Lecture 2: Blockchain technologies
Distributed ledger Blockchain technology
● Blockchain technology can be viewed as a distributed ledger of information, which maintains a continuously growing list of records, called blocks, secured from tampering and changes.
● Each block contains a timestamp and a link to a previous block. This means that
blockchains are inherently resistant to modification of the data – once recorded, the data in a block cannot be altered retroactively
Ledger
● The principal book (or computer file) for recording and totalling financial transactions by account type, with debits and credits in separate columns and a beginning monetary balance and ending monetary balance for each account.
● The system of record for a business
● Records asset transfer between participants Centralised vs. distributed ledger
● Centralised ledger:
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● Distributed ledger:
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How does a distributed ledger work?
Terms
● A blockchain exists out of blocks of data. These blocks of data are stored on nodes (compare it to small servers).
● Nodes can be any kind of device (mostly computers, laptops or even bigger servers).
● All nodes on a blockchain are connected to each other and they constantly exchange the latest blockchain data with each other so all nodes stay up to date. They store, spread and preserve the blockchain data, so theoretically a blockchain exists on nodes. A full node is basically a device (like a computer) that contains a full copy of the transaction history of the blockchain.
How does a distributed ledger work?
● Encryption
● A distributed ledger is [usually] shared, but participants need transactions to be private
● At the same we need to make sure that transactions are authenticated Proof of Work
● Confirm transactions and produce new blocks to the chain
● A decentralised ledger gathers all the transactions into blocks
● Special nodes called miners confirm the transactions and arrange blocks
● How? By solving a complicated mathematical puzzle Hash Function
● A hash function is simply a function that takes any input value with any size, and from that input creates an output value of a specific size
● By comparing the outputs, you can make sure the inputs are the same without checking the input
Proof of Stake
● Proof-of-stake (POS) was created as an alternative to Proof-of-work (POW)
● While PoW mechanisms require miners to solve cryptographic puzzles, PoS mechanisms require validators to simply hold and stake tokens
● The next block writer (validator) on the blockchain is selected at random, with higher odds being assigned to nodes with larger stake positions. At least 128 validators are required before a new block can be added
Proof of Stake Vs Proof of Work
Proof of Stake Proof of Work
● Block creators are called validators
● Participants must buy coins or tokens to become a validator
● Energy efficiency
● Allows for more scalability
● Network control can be bought
● Validators receive transactions fees as rewards
● Block creators are called miners
● Participants must buy equipment and energy to become a miner
● Not energy efficient
● Does not allow for more scalability
● Robust security due to expensive upfront requirement
● Miners receive block rewards
Lecture 6: Blockchain applications: Government
Benefits of Blockchain systems for governments Key Characteristic of Blockchain Systems
● Trust:
○ In a Blockchain world, data and transactions will be governed by the consensus rules and the data will enter the system, significantly more accurate than
previously. If it is incorrect, it will be found to be incorrect quickly
● Transparency and Openness:
○ The shared nature of Blockchain technology allows connected parties to share their data safely and securely
● Immutability:
○ Once the data is entered onto the Blockchain, the data cannot be altered, deleted, or changed in any way
● Transaction automation:
○ A large part of the Blockchain technology infrastructure is the automation of certain transactions and tasks – often called smart contracts
Smart Contracts
● Computer programs stored in a Blockchain and perform a certain action when certain conditions are met
Blockchain for Governments Benefits
● Building Trust with Citizens
● Protecting Sensitive Data
● Reducing Costs & Improving Efficiency Identity Management
● The promise here is that once we have our ID secured on Blockchain, we can allow access to parts of our data for uses that we agree with and we want to be used for
● You can store all your data on a Blockchain and access that using a system named Digital ID (dID).
● This dID is immutable on Blockchain.
● You can provide access to part of your dID to an institution Non-fungible token
● A digital asset that represents a real-world object like
● Used since 2014, however, they are more popular these days
● An NFT allows the buyer to own the original item
● A built-in authentication, which serves as proof of ownership Smart Property
● Ownership, access, and control of things using the Blockchain network. It can be in the physical world: vehicle, tablet, real estate. It can be virtual: financial instrument,
trademark, copyright, patent
● Making your property smart, will enable you to trade, access and control the property in a near trustless way
● Transferring a car ownership:
○ When the manufacturer builds the car, the car is given a digital certificate signed by the manufacturer and an identification key containing the public part of the certificate
Blockchain Changes the Legal Landscape
● Code is Law! Computer code has progressively established itself as a predominant way to regulate behaviour to the same degree as legal code
● With the advent of Blockchain makes computer programming can have even a stronger role in people’s interaction
● Cryptocurrencies as a bond or legal tender
● Blockchain and privacy laws
● Autonomous law: smart contracts
