Blockchain & Smart contracts: Digital Evolution Conference 2018

[Music] so good afternoon everyone you all had a good lunch you're energized you want to learn something about blockchain yeah that's that's awesome first a little introduction my name is Xavier I'm a youtuber I make the YouTube channel simply explained and I have a passion for taking complicated topics and explaining them in a simple and straightforward way and that's what I do on my channel I make simple explainer videos and that's what I'm gonna try to do here today as well we're gonna try to explain blockchain in a very simple and straightforward way so during this presentation we're gonna talk about blockchain but we're also going to talk about smart contracts and how both can be used together to create interesting applications or to power your business or things like that let's start with the basics let's start with blockchain blockchain is an incredible buzzword I think you've all heard about blockchain about how great it is about you should use it in your in your business but who here actually knows how a blockchain works like on a technical level you already do that's great but but most people they they don't really understand how the technology works so that's what we're here for today now blockchain of course it all started when Bitcoin was introduced and it's important to note that block chains and crypto currencies like Bitcoin and aetherium are not one of the same thing in fact cryptocurrencies are built on top of a blockchain so that raises the question what's this underlying technology what's this blockchain thing and why is it so special to cryptocurrencies well I took a definition off the internet and the internet says that a blockchain is an open distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way what does that mean well there are three key words in this definition that I'd like to highlight and that is distributed ledger transactions permanence let's go over each of these three and let's start with transactions when when I hear the word transaction I think about trade I think about people buying something in the store I think about companies buying selling goods amongst each other and I think about trade and transactions I also think about bookkeeping where we go to the store and we pay for something we get a receipt and there's also record of our payments in our banking app we can see there's a statement you've purchased this at your local store I'll give you a few examples of bookkeeping and why it's so important everyone is doing it these days that we're doing personally businesses are doing it but also banks are doing it thanks for keeping track of your money they keep track of how much money you have how much money you you get each month how where you spend your money they keep track of money I mean it's so logical governments also keep a lot of records they keep track of who lives in their country who owes taxes what benefits you get but the problem these are just two examples by the way yeah but the problem with bookkeeping is that it's usually very centralized they're just a handful of banks in each country and there's hopefully just you know one government in each country and that means that we have to trust these central authorities we have to trust our bank that they will keep our money safe I mean have you ever wondered what would happen if the bank would lose track of your money that would be a disaster it would be better if they lost track of how much money you owe them you know your loans if those who disappear but you know we have to trust these central authorities and that is something that a blockchain can solve so let's go back to our definition and let's highlight this distributed ledger what is a distributed ledger well distributed is really easy it means there is no central point there's no one bank where all your money is no everyone can participate and ledger is just a fancy word for saying a database or a spreadsheet it's just a place where you can store information and that brings us to the last key words in the definition and that is permanent when we trade goods we are doing things that are permanent here are two people one has a phone if I sell you a phone then that transaction is permanent I gave you I give you the phone you give me some money it's permanent I can never get my phone back unless we make a new transaction and I buy the phone back from you then I can reverse the transaction but in essence these are two separate transactions so it's permanent so a high-level overview of blockchain is that it's distributed there are no central authorities it's immutable which is a fancy word of saying that you can only add stuff to it you can only create new transactions but transactions that have happened in the past cannot be changed anymore and block chains are for everyone everyone can make transactions but no one can change them now you're probably thinking oh my god how does this work on a technical level how can it be for everyone how can everyone create stuff but how can we prevent people from changing stuff how does this how does this work well let's take a look behind the scenes let's take a look at how a blockchain actually works we'll start with a very simple question what is a block a blockchain is probably a chain of blocks but what is this block thing while a block is basically a container for data it's like a file in your computer where you can store information a word file in excel file stuff like that and each block can contain three things it can contain data any data that you want it contains a hash and it contains the hash of the previous block so let's take a look at these three and let's start with data what data can a blockchain contain well in case of Bitcoin it contains transactional data and transactions are from someone they go to someone and there for a certain amount but if you want to use a blockchain to store important files for instance then your blockchain would contain your file name it would contain the size of your file who has created it when it was created when it was less changed all that kind of stuff a block also has a hash which is like a unique fingerprint it uniquely identifies this block and the way we get this hash this gibberish that you see here on the screen is we take everything that's stored inside a blockchain we run it through what's called a hash function and then we end up with something like this and an interesting property about this is that if you change something inside your block just one character if the hash of the block changes completely so you know we you can already think how this can be used to detect changes and to prevent people from changing stuff and then each block contains the hash of the previous block and this effectively creates the chain of blocks because each block points to the block that went before it so let's take a look at a very simple example here is a block chain of three blocks block number 1 2 & 3 let's take a look at their hashes we'll start with block number one block number one has a unique hash it's 1 z8f in this case and because it's the first block on our chain it doesn't have a previous block so we just set it to 0 or whatever empty 0 doesn't matter block number 2 also has a unique hash in this case it's 6bq one but this time block number 2 says hey the block that went before me it's hash is one set 8f so it points towards the block that went before it the same thing goes for block number 3 it has a unique hash and it points towards block number 2 as being the block that went before it now let's take a look at what happens when we try to change something inside a block let's say we're a hacker and we want to change block number 2 in block number 2 there is a transaction that says you received zero point 1 Bitcoin and I want to change that I want to say while it wasn't zero point 1 it was actually 100 bit coin that I received which would make me very wealthy well if I do that the hash of the block will change because again this hash function has calculated that based on what's inside the block so in this case the hash is now aged 6 to Y and now block number 3 has a problem because block number 3 says hey the hash that went before me the block that went before me should have the hash 6bq 1 but it's actually something completely different so something is not right here we have broken the chain now I hear you thinking well this is very easy to solve as a hacker I just move along to block number 3 I change block number 3 as well and then I have a fully valid block chain again and you would be correct that's indeed a way you could cheat the system however there are two security mechanisms in a block chain that prevent this from happening that is a consensus algorithm and appear to peer network so let's start by taking a look at consensus algorithm when Bitcoin launched and still today it uses the consensus algorithm called proof-of-work and basically this is a cryptographic puzzle that your computer has to solve whenever it wants to put a new block on top of the chain and this puzzle is engineered in a way so that it always takes around ten minutes of time for your computer to solve it and this process is called mining you've probably heard about mining and how they create Bitcoin and stuff like that so it means that if we start out with one block on our chain ten minutes later block number two will be created ten minutes after that we'll have a third block and so on and so on and so on so we are creating blocks on a very steady interval every 10 minutes in the case of Bitcoin but why would we want to make this slow on purpose why can't we just make any amount of blocks that we want just dumb them on the blockchain and that's all good well it's for a little hacker friends let's take a look again at what happens now when he tries to change something inside block number two when it changes something the hash changes it breaks the chain we've seen this before but to make the block valid again he has to resolve this cryptographic puzzle and this puzzle takes him ten minutes he needs ten minutes to solve the puzzle after ten minutes he moves on to block number three because he has to make his chain valid again and he starts this process again which takes him again ten minutes but while he's solving this puzzle the rest of the people have already added a new block so the idea is that the hacker will always run behind he will always run at least one or more blocks behind the rest of the people so he can never outrun the creation of blocks and he can never successfully cheat the system the second thing that secures a blockchain is appeared to peer network I've said there are no central authorities in a blockchain well that's where the peer-to-peer network comes in everyone who wants can join this network if you have a computer you can download the Bitcoin software and it will grab a copy of the entire blockchain every transaction that has ever happened on bitcoins blockchain will be downloaded to your computer and when someone comes along and he creates a new block you will send it to everyone on this network he will say hey you know I have a new block their transactions in it here it is and each node on the network individually will verify that block they will look did you do the proof of work did you solve the puzzle is it correct do the transactions inside your block make sense maybe you're spending coins that you don't have that's that's not possible so they're verifying this and when everyone says ok this is valid they add it to their own copy of the blockchain so to gather the notes on this on this network they create consensus they agree about what's on the blockchain and what's not on the blockchain so when some comes along to try to cheat the system they will notice that they will see hey yeah but you're trying to steal coins you're trying to spend more coins that that you have and then we'll just ignore him so yeah but you know we all agree that that's not the true version that's not really what happened so we just exclude you from the party so these two together are what make a blockchain really so secure it's a peer-to-peer network and the consensus algorithm in case of Bitcoin that is proof of work so this means that we don't have any central authorities anymore everyone can become a part of a block chains Network everyone is equally important there is no one with authority in this case and it also means that we don't have to trust these central authorities because you know they aren't there in the blockchain now I've talked about proof of work and I just quickly want to mention that this is just one of the consensus algorithms that are out there proof of work is known to be very wasteful with resources you've probably seen Bitcoin mining forms like this one in Iceland and you probably know that it uses enormous amounts of electricity but proof of work is just one of them so if you want to learn a bit more about other consensus algorithms then we can talk about this in the questions afterwards but now how can we use a blockchain well very obvious use case cryptocurrencies bitcoin is out there aetherium litecoin and in fact there are hundreds of cryptocurrencies right now out there who are using blockchain to store transactions just because it's so safe and it's so secure what about other things well we could use it as a notary for instance a notary is someone who can validate when a certain document was created he also does other things but this is one of the things that he does so for instance a patent you can give that to a notary and the notary will say okay I vouch for this on this date you had this patent well we could use a blockchain for that in fact there service out there called stamped REO where you can take an important document you can put it on there and you can choose what blockchain you want to upload your document to and then if there's ever dispute later in the future about when this document was created and how can you prove it bla bla bla then you can say well just look in the blockchain no one can change it and at that point in time I had that document that's my patent or that's my contract or whatever important document you have now right now stamp that IO doesn't have any legal value you cannot use it in court for instance but we can imagine that in the future this type of a notary service could become the acceptable way of notarizing documents but how about businesses well the first thing you have to realize when you're talking about businesses is that block chains are not limited to humans they can also be used by sensors sensors can ride their values to it by robots or by programs and I'll give you just one example of how this can be used let's take a look at the food industry who here knows when he buys a pack of meats or through any food in the store who here knows where that food came from and where it has been and who has treated it and who has processed it who knows that probably no one well we could solve this with technology we could put a little sensor on our food that we could keep track of things like where has our food been who has processed it was it kept at the right temperatures when was it sold where was it sold what store and all of this data can be recorded transparently into a blockchain and so it means that if the store tries to sell you pack a meat that's over dates you will be able to check that they cannot fake the data in the blockchain it's it's fixed in fact this use case is already being used by Walmart they've partnered up with IBM to use a blockchain to keep track of this Chain of Custody that's what they call it and in fact it allow to retrace the origin of a pack of food in two seconds versus otherwise it would take days or even weeks so in case of a disease that is spreading with contaminated meat for instance you want to be able to quickly identify where did that meat come from who has bought other packs of that meat and you know what can we do with that so you don't want to wait days or weeks to to know that so this is a very good application of blockchain so these were three applications cryptocurrencies a notary a chain of custody for your food and they all have one thing in common it's that it's open it is transparent you record data into a blockchain and then you allow everyone to look it up and you guarantee or the blockchain guarantees that no one can tamper with that data so it's about being open and about being transparent now of course in case of food the data that goes into a blockchain has to be honest but once it's in there you know you can rest assured no one can tamper with it so that's a high-level overview of what block chains are how they work and how they can be used but the problem with block chains is that they're static they can store data and then you can retrieve that data but there is no other interaction that you can have with a blockchain so that brings us to the second part of this presentation which is smart contracts what are those and how can they be used while smart contracts are basically like contracts in the real world you know the paper wants where you put your signature except they're digital and being digital means their code their code that a computer can understand and smart contracts are stored inside a blockchain which gives them all of the benefits that we've just talked about it means that they are accessible to everyone everyone who wants can see the contract it also means that everyone can interact with this contracts everyone can run it everyone can verify the conditions of the contract and there is consensus about the outcome of the smart contract so if I create a smart contract that calculates one plus one then everyone on the network will agree that one plus one equals two and if someone comes along and he says yeah but you know in my on my case my computer said one plus one equals four then the others will say yeah but you know we verified ourselves so one plus one is still two what other thing is going to smart contract - well it can send and receive coins and it can interact with other smart contracts I'll give you a few examples of why this can be very important let's go back to the benefits of a smart contract they are immutable just like a blockchain they're stored on the blockchain so it means once you've added a smart contract to it it can be changed anymore so no one can force your contract and say yeah but you agreed to different terms or you know the outcome of the contract is now different no one can do that and it's distributed there is consensus about that contract everyone knows what the contract is everyone knows the outcome no one can cheat the system so how can we use that well I'll give you a few examples of how it can be used today and I'll give you a few examples of how in the future we can use this technology so today we could use it for a multi signature wallet for instance you know if you start a company you might want to open a bank account somewhere right you start your company with a co-founder you open a bank account somewhere and you deposit some money in there but you may want to put a restriction on that bank account you might want to say you know if we want to release money from that bank accounts both of the founders have to agree that's something we can also solve with smart contracts here in this case there are two co-founders each of them deposit a certain amount of coins into the smart contract then the smart contract keeps those funds locked up it keeps it locked up based on the conditions that you've programmed into it so in this case we program the smart contract so that it can only release these funds when both of the co-founders agree so if one of the co-founders says well you know I'm gonna take all the money and I'm gonna move away go sip pina colada on a beach somewhere you know and be rich well he cannot do that the smart contract will say yeah I'm sorry I can only release these funds if X amount of people agree in this case if the other co-founder agrees as well and when they do when they both agree on a transaction then the smart contract will do what it's asked it will release the funds so the code of the smart contract really high-level is basically if X amount of people agree with the transaction then we do the transaction and if they don't agree then we don't do anything we keep our funds we keep it locked away another example is tokens and maybe some of you have heard of I SEOs initial coin offerings and how much money they draw and stuff like that or maybe some of you have known I've heard about one of these well tokens is almost like having a stock a stock of your company on the blockchain and it runs entirely on a smart contract so you have a smart contract where anyone can send a certain amount of coins to that smart contract and that smart contract will give you in return a number of tokens you become a shareholder or you become a supporter or whatever you can most of the time there's some economic value to these tokens and the smart contract is now in charge of managing your balance it keeps track of how much tokens you have and how you spend them and they also allow you to transfer these tokens to other people so these are two examples of how smart contracts are being used today but how can they be used in the future well I'll give you just a few examples crowdfunding who here knows Kickstarter or IndieGoGo you probably yeah right the idea is very simple if I'm a product team and I want to raise money to develop my products then I can set up a campaign and I say well I need at least X amount of euros and then people can contribute to my project and then ultimately in the end hopefully it gets funded and then I get my money while in this case a crowdfunding platform stands in between the supporters and the product team so both parties have to trust this middleman they have to trust Kickstarter right if I give money to a project I trust that Kickstarter will actually give my money to that project and if that project doesn't get funded I trust Kickstarter to give me my money back because yeah you cannot give it to the team so trust in the central party is required well we can use the smart contract again to get rid of this central central authority and make it distributed all of the supporters can send coins to the smart contract and the contract is programmed so that it will only release the funds if the project got funded so if the project meets it goals it sends all that money to the product team who can then develop their product and ship it and go to mark and all that kind of stuff but if the project fails to get the necessary funding then the smart contract returns the money to all of the supporters everyone is happy no central authorities no central points like Kickstarter or IndieGoGo so high-level overview of that contract it's just if the goal is met we give the money to the project team and if the goal is not met then we refund the supporters very high level overview another example postal companies they can offer a service called paid on delivery right now if we order something from a webshop we have to pay in full and we have to trust that webshop to actually ship us the goods when we've made our payment well we can use a smart contract to solve this instead of paying directly to the webshop we pay to the smart contract so that way the money is out of our reach we cannot get that money back that webshop now can verify that the money is there you can say you know did you really pay up okay I can see the money is on hold I'm sure that I will get my money if I send you the package they then send you the package and then we can program the smart contract to automatically release the funds to the webshop if the package is marked as being delivered if it has your signature or we could use a GPS tag too and put that into a package so when it arrives at your doorstep up the smart contract is notified and it releases your funds last example I want to give is a music service something like Spotify or Apple music they could be decentralized as well you know these platforms basically connect listeners to artists and every month you pay your membership fee in case of Spotify that's $9.99 a month and then at the end the month Spotify takes your $9.99 takes a small cut and then it distributes the money to the artists that you've listened to what we can use to smart contracts to do just the same thing one smart contract receives your membership fee you pay your $9.99 to that one smart contract and it collects all this money from all of the users the other smart contract keeps track of what you've listened to or you've listened to that artists X amount of times that ours that X X amount of times and at the end of the month both smart contracts can work together and they can distribute the funds to the artists that you've listened to so this way you could create a distributed Spotify that is also very transparent because you can follow all the transactions on the blockchain so these are three examples of how blockchains Plus smart contracts can be used in businesses so crowdfunding postal companies for instance and distributed music service but I'm sure that by now you you might have your own idea so you might think like oh maybe I can use it like this or like this in Maya in my business so those are smart contracts and that brings us to the end of the presentation so let's summarize we started out by looking into blockchain what is a blockchain what's a block and how is the chain between blocks created we also looked at the properties of a blockchain the fact that it's distributed the fact that it's immutable and that it's open for everyone we also looked at security and how it can be attacked but also how it prevents attacks how it makes the life of a hacker you know really difficult we looked at smart contracts what they are how they work where they're stored how they can be run and we've seen a few use cases of how you can use a blockchain and how you can use blockchain plus smart contracts so that brings us to the end of the presentation if you want to learn more about blockchain about consensus algorithms about general tech topics be sure to subscribe to my youtube channel it's called simply explained or you can also follow me on Twitter or on Facebook I'd like to thank you for coming out and pretending the the talk and if you have any questions and feel free to ask and then we can discuss and I'll try to answer them thank you [Music] you [Music]

Channel: Simply Explained

Views: 37,274

Rating: 4.9448752 out of 5

Keywords: blockchain, ibm, best practices, simpler, learn, smart contract, lesson, free, introduction, understand, howto, basics, music service, banks, comprehension, sweden, training, getting started, knowledge, school, educate, fundamentals, talk, education, schooling, self-improvement, tutorial, chain custody, comrpehend, P2P, decentralized, innovation, bitcoin, live, notary, information, immutable, learning, ethereum, conference, new, beginner, data, food industry, wallmart, malmo, dummies, research, basic tutorial, contracts, course

Id: HNCwbKAY7AM

Length: 31min 7sec (1867 seconds)

Published: Mon Oct 15 2018