Blockchain

Fundamentals of Information Systems Lecture 10: Blockchain and Distributed Ledger Computing

Data Storage Concepts

Types of Data Storage

  • File Storage

  • Relational Database

    • Organized in tables

Information Sharing Dynamics

  • Information Sharing Mechanisms:

    • Share everything or nothing

    • Limit access to specific permissions:

    • (R)ead

    • (W)rite

    • (U)pdate

    • (D)elete

  • Methods of Sharing:

    • Share by duplication: e.g., email a file

    • Share by storing in an accessible location:

    • Shared folder or cloud storage

  • Challenges in Share Control:

    • It is difficult to control file integrity unless editing is restricted

    • Data can be shared at different levels: fields, tables, or entire databases

    • Normalization can eliminate duplication

    • Access can be controlled via database client API

    • Maintaining data integrity is challenging without edit logs

The Ledger System

Ledger Overview

  • Ledger as a central document for transaction storage

Problem Statement

  • Businesses need to share credible information with partners:

    • Contracts and Agreements (e.g., orders)

    • Terms and Conditions (e.g., quantities, prices, interest rates)

    • Fulfillment of Obligations (e.g., deliveries/payments)

  • Importance of trustworthy information to prevent reconciliation work

Centralized vs Decentralized Ledger

Centralized Ledger

  • Known as the “Golden Source”

    • Bank maintains the master ledger

    • Clients reconcile against the bank's record if discrepancies arise

Decentralized Ledger

  • Single ledger shared among all nodes

  • Protocols established to determine ledger's true state (achieving consensus)

  • Trust between nodes can vary and affects technical design

Blockchain Introduction

Definition of Blockchain

  • A technology that permits:

    • Grouping transactions into blocks

    • Cryptographically chaining blocks in chronological order

    • Accessible ledger maintained across multiple networks

  • Characteristics of Blockchain:

    • Decentralized ledger

    • Secure, transparent, and difficult to tamper with

Crypto Transactions Overview

Transaction Metrics

  • Aggregated daily transaction counts for Litecoin, Bitcoin, and Ethereum:

    • Approximately 1.5 million transactions per day collectively

  • Historical growth:

    • In 2016, under 250k transactions across networks

    • Growth seen in Ethereum due to smart contract functionality

Blockchain Adoption Increases

Mainstream Acceptability

  • 2015 marked increased blockchain initiatives supported by major investment banks

  • Development towards common standards in financial services

Financial Institutions Involved

  • Banks involved include Goldman Sachs, JPMorgan, Credit Suisse, and others

Hash Function Explained

Definition and Purpose

  • Hash Function maps data of arbitrary size to fixed size (Hash Value)

    • Example: MD5 produces a 32-bit number regardless of input size

  • In Cryptography:

    • Made to be computationally infeasible to reconstruct original data from hash

    • Example demonstrating modulo operation:

    • (25extmod10=5)(25 ext{ mod } 10 = 5)

  • Uses of Hash Function:

    • Integrity checks through data match verification

Hash Tree Structure

  • Diagram representation of hash relationships in transactions

Structure of a Block

Contents of a Block

  • Data: transaction specifics

  • Hash of the previous block

  • Timestamp of block creation

  • Additional data (for Bitcoin): nonce

Security Mechanisms

Immutable Ledger Features

  1. Blocks: Transactions grouped together

  2. Hashes: Cryptographic representation ensuring data integrity

  3. Chaining: Each block contains hash of the preceding block

  4. Consensus Mechanism:

    • Ensures agreement on state, prevents singular manipulation

Unique Scenarios Utilized for Grading

Hashing in Practice

Process for Creating Unique Block Hashes

  1. Use various data types to create hashes

  2. Miners vying to solve puzzles for new block establishment

  3. Verification of hash correctness among nodes

Hash Calculation Example

  • Formula:

    • extHash=extNonce+a+b+c−extValueofLast2digitsofprecedinghashext{Hash} = ext{Nonce} + a + b + c - ext{Value of Last 2 digits of preceding hash}

  • Values illustrated with character representation

Challenges and Considerations

  • Manipulation Concerns:

    • How would data integrity be maintained if unauthorized attempts occur?

    • Importance of consensus to safeguard against unauthorized changes

  • Technological Aspects:

    • Bitcoin employs blockchain for transaction recording limiting supply to 21 million

Bitcoin Growth Over Time

  • Blockchain size developments tracking from 2012 to 2023

  • Major statistics and consumption metrics outlined

Other Applications of Blockchain Technology

Potential Usage Examples

  • Investment Banking, Resumes, Medical Records, Property Transactions, Court Records, Electronic Voting