Thenutsandboltsofblockchaintechnology

RohasNagpalPrimechainTechnologiesPvt.Ltd.

rohas@primechain.in

Abstract:Blockchain technologyhas earned the respectofGovernments andbanks around the world. This document provides a simple introduction toblockchaintechnologyandbrieflyintroducestermssuchascryptography,hashfunctions, proof-of-work, digital signatures, mining, merkle root. Thisdocument is intended for the novice reader and may suffer from errorsinherentwhenacomplextopicis(over?)simplified.

Dependinguponthehemisphereyoulivein,youprobablythinkthatblockchainiseithertheRajnikantorChuckNorrisofalltechnologies.Thankstothemassivemediacoverageand billions of dollars of investments, blockchain is aword that almost everyone hasheard.Buta lotofpeopledon’tunderstandthemathematicsbehindthisrevolutionarytechnology.Well,readon.1.Whatisablockchain?

Imagineaworldwithoutcomputerdatabases.Therewouldbenoecommerce,noATMs,no Internet banking, no Aadhaar or similar social security scheme, no Facebook, noGmail,noWhatsApp!Almost everything that makes the Internet so powerful and useful depends uponcomputerdatabases.Thedigitalworldreliesveryheavilyoncomputerdatabases,eventhoughmostusersareunawareofit.Now imagine a database that is provably immutable / unchangeable and almostimpossible to hack. That's a blockchain. At its core, a blockchain is an ordered andtimestampsequenceof"blocksofinformation".Blockchain technology, also called distributed ledger technology, derives its strengthfromstrongcryptographyandhashfunctions.Blockchain technology was invented by the unknown inventor of the bitcoin crypto-currencyin2008.Simplyput,thebitcoincrypto-currencyrunsonthebitcoinblockchain(simply referred to as The Blockchain). The Blockchain is a public blockchain whereanyonecanbecomeamineranddetailsofeverysinglebitcointransactionarestoredoneachnode.Then thereareotherblockchainplatformssuchas -bitshares,ethereum,hyperledger,multichain,rippleandstellar.Hyperledgerandmultichaincanbeusedtopublic,private(e.g.theGovernmentrunninga land registry) and consortium blockchains (e.g. a group of banks running a sharedKnow-Your-CustomerorKYCplatform).

2.Themathematicsofitall

Sanya’sanaughtyyounggirlwho’sbeengroundedforaweek.Shewantstosneakoutfor desert with her friends but obviously can’t let her dad know about it. She’s notallowedtousehercellphone,sotheonlywayforhertocallherfriendsisusingthegoodoldlandlineinherdad’sroom.Sincesheregularlygetsgrounded,sheandherfriendshaveworkedoutasimplesystemforsharingsecrets.Whenshesays,“haveyoureadthebookItoldyouabout”sheactuallymeans“let’ssneakouttonight”.Whenshesayssomethingabout“page10”of thebook,shemeans“pickmeupat10pm”.Continuingthelogic,page11wouldmean11pmandsoon.Soonthephonesheasksherfriend“HaveyoureadthebookItoldyouabout?Page12isreallyfunny”,shemeans,“Let’ssneakouttonight,pickmeupatmidnight”.Whatwehavejustseeniscryptography(andarebelliousteenager)inactionintherealworld.Thesentence“Let’ssneakouttonight,pickmeupatmidnight”isplaintext–whatSanyaactuallywantstoconvey.Thesentence“HaveyoureadthebookItoldyouabout?Page12isreallyfunny"istheciphertext–somethingthatanadversary(herdadinthiscase)shouldnotbeabletounderstand.Encryption istheprocessofconvertingplaintexttociphertext.Thereverseprocessisdecryption.This scienceof encrypting anddecryptingmessages (cryptography)hasbeenused forthousandsofyears.ItisbelievedthatwhenJuliusCaesarsentmessagestohisgenerals,hereplacedeveryAinhismessageswithaD,everyBwithanE,andsoonthroughthealphabet.Onlysomeonewhoknewthe“shiftby3”rulecoulddecipherhismessages.Forexample,ifwewanttoencodetheword“SECRET”usingCaesar’skeyvalueof3,weoffsetthealphabetsothatthe3rdletterdown,(D),beginsthealphabet.SostartingwithABCDEFGHIJKLMNOPQRSTUVWXYZ

andslidingeverythingupby3,youget

DEFGHIJKLMNOPQRSTUVWXYZABC

whereD=A,E=B,F=C,andsoon.Using this scheme, theplaintext, “SECRET”encrypts as “VHFUHW”.Toallowsomeoneelsetoreadtheciphertext,youtellhimorherthatthekey is3.Thismethodiscalledsymmetric cryptography and involves using the same key for encrypting as well asdecrypting amessage. This naturally poses a serious problem –what if an adversarygetsholdof thiskey?Atsomepointof timethesenderandreceiverneedtoexchangethekey.That’swhenanadversarycouldgetholdof thekey. Inmoderncryptography,keysareextremelylargenumbers.The secure-key-exchange problem was solved with the birth of asymmetric keycryptography – in which two different but related keys are used - the public key toencryptdataandthecorrespondingprivatekeytodecryptthedata.

IfSanyaweretosendanencryptedmessagetoKaran,shewouldencryptthemessageusinghispublickey(whichisavailabletotheworld).Onceencrypted,themessagecanonlybedecryptedusingKaran’sprivatekey(whichwouldonlybeavailabletoKaran).Beforewegetintothenutsandboltsofhowblockchainswork,weneedtounderstandsomemoreconceptsincludinghash functions.Aone-wayhashfunctiontakesaninput(e.g.aPDF file,avideo,anemail,a stringetc.)andproducesa fixed-lengthoutpute.g.160-bits.Thehashfunctionensuresthatiftheinformationischangedinanyway–evenbyjustonebit – an entirelydifferent output value is produced.The table below shows somesampleoutputvaluesusingthesha1(40)hashfunction.Input Hashsanya c75491c89395de9fa4ed29affda0e4d29cbad290SANYA 33fef490220a0e6dee2f16c5a8f78ce491741adcSanya 4c391643f247937bee14c0bcca9ffb985fc0d0baItcanbeseenfromthetableabovethatbychangingtheinputfromsanyatoSANYA,anentirelydifferenthashvalueisgenerated.Whatmustbekeptinmindisthatirrespectiveofthesizeoftheinput,thehashoutputwillalwaysbeofthesamesize.Twothingsmustbeborneinmindwithregardtoone-wayhashfunctions:

1. It is computationally infeasible to find two different input messages that willyieldthesamehashoutput.

2. Itiscomputationallyinfeasibletoreconstructtheoriginalmessagefromitshashoutput.

Havingunderstoodhashfunctions,let’shavealookatanotherinterestingconceptcalledproof-of-work.Thisisawaytoreducespamanddenialofserviceattacksbyrequiringacomputertospendsometimeandprocessingpowertosolvesomething.One such proof-of-work system that is used in blockchains is hashcash. The basicpremise of hashcash is that if the sender of an email can prove that she has spentreasonabletimeandcomputationalpowertosolvesomepuzzle,itcanbebelievedthatthe sender is not a spammer. The logic is that spamming would be economicallyinfeasible if a spammer had to spend non-trivial time and computational power foreverysingleemailbeingsent.Let’s develop an elementary proof-of-work system, based on hashcash, which can beusedtocontrolspam.Let’spresumethatrohasnagpal@gmail.comissendinganemailtoinfo@primechain.in.Thesendermust includesomethingsimilar tothe following intheheaderoftheemail:

rohasnagpal@gmail.com:info@primechain.in:06112016:xxxxThat’s4piecesofinformationseparatedbycolons.Thefirstpieceisthesender’semailaddress, thesecond is thereceiver’semailaddressandthethird is thecurrentdate inDDMMYYYYformat(6thNovember,2016inthisexample).Thefourthpieceissomethingthatneedstobecalculatedbythesender’scomputer.Let’scallitanonce.Theobjectiveistofindaninputthatwouldresultinasha256hashwhichbeginswith4zeros.

Sowestart thenonceatavalueof0andthenkeep incrementing it (0,1,2,3…)andcalculatingthehash.Somethinglikethis:Input rohasnagpal@gmail.com:info@primechain.in:06112016:0sha256hash 2d87bf06373f4e91b43ab6180e30da0bf3f98efb44c5d5e2f7151b3179413bf6Input rohasnagpal@gmail.com:info@primechain.in:06112016:1sha256hash cb3616e4ab0cee86badf0a598d1a151e06289c2c7e35f91554dc1ad7d128a99dInput rohasnagpal@gmail.com:info@primechain.in:06112016:2sha256hash 8d04a9e7ccd2c84549744c7fdbd48e3784ea3ab10020499a89349875726e3536Andsoontill..76063Input rohasnagpal@gmail.com:info@primechain.in:06112016:76063sha256hash 0000b3c73f0cd6a92158b713fbade5f898dffeefc0a615d050b1ea391bd39906Calculating thismaynot takeagenuinesendera lotof timeandcomputationalpowerbut if a spammerwere tomake these calculations formillionsof emails, itwill takeanon-trivialamountoftimeandcomputationalpower.Atthereceiver’send,thecomputerwillsimplytakethefollowinglinefromtheheaderoftheemailandcalculatethehash.

rohasnagpal@gmail.com:info@primechain.in:06112016:76063If the hash beginswith a pre-defined number of zeros (4 in this example), the emailwouldnotbeconsideredspam.Thiswilltakethereceiveratrivialamountoftimeandcomputationalpowersinceitjusthastocalculatethehashofoneinput.Thedatecanbeused as an additional validationparameter – e.g. if the date iswithin 24hours of thetimeofreceipt,theemailwillbeapprovedfordownload.Averyimportantapplicationofpublickeycryptographyisadigital signature.Inthis,thesignerfirstcalculatesthehashofthemessageshewantstodigitallysign.Thenusingher private key and the hash, she creates a digital signature, using the relevantalgorithm.Thisdigitalsignatureisuniquetothemessage.Thesignerthensendsthemessageandthedigitalsignaturetothereceiver.Thereceiverre-computes the hash from the message. The receiver also computes another stringusingthedigitalsignatureandthesigner’spublickey(usingtherelevantalgorithm).Ifthisstringandthehashmatch,thedigitalsignatureisverified.A blockchain is a public ledger containing an ordered and time-stamped record oftransactions. In addition to preventing double-spending, the blockchain prevents themodificationofprevioustransactionrecords.Ablockofoneormorenewtransactionsiscollectedintothetransactiondatapartofablock. Copies of each transaction are hashed, and the hashes are thenpaired, hashed,pairedagain,andhashedagainuntilasinglehashremains-themerklerootofamerkletree.Thisisillustratedbelow:

Illustration1:Merkletree

4f68594945ccded4d77a01992db7f4c5 is the merkle root of the 4 transactions (orpiecesofdata)intheillustrationabove.Thisisstoredintheblockheader.Additionally,eachblockalsostoresthehashoftheheaderofthepreviousblock.This chains the blocks together and ensures that a transaction cannot be modifiedwithoutmodifying the block that records it and all following blocks. Transactions arealsochainedtogether.Thisisillustratedbelow:

Illustration2:Ablockchain

Blockchains use a proof-of-work technique similar (but more complex) than the onediscussed earlier in this article. Since good cryptographic hash algorithms convert

arbitraryinputsinto“seemingly-random”hashes,itisnotfeasibletomodifytheinputtomakethehashpredictable.Toprovethatshedidsomeextraworktocreateablock,aminermustcreateahashoftheblockheader,whichdoesnotexceedacertainvalue.Thetermminermustnotbecomparedwithagoldorcoalminerintherealworld.Whileagoldminerdigsintotheearthtodiscovergold,ablockchainminerusescomputationalpower to calculate hashes. To add an entire block to the block chain, aminer mustsuccessfullyhashablockheadertoavaluebelowthetargetthreshold.Thefirst-everblockisknownasthegenesisblock.Eachsubsequentblockisaddressedby itsblockheight,whichrepresents thenumberofblocksbetween itandthegenesisblock.New blocks are added to the block chain if their hash is at least as challenging as adifficultyvalueexpectedbytheconsensusprotocole.g.accordingtothebitcoinprotocol,itshouldtake2weeksfor2016blockstobegenerated.Ifthetimetakenismoreorlessthan 2 weeks then the difficulty value is relatively decreased or increased every 2weeks.3.Inconclusion

Ibelievethatby2020,blockchaintechnologywillenablemassivesocialupliftmentandeconomicprosperity,thelikesofwhichtheworldhasneverseenbefore.Blockchainswillminimisefraudandmaximiseefficiency,security&transparencyinsupplychains,healthcare,globalmoneysystems,financialtechnologies,democraticelections,auctionofpublicassets,energytrading,electronicrecordauthentication,deliveryofGovernmentservices,IoT(InternetofThings)andmore.According to theReserveBank of India - "With its potential to fight counterfeiting, the'blockchain'islikelytobringaboutamajortransformationinthefunctioningoffinancialmarkets,collateralidentification(landrecordsforinstance)andpaymentssystem.According to theUKGovernment,distributed ledger technologieshavethepotentialtohelpgovernmentstocollect taxes,deliverbenefits, issuepassports,record landregistries,assurethesupplychainofgoodsandgenerallyensuretheintegrityofgovernmentrecordsand services…. In summary, distributed ledger technology provides the framework forgovernmenttoreducefraud,corruption,errorandthecostofpaper-intensiveprocesses.Ithasthepotentialtoredefinetherelationshipbetweengovernmentandthecitizenintermsofdatasharing,transparencyandtrust.Ithassimilarpossibilitiesfortheprivatesector.AccordingtotheReserveBankofAustraliagovernorGlennStevens,theblockchaintechnologycouldbringsignificantbenefitstotheglobalbankingsystem.Inarecentannouncement,theCrownPrinceofDubaiannouncedastrategicplanthatwouldseeallDubaigovernmentdocumentssecuredonablockchainby2020.