1. Modified from Bob Vachon
Blockchain
Cisco Networking Academy Program
Routing and Switching Essentials v6.0
Chapter 5: Switch Configuration
Modified from Bob Vachon

2. Preliminaries
5 - Switch Configuration
5.3 – Summary

3. Public Key Crypto: Encryption
Key pair: public key and private key

4. Public Key Crypto: Digital Signature
First, create a message digest using a cryptographic hash
Then, encrypt the message digest with your private key
Authentication
Integrity
Non-repudiation

5. Cryptographic Hash Functions
Consistent: hash(X) always yields same result
One-way: given Y, hard to find X s.t. hash(X) = Y
Collision resistant: given hash(W) = Z, hard to find X such that hash(X) = Z
Hash Fn
Fixed Size
Hash
Message of arbitrary length

6. Digital Signature

7. Merkle tree Binary tree with hash pointers! Drawback:
More number of blocks
H( ) H( )
H( ) H( )
H( ) H( )
H( ) H( )
H( ) H( )
H( ) H( )
H( ) H( )
(data)
(data)
(data)
(data)

8. Merkle tree H( ) H( ) H( ) H( ) H( ) H( ) Advantage:
Proving membership of a data block in the tree is easy
Only need to show O(log n) items
In other words, membership verification in O(log n) time/space
How to prove non-membership?
Sorted Merkle trees: Order leafs of the tree in some fashion, say lexicographically, numerically, etc.
Verify membership of data before and after the missing one!
Non-membership verification also takes O(log n) time/space
H( ) H( )
H( ) H( )
H( ) H( )
(data)

9. Trust (or lack of it)
5 - Switch Configuration
5.3 – Summary

10. What is Blockchain
List of transactions
List of transactions
List of transactions
Hash of previous block
Hash of this block
Hash of this block
Hash of previous block
Hash of this block
Hash of previous block
A blockchain is a digital and distributed ledger that uses a continuously growing list of records (transactions), called blocks
The ordered blocks are linked and secured using a cryptographic hash
The transactions cannot be added to, modified or deleted
Blockchain is a potentially disruptive technology

11. Blockchain as a disruptive technology
TRUST
VERIFY
Traditional services: Using a third party (intermediary) to provide trust in financial, business, legal and other types of transactions.
Current trust models involve:
Third party intermediaries such as banks, governments, credit reporting agencies, title companies, retail, insurance companies
Examples: Using credit card, trusting bank to record everything accurately, wire transfer, currency is real and country will back it
Trust but verify (Russian proverb) – All transactions involve the need to trust the intermediary but… also verify
Blockchain changes how we trust – a fundamental currency in commerce

12. Ledger Deposit Cash $1,000 $1,000 3/1/2018 Receipt Withdraw Chk 100
Deposit/Withdraw Amount Balance Date Verification
Deposit
Cash
$1,000
$1,000
3/1/2018
Receipt
Withdraw
Chk 100
$100
$900
3/2/2018
Checkbook
Withdraw
ATM
$50
$850
3/3/2018
Receipt
Deposit
Payroll
$400
$1,250
3/4/2018
Receipt
Withdraw
AcctFee
$25
$1,225
3/5/2018
Receipt
Withdraw
Chk 102
$25
$1,200
3/6/2018
Checkbook
Third party intermediaries such as banks use ledgers to record transactions
Centralized ledger under the control of the "trusted" intermediary
Transactions are recorded in a ledger, which at any time the intermediary can
Added, modified, or deleted

13. Ledger Deposit Cash $1,000 $1,000 3/1/2018 Receipt Withdraw Chk 100
Deposit/Withdraw Amount Balance Date Verification
Deposit
Cash
$1,000
$1,000
3/1/2018
Receipt
Withdraw
Chk 100
$100
$900
3/2/2018
Checkbook
Withdraw
ATM
$50
$850
3/3/2018
Receipt
Deposit
Payroll
$400
$1,250
3/4/2018
Receipt
Withdraw
AcctFee
$25
$825
3/5/2018
Receipt
Withdraw
Chk 102
$25
$800
3/6/2018
Checkbook
If a deposit is not recorded or not recorded correctly, difference of $400 in your checking account
Bank can add a transaction fee with out our knowledge
We trust that the intermediary will not make any improper or incorrect additions, modifications or deletions

14. Blockchain: A high level look
5 - Switch Configuration
5.3 – Summary

15. Ledgers and Digital Signatures
A ledger is a collection of economic transactions
Commonly used as a list of debits and credits to track the monetary balance associated with an individual or an account.
Typically, we use a trusted intermediary, such as a bank, to maintain this ledger
We will use crypto currency to understand how blockchain can be used to maintain a ledger instead of an intermediary such as bank
Instead of us needing to trust an intermediary, blockchain will provide the trust

16. Ledgers and Digital Signatures
$100
We will use a digital ledger (blockchain) to record all transactions between Jose and Maria
This is just a high level view, so don't worry about the details…. We will discuss those soon
If a transaction is added to this digital ledger: "Jose pays Maria $100"…
Problem: How do we trust that a transaction is with Jose's approval?
Solution: Digital signatures
Jose will add his digital signature to the transaction
What is a digital signature?
Ledger
Jose pays Maria $100
Jose's digital signature

17. What is a digital signature
This is a message. The digital signature with this message creates a unique hash.
This is a different message. A slight difference makes the digital signature completely different.
This is a different message. A slight difference makes the digital signature completely different!
DS:
DS:
DS:
A digital signature is a mathematical scheme for demonstrating the authenticity of digital messages or documents
A digital signature cannot be copied because it is always different because is uses the message to help derive the signature
Changing the message even slightly makes the digital signature completely different
A digital signature has three parts
Public key
Secret key (aka private key)
Message

18. Digital signature involves a function consisting of:
Message
Secret key (private key)
Public key
Secret key (private key):
Must be kept private and used to create a digital signature
Used with the message to create a unique digital signature (bits)
Public key:
Used by someone to verify that the message with the digital signature was really created by the sender (using the secret key)
A digital signature is stronger than a written signature because it changes with different messages, which means it can't be copied
Again, changing the message even slightly makes the digital signature completely different
It is computationally infeasible to create a valid digital signature without the private key

19. Creating a message with a Digital Signature
This is a message. The digital signature with this message creates a unique hash.
Only you produced this message
Digital Signature:
Secret key (sk)
256 bit Signature
Computationally infeasible to guess
Verifying a message with a Digital Signature
This is a message. The digital signature with this message creates a unique hash.
TRUE or
FALSE
Digital Signature:
Public key (pk)
You can feel very confided that the message was created by the person who has this public key
The message is digitally signed using:
Message
Secret key
The message is verified using:
Message
Public key

20. Create Send Verify True
Jose creates a message and using his secret key (that only he knows), signs it with a digital signature
Jose can now send that message with its digital signature to anyone.
Maria receives Jose's message with the digital signature
Maria has Jose's public key and uses it to verify that this message really did come from Jose
Jose wants people to have his public key so they know messages were created by him
If the message was really created using Jose secret key (that only Jose knows), then the result will be True
If the digital signature is a fraud, the result will be False
Create
Send
Verify
True

21. In this example, the digital signature authenticates that this transaction happened with Jose's approval
This transaction can be verified by anyone with Jose's public key
$100
Ledger
Jose pays Maria $100
Jose's digital signature
Jose pays Maria $100
Jose pays Maria $100
Jose pays Maria $100

22. Blockchain has two fundamental differences than a traditional ledger:
New Transaction
Gerlinde pays Jose $25
Blockchain has two fundamental differences than a traditional ledger:
Each transaction has a key (hash) that is dependent upon the hash of a previous transaction
The ledger is decentralized – multiple copies – any interested parties will have a copy
The trust is that everyone receives and believes any new transactions, in the correct order, and that everyone is working with the exact same ledger
To do this (high level), which ever ledger has the most computational work (cryptographic hash function) put into it – to attempt to fraud would be computationally infeasible. (coming)

23. Continuing to using a cryptocurrency to understand blockchain…
New Transaction
Gerlinde gets $100
New Transaction
Maria gets $100
$100
$100
New Transaction
Matteo gets $100
$100
$100
New Transaction
Jose gets $100
Continuing to using a cryptocurrency to understand blockchain…
Everyone pays $100 to purchase Digital Dollars (DD) which is added to the ledger
Everyone has a copy of the ledger
These new transactions are copied to all ledgers and is verified (digital signature)
Ledger
1. Gerlinde gets $100
2. Maria gets $100
3. Matteo gets $100
4. Jose gets $100

24. New Transaction
Gerlinde gets $100
New ✔
New Transaction
Maria gets $100
New Transaction
Gerlinde pays Jose $25
New Transaction
Gerlinde pays Jose $25
New Transaction
Matteo gets $100
New Transaction
Jose gets $100 ✔ ✔
New Transaction
Gerlinde pays Jose $25
New Transaction
Gerlinde pays Jose $25
A new transaction updates all copies of ledger and is verified (digital signature)
Ledger
1. Gerlinde gets $100
2. Maria gets $100
3. Matteo gets $100
4. Jose gets $100
5. Gerlinde pays Jose $25

25. ✖
Invalid Transaction
Maria pays Matteo $500
New
New Transaction
Maria pays Matteo $500
Invalid Transaction
Maria pays Matteo $500
Invalid Transaction
Maria pays Matteo $500 ✖ ✖
A running balance ensures that no one spends more than their balance
Doing so would be an invalid transaction as if it did not have a valid digital signature
The history of transactions is the currency
If everyone is using the ledger, there is not need for a physical currency
Ledger
1. Gerlinde gets $100
2. Maria gets $100
3. Matteo gets $100
4. Jose gets $100
5. Gerlinde pays Jose $25
6. Maria pays Matteo $500
Running Balance
Gerlinde = $100 > $75
Jose = $100 > $125
Matteo = $100
Maria = $100 - $500 = -$400 (Overdrawn)

26. ✔ ✔ ✔ Initial (valid) Transaction
New Transaction: 101
Gerlinde pays Jose $25
Initial (valid) Transaction ✔
New Transaction: 101
Gerlinde pays Jose $25
New Transaction: 101
Gerlinde pays Jose $25 ✔ ✔
New Transaction: 101
Gerlinde pays Jose $25
Each record in the ledger must be a unique transaction
We need to ensure that someone doesn't just copy the same transaction multiple times, such as Jose copying "Gerlinde pays Jose $25"
The digital signature would be the same for each copy of the same transaction and it would be considered "valid" because the digital signature is valid
To ensure that Jose doesn't duplicate the transaction multiple times (with the valid digital signature), the initial transaction must contain a unique ID
The unique ID is part of the message, therefore affects the digital signature
Each new transaction on the ledger, with a unique transaction ID, requires a new digital signature and therefore can't be duplicated

27. ✖ ✖ ✖ ✖ ✖ ✖ Duplicate (invalid) Transactions
New Transaction: 101
Gerlinde pays Jose $25 ✖ ✖
New Transaction: 101
Gerlinde pays Jose $25 ✖ ✖
New Transaction: 101
Gerlinde pays Jose $25
New Transaction: 101
Gerlinde pays Jose $25
New Transaction: 101
Gerlinde pays Jose $25 ✖
New Transaction: 101
Gerlinde pays Jose $25 ✖
New Transaction: 101
Gerlinde pays Jose $25
New Transaction: 101
Gerlinde pays Jose $25
If Jose attempted to send a duplicate transaction, the consensus of the other ledgers would show this is a duplicate and therefore invalid

28. ✔ ✔ ✔ ✖ ✖ ✖ ✖ ✖ ✖ Initial (valid) Transaction
New Transaction: 101
Gerlinde pays Jose $25
Initial (valid) Transaction ✔
New Transaction: 101
Gerlinde pays Jose $25
New Transaction: 101
Gerlinde pays Jose $25 ✔ ✔
New Transaction: 101
Gerlinde pays Jose $25
Duplicate (invalid) Transactions
New Transaction: 101
Gerlinde pays Jose $25 ✖ ✖
New Transaction: 101
Gerlinde pays Jose $25 ✖ ✖
New Transaction: 101
Gerlinde pays Jose $25
New Transaction: 101
Gerlinde pays Jose $25
New Transaction: 101
Gerlinde pays Jose $25 ✖
New Transaction: 101
Gerlinde pays Jose $25 ✖
New Transaction: 101
Gerlinde pays Jose $25
New Transaction: 101
Gerlinde pays Jose $25

29. Invalid! My ledger shows you balance is only $100
My balance is now $150
$50 ✔
$125
Invalid! My ledger shows you balance is only $100 ✖
The history of the transactions is the currency
The history of transactions, that is agreed to by everyone (consensus), is what allows this ledger (these transactions) to be trusted
The leger is not centralized like a bank, but is decentralized
Every transaction is sent to everyone else with that ledger
But how can we guarantee that when someone sends a transaction that everyone else received it?
What if Gerlinde gave Maria $50, which updates Maria's balance to from $100 to $150
Then Maria tries to give Jose $125, however Jose never received the transaction that Gerlinde gave Maria $50, so he believes Maria doesn't have enough money and invalidates the transaction

30. When a change is made, the transaction is sent to everyone with that ledger
Important that everyone has a copy of the same, accurate ledger
Important that we have a way to agree everyone on what the right ledger is
How to ensure that everyone else is recording the same transactions and in the same order
Everyone must be listening for and receiving all transactions
Need a way to accept or reject transactions
Need a way to know if you can trust a ledger
Bitcoin uses Computational work – Trust which ever ledger has the most computational work
This uses a cryptographic hash function

31. Blockchain: A deeper look
5 - Switch Configuration
5.3 – Summary

32. + Fraud computationally infeasible Computational work
Ledger +
Computational work
Fraud computationally infeasible
Blockchain uses one of two methods to solve these problems:
Proof of work
Proof of stake
Proof of work - Uses a hash function

33. Proof of work (PoW) - Uses a hash function
Hash or Digest
File
Hash function
256 bits
Unpredictable
Same input generates same output
One change produces a completely different result
Hello Luigi
SHA256
File
Hash or Digest
Hash function
hello
Luigi
SHA256
Proof of work (PoW) - Uses a hash function
A hash function is a function that takes in input data, and from that input creates an output of a fixed length (such as 256 bits), known as the hash or the digest of the message
Looks random but isn't - The same input will always generates the same output
Changing a single character in the input will change the hash or digest completely, in an unpredictable manner

34. Given this Digest find the input that would generate it…. ?
Hash or Digest
Hash function ?
SHA256
A cryptogrpahic hash function means it is computationally infeasible to compute in the reverse direction
If given the 256 bits (Digest), find the input that the SHA256 function would generate this exact string of 256 bits, is almost impossible
The computation to go through 2256 is astounding!!!
Proof of work = SHA256

35. The only way to do this is by guessing
Proof of Work (PoW)
Ledger
1. Gerlinde gets $100
2. Maria gets $100
3. Matteo gets $100
4. Jose gets $100
5. Gerlinde pays Jose $25
Hash or Digest
Hash function
SHA256
Special number at the end of the ledger so when SHA256 is applied to the entire ledger the first 30 bits are all 0s.
A special number is added to the end of the ledger so when SHA256 is applied to the ledger with this value, the first 30 bits are all 0s
This is known as the proof of work (PoW)
It takes a great deal of computation to find a number that when used with the input data creates digest with the first 30 bits of all 0s
The probability that any 256 bit has starting with 30 successive 0s is 1 in 230 or approximately 1 in a billion
The only way to do this is by guessing

36. The number of consecutive zeros requires more computational work
Proof of Work
1? 2? 3? …
"This is taking too long!"
"Not for the average computer but I did it!"
The only way to do this is by guessing the special number until you get a digest starting with 30 consecutive 0s
It takes a lot of computational work for a computer to finally arrive at this special number
The number of consecutive zeros requires more computational work
If you change the ledger, even slightly, you would have to go through another billion guesses to find the digest starting with 30 consecutive 0s

37. Difficult to compute But easy to verify
"I found the special number to create the digest starting with 30 zeros. I did all the hard work!"
"I only had to use the number given and with the file apply SHA256. If the result is 30 consecutive zeros then it is verified. That was easy!"
It takes a lot of computation work to find a special number to add to the end of the ledger, that when SHA256 is applied will create a digest with 30 consecutive zeros
However, it is easy to verify because all the work has already been done
To verify, you just add the number to the end of the ledger, apply SHA256 to the ledger and verify that the digest starts with 30 consecutive zeros

38. Getting back to our cryptocurrency…
This is an example of how a cyptocurrency might work
We have a distributed ledger system, with all transactions broadcasted to everyone else
It is important that they all agree on what the correct ledger is
The core idea is that everyone will trust which ever ledger has the most computational work put into it

39. Block Block Block The ledger is organized as a collection of blocks
Prior Digest
1. Gerlinde gets $100
[Digital Signature]
2. Maria gets $100
PoW
Prior Digest
3. Matteo gets $100
[Digital Signature]
4. Jose gets $100
PoW
Prior Digest
5. Gerlinde pays Jose $25
[Digital Signature]
PoW
SHA256
SHA256
SHA256
The ledger is organized as a collection of blocks
Every transaction in each block has been verified using its digital signature
Each block also contains the hash of the previous block
This to maintain the order of these blocks and to make it computationally infeasible to modify a block or change the order of the blocks

40. Block Block Block Each block contains:
Prior Digest
1. Gerlinde gets $100
[Digital Signature]
2. Maria gets $100
PoW
Prior Digest
3. Matteo gets $100
[Digital Signature]
4. Jose gets $100
PoW
Prior Digest
Block Reward - $0.05
5. Gerlinde pays Jose $25
[Digital Signature]
PoW
SHA256
SHA256
SHA256
Each block contains:
The hash (proof of work) of the prior block
A maximum number of transactions and their digital signatures
The hash (proof of work) computed for this block consists of the hash of the previous block along with all the transactions and their digital signatures

41. Block 4
Block 7
Block
Prior Digest
1. Gerlinde gets $100
[Digital Signature]
2. Maria gets $500
PoW
Prior Digest
3. Matteo gets $100
[Digital Signature]
4. Jose gets $100
PoW
Prior Digest
5. Gerlinde pays Jose $25
[Digital Signature]
PoW 1 3 6 9
SHA256
SHA256
SHA256
and so on 2 5 8
So a change to a block would change that block's hash, which changes the next block's hash, which changes the next block's hash, all the way to the last block
That would require doing all the computational work for every block including finding a new special number for the modified block that starts with 30 consecutive 0s, changing the previous hash on the next block, finding a new special number for that block, and so on

42. Block Block Block Prior Digest 73781183740057
1. Gerlinde gets $100
[Digital Signature]
2. Maria gets $100
PoW
Prior Digest
3. Matteo gets $100
[Digital Signature]
4. Jose gets $100
PoW
Prior Digest
5. Gerlinde pays Jose $25
[Digital Signature]
PoW
SHA256
SHA256
SHA256
This is why it is called a "block chain"
Each block is chained together with the hash of the previous block
Any change to a block affects all the blocks after it
Increasing the number of consecutive 0's, for example to 60 consecutive zeros, in the proof of work will increase the amount of computation needed
This will make it even more infeasible for someone to make changes to the blockchain

43. Blockchain – Each block is a list of transactions, with a hash of the previous block and hash of this block.
The hash is computed using the hash of the previous block, and all transactions with their digital signatures

44. 1. A new transaction is created and broadcasted to everyone 4 4
New transaction 1 4 4 3 2
Process
1. A new transaction is created and broadcasted to everyone
2. A block creator, known as a miner, does the proof of work
For cryptocurrencies like bitcoin, a block reward is added to the block
Miner: Listen for transactions, performing the proof of work, broadcasting the block, and getting rewarded
3. The miner broadcasts that block to everyone
4. Others in the blockchain verify the proof of work and then add the block to the chain

45. I don't need to listen for transactions, only new blocks
New transaction
I did it!
I don't need to listen for transactions, only new blocks
There are usually many miners
They are all performing the (verifying of the digital signature and the transaction)
computational proof of work
Whoever finds right special number that results in the required number of zeroes first, broadcasts the block
and receives the block reward
Anyone who just wants to participate as a source/receiver of transactions does not have to worry about doing any of the computational proof of work
They don't have to listen for transactions, only new blocks to update their blockchain

46. Trust is not given to a central authority,
Maria
If two distinct blockchains are received with conflicting transactions, the longest blockchain is accepted
this is the one with the most computational proof work
Trust is not given to a central authority,
but is given to the the blockchain with the most computational proof of work
The receiver may not trust a new block immediately,
but wait for several new blocks to be added to it

47. Trust Digital Signature Summary Trust Digital signatures
The ledger is the truth
or the currency in a crypto currency
Decentralize
Proof of work
Blockchain
Decentralize
Proof of Work
Blockchain