1. Blockchain – An Introduction
Sanket Panchamia
Deepak Kumar Byrappa
18th November 2016

2. Agenda What is Blockchain and why is it so much talked about?
Advantages of Blockchain.
Different types of Blockchain.
Where Blockchain can be used?
Practical Example – Bitcoin.
Blockchain usage in Trade Finance.
Hurdles in going mainstream.
Closing comments!
References.

3. What is Blockchain and why is everyone talking about it?
In simple terms, Blockchain is a secure transaction ledger shared by all parties in a distributed network.
Three important concepts in Blockchain are:
Distributed shared ledger.
Cryptography.
Consensus.

4. What is Blockchain and why is everyone talking about it? – Cont…
Distributed Shared Ledger
Group of replicated logs/DB (nodes).
Transactions are distributed in blocks.
All nodes hold all transactions.
Resilient for failure of one or more nodes.
Group of nodes operate as tamper proof.
Shared distrust between nodes.

5. What is Blockchain and why is everyone talking about it? – Cont…
Cryptography
Each block is an addition to an already long chain
With every addition, security of the chain increases
Private key must to enter a transaction
Decentralized miners who verify each transaction.
To hack the system, one needs to know all the hashes in the chain
Consensus

6. What is Blockchain and why is everyone talking about it? – Cont…

7. What is Blockchain and why is everyone talking about it? – Cont…
Consensus
Proof-of-Work by incrementing nonce
51% of the nodes must accept your transaction
Proof of stake
No concept of mining but validating.
Collateral to vouch for your block.
Smart Contracts
One consensus does not fit all
Faster settlement
Identity verification

8. Advantages of using Blockchain
Eliminate Intermediators & trustless exchange
Durability, reliability, and longevity
Transparency and immutability
Provenance
Faster and cost-effective transactions
Simpler eco-system

9. Blockchain Types
Permissioned
Permissionless
Private
Public
Consortium

10. Public Blockchain Fully decentralized
Anyone can read and send transactions to (write)
Anyone can participate in the consensus process (determining what blocks get added to the chain and what the current state is).
Influence in the consensus process is proportional to the quantity of economic resources that they can bring to bear (50 + 1% rule)
Example: Bitcoin, Ether
Concern: more than 51% of the BC miners are in China

11. Private Blockchain
Write permissions are kept centralized to one organization
Read permissions may be public or restricted
Examples:
Blockstack: Distributed DNS and Namespace
Multichain: Used for Financial – Could be used as a Consortium Blockchain too.
Multichain mining diversity: the process enables miners processing transactions to approve transactions in a random rotation. Greenspan explained a situation in which a Multichain user set a blockchain network with 10 mining entities, and set a "relatively high" mining difficulty by which the approval eight of these entities would be needed for a block to be recorded.

12. Consortium Blockchain
Participants are known and trusted
The right to read may be public, or restricted to the participants
Blocks are signed and added by a set of participants in a randomized round-robin fashion
No one can alter blocks since they would need to know the private key of all the parties that can create a block.
The consensus process is controlled by a pre-selected set of nodes
Example: R3 and Ripple focused on financial institutions
Consensus process example, one might imagine a consortium of 15 financial institutions, each of which operates a node and of which 10 must sign every block in order for the block to be valid.
Ripple has been increasingly adopted by banks and payment networks as settlement infrastructure technology.
As of 2016, Ripple is the third-largest cryptocurrency by market capitalization,[10][11] after bitcoin and ethereum.[12][13][14][15] Currently implemented by companies such asUniCredit, UBS or Santander, the Ripple protocol has been increasingly adopted by banks and payment networks as settlement infrastructure technology

13. Public vs. Consortium Public Consortium Access
Open read/write access to blocks
Permissioned read/write accesses to blocks
Speed
Slower
Faster
Security
Proof-of-work/
Proof-of-stake
Pre-approved participants
Identity
Anonymous
Known identities
Asset
Native assets
Any asset
Future cost/transaction
Unknown
Known
Quantum computing could mine much faster than the current difficulties. Also the 51% consensus rule prevents misbehaves.

14. Where Blockchain can be used?

15. Bitcoin – What is bitcoin?
Software based payment system introduced in 2008.
Payments are recorded in a public ledger using its open currency, bitcoin.
Peer-to-Peer without a central repository or administrator.
Permission-less and Anonymity are the basis on which bitcoin is developed.

16. Origin of Bitcoin?
Started as a paper written by Satoshi Nakamoto in August
Idea began as "a system for electronic transactions without relying on trust“
The fault tolerance of bitcoin made it more robust than its so- called competitors ecash and b-money.

17. Bitcoin vs US dollar Bitcoin US dollar Controlled by users
Created by solving some complex math problems
Created by Government
Internationally used
Primarily used in US
It’s virtual
It’s real
Easy to store
Difficult to store

18. Bitcoin – Why use it? It is the first transnational currency.
Bitcoin can be used to buy merchandise anonymously.
Bitcoin is not tied to any country or subject to regulation.
Small businesses like bitcoin because there are no credit card fees or chargebacks.

19. Bitcoin – How does it work?
There are no bitcoins, only record of bitcoin transactions.
Every transaction that ever took place is stored in a vast ledger called blockchain.
Mining
Hash functions , Proof of work, Private Key and Public Key
The concept of 10-minute waiting for my transaction to get over.
Transaction fees
A simple example follows

20. Technology behind Bitcoin
Hashing Proof-of-work (hashcash proof)
Dual key encryption (Elliptical Curve Digital Signature Algorithm, Merkle Trees )
Peer-To-Peer Networking

22. Bitcoin – Benefits Low or non-existent fees No chargebacks
No credit card fees charged by the banks
Send money to anyone anywhere in the world in no time.
For small businesses that do not accept cards
Minimize cash transactions

23. Application of Blockchain in Trade Finance
Trade finance relates to process of financing certain activities related to international trade.
Letter of credit and bill of lading are two important steps in the process of Trade finance and they have very complex and intricate information flow, which is time consuming.
Letter of Credit(L/C) is a letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount as long as certain documentary delivery conditions have been met.
Bill of Lading serves as a receipt of shipment when the goods are delivered at the predetermined destination.
Using Blockchain(Smart contracts) we can automate this document heavy letters of credit and bills of lading process.

24. Process of a Typical Foreign Trade Transaction
Purchase order 1 5
Shipment of goods
L/C application 2
Shipping documents and time draft 6
L/C notification 4
Payment 9
Letter of Credit 3
Shipping Documents and
time draft accepted 7
Payment 8
20-24

25. What might prevent blockchain from going mainstream?
Financial institutes appetite to invest in Blockchain technology beyond the experimentation they are already doing in order not to be left behind.
The issue of how to manage the loss or theft of private keys for a blockchain?
Lack of standards and the danger that a lack of standards could impede interoperability among different financial institutions.

26. What might prevent blockchain from going mainstream?
Blockchain technology is still in it's infancy.
Resolving challenges such as transaction speed, the verification process, and data limits will be crucial in making blockchain widely applicable
Uncertain regulatory status
Because modern currencies have always been created and regulated by national governments, blockchain and Bitcoin face a hurdle in widespread adoption by pre-existing financial institutions if its government regulation status remains unsettled.

27. What might prevent blockchain from going mainstream?
Cost
One of the most profitable areas for banks is in transactions(exchange of money from one country to another) by introducing blockchain and making transactions free would result in banks letting go one of their profitable areas, will banks let go their profitable area?

28. Closing comments
Race for finding the solution using blockchain is started, no one has crossed the finish line yet.
If you start now there is a good chance of you winning it!
Be careful but…Blockchain is now viewed as a solution for all ills…like the saying goes…”When you have a hammer everything looks like a nail” !!
Good Luck !!

29. References https://en.bitcoin.it/wiki/Main_Page
You-Need-to-Understand-the-T-3-Timeline
ment.htm