Full Record of Cloud Study Camp

Nowadays, blockchain has become a hot topic. More and more people and companies are beginning to use blockchain technology to add value. However, what is blockchain? What are the application scenarios of blockchain? On 2nd August, 2020, we were excited to have the first section of our “Cloud Study Camp”: The Future of Blockchain in Finance and Banking. We were honored to have invited Dr. Jacob Mendel, Da’el Shalev and Ido Sadh Man to share their understanding and views on blockchain.

The first guest to share is Dr. Jacob Mendel, the Moshe Hogeg Blockchain Research Institute Managing Director at the Tel Aviv University, and former the General Manager Cyber Security COE at Intel. At the beginning, the professor asked us to think about a few questions. Why do we need to understand blockchain? Why can blockchain have an impact in corporate activities? How does the blockchain relate to our lives?

Looking at companies such as Alibaba, Instagram, Facebook, Netflix and Microsoft, one of their commonalities is data. There are emerging technologies relating to data: big data & machine learning, blockchain, cybersecurity, and etc. Blockchain is one of the technologies that affect company revenue.

So, what is blockchain?

Before we get to know the concept of blockchain, we need to know several terminologies for blockchain technology.

◆ Blockchain—the actual ledger

◆Blockchain network—the network in which a blockchain is being used

◆ Node—an individual system within a blockchain network

Stores the blockchain, ensures transactions are valid，publishes new blocks

Blockchains are tamper evident and tamper resistant digital ledgers implemented in a distributed fashion (i.e., without a central repository) and usually without a central authority (i.e., a bank, company or government). Blockchains are distributed digital ledgers of cryptographically signed transactions that are grouped into blocks. Each block is cryptographically linked to the previous one (making it tamper evident) after validation and undergoing a consensus decision. As new blocks are added, older blocks become more difficult to modify (creating tamper resistance). New blocks are replicated across copies of the ledger within the network and any conflicts are resolved automatically using established rules.

Blockchain ledgers can be public (“permissionless”) or private (“permissioned”).

◆ Permissionless ledgers (e.g., Bitcoin) allow anyone to make transactions and to hold identical copies of the full ledger.

◆ Permissioned ledgers limit contributions to a limited set of users who have been given permission. Access to view records can be restricted or public, depending on the settings of the ledger. In fact, many different aspects of the blockchain can be customized to meet different needs. (These are likely to be the useful for public sector use.)

Traditional ledgers are centralized and use 3rd parties and middlemen to approve and record transactions. Centralized systems are cheap and convenient, but we cannot ensure its transparency and validity. Blockchain safely distributes ledgers across the entire network and does not require any middleman. In distributed ledgers, every part keeps its own ledger and state.

Next, Dr. Jacob Mendel introduced a concept called “Hash” which is frequently mentioned in blockchain technology. Hash is a cryptographic function that converts any input (text, image, etc.) into a fixed-length code. Cryptographic hash functions are designed so that given a specific input, it is computationally infeasible to find a second input which produces the same output. Secure hash algorithm (SHA) with an output size of 256 bits (SHA-256). SHA-256 has an output of 32 bytes (1byte = 8 bits). Merkle trees (hash tree) are binary trees in which the leaf nodes are labeled with the values that need to be authenticated and each non-leaf node is labeled with the hash of the labeled or values of its child nodes.

Asymmetric cryptography is a process that uses a pair of related keys -- one public key and one private key -- to encrypt and decrypt a message and protect it from unauthorized access or use. A public key is a cryptographic key that can be used by any person to encrypt a message so that it can only be deciphered by the intended recipient with their private key. A private key -- also known as a secret key -- is shared only with key's initiator.

When someone wants to send an encrypted message, they can pull the intended recipient's public key from a public directory and use it to encrypt the message before sending it. The recipient of the message can then decrypt the message using their related private key. On the other hand, if the sender encrypts the message using their private key, then the message can be decrypted only using that sender's public key, thus authenticating the sender. These encryption and decryption processes happen automatically; users do not need to physically lock and unlock the message.

Private keys are used to digitally sign transactions. Public keys are used to verify signatures generated with private keys. Asymmetric-key cryptography provides the ability to verify that the users transferring value to another user is in possession of the private key capable of signing the transaction.

Dr. Jacob Mendel summarized several key points of blockchain:

◆Immutable record history

Enable validation by 3rd parties that can trust and traceability of transactions

◆Decentralized trust without a single controlling entity

◆Cryptography for integrity, privacy, anonymity

◆Secure asset

Holds the keys that are required to prove ownership of an asset

◆Smart contract

A software that stores “business logic”, automatically verifies the contract and then executes the agreed terms

Blockchain has its benefits and limitations.

◆Decentralization: This is a core concept and benefit of the blockchain. There is no need for a trusted third party or intermediary to validate transactions: instead, a consensus mechanism is used to agree on the validity of transactions.

◆Transparency and trust: Because blockchains are shared and everyone can see what is on the blockchain, this allows the system to be transparent.

◆Immutability: Once the data has been written to the blockchain, it is extremely difficult to change it back. Because changing data is so challenging and nearly impossible, this is seen as a benefit to maintaining an immutable ledger of transactions.

◆High availability: As the system is based on thousands of nodes in a peer-to-peer network, and the data is replicated and updated on every node, the system becomes highly available.

◆Highly secure: All transactions on a blockchain are cryptographically secured and thus provide network integrity.

◆Simplification of current paradigms: The current blockchain model in many industries, such as finance or health, is somewhat disorganized. In this model, multiple entities maintain their own databases and data sharing can be very difficult due to the disparate nature of the systems. Blockchain can serve as a single shared among many interested parties, this can result in simplifying the model.

◆Cost saving: As no trusted 3rd party or clearing house is required in the blockchain model, this can massively eliminate overhead costs in the form of the fees which are paid to such parties.

Also, there barriers for blockchain adoption: 1) Implementation: replacing or adapting existing or legacy systems; 2) Regulatory issues; 3) Potential security threats; 4) Uncertain ROI; 5) Privacy: Concerns over sensitive or competitive information; 6) Scalability; 7) Relatively immature technology; 8) Lack of in-house skills.

There are a series of questions to consider before we apply blockchain technology.

1) Do you need a shared, consistent data store? If yes, then

2) Does more than one entity need to contribute data? If yes, then

3) Data records, once written, are never updated or deleted? If yes, then

4) Sensitive identifiers WILL NOT be written to the data store? If yes, then

5) Are the entities with write access having a hard time deciding who should be in control of the data store? If yes, then

6) Do you want a temperproof log all writes to the data store? If yes, then you may have a useful blockchain use case.

Currently, blockchain technology has been applied to many scenarios, especially finance and healthcare.

In the future, blockchain will be more widely used in production and life.

The second guest to share is Dael Shalev, a Fin-Tech entrepreneur, a best seller author (The ancient secret, 2014; Bitcoin and your future self, 2018. Both books in Hebrew) and keynote speaker about crypto. He is leading STP house Ltd, a software company focusing on SWIFT solutions and integration services in the financial domain, with excellent engineering skills, well established domain expertise and best ever team spirit.

In the following part, Dael Shalev and Ido Sadeh Man introduced the development and application of Bitcoin. Dael Shalev, a Fin-Tech entrepreneur, a best seller author (The ancient secret, 2014; Bitcoin and your future self, 2018. Both books in Hebrew) and keynote speaker about crypto. He is leading STP house Ltd, a software company focusing on SWIFT solutions and integration services in the financial domain, with excellent engineering skills, well established domain expertise and best ever team spirit. Ido Sadeh Man is the Founder & Chairman of the Board at Saga and Co-Founder & Partner of The Singulariteam Technology Group, Israel's most active VC in Israel in 2015 & 2016, with recent successful exits totaling $250M.

Bitcoin is a decentralized digital currency. This means there is no person or institution behind it, either backing it or controlling it. Neither is it backed by physical goods, such as precious metals. This might seem counter-intuitive at first glance: how could it exist if no one controls it? Who created it then? How did the creator lose control over it?

The Bitcoin is just a computer program. The program has a creator but his identity is unknown as he released the Bitcoin software using what is believed to be a pseudonym: Satoshi Nakamoto. Bitcoin is not controlled in a tight sense by anyone. The code is open source and thus it belongs to the public domain. Bitcoin is base on a peer-to-peer network of computers running the software.

The protocol fixes Bitcoin’s max supply at twenty-one million coins (21,000,000). As of 2020, just under 90% of these have been generated, but it will take over one-hundred years to produce the remaining ones. This is due to periodic known as halvings, which gradually reduce the mining reward. By mining, participants add blocks to the blockchain. To do so, they must dedicate computing power to solving a cryptographic puzzle. As an incentive, there is a reward available to whoever proposes a valid block. The protocol adjusts the difficulty of mining so that it takes approximately ten minutes to find a new block.

Dael Shalev and Ido Sadeh Man also answered the following questions.

What is Bitcoin halving?

A Bitcoin halving is simply an event that reduces block reward. Once a halving occurs, the reward given to miners for validating new blocks is divided by two (they only receive half of what they used to). There is no impact on transaction fees. When Bitcoin launched, miners would be awarded 50 BTC for each valid block they found. The first halving took place on November 28th, 2012. (From 50BTC to 25BTC.) the second halving occurred on July 9th, 2016 (25BTC to 12.5 BTC). The next one, expected to bring it down to 6.25 BTC. By design, the protocol does not set specific dates on which a halving takes place. Instead, it goes by block height-every 210,000 blocks, a halving occurs. About 2,100,000 minutes for the subsidy to halve (a block takes 10 minutes to mine).

What is a 51% attack?

A 51% attack is a potential attack on a blockchain network, where a single entity or organization is able to control the majority of the hash rate, potentially causing a network disruption. In such a scenario, the attacker would have enough mining power to intentionally exclude or modify the ordering transactions. They could also reserve transactions they made while being in control. A successful majority attack would also allow the attacker to prevent some or all transactions from being confirmed or to prevent some or all other miners from mining, resulting in what is known as mining monopoly.

Are Bitcoin users anonymous?

Not really. The Bitcoin blockchain is public and anyone can see the transactions. Your identity is not tied to your wallet address on the blockchain, but an observer with the right resources could potentially link the two together. It is more accurate to describe Bitcoin as pseudonymous. Bitcoin addresses are viewable to everybody, but the names of their owners are not. Bitcoin’s blockchain don’t use encryption. Bitcoin use digital signatures and hash functions.

Through this lecture, we got to know the approximate theory behind blockchain, the development as well as its application. In the next section of the Cloud Study Camp, we will learn about Utilizing Online Data to Improve Business Performance.

Written by MF2019 王宇航