Beginners overview of Blockchain, presented at a London event for Financial Services.

1. A n a t o m y o f a B l o c k c h a i n
D r . A v t a r S e h r a

2. A N ATO M Y O F A
B L O C K C H A I N

3. 1 . B i t c o i n
2 . E v o l u t i o n o f t h e I n t e r n e t
3 . B l o c k c h a i n
4 . C o m p o n e n t s o f a B l o c k
5 . U n s p e n t T r a n s a c t i o n s
6 . M i n i n g B l o c k s
7 . E t h e r e u m N e t w o r k
8 . S m a r t C o n t r a c t O v e r v i e w

4. Bitcoin
Created in 2009 the current market capitalization
of Bitcoins in circulation is >$10billion
• Bitcoin is a digital currency that can be directly transferred from one person to another
• If you own Bitcoins the updated ledger shows how many coins you have in your account (i.e. address)
• If you have Bitcoins in your account you can transfer them to another account, and the ledger is updated appropriately
• What’s so different from a normal payment network?
User 1:
User 2:
User 3:
User 4:
User 5:
User 6:
100
0
200
10
1
50
Ledger
User 1:
User 2:
User 3:
User 4:
User 5:
User 6:
70
30
200
10
1
50
Ledger
User 1 transfers
30Btc to User 2

5. Evolution of the Internet
The internet revolutionized P2P sharing of
information over network, removing the need
for centralization and intermediation
The internet made P2P Transaction of Information possible
The Blockchain makes P2P Transaction of Value possible
A

6. Blockchain
Owner A: 100
Owner B: 100
Owner C: 0
Hash of #2
A –> B: 50
B –> C: 10
Hash of #1
A –> C: 10
B –> C: 50
Hash of #0
C –> A: 100
C –> B: 100
Owner A: 90
Owner B: 50
Owner C: 60
Owner A: 40
Owner B: 90
Owner C: 70
Block 1
Block 2
Block 3
Blockchain data structure Data structure replicated across network of participants
Owner A: 0
Owner B: 0
Owner C: 200
0 –> C: 200
Block 0
A
B
C
Key Drivers for use of Blockchain
• Network of Participants: Number of stakeholders want to execute transactions between each other
• Transfer of Value: Network participants want to transfer something of value securely and immutably
• No Transfer Intermediary: All value transfers between network participants is executed peer to peer
Blockchain is a cryptographic linked list data structure,
replicated across a network using a consensus mechanism,
enabling secure value transfer between participants

7. A single block in the Blockchain is constructed using a
number of key elements related to identification
information and the list of transactions being stored
Components of a Block
BLOCK
Blocks are units of the Blockchain
HEADER
Version
Merkle Root
Difficulty
Previous Block Hash
Timestamp
Nonce
TRANSACTION COUNT
BLOCK CONTENT
Coinbase TX Bitcoin TX
Total Bitcoin + Coinbase TX
Transaction
Each transaction is a Bitcoin payment
TECHNICAL DATA
Version
Number of Inputs
Lock Time (delay)
Number of Outputs
INPUTS
OUTPUTS
Previous TX Hash / Output Index
Private Unlock Script Script Length
Amount
Script LengthPublic Locking Script

8. Mining Blocks
Each full node in the network provides computing power to
secure the network by receiving, authenticating, storing and
sharing transactions through the consensus mechanism
Hash of #2
A –> B: 50
B –> C: 10
Hash of #1
A –> C: 10
B –> C: 50
Hash of #0
C –> A: 100
C –> B: 100
0 –> C: 200
Hash
Calculated:
121232
Block 1
Block 2
Block 3
Block 0
Block 4
Hash
Calculated:
121232
??
?? ??
??
??
??
??
• Transmission: New transactions are sent to the network and stored by each node
• Structuring: Nodes select transactions and form a structured Block object (using a nonce)
• Hashing: Block is hashed, which means a calculation is performed to generate a single number
• Check: If hash number is below Difficulty Block is distributed to network, else process is repeated (new nonce)
• Recording: If the Block meets key criteria, it is accepted by other nodes and added to their Blockchain
• Confirmation: As more Blocks are added to the chain previous Blocks become increasingly secure
A

9. Unspent Transactions
Bitcoin stores data about users' balances in a
structure based on unspent transaction outputs
(UTXOs), where each output has an owner and a
value
• Input: Every referenced input
must be valid and not yet spent
• Signature: transaction must
have signature matching owner
of the input for every input
• Inputs>=Output: Total value of
inputs must equal or exceed the
total value of the outputs
• UTXO: A user's "balance" in the
system is the total value of the
set of UTXO coins for which the
user has a private key
• Structure: Each UTXO is stored
with: Address, TXID and Value

10. Ethereum Network
Ethereum is a Blockchain based network, similar
to Bitcoin, but in addition to value transactions it
enables smart contract functionality
Ethereum Transaction
TECHNICAL DATA
To (Null for Contract)
Gas Price
Ether to Transfer
Start Gas
DATA
Smart Contract Code for Execution on Chain
General Text
Nonce Signature
• Transaction: An Ether payment transaction can be sent from
one address to another address like in Bitcoin
• Contract: Insert code into transaction Data field, and send to
null address – mined as a Contract
• Interaction: Users and contracts can interact with other
contracts by sending transactions to their addresses
• System: Complex contract structures can be created that are
triggered based on transactions from each other
• Compute: On-chain calculations can be performed and data
stored but costs ether (measured in Gas)
• Accounts: No UTXO, state stores a list of accounts
(addresses), where each account has a balance
• Balance: Transaction is valid if sender account has balance,
then sending account debited and receiving credited

11. Complex contracts can be constructed that
enable execution of standard transactions
based on agreed trigger events
Smart Contracts for Bonds
CATASTOPHE BOND
SMART CONTRACT
INVESTORISSUER
Cat Bond Principal
Premium
(and Principal)
Contingent Payment
Premium
CATASTROPHE
TRIGGER
AGENT
Cat Trigger Event
TS1
TS2
TS3
TS4
TS5
TS6
TS8
TS7
• TS1: Bond Contract Setup
• TS2: Fund Transfer by Investor
• TS3: Subscription Confirmation
• TS4: Recurrent Payment to Contract
• TS5: Recurrent Payment to Investor
• TS7: Trigger Event Confirmation
• TS6: Principal Payment to Investor
• TS8: Principal Payment to Issuer

12. Transparency Cost Flexibility Risk
Exchange Markets
Blockchain Enabled
OTC Markets
Blockchain based CCP and depository enables
transparency and settlement risk control of exchange
markets with flexibility and low cost of OTC markets
Blockchain and Finance

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