Blockchain Basics - Amazon S3...Traditional vs. SmartContract July 13, 2018 CONTENT COPYRIGHT © 2018, ENERGY BLOCKCHAIN CONSORTIUM, Tony Giroti, [email protected] 17 Key

July 13, 2018CONTENT COPYRIGHT © 2018, ENERGY BLOCKCHAIN

CONSORTIUM, Tony Giroti, [email protected]

Blockchain Basicswith focus on Energy

July 13th 2018

Tony Giroti, [email protected]

Content Copyright © 2018, ENERGY BLOCKCHAIN CONSORTIUM, Tony Giroti, [email protected]

Energy Blockchain Webinar Series: Webinar #2

Your Presenter

Tony Giroti• 25+ years in IT

• Bachelor and Masters in Electrical & Computer Engineering

• Developed Distributed Computing Platforms

• Developed High Availability Transaction Processing Applications

• Designed Fault-Tolerant, Massively-Scalable Supercomputers

• Entrepreneur, Founded a few Startups

• Spent last 12 yrs in Energy, Smartgrid and now Energy Blockchain

• Emeritus Council, Board member in US DOE GWAC, NIST SGIP

• 5 USPTO Patents

• Chairman, Energy Blockchain Consortium

July 13, 2018 CONTENT COPYRIGHT © 2018, ENERGY BLOCKCHAIN CONSORTIUM, Tony Giroti, [email protected] 2

Disclaimer

Any product, individual or company mentioned in this webinar should not be construed as an endorsement by the Energy Blockchain Consortium. We have avoided the use of names so any mention is purely coincidental or for illustrative purposes only. All participants are expected to conduct in the webinar per the professional, business like and common sense norms.


Energy Blockchain Webinar Series

• Energy Blockchain Webinar Series created by Energy Blockchain Consortium

• Today’s Webinar is the 2nd Webinar

• FREE to anyone registering (energy-blockchain.org/webinars)

• 12 Webinars: 1st Friday of month (except holiday weeks) @12 to 1pm EST• 2018: Jun 1, Jul 13, Aug 3, Sep 7, Oct 5, Nov 2, Dec 7• 2019: Jan 4, Feb 1, Mar 1, Apr 5, May 3

• Webinars are also available for offline viewing

• About Energy Blockchain Consortium:• A non-profit consortium of Companies interested in using Blockchain technology to

solve the most compelling problems in the Energy industry. Join as members.energy-blockchain.org or send me an email [email protected]


Topics

• A Recap on Blockchain from last webinar• What is Blockchain & How does it work with an example?

• What is under the Blockchain “hood”?

• What is Distributed Ledger?

• What is Smart Contract?

• What is Consensus?

• How does Blockchain make stuff more secure?

• What are Cryptocurrencies and Wallets?

• P2P Transaction (example)

• The Energy Blockchain Use Case



What is Blockchain and how does it work?

What is Blockchain?


A CompanyBank, Utility, Insurance, ISO, Retailer

Application

Database

Business Logic

The World Today

Company A

Blockchain Node A

Ledger A

SmartContractX

Company B

Blockchain Node B

Ledger B

SmartContractX

Company C

Blockchain Node C

Ledger C

SmartContractX

Company D

Blockchain Node D

Ledger D

SmartContractX

Centralized Control (w or w/o distribution)

• Data: Company has 1 or more databases• Business Logic: Company runs biz process• Control: Company controls Data & App• Trust: The Company is the Trusted Party

• Decisions: Made by The company • History: The Company knows it• Changes: Made by The Company• Transactions: In Company’s Database

De-Centralized Control (Nodes are connected via P2P Network)• Data in multiple ‘databases’ i.e. in ‘distributed’ Ledgers so multiple nodes have Same Data• Business Logic: Same SmartContract runs in multiple companies • Control: 1 Company DOES NOT Control Data & App. Who does? Individuals (Us), Node operators, others• Trust: Blockchain technology is the Trusted Party & NOT company (So no people trust required “Trustless”

• Decisions: All Participants must agree on the Validity (CONSENSUS)• History: All Participants know where the data came from (PROVENANCE)• Changes: Data and SmartContract Logic CANNOT be changed (IMMUTABILITY)• Transactions: Any Shared ledgers has ownership of assets or completion of transaction (FINALITY)

The World with Blockchain (Next Gen. of Distributed Computing Platform)

How Blockchain works?


Example: Andy sold 3 widgets to Bob. Rate is $1 per unit .

Company A

Blockchain Node A

Ledger A

SmartContract: Amt = Units x 1

Tx

Company B

Blockchain Node B

Ledger B


BobAndy

3 widgets1

$3$3 2

Node A Creates a digitally signed TRANSACTION (a) 3 Widgets from Andy to Bob(b) $3 from Bob to Andy

Tx

3Node B: VERIFICATION of Transaction(a) Does it comply with Blockchain rule(b) Is its Digital Signature ok(c) Are there any conflicts with prev transactions

5

Provisional Unconfirmed Transactions “Memory

Pool”Tx

6

4Tx

Company C

Blockchain Node

Ledger C


Tx

Node C: VERIFICATION of Transaction(a) Does it comply with Blockchain rule(b) Is its Digital Signature ok(c) Are there any conflicts

8

Hash: 32 bytes unique ID of BLOCK

Time Stamp

Link to Prev Hash

A set of Transactions

Tx Ty

10Periodically VALIDATORS create Blocks

(a) If Node C was a “VALIDATOR” it creates a BLOCK in Ledger C

(b) VALIDATOR is rewarded (from transaction charge)

11Like Transactions, BLOCKS also

Propagated from Node to Nodeand linked as a Chain. Hence BLOCKCHAIN

Provisional Unconfirmed Transactions “Memory

Pool”Tx

9

Ty

A Blockchain Application

Jun 1, 2018 CONTENT COPYRIGHT © 2018, ENERGY BLOCKCHAIN CONSORTIUM, Tony Giroti, [email protected] 9

Company A

Blockchain Node A

Ledger A

SmartContractX

Company B

Blockchain Node B

Ledger B

SmartContractX

Company C

Blockchain Node C

Ledger C

SmartContractX

Company D

Blockchain Node D

Ledger D

SmartContractX

The World with Blockchain (Nodes are connected via P2P network)

BLOCK hash

Time Stamp

Previous Block Hash

Transactions

Tx Ty

Block 123BLOCK Hash

Time Stamp

Previous Block Hash

Transactions

Ta

Block 124BLOCK Hash

Time Stamp

Previous Block Hash

Transactions

TcTc Tc

Block 125BLOCK Hash

Time Stamp

Previous Block Hash

Transactions

Td Te

Block 126

A Blockchain App

An app that allows me to sell widgets at $1 per unit and discount of 10% over 10 units

Smart ContractX:

• Rate $1 per unit with 10% disc. for over 10 units

Transactions Tx, Ty, Ta, Tb, Tc….. :

- Andy sold 3 widgets to Bob: Bob → Andy $3

- Cathy sold 10 widget to Dan: Dan → Cathy $9

- Emily sold 1 widgets to Frank: Emily → Frank $1

- Gina sold ……

Blocks

- 123, 124, 125, 126

What is under the Blockchain hood?


Blockchain Under the Hood(Architecture)


• Fault Tolerance

• Virtual Machine

• Time stamping scheme

• Transaction Scripts

• Transaction Linkage

• Transaction Distribution

• Transaction Process, Secure messaging

• Verification, Block Creation

• Accounts & AddressesMid

dle

war

e

File System DatabaseOperating System NetworkingOperation & Management

Hardware

Bas

ic

Provenance FinalityImmutability Trustless Democratization Disintermediation

Feat

ure

sFu

nct

ion

s

Decentralized Consensus

Public Private Key Security

Distributed Ledger Smart ContractCrypto Currency &

WalletsHashing, BFT,

other Algorithms

Java KotlinSolidity Go ‘Legal Prose’ Others

Lan

guag

esSmart Contract Y Crypto CurrencyPoW, PoA, PoS Smart Contract X Fiat Exchange Others

Ap

ps

Blo

ckch

ain

Tec

hn

olo

gyA

pp

licat

ion

s

Blockchain deployed


Company A

Blockchain Node A

Ledger A

SmartContractX

Company B

Blockchain Node B

Ledger B

SmartContractX

Company C

Blockchain Node C

Ledger C

SmartContractX

Company D

Blockchain Node D

Ledger D

SmartContractX


Data Mining Company X

Data Mining Company Y

Data Mining Person Z

For PoWConsensus(optional)

What are the core functions of Blockchain?


3 Decentralized Consensus

4 Public Private Key Security1 Distributed Ledger

2 Smart Contract 5 Crypto Currency & Wallets

Blockchain core functions


1 Distributed Ledger

Distributed Ledger


Key Question: We’ve had Distributed DBs for years; why Distributed Ledger is such a big deal?


Application

Database

Business Logic

The World Today

Company A

Blockchain Node A

Ledger A

SmartContractX

Company B

Blockchain Node B

Ledger B

SmartContractX

Company C

Blockchain Node C

Ledger C

SmartContractX

Company D

Blockchain Node D

Ledger D

SmartContractX


Database

Database

Synchronized(Replication) Optional validation

1 Synchronize with Validation

This 1 company controls the data

Synchronize with Validation

Synchronize with Validation

2 No single Company controls the data.

3. Who controls the addition of data in DL ? It’s the SmartContract! Not a company.4. So who actually controls data in DL ? Could be end user as the ultimate controller.5. Unlike traditional Database, Data in DL cannot be deleted (Immutability).



2 Smart Contract

Traditional vs. SmartContract


Key Differences Traditional Contracts Blockchain SmartContract or ChainCode Benefits of SmartContract

1 Overview Paper or Electronic Electronic; Coined Nick Szabo; ChainCode in Hyperledger Accuracy: More accurate, less errors

2 What is it? Describes Terms Describes Terms AND Controls how to process a transaction Built in Governance

2 Who creates it? An Intermediary: Agent of Buyer or Seller Or company

Business who wants to offer something at no or low overhead

Autonomy: No reliance on intermediary so Faster

3 Who keeps it? Kept with Buyer & Seller and Intermediary

Kept In Distributed Ledger Reduce Risk of manipulation

4 Who can see it? Only Buyer and Seller Everyone if that makes sense or only Buyer and Seller Transparent

5 Can it be changed? Usually Not but addendums can add or remove clauses.

No… due to Immutability (except under extreme circumstances)

Immutability

6 Tampering possibility? Yes No.. due to Immutability. Log is maintained. Trust. Each node is a backup

7 Who executes a Transaction?

The Agent or Intermediary takes a % of transaction fee

The Business that created it offers the leader a financial incentive to “Execute” the contract by creating blocks.

Achieve Intermediary service from the Smartcontract itself for Savings

8 Who is intermediary? The Agent or Intermediary No intermediary ( SmartContract is “the intermediary” ) Independence

9 Risk of Litigation? Yes always No as SmartContracts guarantee a very specific outcome Eliminate or Reduce Litigation

10 Security Low Very High Highly Secure

11. Legal Jurisdiction? Very Clear Not very clear (but can be managed) Define once, use always

What does a Smartcontract do?


Smart Contract

2 Replicates Assets

(Distributed Ledger)

3 Security with Cryptographic

Hash Chain

4 Contract Execution

(Governance & Control)

5 Byzantine Fault Tolerance

(BFT Replication)

6 Transaction Management

1 Biz Logic (Turing

completeness)



3 Decentralized Consensus

Consensus, Trust

How do validators validate a transaction and block ? What is the agreement? Who’s in control?

Distributed “trustless” Consensus is the Primary Innovation of Blockchain


1 Proof of Work• Anyone with compute power can do

• All actors solve math problem

• The winner is the leader with brute power – The “Miner”

• Leader creates a block. Others verify

• Leader is financially rewarded

• Cheating is difficult. 32TwH per year

• Flaw: Miner > 51% resource can hijack

2 Proof of Stake• Created to solve energy issue

• Brings mining back into the chain

• Actors w/ stake replace energy use

• Leader who creates block is chosen deterministically by their stake

• Min % stake may be required to participate

3 Proof of Authority

• Only pre-approved accounts are Validators – “Authority Nodes”

• Earn the right, uphold high standard, reputation

PoW PoS PoA



4 Security of Data & Transactions

Cryptography: Public Private Key


Public Key = Add 1 (everyone knows) ABCDEFPrivate Key = Subtract 1 (his secret) 121212

Note: -- private key unique 10 ** 77-- a simple example … in reality it is complex-- It’s NOT ‘possible’ to deduce the private key from public key-- Two keys are linked with a “Signature Algorithm” – forcreating identities, signing messages & validating signatures

Public Key = Mult by 2 add E (Everyone knows) BX87Private Key = Div by 2 then remove E (her secret) HKX6

Andy Barbara1. Andy wants to send Barbara something – say a secret number, say its “10”2. He takes Barbara’s public key (i.e. multiply by 2, add E) and encrypts it to “20E”3. He sends Barbara “20E” as encrypted message4. Barbara uses her Private Key secretly (i.e. divides by 2 and removes E) and decrypts to 10

Thief Steals the data “20E”Thief does not know Barbara’s Private keyThief cannot Decrypt20E to 10

10→ Encrypt → 20E 20E → Decrypt → 10

Security of Blockchain Data



Application

Database

Business Logic

The World Today

Company A

Blockchain Node A

Ledger A

SmartContractX

Company B

Blockchain Node B

Ledger B

SmartContractX

Company C

Blockchain Node C

Ledger C

SmartContractX

Company D

Blockchain Node D

Ledger D

SmartContractX


Database

Database

1 Data may not be encrypted & public key cryptography not needed

1 Data is always encrypted & public key cryptography

2 No single point of failure

2 Single point of failure

3 Tamper resistant as same block is spread on N nodes (cannot change all blocks)

3 Data can be changed as its on one database

4 No detection controls exists that detect invalidation of record

4 A transaction is saved in the ledger with cryptography + private key of the creator. If this record is hacked and altered, the record cannot be read back and is invalidated and peer networks know this is compromised

Security of Blockchain transaction


1. Andy or a SmartContract on Node wants to send Barbara 10 Bitcoins2. He takes Barbara’s public key (i.e. multiply by 2, add E) and encrypts it to “20E” Bitcoins3. He sends Barbara “20E” as encrypted message4. Barbara uses her Private Key secretly (i.e. divides by 2 and removes E) and decrypts to 10

Thief Steals data “20E”& does not know Barbara’s Private key & cannot change to 1,000 Bitcoins as private key of sender will invalidate tampering


AndyA Computer Node or

Key Question? How do we prevent Barbarafrom altering the data – e.g. Bitcoins shereceived are 10 but she can change 10 to 50 To claim that she deserves 50 bitcoins?

Barbara



Easy Answer: Andy or Node D, “signs” the transactionWith its own Private Key 121212 before it sends it to Barbara, so she cannot change it

Signed by 121212 Signed by 121212



5 Crypto Currency & Wallets

Blockchain world (Crypto Currencies)

Today’s world ($, €,..)

Cathy Bank Account 123

Bank Account 567

The whole worldAny currency, Any person

Anywhere

Blockchain World (Bitcoin, Ether, Litecoin. Others)

Cryptocurrency Wallet


Andy

Paypal acct 0101 Paypal acct 0203

CC (1 acct with CC)

Cryptocurrency Wallet(Bitcoin, Ether, others)

Private Key (secret) & Public Key (Wallet address)‘Money’ sent to public key can be spent by person who knows private key

Many Companies offer wallets

BitCoinBlockchain

Ethereum Blockchain

Other Blockchains

CryptocurrencyExchange X

CryptocurrencyExchange Y

$ €: Fiat currency

Cathy


Private Key (secret) & Public Key (Wallet address)‘Money’ sent to public key can be spent by person who knows private key

Many Companies offer wallets

BitCoinBlockchain

Ethereum Blockchain

Other Blockchains

P2P Blockchain transaction


1. Andy or a SmartContract on Node wants to send Barbara 10 Bitcoins2. He takes Barbara’s public key (i.e. multiply by 2, add E) and encrypts it to “20E” Bitcoins3. He sends Barbara “20E” as encrypted message to her Wallet Public address4. Barbara uses her Private Key secretly (i.e. divides by 2 and removes E) and decrypts to 105. She can use her Bitcoin ‘money’ now to buy goods through P2P with others


AndyA Computer Node or

Barbara




Cryptocurrency Wallet

What is an ICO?


• Initial Coin Offering

• Crowdfunding

• Startup create a crypto currency token: MySuperDuperCoin (MSDC)

• Offers x% of MSDC to investors at say 100MDX = 1 Bitcoin

• About 80% of ICOs are on Ethereum platform• Token are based on Ethereum ‘ERC20’

Energy Blockchain

Use of Blockchain in Energy


P2P Trading - Transactive Energy


OC

Micro Grid

IT Grid / Blockchain

B

P

U

23

4

5

6

Transaction

1. Price Signals (optional)

2. Produces Electricity

3.Places Order with pre-negotiated price with P or (b) Buys via Exchange, Consumes Electricity

4. Removes KWH from Producer into Grid

5.Balancing Function, Manage Load, Frequency, Power Factor

6. SmartContract, Billing and Settlement

7.Proof of Authority (Confirmation), Customer Service

8. Proof of Stake (Other)

7

Note: • P & C may be connected to a feeder line originating

from the same substation or the two maybe on different feeder lines on two substations

Electricity Grid

Energy Market

I1

8

I ISO / RTO

P Producer

C Consumer

U

O

B

Utility

Operations

Blockchain

Energy Blockchain Use cases

• Peer to Peer Energy Trading

• Wholesale Market Settlement

• Energy Data Management

• Energy Forecasting

• Energy M&V

• Net Energy Metering

• DER Service Coordination


• Grid Security

• Customer Data & Service

• Retail Billing

• EV Charging

• Energy Storage

• Microgrid Network operator

• REC & Carbon Trading

• Price Responsive Demand Response

Blockchain Drawbacks & Issues


• Lack of Education or knowledge• General Risk perception: Fear and Hacking

• Change Risk: We may get disintermediated

• Large Size• Cannot get smaller

• Incompatibility with Enterprise Systems• Lack of Standards

• Lack of Integration

Upcoming Conference


Thank You


Contact Information

Tony Giroti

[email protected]

617.480.6550

• Q&A Time

• Register for next webinar

• Join Energy Blockchain Consortium

• Get involved in real Blockchain projects

Documents

Blockchain Basics - Amazon S3...Traditional vs. SmartContract July 13, 2018 CONTENT COPYRIGHT © 2018, ENERGY BLOCKCHAIN CONSORTIUM, Tony Giroti, [email protected] 17 Key