- Chapter 2. Blockchain Mechanics
- Contents
- Introduction
- Understanding Ledgers
- Cryptography
- 9. Video: From Distributed Ledger to Cryptography
- 10. Video: Rose Greenhow
- 11. Early Use of Cryptography: Caesar Cipher
- 12. Cryptography Key Terms
- 13. Video: Cryptography Basics
- 14. Cryptographic Functions
- 15. Video: Byzantine Fault Tolerance
- 16. Types of Cryptography in Blockchain
- 17. Public Key Cryptography
- 18. Identity: RSA Public Key Cryptography
- 19. Video: Private/Public Key Cryptography
- 20. Zero-Knowledge Proof (ZKP)
- 21. Video: Zero-Knowledge Proof (Cave Example)
- 22. Hash Functions in Blockchain
- 23. Video: Cryptographic Hashing Demo
- 24. Merkle Tree
- 25. Video: Merkle Tree, Validation of Data
- 26. Ethereum vs. Hyperledger Fabric
- Transparency and Immutability
- 27. Video: Disintermediation - Trust Through Transparency
- 28. Traditional Database Updates
- 29. Transparency of Traditional Databases
- 30. Blockchain Updates
- 31. Transparency of a Blockchain
- 32. Transparency: Databases vs. Blockchain
- 33. Video: Transparency
- 34. Immutability in the Blockchain
- 35. Video: Immutability
- 36. Immutability in the Blockchain Is Essential
- 37. Why Is the Blockchain Immutable?
- 38. Immutability Mechanisms
- 39. Hashing and Chaining
- 40. Video: Hashing and Chaining with Proof of Work
- Knowledge Check
- Summary
In this chapter, we will discuss distributed ledger technology, some of its basic components and how it differs from previous ledger storage techniques. We will gain an understanding of how previous computer technologies like file sharing, data storage and cryptography are wrapped into the blockchain foundations. We will also see how hashing functions and Merkle tree data structures help us immutably store and prove facts without revealing all the details.
Next, we will learn how these blockchain techniques are fundamental in public-key cryptography where key pairs support privacy and authenticity by only exposing the public key while keeping the private key secure. We will examine how this agreed-upon, append-only distributed ledger guarantees transparency and immutability, where trust in the information contained in the ledger is a given.
By the end of this chapter, you should be able to:
- Discuss how cryptography allows for distributed ledgers to work on a global scale.
- Explain how blockchain is using cryptography.
- Define key terms of cryptography and understand basic concepts.
- Explain the concept of zero-knowledge proofs (ZKPs) and Merkle trees and how they are used in blockchain technologies.
- Discuss how blockchain utilizes transparency.
- Explain what it means for blockchains to be immutable and how chaining provides this capability.
- As we can see by looking at the evolution of the ledger, we are entering a new phase where no one centralized authority has control of the details in the ledger, everyone does. Transactions are only added to the ledger if everyone agrees. Once consensus is reached, no one can go back and deny a transaction. So essentially you are not trusting one person or entity to control the ledger, you're trusting everyone. Let's look a little further into how that trust is achieved.
- A great way to think of blockchain is to think of blockchain as another layer of the Internet, a layer that enables secure and trusted records and transactions to occur, which is why a lot of people associate the word blockchain with the word trust. Blockchain creates a layer of trust between untrusted parties.
- cryptography
- while blockchain itself may be new and cutting-edge, it's built out of nothing more than very old tried-and-true technology.
- we're just combining old technology in new and creative ways to create a brand new solutions development platform.
- two big takeaways:
- cryptography is normally a two-way function with four components: the secret, the key, the function, and the cipher
- a subclass of cryptographic functions called cryptographic hash functions, which exist as one-way functions, which can only encrypt the secret,
-
Byzantine Generals Problem
- the Byzantine Generals Problem explored a really key area of cryptography, in fact, **the heart of what cryptography is,
- which is how do I exchange messages with someone in an environment where they may become corrupt.**
-
Byzantine Fault Tolerance.
-
when you hear Byzantine Fault Tolerance, often abbreviated as BFT,
- all we're talking about is this idea that blockchains become secure if they have more computing power, more hash power in the chain than off the chain.
-
Byzantine Fault Tolerance.
- It is the root of cryptography, which is simply the study of how do we send information back and forth securely in the presence of adversaries and bad actors,
- and it's what underlies all the security and immutability that we get in blockchain.
-
To understand cryptography in blockchain, you must be able to differentiate between various cryptographic techniques used.
There are four main ways blockchain leverages cryptography:
- Public Key Cryptography
- This encryption method uses a pair of keys: an encryption key, and a decryption key, named public key and private key, respectively. The key pair generated by this algorithm consists of a private key and a unique public key that is generated using the same algorithm.
- Zero-Knowledge Proofs
- A new approach to protecting digital secrets that prove knowledge of a secret without revealing it.
- Hash Functions
- This type of encryption doesn’t make use of keys. It uses a cipher to generate a hash value of a fixed length. The function converts plain text (no matter the size) into a hash of fixed size. It is nearly impossible for the contents of plain text to be recovered from the cipher text. Think of it like trying to recreate a human from a fingerprint, a fingerprint uniquely represents a human no matter the size of the human and you can’t reverse engineer a fingerprint to recreate the human.
- Merkle Trees
- A data storage technique that compresses or packs data for storing blockchains with a tamper-free component built in. Merkle trees are built upon hashing principles in that each hash becomes a part of the next hash to build a tamper resistant data storage model.
Identity in the blockchain is based on public key cryptography. A person’s address on the blockchain is their public key.
Transactions on the blockchain include their public key and are digitally signed with the sender’s private key:
A digital signature verifies that someone in possession of the private key authorized the transaction. Digital signatures can be easily verified using the corresponding public key, which is included in the transaction.
-
Identity: Specific Identity Implementations
-
Ethereum is a public blockchain that anyone can participate in.
-
Hyperledger is an example of an enterprise blockchain where participants must be granted access to engage in the blockchain.
-
Ethereum
- A user’s identity is an address based on their public key.
-
Hyperledger
- Identity is managed by X.509 certificates. Certificates are only shared with parties involved in the transaction.
-
Public key cryptography uses a pair of a public key and a private key to perform different tasks. Public keys are widely distributed, while private keys are kept secret.
Using a person's public key, it is possible to encrypt a message so that only the person with the private key can decrypt and read it. Using a private key, a digital signature can be created so that anyone with the corresponding public key can verify that the message was created by the owner of the private key and was not modified since.
Zero-knowledge proofs authenticate parties without the need to widely transmit private information online. A zero-knowledge proof (ZKP) is a cryptographic method that allows a party (the prover) to prove to another party (the verifier) that a given statement is true, without conveying any additional information.
Let's review an example. Let's say there are two toy cars, identical in shape and size, except, one is red and one is blue. Jerry, who is color-blind, holds the toy cars behind his back. Jerry then shows one of the cars to Sam. Jerry then hides that car behind his back and shows Sam the other car. Sam can consistently detect the switch because the cars are different colors, but he never has to reveal the color of the cars to Jerry in order to prove the secret.
Zero-Knowledge Proofs are often referred to as zk-SNARKs, which stand for "Zero-Knowledge Succinct Non-Interactive Arguments of Knowledge", or zk-SNARKs for short.
For example, a user may make a request to send another user some money. The blockchain naturally wants to make sure, before it commits this transaction, that the user sending the money has enough to send. However, the blockchain doesn't really need to know or care who is spending the money, or how much total money they have. Being able to answer a question of "Does a user have enough money to send to another user" without knowing who the user is, or exactly how much they have, is one of the primary use cases for Zero-Knowledge Proofs in blockchain.
- String vs Binary tree
- The reason you wouldn't want to hash the entire set of data as a string is because it's not efficient when validating transactions.
- String
- In this example, if Alice needed to show Bob that this transaction was valid, let's say transaction "C", Alice would need to send the entire list of data to validate the block.
- Binary tree
- But when using a Merkle tree, Alice only needs to send the nodes that contain the transaction that she is looking to validate.
- Let's say Alice wants to validate transaction "F".
- Alice would only need to send the data of transaction "F" and four hash values to Bob.
- Bob would then calculate the hash value based on the given information. And if the root matches the block, the transaction can be assumed to be valid.
- Merkle trees allow for validation of a specific transaction without requiring the entire set of data.
The use of public keys for identity management is a logical choice since knowledge of a public key is necessary for verification of digital signatures. Both Ethereum and Hyperledger Fabric use digital signatures on transactions and blocks to verify the identity of the creator and that the signed data has not been modified since signing. Public key cryptography is used in the blockchain as a method for managing users’ identities without revealing real world identities.
In Ethereum, users are identified by an address that is directly related to the user's public key. This provides identity verification while preserving anonymity.
In Hyperledger Fabric, users are identified via X.509 certificates. These certificates provide several pieces of information about the user, but one of these is also the user's public key.
Hash functions are at the core of all blockchain technology. One of the primary uses for hash functions is chaining blocks together. In both Ethereum and Hyperledger Fabric, blocks include the hash of the previous block to tie the blockchain into a cohesive whole.
Zero-knowledge proofs are to increase the privacy of users. Currently, Ethereum is working on a layer 2 solution, where a second layer blockchain would store large amounts of data and only prove the batch of information is valid to layer 1 (mainnet). Hyperledger Fabric has a pluggable cryptographic library that supports ZKP techniques for enhanced privacy measures.
Merkle trees are a data structure that allows authenticated storage with efficient data retrieval. Both Ethereum and Hyperledger Fabric are smart contract platforms that use a particular type of Merkle tree called the Patricia tree to store the current state of their virtual machine.
Traditional databases use the CRUD method which has four main operations:
- Create - add a new value to the database.
- Read - read a value from the database.
- Update - change an existing value in the database.
- Delete - remove the value from the database.
Traditional databases do not retain historical information:
- Only the most recent versions of each value are visible.
- Deleted values are not visible in the database.
- This limits the transparency of data contained in the database.
- Values can be modified or deleted after creation.
The CRUD update model of databases allows data to be changed or removed from the database. This means that the visible data in a database is not an accurate historical record of the database. The existence of an update operation means that each value in the database is only the most recent version of that value and could have had different values in the past. The delete operation means that values can be removed from the database.
This limits the transparency of data in the database since values can be modified or deleted after creation.
The blockchain is designed to be a data structure that only allows appending:
- The past history of the blockchain is visible and immutable.
- Updates to the blockchain can be performed by including them in new blocks added to the blockchain.
The blockchain is designed as a data structure where each block in the chain locks in the value of the previous block and so on, back to the first or genesis block. This means that the blockchain is an append-only data structure without support for modification or deletion.
The entire history of the blockchain is publicly visible and stored in a distributed and decentralized fashion. Values in the blockchain can be “updated” by appending a new version of that value in a later block, but the complete history of the value is preserved.
One of the big benefits we get in any blockchain solution, public or private, is the idea of transparency.
Blockchain is designed to be an authoritative ledger of the history of the network.
This history may include financial transactions and business agreements where modifications to the ledger may have wide-reaching business impacts. Blockchain is based on an untrusted network, so trust that the blockchain has not been modified needs to arise from the structure of the blockchain itself, rather than from trust in the organization storing a certain copy.
One of the big benefits of blockchain is what's known as immutability.
Blockchain doesn't do anything to validate that the information on it is correct.
- All it validates is that that information hasn't been changed since it was originally written.
All four of these features help to make the blockchain resistant against changes occurring after the fact.
- At the bottom level, transactions are digitally signed by their creators. An attacker can’t forge a transaction unless they steal a private key.
- A block structure is predefined. Attackers can’t modify it to suit their purposes.
- The chain part of the blockchain is achieved using hash functions. Each block includes the hash of the previous block, creating a clear link between each block in the blockchain.
- Each block is digitally signed by its creator. The creator is selected through the blockchain’s consensus protocol, making it difficult for an attacker to be a legitimate creator.
Each transaction cannot be forged or modified because it is mathematically infeasible to forge a digital signature. The structure of blocks is publicly defined, and invalid blocks will be publicly rejected.
Each block “locks in” the value of previous blocks by including their hash. Attackers cannot find another block that will produce the same hash.
A block cannot be forged or modified, because it is digitally signed by the creator. The creator of a block is either publicly known (Proof of Stake) or difficult to become (Proof of Work), making masquerading as the real creator difficult or impossible.
Now, let’s take a moment to discuss how each of the features mentioned contribute to the immutability of the blockchain.
At the bottom level, each transaction is digitally signed. This means two things about transactions:
- Existing transactions can’t be changed after the fact, because the signature will no longer match.
- Fake transactions can’t be created since an attacker can’t create a valid digital signature for a transaction between other parties.
Both of these contribute to the immutability of the blockchain since they limit the range of transactions that an attacker has to work with if he wants to create a fake but valid blockchain.
Next, the block structure is publicly defined in the protocol. This limits the types of modifications that an attacker can make to a block when trying to modify the blockchain.
Third, each block contains the hash of the previous block. This is what ties the blocks of the chain together. Remember from earlier that one of the properties of a hash function is that it is extremely difficult to find two inputs to a hash function that create the same output. Since a block contains the hash of the previous block, it’s difficult to find a different version of the ledger’s history that matches the most recent block, as that would require finding two different versions of the previous block that have the same hash.
Finally, each block is digitally signed by its creator. Since the creator of a block is selected via a consensus algorithm, it’s difficult for an attacker to become the legitimate creator of a given block. If an attacker is not the legitimate creator of a block, it’s impossible for them to create a digital signature that others would accept.
In Ethereum and Hyperledger, the immutability mechanism is the one that we’ve described previously. Each transaction and block is digitally signed and are linked using cryptographic hashes.
Corda, a multi-party application development platform, relies on its notary service for immutability. Each Corda network has one or more notary services that verify transactions. Each transaction is considered separately and, if approved, is signed by the notary service. Transactions signed by a notary are finalized and cannot be modified after the fact.
This demo uses the Proof of Work to show how blocks are chained together and how tampering with information in a past block destroys the integrity of the proceeding blocks.
Blockchain Demo by Anders Brownworth:
https://andersbrownworth.com/blockchain/block
In this chapter, we discussed:
- Distributed ledger technology (DLT) and how it differs from previous ledger storage techniques.
- Cryptography and how it is used in several different ways in blockchain.
- Hashing functions, zero-knowledge proofs (ZKPs) and Merkle tree data structures and how they are used to secure the blockchain.
- Public-key cryptography and public/private key pairs to support privacy, authenticity and security.
- Ledger immutability and transparency result from combining these technologies for an agreed-upon, append-only distributed ledger system chained together by blocks.