blockchain for business yale school of management dr john maheswaran

Blockchain for BusinessJohn Maheswaran, PhD (Yale ‘15)

Presented at: Yale School of Management

October 4th 2017

Overview

• Introduction to blockchain

• Blockchains for business

• Emerging technologies in blockchain

• Q&A

What is a “blockchain”

Decentralized systemElectronic payments

Cryptocurrencies / crypto-assets Investments

Initial coin offerings / ICOs

What is a “blockchain”

Traditional centralized databasesData may be different across data stores

Blockchain = distributed secure data baseEach node sees the same set of committed data(e.g. the transactions in Bitcoin)

The Bitcoin “database”

• Each node is a computer on the network

• Each node stores:• The entire history of transactions

(how every Bitcoin was ever spent)

• The current Bitcoin balances (who can spend each Bitcoin next)

High level transaction flow

A: 1 BTCB: 0 BTC

A: 1 BTCB: 0 BTC

A: 1 BTCB: 0 BTC

A: 1 BTCB: 0 BTC

A: 1 BTCB: 0 BTC

Alice wants to sent 1 BTC to Bob

High level transaction flow

A: 1 BTCB: 0 BTC

A: 1 BTCB: 0 BTC

A: 1 BTCB: 0 BTC

A: 1 BTCB: 0 BTC

A: 1 BTCB: 0 BTC

Alice submits transaction to network

Send Bob 1 BTC

High level transaction flow

A: 1 BTCB: 0 BTC

A: 1 BTCB: 0 BTC

A: 1 BTCB: 0 BTC

A: 1 BTCB: 0 BTC

A: 1 BTCB: 0 BTC

Send Bob 1 BTC

Node verifies Alice has sufficient funds

High level transaction flow

A: 1 BTCB: 0 BTC

A: 1 BTCB: 0 BTC

A: 1 BTCB: 0 BTC

A: 1 BTCB: 0 BTC

A: 1 BTCB: 0 BTC

Send Bob 1 BTC

Send Bob 1 BTC

Send Bob 1 BTC

Send Bob 1 BTC

Transaction propagated using peer to peer “gossip” protocol

High level transaction flow

A: 1 BTCB: 0 BTC

A: 1 BTCB: 0 BTC

A: 1 BTCB: 0 BTC

A: 1 BTCB: 0 BTC

A: 1 BTCB: 0 BTC

Send Bob 1 BTC

Send Bob 1 BTC

Send Bob 1 BTC

Send Bob 1 BTC

Transaction propagated using peer to peer “gossip” protocol

Send Bob 1 BTC

High level transaction flow

A: 1 BTCB: 0 BTC

A: 1 BTCB: 0 BTC

A: 1 BTCB: 0 BTC

A: 1 BTCB: 0 BTC

A: 1 BTCB: 0 BTC

Send Bob 1 BTC

Send Bob 1 BTC

Send Bob 1 BTC

Send Bob 1 BTC

Miners work on solving a mathematically hard problem to commit proposed transaction (create a new block)

Send Bob 1 BTC

High level transaction flow

A: 1 BTCB: 0 BTC

A: 1 BTCB: 0 BTC

A: 1 BTCB: 0 BTC

A: 0 BTCB: 1 BTC

A: 1 BTCB: 0 BTC

When a miner solves the problem, new Bitcoin is mined. Alice’s transaction is committed in a block.

High level transaction flow

A: 1 BTCB: 0 BTC

A: 1 BTCB: 0 BTC

A: 1 BTCB: 0 BTC

A: 0 BTCB: 1 BTC

A: 1 BTCB: 0 BTC

Current state of the ledger (the new “block”) is propagated across network

High level transaction flow

A: 1 BTCB: 0 BTC

A: 0 BTCB: 1 BTC

Current state of the ledger (the new “block”) is propagated across network

A: 0 BTCB: 1 BTC

A: 0 BTCB: 1 BTC

A: 0 BTCB: 1 BTC

High level transaction flowA: 0 BTCB: 1 BTC

Current state of the ledger (the new “block”) is propagated across network

A: 0 BTCB: 1 BTC

A: 0 BTCB: 1 BTC

A: 0 BTCB: 1 BTC

A: 0 BTCB: 1 BTC

High level transaction flowA: 0 BTCB: 1 BTC

The transaction is now complete.

Alice has sent 1 BTC to Bob

A: 0 BTCB: 1 BTC

A: 0 BTCB: 1 BTC

A: 0 BTCB: 1 BTC

A: 0 BTCB: 1 BTC

Alice observes she has successfully sent her 1 BTC to Bob

Bob observes he has received 1 BTC from Alice

Digital Signatures

Alice’s private key

SIGN

Alice’s public key

VERIFY

Alice signs a message Bob verifies Alice’s signature

Blockchain definition

• Electronic record of transactions or other data that is:• Uniformly ordered

• Redundantly maintained by multiple computers to guarantee the consistency or nonrepudiation of the data

• Validated using cryptography

Hash function

• Takes input data of any form

• Outputs a fingerprint (hash) of the data• Fixed length

• Deterministic

• Uniformly distributed (all hash outputs are equally likely)

Hash function

What is “mining” (proof of work)?

Proposed transactions,Unsolved mathematical problem

Bitcoin miners attempt to solve math problem Block 6

Block 5

Block 4

Transactions committed to the blockchain

Miner solves problem. Rewarded with Bitcoin

What is “mining”?

More miners join network

Block creation rate increases

Mining difficulty increases

Average mining time goes back

up

Block creation rate goes down

Average mining time decreases

Blockchain explained using Bitcoin

Spender submits signed transaction with recipient’s address

Pending transactions are propagated using peer to peer gossip protocol

Transactions are grouped into blocks of transactions

Miners race to solve cryptographic hash problem

Once hash problem is solved, a new block is created. Miner is rewarded

Chained hashes guarantee non repudiation

Business benefits

AuditabilityUniversal source

truthTransparency Security

Cost savings Disintermediation Tamper resistanceReduced error

rates

Business applications of blockchain

Fintech Supply Chain Healthcare (EMRs) Identity management Real estate

Enterprise blockchains

Public blockchains (permissionless) Private blockchains (permissioned)

Market players

Market challenges

Business Challenges

• Complex technology• Talent acquisition

• Design/architecture resources

• Lack of regulation• SEC

• Adoption• Governments

Technical Challenges

• Throughput• High performance is a challenge

• Privacy• Access control

• Privacy

Smart Contracts

• – logic written in code– stored and replicated on the blockchain– executed by blockchain nodes– can update ledger

Blockchains without smart contracts

Blockchains with smart contracts

Functionality Distributed storage Distributed storage and computation

Example Bitcoin Ethereum

Cash to crypto

Digital exchanges

Cryptocurrency blockchain networks

Digital wallets

Traditional banks

Bitcoin

Ethereum

ICOs (initial coin offerings): crypto to tokens

Digital walletsSend Ether (ETH)

Crowdsale ETH address

(Smart contract)

ICO token

Ethereum network

Crypto-Book – my PhD research

• Distributed public key infrastructure

• Applications• Send crypto payments to anyone online

• Privacy preserving chat rooms

• Accountable Wikis

• Encrypted social media messaging

Crypto-Book – my PhD researchKey servers

Crypto-Book – my PhD researchKey servers

2. Look up Bob’s profile

1. Alice request’s Bob’s public key

4. Bob’s public key

3. Generate Bob’s public key

5. Submit transaction to Bob

Crypto-Book – my PhD researchKey servers

7. Verify Bob’s ID

6. Bob authenticates with FB, requests key fragments

8. Generate Bob’s key fragments

9. Key fragments

10. Bob reconstructs his private key

11. Bob receives Bitcoins that were sent to him

Crypto-Book – my PhD researchKey servers

Questions?

• john.maheswaran@aya.yale.edu

• www.linkedin.com/in/johnm6

• Slides: tinyurl.com/blockchainforbusiness