Blockchain Explained - DTNS WEEKLY TECH UPDATE 12/08/2016

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This week I attempted to explain the blockchain to Scott Johnson on the show. By all accounts we did a pretty good job. We kept it pretty basic of course but a few folks wanted to have some of what we talked about written down. So this week I've got a written version of the explanation with a few more details for you.  But first here are some big stories from the week, in case you missed it. 

NEWS

Pebble CEO Eric Migicovsky posted that Fitbit has acquired Pebble. Pebble will shut down, cease manufacturing products and many of its employee will join Fitbit’s wearable software teams. Existing Pebble devices will continue to work, though warranty support has been withdrawn. APIs and SDKs will continue to operate  but cloud services will be phased out and handed over to the community. The Pebble 2 has been canceled and Kickstarter backers who have not received a reward will get a full refund. https://techcrunch.com/2016/12/07/pebble-confirms-its-shutting-down-devs-and-software-going-to-fitbit/ 

Amazon has opened a test location for a convenience store called Amazon Go using what it calls “Just Walk Out” technology to charge customers. Customers gain entrance by using the Go app and then a combination of sensors, computer vision and deep learning track you. When you walk out your Amazon account is charged for what you carry with you. Amazon Go is in an 1800 square foot location at  2131 7th Ave. Seattle with mostly meals and snacks. It is open to Amazon employees though non-employees will get to shop there early next year. https://techcrunch.com/2016/12/05/amazon-go/ 

The US Supreme Court ruled unanimously Tuesday that a patent violator does not have to pay all profits from sales of infringing products if the infringing designs only covered certain components. This voids the $399 million penalty Samsung had to pay Apple in a 2011 patent case, and sends it back to a lower court for further proceedings. http://www.reuters.com/article/us-usa-court-iphone-idUSKBN13V1XL 

At WinHEC in Shenzen, Microsoft announced a version of Windows 10  for ARM processors is coming next year and will support existing desktop apps through an emulation layer. Microsoft demonstrated video playback, Adobe Photoshop, and Microsoft Office support all on a Qualcomm Snapdragon 820 processor.

With that capability Microsoft is partnering with Qualcomm to bring Windows devices that use Qualcomm’s Snapdragon chips starting with the 835. Windows head Terry Myerson said Qualcomm chips have better integrated connectivity and battery life. The first devices out next year are expected to be laptops.

http://thenextweb.com/microsoft/2016/12/08/microsoft-officially-bringing-real-desktop-apps-arm-smartphones/ 

http://www.theverge.com/2016/12/7/13866936/microsoft-windows-10-arm-desktop-apps-support-qualcomm 

Sony says it is working on 11 mobile titles with the aim of releasing up to six smartphone games in the next year. Among the titles are Hot Shots Golf, PaRappa the Rapper and Arc The Lad. Sony also announced Project Field, cutting board sized device that allows real world objects with embedded chips to be used with smartphones and tablets. Yokai Watch is the first title announced for the system  and no release date or price was announced. Separately Sony announced it has now sold more than 50 Million PlayStation 4 consoles. It last announced sales of 40 million in May. https://www.bloomberg.com/news/articles/2016-12-07/sony-unveils-new-games-controller-in-smartphone-gaming-push 

http://www.reuters.com/article/us-sony-mobilegaming-idUSKBN13W0TY 

https://www.engadget.com/2016/12/07/sony-playstation4-50-million-sales/ 

Twitter announced the acquisition of mobile app startup Yes. The company will shut down service on it's two current apps, wyd and Frenzy, in the near future. Twitter will roll the Yes team into their overall staff, with Yes CEO Keith Coleman becomes VP of Product, a  position vacant since Jeff Seibert left in June. Coleman has posted to Twitter 143 times in 9 years. https://techcrunch.com/2016/12/01/twitter-vp/ 

IDC released Wearables data Monday showing Fitbit stayed on top of the world marketshare increasing from 21% to just more than 23%. All wearables excluding smartwatches grew 22%. The smartwatch segment of wearables fell 52% in Q3. IDC also reported Monday that Apple Watch sales were 1.1 million in the quarter ending in September, down 71% year over year. Tuesday, CEO Tim Cook told Reuters that Apple sold a record number of Apple Watches to consumers in the first week of holiday shopping at the end of November.  Cook said that Q4 is on track to be the best ever for the Apple Watch. http://fortune.com/2016/12/05/fitbit-apple-wearables-market/ 

Europol, the US Department of Justice, German law enforcement and efforts from law enforcement in more than 40 countries teamed up to shut down more than 50 Avalanche botnet servers Thursday. Law enforcement officials seized 39 command and control servers and took control of more than 800,000 Internet domains and conducted five arrests and searches in five countries. The Shadowserver Foundation, a non-profit group of security professionals, collaborated with law enforcement for 18 months on the operation http://arstechnica.com/security/2016/12/legal-raids-in-five-countries-seize-botnet-servers-sinkhole-800000-domains/ 

The chief of the FCC’s Wireless Telecommunications Bureau, Jon Wilkins sent a letter to AT&T regarding its practice of zero-rating its own DirecTV Now service. Wilkins wrote that AT&T’s justification of the practice "tends to confirm our initial view that the Sponsored Data program strongly favors AT&T's own video offerings while unreasonably discriminating against unaffiliated edge providers and limiting their ability to offer competing video services to AT&T's broadband subscribers on a level playing field.” The FCC does not ban zero-rating but evaluates it for harm to competition and consumers. AT&T has until December 15 to respond to this preliminary decision before it becomes final. Wilkins also sent a letter to Verizon about its practice of zero-rating the Go90 service. http://arstechnica.com/tech-policy/2016/12/fcc-says-att-is-violating-net-neutrality-with-directv-data-cap-exemption/ 

Microsoft finalized its acquisition of LinkedIn Thursday for $26 billion. LinkedIn will be integrated into Microsoft Office applications and the Windows action center. Microsoft also plans to develop a business news desk across its content including MSN.com. And of course LinkedIn will combine with Sales Navigator and Dynamics 365 for social selling. In a related note, Russia’s communications regulator, Roskomnadzor,  said it had a productive meeting with LinkedIn representatives Thursday over its noncompliance with a data storage law. http://www.theverge.com/2016/12/8/13882622/microsoft-linkedin-acquisition-finalized 

http://www.reuters.com/article/us-russia-linkedin-talks-idUSKBN13X1NS 

Bluetooth’s Special Interest Group officially adopted the spec for Bluetooth 5 Wednesday. You should get 4 times the range, twice the speed, and 8 times the amount of data. There are no major improvements to audio or power use this time around. Devices with Bluetooth 5 are expected to arrive within the next 2-6 months. https://www.engadget.com/2016/12/07/bluetooth-5-arrives/ 

CLOSER LOOK - WHAT IS THE BLOCKCHAIN?

OK so you hear a lot about the blockchain. It's the "public ledger" that underlies Bitcoin but blockchain does not need to be used just with bitcoin or even cryptocurrencies. A lot of companies and industries are exploring its uses for contracts, supply chain even royalty tracking.

SIMPLE VERSION

This explanation is definitely oversimplifying things and I'm going to start super simple. We'll use financial transactions as an example since most people are familiar with that. But keep in mind it's not about the coin, it's about the transaction and the trust.

HOW IT WORKS NOW: Say Tom sends $1 to Scott. A central clearing house validates that Tom has the funds and that Scott’s account is correct and valid and logs the transaction. If the third party is corrupted or hacked it can cause problems. Plus it takes three days for a transaction to complete and on top of that the clearinghouse charges a fee.

HOW IT CAN WORK WITH A BLOCKCHAIN: Tom sends $1 to Scott.

A Transaction is published to be added to the blockchain.

Many nodes across the network compete to be the first to validate the transaction against a public ledger.  All nodes have a copy of that ledger.

Nodes have to validate the transaction against the ledger (proving Tom has the money and that Scott’s account is correct) and THEN calculate a key to link the transaction to the previous transaction (say Tom getting $10 sent to him)

That key generation is intensive by design to make it somewhat costly to validate the transaction. That way people don't flood the network with nodes and try to game the system.

The first node to do all that work  publishes it to all nodes on the network which check the math and if it's right add it to their own ledger copies.

Remember that all this is done in software so it is essentially instantaneous to a human. No central party is required, so no added cost.

A BIT MORE

There are loads of resources about how the blockchain works in case you really want to dive into the intricacies and the math. Here's a bit more to get you pointed ion the right direction if you want.

The Blockchain

A blockchain public ledger is good for recording transactions.  Things like transfer of money, movement through a supply chain, or contracts.

Open

First of all the blockchain must be open at least to its participants. The blockchain records every sequence of transactions and replaces the third party that usually verifies these sorts of things. No need for clearing houses or witnesses.

When a transaction occurs it’s put into a block. 

Transactions are linked one to another. So Tom received $10 from Chris is a transaction which would be linked to Tom sends $1 to Scott.

OR

Emerald mined is linked to delivered by trucker which is linked to arrival at port et cetera.

Everyone on the network can see the transactions.

Distributed

There isn't a central server recording all this. It's distributed among a large number of nodes.

For the emerald example, each move in the supply chain could carry a certificate of authenticity and a photo that anyone in the network can see and verify.

Each block is not just recorded in one place. Multiple users on the system copy the block and software checks the blocks against others to insure they’re right. If one block is changed by Scott, (say he tried to change the transaction from Tom to say $5 instead of $1), other users will catch it and declare the changed block invalid, preventing tampering.

Also the system can’t go “down” or get hacked in the manner of a central server. You can’t just go delete transactions since they’re held in many places. 

Each transaction must be accepted by the participant’s software. So transactions that don’t follow procedure, say try to send money from a wallet that is empty, fail.

Synchronization

So how do you keep all those copies of the public ledger in agreement. 

For a transaction to get into the chain it must be validated. A node has to calculate whether the sender has the funds to send for instance and calculate a key to link previous transaction to the new one.

In cryptocurrency, certain nodes are designated as ‘miners’. They compete to validate transactions. For the bitcoin blockchain the reward for competing is progress toward the creation of new bitcoins. In permissioned systems like for the supply chain example the nodes are verified and trusted prior to participating and don’t need the incentive to join. They're software. As long as everyone in the consortium sets them up to mine and validate they will.

The “winner” of validation publishes the solution to network for validation and link. All network ledger keepers check the math and then add it to their copy and look for next transaction.

Can it work?

There are lots of questions about whether a truly decentralized system like Bitcoin can work. Not just regulatory issues but whetehr the chain can scale and how much trust among participants is needed to adjust the system and keep it working.

Permissioned systems are only open to approved participants. This could be all the carriers and elements of a supply chain for instance. Many companies are testing what the pitfalls are when you don't have an open system to check things. It can still work if you have enough nodes involved and one entity doesn't control the majority of them. That's why the tests are being conducted.

If it all works one of the biggest hopes is that it could speed up and lower costs for financial transactions. Anybody who has waited three days for a deposit to show up will appreciate that.

Here are some more links to read up on the blockchain.

CIO Explainer: What Is Blockchain? - CIO Journal. - WSJ http://blogs.wsj.com/cio/2016/02/02/cio-explainer-what-is-blockchain/ 

Blockchain 101 - A Visual Demo - YouTube https://www.youtube.com/watch?v=_160oMzblY8 

Blockchain (database) - Wikipedia https://en.wikipedia.org/wiki/Blockchain_(database) 

How Bitcoin Works http://money.howstuffworks.com/bitcoin.htm 

Provo, Utah farmer that uses blockchain https://blog.blockchain.com/2016/04/07/merchant-spotlight-la-nay-ferme/