manages a blockchain
network to add minor changes or resolve bugs.
•
Participants are not required to update the software
with new updates. They will be able to continue operating within the blockchain
network with total normality but will not be able to benefit from the best
ones.
Paul Bogdan Ionescu – 2022
Artdot-Tech™© Academy