Blockchain and Its Implications

“No term at present is more hyped, and

more poorly understood”
Fortune, August 2017

Blockchain has “already pivoted from the

realm of the possible into the worlds of the
practical”
Deloitte, 2020

“Used in industries ranging from shipping

to healthcare, from farming and food
safety to entertainment and gaming”
Forbes, June 2020

With market penetration between 1% and

5%, “most enterprise projects [are] stuck in
experimental mode, lacking clear goals and
measurements”
Gartner, July 2020
The World we live in runs mostly on Trust
How do you know the medicine you have taken is not fake?
How do you know that the ‘address proof’ you submitted is being used only
for that purpose?
How do you know the credentials submitted by your employee are genuine?
How do you know the painting you bought is an original Van Gogh?

Cost you pay if you don’t Trust ?

Consider buying a piece of land from a seller and, that too, through a bank
loan
Consider depositing a cheque of USD drawn on a US bank at the local
branch of your bank in India

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 How and when will you be assured
that the medicine you have taken is
not fake?
The batch number is available in a ledger that is agreed upon by ‘the
relevant community’
None in the ‘community’ has more power than anyone else
None in the ‘community’ can be impersonated
It is impossible to tamper any portion of the ledger
There is only one copy of the batch number in the ledger
The ledger agreed upon by the community traces the consignment (the
batch number) as it changes hands starting from the manufacturer
The agreed upon ledger is accessible with you
You can check the ledger easily, in seconds

4
 “Trust, But Verify”
Blockchain Promise
A distributed ledger of the history of transactions or other
successive events that is
Authenticated
Consistent
Tamper-proof
Democratic
Easily verifiable
And can be
permissionless, or permissioned
Anonymous, or named
“Intelligent”
Current Status?
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Gartner Hype Cycle, 2018

6
Gartner Hype Cycle, 2019

7
Hype Cycle for Blockchain 2020

8
Gartner Prediction on Blockchain in 2020
Lists blockchain as one of the top ten strategic technologies for 2020
The research firm says blockchain has the potential to reshape industries
by enabling trust, providing transparency and enabling value exchange
across businesses.
Gartner lists eleven use cases for blockchain
Many relate to data such as asset tracking, provenance, and both internal and shared
record-keeping
Several applications orient around finance and banking including payments/settlement,
trade finance, trading and insurance claims
Other use cases have broader applications such as identity and know your client, IoT
and smart cities, and loyalty and rewards.
According to them, one of the issues with enterprise blockchain currently
is that most networks are permissioned and run by a central authority
However, Gartner sees this as an evolutionary phase and expects permissioned
blockchains to integrate with public blockchains in the future
Moving through different phases of development, Gartner envisages
the technology will unlock value in 2023

9
Gartner Hype Cycle, 2021

10
As it is currently being talked about
“Blockchain is a type of distributed ledger, an expanding
chronologically ordered list of cryptographically signed, irrevocable
transactional records shared by all participants in a network.”

“Blockchain allows companies to trace a transaction and work with

untrusted parties without the need for a centralized party (i.e., a
bank). This greatly reduces business friction and has applications
that began in finance, but have expanded to government,
healthcare, manufacturing, supply chain and others.”

“Blockchain could potentially lower costs, reduce transaction

settlement times and improve cash flow.”

11
 Blockchain in Financial Services
It promises huge savings in infrastructure, transaction, and
administrative costs.
It can disintermediate the transfer of financial assets digitally,
reducing the role of central counterparties.
It can also help improve the level of trust, accuracy, and resilience
in the financial ecosystem.
Every segment of the FS market is trying to leverage it:
Hundred of corporations are part of different blockchain consortia
More than 2,500 blockchain patents have been filed over the three years
Some hundred central banks across the world are engaged in blockchain discussions
Venture capitalists are investing billions to explore blockchain usage in the FS industry
Hundreds of blockchain based fintechs are trying to get a foothold
Even established technology vendors like R3, IBM, ConsenSys and Chain are trying to
play a key role in the blockchain ecosystem
Regulators and policy makers of FS too have begun focusing on blockchain’s adoption.
FinCEN, Commodity Futures Trading Commission (CFTC), and Securities and Exchange
Commission (SEC) are just a few examples

12
 Blockchain in Supply Chain
A blockchain supply chain can help participants record price, date,
location, quality, certification, and other relevant information to
more effectively manage the supply chain.
The availability of this information within blockchain can increase
traceability of material supply chain, lower losses from counterfeit
and gray market, improve visibility and compliance over outsourced
contract manufacturing.
Almost every industry is putting in efforts to leverage it:
IBM Food Trust: Initially in collaboration with Walmart, Nestle, and Unilever. Later
on joined by … Dole, Carrefour, Kroger, Albertsons …
Tradelens: Jointly developed by IBM and Maersk that brings together all parties in
the supply chain of the shipping industry — beneficial cargo owners, freight
forwarders, inland transportation providers including rail and trucking, ports and
terminals, ocean carriers, customs and other government authorities—onto a single,
secure data-sharing and collaboration platform
Tracr: De Beers' initiative can provide provenance data for diamonds and track them
from the mine to the retail outlet. Plans are now in place to spin it off into an industry-
wide association accessible to any organization needing to track diamonds

13
 Blockchain in Public Services
Potential for increased automation, transparency, auditability and
accountability of information in governmental registries
Can reduce bureaucracy, discretionary power and corruption
Increased trust of citizens and companies in governmental
processes, and recordkeeping driven by the use of algorithms which
are no longer under the sole control of government
Almost every country trying something or else:
Sweden : Property transactions; transfer of land titles
Estonia: Digitalization of almost every public service
UAE: The Emirates Blockchain Strategy 2021 aims to capitalise on the blockchain
technology to transform 50 per cent of government transactions into the blockchain
platform by 2021
USA: Initiated blockchain programs in General Services Administration, the
Department of Homeland Security, and the Health and Human Services Department
India: Coffee Chain by Coffee Board; IndiaChain by Niti Aayog, Quality Council of
India’s initiative; Nearly half of the Indian states are involved in over 40 public-sector
blockchain projects

14
 Blockchain in Healthcare
Blockchain has the potential to propel innovation in preventative
care and community-based healthcare models.
Blockchain can tie together a complex team-based healthcare,
finance and payment with the care provided along with it.
It makes easy to track a drug as it moves from the manufacturer
to the patient. This improves the traceability of a drug as it moves
across the supply chain, and helps prevent drug counterfeiting.
Many initiatives are afoot:
In Estonia, all of the country's healthcare billing is handled on a blockchain, 95% of
health information is ledger-based and 99% of all prescription information is digital
Based out of the U.K, Medicalchain provides a platform that allow for health records
to be stored and shared across hospitals, medical labs, pharmaceutical companies, and
doctors
Chronicled created the Mediledger Project, a ledger system dedicated to the safety,
privacy and efficiency of medical supply chains
Robomed deploys chatbots, wearable diagnostic tools and telemedicine sessions and
uses blockchain to securely gather patient information and share it with a patient's
healthcare providers

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 Issues to be Resolved
Privacy
Transactions are not anonymous but pseudonymous; Encryption of transaction is
possible but not feasible
Scalability
Bitcoin processes 7 transactions per second compared to 2000 by Visa
Consensus regarding transactions in decentralized situation takes time
Security
Agents with high decision making power might influence consensus
Bugs in smart contracts can play havoc
Environmental sustainability
Prevalent consensus protocols are dependent on ever-expanding energy consumption
Most of the initiatives use trade offs among these issues making
them difficult to communicate, thereby slowing down adoption
Interoperability
How to make different blockchains developed with different compromises talk to each
other?

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 Course Plan
Session 1: Introduction to the course and Blockchain
Article: An Introduction to Blockchain, Darden Business Publishing, UV7356
Session 2: Blockchain Basics: The Bitcoin Platform
Article: Blockchain Technology: Beyond Bitcoin, Berkley Whitepaper
Article: Blockchain, Cryptocurrencies, and Digital Assets, HBS 9-818-066
Session 3: Towards world computer: The Ethereum Platform
Article: Ethereum whitepaper
Session 4: Permissioned Blockchain: The Hyperledger Platform
Article: An Introduction to Hyperledger
Session 5: Blockchain and Fintech
Case: Ripple: The Business of Crypto, HBS 9-719-506
Case: R3: Putting the ‘Fin’ Back in Fintech, IN 1544
Session 6: Workshop: Conceiving a Blockchain project
An in-class exercise

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 Course Plan
Session 7: Blockchain and Supply Chain
Case: Maersk: Betting on Blockchain, HBS 9-518-089
Case: Chow Tai Fook: Blockchain for the Diamond Industry, Ivey Publishing,
W20143
Session 8: From Practitioner’s Viewpoint
Biography of a real life project
Sessions 9-10: Presentations on select initiatives
Current status of blockchain applications in areas like Music, Government,
Stock Market, Media, Energy, KYC, Healthcare, Supply Chain, Financial
Services, Initial Coin Offering, and similar other areas

Group level: Analyses of 2 cases around

the lead questions (20%)
Evaluation Design Assignment (20%)
Presentation & Report (30%)
Individual level: Written Exam (30%)

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 Certain expectations and deadlines
Don’t be late to class.
Groups will be formed by September 28, 2021
Each group is to submit analysis of each of the two identified cases, around lead
questions given, before midnight of:
Ripple: 3rd October
Maersk: 17th October
Each group is supposed to design a blockchain application around the given
problem. Submit the solution by midnight of October 22.
Each group is to research on one of the listed topics, submit a report on it, and
make a presentation on it in the last week
Report Structure: What problem(s) is (are) being targeted in the area chosen –
Justification for using Blockchain to solve the problem(s) – What are the blockchain
initiatives so far in the chosen area – what are the platforms being used – how do the
initiatives compare with each other – current status of the initiatives – your take on the
future of the initiatives
Selection of topic: by 4th October
Report Submission deadline: 31st October
See the document Cases&Presentations&Assignment_21 for details

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 Course Objective
At the end of the course, you should be able to:
Understand the features of the technology
Identify the application areas where the technology can make a
difference
Understand how to design a solution to a problem using this
technology
Track the refinements and changes in the technology as it
matures in the future

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Blockchain Basics: The Bitcoin
Platform
 The Scenario
There are nodes in a network where they can do transactions with
each other using a cryptocurrency called bitcoin
Unlike fiat currencies, the security rules of cryptocurrencies need to be
enforced purely technologically and without any reliance on a central
authority
Assume, for the time being, that a fixed total amount of bitcoins are
currently being held by all the nodes together in the network
When you are being paid with a bitcoin for some service, you need to
ensure:
The buyer actually owns the bitcoin he is paying you with
The buyer is not spending the same bitcoin for another transaction
The buyer cannot later deny that he has spent this bitcoin with you
Two cryptographic ingredients ensure all these:
Cryptographic Hash Function
Digital Signature

2
 Cryptographic Hash Function
Hash Function is a mathematical algorithm that maps an
arbitrary amount of data to a string of fixed size, say, 256 bits
(consistent) The same input always generates the same output, and is easy
to compute
H(x) helps to get a unique fixed size message digest of the message x
However, for a Hash function to be a Cryptographic Hash
Function, H( ), it must satisfy three properties:

Property 1: (collision resistant) It is infeasible to find two

values, x and y, such that x ≠ y , yet H(x) = H(y)
No H has been proven to be collision free
But, for 256 bit hash output, you need to try 2130 randomly chosen inputs on
an average to find a collision of two inputs with a chance of 99.8%
If a computer calculates 10,000 hashes per second, it would take more than
one octillion (1027 ) years to calculate 2128 hashes!

3
 SHA 256 Hash Function

SHA‐256 uses a compression function, c, that takes 768‐bit input and

produces 256‐bit outputs
Inputs of arbitrary size are first ‘padded’ to make it multiple of 512 bits.
Then the input is split into blocks of 512 bits.
Initialization Vector, IV, is reused for every call to the Hash Function, and
you can just look it up in a standards document
This is called Merkle‐Damgard transform

4
 Hash Pointer
A hash pointer is …
A pointer to where some information is stored, together with,
a cryptographic hash of the stored information

So a transaction sequence would look like:

Alice says…
0.5 bitcoin to John H( )
1.5 bitcoins to Alice

Eva says…
2 bitcoins to Alice H( )
…

5
 Have we achieved anything?
It only proves that Alice owns the coin she is paying John with
But…
Alice can later deny the transaction. ‘Someone else did it in my name!’
Alice can quickly change ‘1 bitcoin to Bob’ to ‘1 bitcoin to Dan’ or ‘0.5
bitcoin to Bob’, and connect it to the previous transaction!
We can ensure ownership of the transaction using Digital
Signature
Only you can sign, but anyone can verify
Tamper-resistance will be through chaining of the transactions,
as will be discussed later

6
 Digital Signature Scheme
Consists of three methods or algorithms…
(sk, pk) = generateKeys(keysize)
The generateKeys method takes a key size and generates a key pair. The
secret key sk is kept privately and used to sign messages. pk is the public
verification key that you give to everybody. Anyone with this key can verify
your signature
sig = sign(sk , message)
The sign method takes a message and a secret key, sk , as input and
outputs a signature for message under sk
verify(pk , message , sig)
The verify method takes a message, a signature, and a public key as input.
It returns true if sig is a valid signature for message under public key pk ,
and false otherwise
The algorithms are such that Signatures are unforgeable
An adversary who has seen pk of yours, and signatures on some messages
of yours cannot produce a verifiable signature on a new message

7
 So now the transactions look like…

Signed by skalice
0.5 bitcoin to pkjohn H( )
1.5 bitcoins to pkalice

Signed by skeva
2 bitcoins to pkalice H( )
…

Note that now the players can be known just by their pk without
revealing their identities, and thus stay anonymous
Sign and Verify are expensive operations on large messages. Instead of
signing message, why not sign just the hash, H(message), of it?

8
 Making it tamper proof and valid
Assume, just for the time being, there is a designated Central Authority (CA)
who publishes an append-only ledger of transactions.
Every transaction goes to CA, who checks, looking at the ledger,
The bitcoin is a valid one, means the owner actually owns it
This bitcoin hasn’t been spend before
The transaction is validly signed by the owner of the coin
Creates a block containing a set of transactions, and appends it to the ledger
Each block also contains a hash pointer that links to the previous block and is a
hash of the transactions in this block and the hash pointer of the previous block
This append-only ledger is the Blockchain
Each block is a collection of disparate transactions (triplet of signature,
message, and Hash pointers), a block-id, and a hash pointer to the previous
block
A transaction only counts if it is in the Blockchain, the header of which
is signed by the CA
Any tampering in an in-between block changes the Hash of the block which,
finally, will mismatch with the final Hash pointer that is signed by the CA

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 The Blockchain
H () signed by skCA

Previous H () Previous H () Previous H ()

Block Id: 45 Block Id: 44 Block Id: 43

… … …
… … …
Signed
Pay PkB H () … Signed
Pay PkA H ()
by SkA by SkC
…
… … …
… … …

Transactions are now tamper-proof!

Signing a hash pointer covers the whole data structure being pointed to!
Usually stored in the form of a tree, called the Merkle Tree
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 A little more on transactions
Every transaction is uniquely identified by its transaction id
There can be multiple inputs, and multiple outputs
Sum of outputs should be a little less than sum of inputs
The difference goes to the miner
Every input points to output of some other transaction
Every input must consume whole of the output being pointed to

11
 Problem with Central Authority
CA has too much power and influence
Though he can’t create fake transactions, since he can’t forge other
people’s signature, he can definitely stop endorsing transactions of some
users, denying them service
Or, may just go lazy and delay updating the block
But how to decentralize?
Through a combination of technical methods and clever incentive
engineering
Property 3: (puzzle friendliness) : Simply put, if I give you part k of an
input string s (s = k||x) , and hash y of the entire input string s, H(s) =y,
there exists no short cut to discover x.
Formally, A hash function H is said to be puzzle‐friendly if for every
possible n‐bit output value y , if k is chosen from a distribution with
high min‐entropy, then it is infeasible to find x such that H(k || x) = y
in time significantly less than 2n
Brute force is the only method to find x
1
 Decentralization: Technical part
Every transaction, instead of being sent to a CA, gets broadcast over
the network
Thus, every node will have a collection of outstanding transactions that
are yet to be added to the chain as a block
Any node in the network can propose the next Block in the chain, and
all other nodes need to reach a consensus about it
However, for that, the proposing node has to establish proof-of-work
by solving a Hash puzzle
Find a number, or nonce, such that
H(nonce || prev_hash || tx || tx || ... || tx) < target
The nonce should be such that the hash of the concatenated string
should be a number that falls into a target space that is quite small
in relation to the much larger output space of that hash function.
Brute force being the only way to find nonce, it is highly computation
intensive
Why would any node take that trouble?
2
Decentralization: Incentivization part
In Bitcoin, the proposer of the block, the miner, is incentivized in two
ways:
Block Reward: the miner adds a transaction that creates and sends 6.25
Bitcoin (from May 2020) to a node of his choice. The reward gets halved
every 210,000 blocks, almost 4 years
This is the only way money gets minted in Bitcoin
Every block has a transaction proposed by the miner that assigns newly
minted bitcoin to herself/himself
Transaction Fee (as of now, voluntary): The owner of a transaction can
make the total input to be slightly more than the total output. The
difference goes to the miner

3
 Characteristics of PoW
As mentioned, given the puzzle-friendliness of the Hash function, brute
force is the only approach to find the nonce, and hence will depend on
the computing power that the node can deploy to find the nonce
Difficulty level: the target space is only 1/1015 of the size of the output
space of the hash function, and that’s a lot of computation
Parameterizable: Every node knows the target and recalculates it after
every 2016 blocks in such a way that the average time between successive
blocks produced in the Bitcoin network is about 10 minutes. With a
10‐minute average time between blocks, 2016 blocks works out to two
weeks.
Verifiability: Once the proposer publishes the nonce found, any node can
calculate the H() to see that it falls within the target
Miners use ASIC (application specific integrated circuit) hardware to hasten
the computation to find the nonce

4
 So, what do the miners do
Listen for transactions
Maintain blockchain and listen for new blocks
Assemble a candidate block
Find a nonce that makes your block valid
Abort if you notice that a new block has been proposed and that is a
valid block. Go back to assembling a candidate block
Publish the block and hope it gets accepted
Acceptance happens when further new blocks proposed links to your
block
Lengthier the chain containing your block, more is the assurance of
acceptance
Make profit if the block gets accepted

5
 What have we achieved?
A transaction is only ‘eligible’ to be considered valid when it just
gets published as part of a block
Every miner extends the longest valid chain of blocks
Can the miner steal coins of others?
No. For that he has to forge signature of the original owner!
Can the miner deny service to some by not including their
transactions?
Yes. But it’s a minor irritant as some other miner will include those
transactions in some subsequent block, possibly 10 minutes later
Can the miner double spend a coin?
No, if the recipient is vigilant
A transaction is usually considered valid only after it has received a
few, heuristically six, confirmations through extension of the block
A lot of attacks are infeasible if the majority of miners, weighted
by hash power, are following the protocol — or, are honest
6
 Double Spend Attack

M says, pay
coin to Bob

7
 Double Spend Attack

M says, pay
coin to Bob

8
That’s the Blockchain as in Bitcoin
A distributed ledger that is Authenticated, Consistent, Tamper-
proof, Easily verifiable, Democratic and Anonymous
But …
Bitcoin is only about ‘payments’, not meant to record any other transaction
Bitcoin is anonymous, which may not be desired in other situations
Bitcoin is slow, processes about 7 transactions per second compared to
2000 by VISA or 200 by PayPal
Bitcoin transactions have long lead time, you need to wait for about an hour
to be assured of a payment
Bitcoin is permission less, anyone can join, transact, mine or verify
So, the goal is…
Adopting the concept of the authenticated, tamper-proof, consistent,
verifiable distributed ledger and adapting it to situations other than
cryptocurrency

9
Modifications being experimented with
How to incorporate two-way transactions? Smart
Contract
If you give me X, I will give you Y
What if there are needs for validators or regulators? Permissioned
Think of buying a piece of land, or cross-border payments Blockchain
Can only relevant parties play role in a transaction?
Channeled
Why broadcast it to parties who are not involved in it?
Communication
What if the parties want to keep the transaction private?
Can a transaction be verifiable without divulging data in it? Zero knowledge
Can there be alternatives to PoW? Proof
PoW is energy-inefficient, slow and, soon may not be enough attractive
Proof of Stake
Some of these can be achieved by adding layers on top of established
Blockchain like bitcoin
But it might be advisable to borrow the concepts, and build more
generic or domain-specific platforms
10
Ethereum : Towards World Computer
 Putting Ethereum in its Perspective
From a practical perspective, Ethereum is an open source, globally decentralized
computing infrastructure that executes programs called smart contracts.
It uses a blockchain to synchronize and store the system’s state changes, along
with a cryptocurrency called ether to meter and constrain execution resource
costs

Ethereum’s purpose is not primarily to be a digital currency payment network.

While the digital currency ether is both integral to and necessary for the
operation of Ethereum, ether is intended as a utility currency to pay for use of
the Ethereum platform as the world computer

Thus, the objective is:

Can we build a global platform using blockchain that would support ANY
application we might dream up in the future?

12
 Ethereum
Started in 2013 through a whitepaper by Vitalik Buterin
Was launched in 2015
Hurdles he tried to overcome:
Value blindness
Consider a hedging contract, where A and B put in $1000 worth of BTC and
after 30 days the script sends $1000 worth of BTC to A and the rest to B
Lack of state
UTXO can either be spent or unspent; there is no opportunity for multi-
stage contracts or scripts which keep track of any other intermediate state
Lack of Turing-completeness
A Turing‐complete programming language lets you specify any functionality
that is possible to be specified by any other computer language
Blockchain-blindness
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Comparison with bitcoin blockchain
Both are public and permissionless
Both have own cryptocurrencies
Its Ether for ethereum; Smallest denomination is 1 Wei = 10-18 ether
Both use Proof of Work for mining, as of now
Ethereum uses a method called Ethash that is different from the one used in bitcoin
It is ASIC-resistant
Block gets created every 12-17 seconds
Miner gets paid fixed 3 ethers
Miner also gets paid ‘gas’ for executing transactions, if any
The major differences between the two emanates from the fact that
Ethereum allows Smart Contracts
Smart contracts are small computer programs that are replicated and processed on all
the computers on the network, without a central coordinator
The vision is to create an unstoppable censorship-resistant self-sustaining
decentralized world computer

14
 Smart Contract
Ethereum allows writing scripts in its Turing-complete language,
Solidity and some other languages
These scripts, called smart contracts, live in the Blockchain
These contracts get translated to bytecode and executed by a special
Ethereum‐specific virtual machine, called EVM
These contracts have storage of their own and also have their own
balance of funds
A contract executes when
Legitimate sender(s), or real world event activates it
Pays for executing the contract
The conditions specified in the contract are met
Loosely speaking, smart contracts are decentralized applications
(dApps) that are similar to the apps in an app store

15
 Accounts in Ethereum
In Ethereum, the state is made up of objects called Accounts
An Ethereum account contains four fields
The account's current ether balance
The account's contract code, if present
The account's storage (empty by default)
The nonce, a counter used to make sure each transaction can only be
processed once
There are two types of Accounts
Externally owned accounts, similar to bitcoin addresses, controlled by private
keys:
An externally owned account has no code, and one can send messages from an
externally owned account by creating and signing a transaction
Contract accounts, controlled by their contract code:
Every time a contract account receives a message its code activates, allowing it to
read and write to internal storage and send other messages or create contracts in
turn

16
 Messages and transactions
Ethereum differentiates between message and transaction
Messages are like transactions in Bitcoin with the most important difference that it has
the option to contain data
Messages can be sent and received by both externally owned accounts and smart
contracts
Transaction refers to the signed data package that stores a message to be sent from an
externally owned account
Transactions contain the recipient of the message, a signature identifying the sender,
the amount of ether and/or the data to send, as well as two values called STARTGAS
and GASPRICE
Executing each virtual‐machine instruction costs a small amount of money, called gas.
Different operations cost different gas amounts
Every call must specify up front how much gas it is willing to spend, the STARTGAS.
It also must specify how generously it is ready to pay for gas, GASPRICE.
Payment (in ETH) = Gas amount (in Gas) x Gas price (in ETH/Gas)
During the execution of the contract, if the payment hits the STARTGAS, execution
halts, all changes to the program’s state are undone, and the miner pockets the gas
anyway.

17
 The Nonce
Simply speaking, the nonce is a scalar value equal to the number of
transactions sent from this address
Consider the following situations:
You have an important payment to make of 6 ether, and also another payment
of 8 ether.
You sign and broadcast the 6-ether transaction first, because it is the
more important one, and then you sign and broadcast the second, 8-ether
transaction.
Sadly, you have overlooked the fact that your account contains only 10
ether
So the network can’t accept both transactions: one of them will fail.
Because you sent the more important 6-ether one first, you
understandably expect that one to go through and the 8-ether one to be
rejected. However, in a decentralized system like Ethereum, nodes may
receive the transactions in either order; there is no guarantee that a
particular node will have one transaction propagated to it before the
other.

18
 Accounts in Ethereum
In Ethereum, the state is made up of objects called Accounts
An Ethereum account contains four fields
The account's current ether balance
The account's contract code, if present
The account's storage (empty by default)
The nonce, a counter used to make sure each transaction can only be
processed once
There are two types of Accounts
Externally owned accounts, similar to bitcoin addresses, controlled by private
keys:
An externally owned account has no code, and one can send messages from an
externally owned account by creating and signing a transaction
Contract accounts, controlled by their contract code:
Every time a contract account receives a message its code activates, allowing it to
read and write to internal storage and send other messages or create contracts in
turn

1
 Messages and transactions
Ethereum differentiates between message and transaction
Messages are like transactions in Bitcoin with the most important difference that it has
the option to contain data
Messages can be sent and received by both externally owned accounts and smart
contracts
Transaction refers to the signed data package that stores a message to be sent from an
externally owned account
Transactions contain the recipient of the message, a signature identifying the sender,
the amount of ether and/or the data to send, as well as two values called STARTGAS
and GASPRICE
Executing each virtual‐machine instruction costs a small amount of money, called gas.
Different operations cost different gas amounts
Every call must specify up front how much gas it is willing to spend, the STARTGAS.
It also must specify how generously it is ready to pay for gas, GASPRICE.
Payment (in ETH) = Gas amount (in Gas) x Gas price (in ETH/Gas)
During the execution of the contract, if the payment hits the STARTGAS, execution
halts, all changes to the program’s state are undone, and the miner pockets the gas
anyway.

2
 The Nonce
Simply speaking, the nonce is a scalar value equal to the number of
transactions sent from this address
Consider the following situations:
You have an important payment to make of 6 ether, and also another payment
of 8 ether.
You sign and broadcast the 6-ether transaction first, because it is the
more important one, and then you sign and broadcast the second, 8-ether
transaction.
Sadly, you have overlooked the fact that your account contains only 10
ether
So the network can’t accept both transactions: one of them will fail.
Because you sent the more important 6-ether one first, you
understandably expect that one to go through and the 8-ether one to be
rejected. However, in a decentralized system like Ethereum, nodes may
receive the transactions in either order; there is no guarantee that a
particular node will have one transaction propagated to it before the
other.

3
 Executing Smart Contract
Check if the transaction is well-formed (ie. has the right number of values), the
signature is valid, and the nonce matches the nonce in the sender's account. If
not, return an error. (“I authorize my n th transaction to be a payment of 1
ether to Bob.”)
Calculate the transaction fee as STARTGAS * GASPRICE, and determine the
sending address from the signature. Subtract the fee from the sender's account
balance and increment the sender's nonce. If there is not enough balance to
spend, return an error.
Initialize GAS = STARTGAS, and take off a certain quantity of gas per byte to
pay for the bytes in the transaction.
Transfer the transaction value from the sender's account to the receiving
account. If the receiving account is a contract, run the contract's code either to
completion or until the execution runs out of gas.
If the value transfer failed because the sender did not have enough money, or
the code execution ran out of gas, revert all state changes except the payment
of the fees, and add the fees to the miner's account.
Otherwise, refund the fees for all remaining gas to the sender, and send the
fees paid for gas consumed to the miner.

4
 Features of Ethereum
Ethereum block time is shorter, around 14-17 seconds
Disincentivizes miners to attempt mining; creates orphan blocks
Concept of Ommers or Uncles, and incentives for them, to recognize
efforts for orphan blocks
Ethereum has smaller blocks
Ethereum’s block size is based on complexity of contracts being run – it’s
known as a Gas limit per block, and the maximum can vary slightly from
block to block
Roughly speaking, ethereum block size is around 25 KB, against 1 MB of
bitcoin
Ethereum uses the concept of Oracles
Plans afoot to move to Proof of Stake by 2022

5
 Ethereum 2.0
Proof of Stake
Valid blocks will be announced by a chosen validator
Anyone who puts up, or stakes, 32 Ether can take part in the validator pool
People in that pool are chosen at random to be “validators” of a batch of transactions,
a role that requires them to order and validate the transactions and propose the
resulting block to the network.
Validators share that new chunk of blockchain with a group of members of the
validator pool who are chosen to be “attestors.” A minimum of 128 attestors are
required for any given block procedure.
The attestors review the validator’s work and either accept it or reject it. If it’s
accepted, both the validators and the attestors are given free Ether.
Validator loses part of stake if he fails to take part as validator or attestor, say, if he is
offline. Validator loses entire stake for proposing an improper block.
Sharding
Ethereum network is being divided into 64 geographic regions, each called a shard.
Transactions within a shard would be processed separately, and the results would then
be reconciled with a main network linked to all the other shards. The result is speed up
from 30 tps to 100,000 tps, needed for Defi applications.
Beacon Chain
The beacon chain receives state information from shards and makes it available for
other shards, allowing the network to stay in sync. The beacon chain will also manage
the validators from registering their stakes to issuing their rewards and penalties.
6
 Applications of Ethereum
DeFi (Decentralized Finance)
DeFi platforms allow people to lend or borrow funds from others, speculate on price
movements on a range of assets using derivatives, trade cryptocurrencies, insure
against risks, and earn interest in savings-like accounts. It does not rely on central
financial intermediaries such as brokerages, exchanges, or banks to offer traditional
financial instruments
Fungible tokens: ERC20 tokens
Provides a template to create and transact tokens that can be used to represent
physical objects like voting rights, or ownership of assets. Also used for crowd finding.
These tokens are deployed on ethereum network with payment made in gas for
transactions.
Non-fungible tokens (NFTs)
Each NFT identifies non-transferable ownership of a digital asset like digital art, film,
music, audio that can used by others for personal, commercial or non-commercial
purposes under specific agreements.
Permissioned Blockchains
To be created on top of permissionless ethereum for various purposes. For example,
JP Morgan Chase created JPM Coin, a dollar backed stable coin, to facilitate interbank
information sharing
7
Hyperledger: It’s different
 HyperLedger
Started in 2015 by the Linux Foundation
An umbrella project for open source permissioned Blockchains
Participants in such network have partial trust on each other
Emphasizes privacy and confidentiality over decentralization and
transparency
Design also keeps latency and scalability in consideration
Design philosophy is:
Modular
Highly secure
Interoperable
Crypto-currency agnostic
Complete with API
Based on Network structure and business requirements, you can use
the framework that best suits you, from among:
Fabric, Sawtooth, Indy, Iroha, and Burrow

9
 The constituents of the system
Peers, P
Fundamental element of the network, that is an actor on behalf of an organization
A peer hosts instances of Ledgers, L and instances of Chaincodes (Smart Contract), S
This provides a deliberate redundancy in a Fabric network to avoid single points of failure

The peer P1 hosts ledgers L1 and L2.

Ledger L1 is accessed using chaincode S1.
Ledger L2 on the other hand can be
accessed using chaincodes S1 and S2

Applications, A
Applications interact with peers using APIs of Fabric Software Development Kit (SDK)
Organizations, Org
An organization owns a set of peers and applications

10
 The constituents of the system
Channels, C
A mechanism by which a set of components within a blockchain network can
communicate and transact privately

Orderers, O
Special nodes that mediate the mechanism by which applications and peers interact
with each other to ensure that every peer’s ledger is kept consistent

11
 Identity Management
Certificate Authorities (CAs)
Issues cryptographically validated Digital Certificates that comply with X.509
standard
Root CA and Intermediate CAs create a chain of trust
Each CA maintain a Certificate Revocation List also
Membership Service Providers (MSPs)
Connects Digital Certificate holders to organizations and remembers the roles
assigned to each
Stores the Public Key of each member to verify the signature
To transact on a Fabric network…
An organization and its administrator gets an identity issued by a CA that is
trusted by the network
Administrator attaches digital certificates to Peers, giving them association with
organization. The MSP manages how the identity is linked to the membership
of an organization, and assigns role to it accordingly. Membership is achieved
by adding the member’s public key to the organization’s MSP
Add the MSP to either a consortium on the network or a channel
Ensure the MSP is included in the policy definitions on the network
12
 Authentication
Everything that interacts with a blockchain network acquire their organizational
identity from their digital certificate and an MSP (Membership Service Provider)

P1 and P2 have identities issued by CA1. Channel C determines from a

policy in its channel configuration that identities from CA1 should be
associated with Org1 using ORG1.MSP. Similarly, P3 and P4 are identified
by ORG2.MSP as being part of Org2

13
14
Putting all together

15
 Authentication
Everything that interacts with a blockchain network acquire their organizational
identity from their digital certificate and an MSP (Membership Service Provider)

P1 and P2 have identities issued by CA1. Channel C determines from a

policy in its channel configuration that identities from CA1 should be
associated with Org1 using ORG1.MSP. Similarly, P3 and P4 are identified
by ORG2.MSP as being part of Org2

1
2
Putting all together

3
 Hyperledger Features
None uses ‘mining’, per se. One of the Validator Peers is
chosen to create the next block following the consensus
algorithm implemented in the framework.
Consensus algorithm must ensure
Safety: each node is guaranteed the same sequence of inputs and results
in the same output on each node
Liveness: each non-faulty node will eventually receive every submitted
transaction
Consensus takes help of Smart Contract Layer to decide
Ordering of transactions
Validation of transactions

4
 How does it work?
It is important to note that a single peer cannot update the ledger on
its own, and requires consensus of relevant other peers in the network
Updating the Ledger
Phase 1: Proposal – applications generate a transaction proposal which they send to
each of the required set of peers for endorsement; Orderer plays no role now

Each of these endorsing peers then

independently executes a chaincode
using the transaction proposal to
generate a transaction proposal
response. It does not apply this
update to the ledger, but rather
simply signs it and returns it to the
application. Once the application has
received a sufficient number of signed
proposal responses, the first phase of
the transaction flow is complete

5
 How does it work?
Updating the Ledger
Phase 2: Ordering and packaging into blocks – Orderer receives transactions
containing endorsed transaction proposal responses from many applications, and
orders the transactions into blocks
Phase 3: Validation and Commit - Orderer distributes blocks to all peers connected to
it. Upon receipt of a block, a peer will process each transaction in the sequence in
which it appears in the block.

For every transaction, each

peer will verify that the
transaction has been endorsed
by the required organizations
according to the endorsement
policy of the chaincode which
generated the transaction.
Successful validations result in
updates of the ledger. Every
time a block is committed to a
peer’s ledger, that peer
generates an appropriate
event.

6
In a nutshell

7
 Features …contd
Different framework uses different consensus algorithm
Raft/Kafka in Fabric: Permissioned voting based; leader does ordering
RBFT in Indy: All VPs do ordering; but Master decides; Master can change
Sumeragi in Iroha: Permissioned server reputation system
PoET in Sawtooth: After sleeping for random time, the first to wake up
In all, finality of the block is achieved in seconds
Privacy is implemented through Zero Knowledge Proof (ZKP)
Prover (the proposer of a transaction) must prove to the Verifier (the
Validator Peer) that the transaction is valid without divulging the details of
the transaction
ZKP is a cryptographic technique which allows two parties (a prover and a
verifier) to prove that a proposition is true, without revealing any
information about that thing apart from it being true.

8
 Comparing the three platforms
Bitcoin Ethereum Hyperledger
Consensus network
Primarily b2c and Primarily b2b
Purpose enabled digital
generalized platform platform
payments
Ether, user-created
Cryptocurrency Bitcoin None
cryptocurrencies
Public or
Participation Public Permissioned
Permissioned
Anonymous or
Transactions Anonymous Public or confidential
private
Mining based sliding Transaction fee paid
Transaction cost No transaction fees
scale using gas approach
Proof of Work, may
Kafka, RBFT,
Consensus Proof of Work move to Proof of
Sumeragi, PoET
Stake

Smart Contract None Yes (Solidity) Yes (chaincode)

9
 Ripple
In the business of transferring money
Is Ripple a Fintech?
 Fintech
Fuelled by growth in smartphones, and 2008 meltdown of financial markets
“Technology that serves the clients of financial institutions, covering not only
the back and middle offices but also the coveted front office that for so long
has been human-driven”
“Fintech is usually applied to the segment of the technology start-up scene that
is disrupting sectors such as mobile payments, money transfers, loans,
fundraising and even asset management”
Disruption made possible because:
Operation based on unsecured lending that required no collateral
Proprietary data analytics for innovative credit scoring models
Consider data from all sources, social media, satellite data, mobile usage etc
Technology usage lowers operational cost, like overhead and fixed costs
As a result, can afford to have a greater risk appetite
Operate at a level that does not attract same level of regulatory compliance as banks
Fintech makes use of Artificial Intelligence, Big Data, Machine Learning, Social Media,
GPS data, smartphone, and … … also Blockchain
Blockchain helps in security, regulatory compliance, speed and irrefutability

12
 Some Fintechs
Abra
All-in-one exchange and money transfer… in crypto and fiat currency
Platio
‘Smart Banking Ecosystem’, authorized in 30 countries, offering all-in-one secure
banking for crypto and fiat, and brokerage for stocks
Kabbage
Online Small business lending, in minutes
Coinbase
Digital currency exchange, exchanges of Bitcoin, Bitcoin Cash, Ethereum, Ethereum
Classic, and Litecoin with fiat currencies in some 32 countries
Ripple
Blockchain based global settlements network that aims to replace SWIFT, the
interbank messaging platform that has long connected nearly every bank in the world
Axoni
Uses blockchain-based smart contracts to overhaul the back office of the world's
biggest derivative markets; promoted by Goldman Sachs and JP Morgan

13
What does Ripple do?
Use case: Cross border remittances
A remittance is a transfer of money, often by a foreign worker to an
individual in their home country
In 2019, overall global remittance grew to USD 714 billion and came
down to 702 billion in 2020
India consecutively remains the top receiver of remittance, with USD
83 billion in 2020
The global average cost of sending $200 remained high at 6.5 percent
in the fourth quarter of 2020
Western Union, the market leader in money transfer, charges 7% to
20%, based on locations of the sender and the receiver, the time to
transfer, and also, the amount being transferred
Bank transfers are probably more costly and may take more time

15
 Ripple
A cross-border payment and settlement system
Aims to replace the established and dominant SWIFT system
SWIFT is a messaging network that financial institutions use to securely
transmit information and instructions through a standardized system of codes
SWIFT does not transfer actual funds and only addresses the communication
aspect of money transfer
The need for automating SWIFT message creation, processing, and trans-
mission is growing. However, this comes at a cost and operational overhead
Consider a secure, networked digital version of age-old Hawala
system
Step 1: Sender gives cash to Hawala Dealer A. Dealer A gives Sender a code
Step 2: Hawala Dealer A tells Hawala Dealer B how much cash was given
Step 3: Sender gives code to Recipient as well as states the cash amount
Step 4: Recipient gives dealer B the code and dealer B gives cash to Recipient.
Replace Hawala Dealers with Ripple Gateways, and you have the
essence of Ripple system
16
 What is Ripple?
RippleNet, a payment network that allows banks to instantly and
reliably transfer funds across borders
If a financial institution uses RippleNet without its on-demand liquidity feature, the
main advantages would be speed, accuracy and end-to-end traceability
“If you wanted to send $10,000 from New York to London, the fastest way to do that was
to drive to JFK or Newark and fly it there”
When financial institutions employ the on-demand liquidity product, they intend to
lower their liquidity costs for cross-border transfers by leveraging XRP, thus
eliminating the need for pre-funded accounts
“There’s trillions of dollars parked around the world in between banks, … and we can
make that – those trillion dollars more efficient…”
XRP, the cryptocurrency, that has its own ecosystem of companies
around it
A total of 100 billion XRP tokens were ‘pre-mined’.
In order to promote market stability and quieten rumours of massive sell-offs, Ripple holds
55 billion of its own XRP in escrow, unlocking 1 billion XRP on the first day of every month
Thus, Ripple was in one hand an Enterprise Software Company and, on
the other hand, promoter and custodian of a cryptocurrency
17
How does RippleNet work?
 How does RippleNet Work?
The network, conceptually, consists of three roles:
Financial Institutions: playing the roles of senders and receivers; some 200 such
including MoneyGram, Banco Santander, Saudi Arabian Monetary Authority
Gateways: validators/financial institutions/servers (entity running the Ripple server
software) that ‘ripple’ the payment transaction through the net
Validators: servers that update the ledger through participation in a consensus network;
some 150 such including Microsoft and MIT
The Ripple network is a relatively large network where not everyone
using Ripple knows and trusts one another
To get around this, Ripple uses chains of trusts to interconnect Ripple
gateways
Chains of trust are essentially links between gateways that, transitively, trust each other
Ripple gateways transport payment IOU information to each other
using https: that banks already use for secure online credit card
payments.
Each transaction requires an average fee of 0.00001 XRP and may increase upon higher
than usual load.
These tokens are actually destroyed and so the beneficiaries are all the XRP token holders
themselves via decrease of token supply.
19
 How does RippleNet Work?
If no chain of trust can be established, then XRP is used as the
utility token
Thus, money transfer is possible even without digital currencies
However, on-demand liquidity product always uses XRP as the go
between token
As long as there were liquid market for XRP in local currency, no
nostro/vostro (where one bank keeps another bank’s account as deposit)
accounts are required.
As of 2019, liquid markets existed for USD, Mexican pesos and Philippine
pesos. Euro and Australian dollar have recently been added
For malicious activity to occur, hacker would have to be in control of
majority of validators
Also, to guard against bugs, every transaction first executes in a
scratchpad, that matches between appearance and disappearance of
XRP. If more XRP appears, the scratchpad is thrown away indicating
violation of a system invariant.

20
How does Consensus happen in Ripple?
Challenges for distributed payment system:
Correctness: differentiating between a correct and a fraudulent transaction
Agreement: maintaining a single global truth in a decentralized accounting system
Utility: addressing latency issues and level of computing power required
Each server s maintains a unique node list UNL of other servers
that s queries when reaching consensus. Thus UNL is the list of
servers that, collectively, is trusted by s
Consensus protocol (RPCA) is applied every few seconds by all
servers
Each server broadcasts its ‘candidate set’ of transactions to be included in the
consensus process
Each server then amalgamates the candidate sets of all servers on its UNL, and votes
on the veracity of all transactions
Transactions that receive more than a minimum percentage of “yes” votes are passed
on to the next round, if there is one
The final round of consensus requires a minimum 80% of a server’s UNL agreeing on a
transaction. Transactions ‘agreed upon’ are then applied to close the ledger.
The algorithm has a preset number of rounds, t, before consensus is terminated
The response-time of nodes is monitored, and nodes who’s latency grows larger than a
preset bound b are removed from all UNLs
21
What strategy would you advise Brad
Garlinghouse to follow?
 Concerns raised about Fintech
“As we saw during the [2008] crisis, gaps in understanding and
regulation of emerging financial products may result in predatory
lending, consumer abuse, or systemic issues”, US Senators
“…there is an urgent need to do more to ensure the rapid growth of
fintech does not become a risk to ‘systemic stability’”, World Economic
Forum
Additional concerns raised at World Economic Forum:
Alternate sources of finance could shift risk to the consumer and have damaging
ripple effects
Market electronification /appropriate use of trading algorithms
Security of data
Industry conduct (“For example, the line between enhanced risk analysis and use
of data to deny service to a particular customer must be defined”)
Payment effectiveness (typical clearinghouse payment system versus Blockchain)
Regulatory arbitrage (since regulations are not consistent across countries)

23
What role do you expect cryptocurrencies
to play in future, say, five years from
now?
Designing Blockchain Applications
 Consider the following
Employers need to verify academic credentials submitted by an employee.
This is a time-consuming, expensive, and manual process, both for the
employers who seek verification, as well as for the universities who verify
the information on request and against payment.
However, it is risky to bypass the verification process as, sometimes, a job
aspirant may create and submit a forged degree, supposedly issued by a
recognized university.
The problem gets accentuated by the fact that some of these credentials
may have been issued by fake universities.
In India, valid academic degrees can be awarded only by universities
recognized by the University Grants Commission (UGC). A university is
considered fake if it does not have the Certificate of Recognition issued by
the University Grants Commission.
Currently, the employers outsource the job of verification to external
agencies who, apart from checking the validity of the academic degree
claimed, also get in touch with respective universities/colleges with a
request to verify the credential.

2
 Issues that need to be resolved
Is there a case for blockchain?
Who is (are) the asset(s) to be tracked?
Who are the participants?
Where are the assets?
Should the access to the asset(s) be restricted?
What should be stored in the blockchain?
What are the use cases?
Who creates the next block?
How is consensus reached?
How to monetize the platform?
What would be the right choice for the underlying blockchain?

3
 Issues that need to be resolved
Is there a case for blockchain?
Multiple parties, Trust, Speed
Who is (are) the asset(s) to be tracked?
Certificates of alums of various recognized universities
Who are the players?
Universities, employers and alums (employees)
Where are the certificates?
With alum? With University? In the blockchain?
Let’s assume it’s with university
Should the alum need to approve the access?
Yes
What should be stored in the blockchain?
Hash HC of individual certificates signed by sk of university stored at H0
(Alum receives copies of certificate, HC and H0)
Transactions involving the HCs in the chain
What are the use cases?
4
 A Use Case (out of possibly many)
An employer E wants to verify certificate of a person A claiming to be an
alum of University U
Pre-requisite:
U and E have Digital Certificates (DC) issued by approved authority
A, U and E each has sk, pk pair
A has claimed to E that the signed HC stored at H0 belongs to her, issued by U
A possible sequence:
E sends signed request containing HC, DC of U and DC of E to the contract, say,
REQPermission with necessary fee -> request logged, H1
REQPermission ensures validity of DC of E, checks adequacy of fee, and raises
request to A -> request logged, H2
A returns signed approval to REQPermission which, in turn, informs E -> approval
logged, H3
E (or REQPermission) sends request to the contract, say, REQaccess pointing to H2
and H3 -> request logged, H4
REQaccess, after validating DC of U (failure raises signals to A and E), raises request
to U -> request logged, H5
U uses HC to retrieve the certificate from its database, encrypts it with pk of E and
puts it in chain –> logged, H6
E decrypts it with its sk and matches it with the certificate claimed by A
5
 An alternate sequence
An employer E wants to verify certificate of a person A claiming to be an
alum of University U
Pre-requisite:
U and E have Digital Certificates (DC) issued by approved authority
U and E each has sk, pk pair
A submits a copy of her certificate to E and claims that the signed HC stored at H0
belongs to her, issued by U
The alternate sequence:
E hashes the certificate submitted by A to, say, HC1
E sends signed request containing HC1, H0, DC of U and DC of E to the contract, say,
REQvalidate with necessary fee -> request logged, H1
REQvalidate ensures validity of DCs of U and E, checks adequacy of fee, and applies
pk of U to the content of H0 to get the unsigned HC. If HC matches with HC1, it
returns TRUE, else returns FALSE -> result logged, H2

6
Designing Blockchain Applications
 Consider the following
Employers need to verify academic credentials submitted by an employee.
This is a time-consuming, expensive, and manual process, both for the
employers who seek verification, as well as for the universities who verify
the information on request and against payment.
However, it is risky to bypass the verification process as, sometimes, a job
aspirant may create and submit a forged degree, supposedly issued by a
recognized university.
The problem gets accentuated by the fact that some of these credentials
may have been issued by fake universities.
In India, valid academic degrees can be awarded only by universities
recognized by the University Grants Commission (UGC). A university is
considered fake if it does not have the Certificate of Recognition issued by
the University Grants Commission.
Currently, the employers outsource the job of verification to external
agencies who, apart from checking the validity of the academic degree
claimed, also get in touch with respective universities/colleges with a
request to verify the credential.

2
 Issues that need to be resolved
Is there a case for blockchain?
Who is (are) the asset(s) to be tracked?
Who are the participants?
Where are the assets?
Should the access be restricted?
What should be stored in the blockchain?
What are the use cases?
Who creates the next block?
How is consensus reached?
How to monetize the platform?
What would be the right choice for the underlying blockchain?

3
 Issues that need to be resolved
Is there a case for blockchain?
Multiple parties, Trust, Speed
Who is (are) the asset(s) to be tracked?
Certificates of alums of various recognized universities
Who are the players?
Universities, employers and alums (employees)
Where are the certificates?
With alum? With University? In the blockchain?
Let’s assume it’s with university
Should the alum need to approve the access?
Yes
What should be stored in the blockchain?
Hash HC of individual certificates signed by sk of university stored at H0
(Alum receives copies of certificate, HC and H0)
Transactions involving the HCs in the chain
What are the use cases?
4
 A Use Case (out of possibly many)
An employer E wants to verify certificate of a person A claiming to be an
alum of University U
Pre-requisite:
U and E have Digital Certificates (DC) issued by approved authority
A, U and E each has sk, pk pair
A has claimed to E that the signed HC stored at H0 belongs to her, issued by U
A possible sequence:
E sends signed request containing HC, DC of U and DC of E to the contract, say,
REQPermission with necessary fee -> request logged, H1
REQPermission ensures validity of DC of E, checks adequacy of fee, and raises
request to A -> request logged, H2
A returns signed approval to REQPermission which, in turn, informs E -> approval
logged, H3
E (or REQPermission) sends request to the contract, say, REQaccess pointing to H2
and H3 -> request logged, H4
REQaccess, after validating DC of U (failure raises signals to A and E), raises request
to U -> request logged, H5
U uses HC to retrieve the certificate from its database, encrypts it with pk of E and
puts it in chain –> logged, H6
E decrypts it with its sk and matches it with the certificate claimed by A
5
 An alternate sequence
An employer E wants to verify certificate of a person A claiming to be an
alum of University U
Pre-requisite:
U and E have Digital Certificates (DC) issued by approved authority
U and E each has sk, pk pair
A submits a copy of her certificate to E and claims that the signed HC stored at H0
belongs to her, issued by U
The alternate sequence:
E hashes the certificate submitted by A to, say, HC1
E sends signed request containing HC1, H0, DC of U and DC of E to the contract, say,
REQvalidate with necessary fee -> request logged, H1
REQvalidate ensures validity of DCs of U and E, checks adequacy of fee, and applies
pk of U to the content of H0 to get the unsigned HC. If HC matches with HC1, it
returns TRUE, else returns FALSE -> result logged, H2

6
 Other Issues
Who creates the next block?
All transactions are broadcast
One of the participating Universities - in leader-follower model - may
propose the next block
If the proposer is monetarily rewarded, then the universities should take
turn to propose next block based on, say, hash of their DCs
How is consensus reached?
Nodes of all universities receive same set of transactions and, hence, can
check if any spurious transaction is included in the proposed block
Latency may be a problem
How to monetize the platform?
Fees received from employers may be split between verifying universities,
block proposers and the platform
What would be the right choice for the underlying blockchain?
Ethereum or Hyperledger?

7
Blockchain and Supply Chain
 The Shipping Industry
Container Shipping industry is worth some $100 billion worth this
year and growing
Maersk is the largest ocean carrier with some 17% market share
followed by carriers like
MSC, COSCO, CMA CGM, Hapag-Lloyd and ONE
These top six firms in the container shipping market represented
some 69% of the industry in 2020
Sometimes they form alliances to spilt the capacity on a vessel,
which ensure favourable utilization of the ship’s capability and
lower the operational expenditures for the firms involved.
Three main alliances represent about 80% of the industry.

9
 What’s the Problem?
Shipping goods internationally with container ships involves many
intermediaries:
cargo owners, freight forwarders, inland transportation providers like rail and trucking,
ports and terminals, ocean carriers, customs and other government authorities
Each player in the chain generate substantial amount of
documentation to be checked by others.
“The industry kept relying heavily on physical documents, papers,
and stamps.” because “it was less subject to fraud.”
One shipment of avocados from Kenya to Netherlands required 30 people or
organizations, and generated 200 separate documents
Packing list and certificate of origin have to be approved by three separate
government agencies at Mombasa. Hence, six documents have to be prepared, signed
and passed along
Cost of documentation can be as high as 20% of the overall cost
Velocity gets hindered because…
Documents need to be created in physical form
Documents need to be physically made available to relevant authorities
Documents need to be checked manually 1
0
 Hence, the problem
“Inconsistent information across organizational boundaries and ‘blind
spots’ throughout the supply chain hindered the efficient flow of goods.”
Barriers include difficulties in border administration and sharing of
information.
“It was a shipment from Europe to US. …The container arrived at the port, but
the port wouldn’t let in the container because customs needed more
documentation. The customer finally found out about it, and submitted the
documentation. The container was let into the port two days later and it had
missed its scheduled ship. The carrier didn’t know that the container has
missed the ship and it wasn’t until a day later that they rebooked it on another
vessel. It arrived in the US, and all its documentation was done for the first
ship, and so it wasn’t allowed into the country right away. The shipment should
have taken five weeks but ended up taking nine weeks.”
As a consequence of multiple intermediaries and information flow among
them:
Goods spent more time in ports than on the ocean
Industry delivered on-time 64% of the time, time for ‘on-time’ itself being very high

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 Is there a case for Blockchain?
Lack of trust among the intermediaries giving rise to huge
paperwork
Possibility of tampering of the documents
Timely availability of documents at right time at right place
Real time information about events along the supply chain
A Blockchain can “provide end-to-end supply chain visibility to enable
all actors involved in managing a supply chain to securely and
seamlessly exchange information in real time”
It would facilitate digitization and automation of paperwork filing so
that end-users can submit, validate and approve documents across
organizational boundaries
The Blockchain will provide “the single conduit of truth”

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 Issues specific to Supply Chain
Companies on the same platform are competitors of each other
Different companies will have different strategies and hence would like
to operate in isolation
Same company may have different arrangements with different partners
Different activities by a company may involve different set of participants
Consensus need to be reached only among the involved parties of a particular contract
Hence seclusion is required
Among companies on the platform
Among contracts by the same company
Among participants involved in the contracts of the same company
Hence, Privacy and confidentiality are of prime importance
As more and more players join the network, number of events tracked at
any point in time goes up exponentially, making latency and scalability
also of paramount importance

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 Outlining the system
Who are the players?
Beneficial cargo owners, freight forwarders, inland transportation providers including
rail and trucking, ports and terminals, ocean carriers, customs and other government
authorities
What is (are) the asset(s) to be tracked?
Consignments, along with all relevant documentations
Where are the assets?
In the blockchain, for visibility and consensus of relevant parties
Should the access be restricted?
Yes, restricted among relevant parties of a contract
What should be stored in the blockchain?
The assets along with transaction (events) on them, segregated by contracts
What are the use cases?
Consignment events
Transport Equipment events
Shipment events
Transport Plan events
Generic events
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 Some other Issues
How would the blockchain look like?
Collection of segregated chains, one chain for each participating ocean carrier
Each chain will have other players, relevant for the contract under execution
A player can participate in more than one chain without any scope of information
exchange between the chains

Who creates the next block?

How is consensus reached?
How to monetize the platform?
What would be the right choice for the underlying blockchain?

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The schematic

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 What did Maersk and IBM do?
IBM chose Hyperledger Fabric for Shipping Industry supply chain
IBM and Maersk jointly developed TradeLens, specific for the
industry
A Blockchain platform that brings together all parties in the supply chain onto a
single, secure data-sharing and collaboration platform
Provides end-to-end supply chain visibility to enable all actors in managing the
chain to seamlessly exchange information in real time
As of June 2021…
The TradeLens ecosystem includes more than 300 organizations – encompassing
ten ocean carriers and data from more than 600 ports and terminals.
It has already processed 42 million container shipments, nearly 2.2 billion events
and some 20 million documents.
Five of the top six global shipping carriers are now integrated onto the platform
contributing to the digitization of documentation and automated workflows.

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What Challenges they need to address
in future?

Creating the trust that it’s not a subsidiary of Maersk or IBM

On-boarding

Standardization
Sea Waybill, Commercial Invoice, Packing List, Booking Request, Booking
Confirmation, Shipping Instructions, Export Declaration, Bill of Lading, Pro-Forma
Invoice, Arrival Notice, Import Declaration, Health Certificate, Phytosanitary Certificate,
Fumigation Certificate, Inspection Certificate, Certificate of Analysis, Certificate of
Origin, Dangerous Goods Declaration

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Global Shipping Business Network (GSBN)
GSBN has emerged as a competitor to Tradelens!
GSBN has been incorporated at Hong Kong “with the vision of a truly open
blockchain platform for the industry”
IQAX will provide the platform technology, taking over from CargoSmart,
its own subsidiary
COSCO, the third largest ocean carrier, is participating in GSBN along with
others. Hapag-Lloyd happens to be in both the platforms. CMA CGM was
also there before shifting to Tradelens
How would competition affect adoption of blockchain based solution
in the shipping industry?

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Issues in Food products’ Supply Chain
Integrity of Goods
Customers are becoming more and more health, society and environment conscious, and
are demanding to know the origin of the specific unit of product that they are consuming
Coffee, green vegetables, diamond, prawn ….
Trust
Making sure what is being labelled is what it is
Organic foods, ‘fair trade’ products
Tracking
Time lag and barriers among supply chain participants makes it difficult to track specific
batch of goods
Which lot of Lettuce led to E. Coli outbreak in 2018 that resulted in recalls on a grand
scale, 96 people being hospitalized and, tragically, five deaths! Since it takes days, if not
weeks, to identify the source, government, in these situations, put blanket ban on a large
area or the product altogether, with immense loss for the farmers
International Regulations
Variations in regulations and related paperwork delays consignments in an almost
unpredictable fashion
Costs companies millions in tied-up inventory and overhead costs

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Developments in Food products’ Chains
Walmart and IBM started working on two PoC projects in Oct 2016
Tracing the origin of mangos sold in Walmart’s US stores; despite best efforts got
the answer almost seven days later
Tracing the origin of pork sold in its china stores
Walmart and IBM developed a Blockchain based system to do the same
The time needed to trace the provenance of the mangos went from 7 days to 2.2 sec!
For pork in China, certificates of authenticity could be seen on the Blockchain!
After successful PoCs, IBM starts working with Walmart, Nestle, Unilever
to launch IBM Food Trust
Soon others joined… Dole, Carrefour, Kroger, Albertsons …
Walmart now traces over 25 products from 5 different suppliers
Walmart announced that all suppliers of fresh leafy greens will be required to start using
the blockchain-based system
Untangles the dense web of growers, suppliers, manufacturers, retailers, regulators,
consumers, and restaurants
The secure data-sharing platform lets participants share information about food origin,
processing, and shipping information in a permissioned way ensuring the data and
insights gained remain the property and under the control of the respective companies
The governance model is enforced by the Food Trust’s Advisory Council, comprised of a
range of industry innovators and leaders
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