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Blockchain, bitcoin

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Blockchain, bitcoin

  1. 1. Blockchain & Bitcoin sathish vj 1
  2. 2. Agenda Definitions Bitcoin Payment Why Bitcoin? Networks & Data Crypto Hashes Pvt/Pub Key Crypto Consensus Mining Regulation Trading 2
  3. 3. Definitions Some terms we’ve heard in the papers. 3
  4. 4. Blockchain A blockchain is a distributed database that maintains a continuously growing list of records called blocks secured from tampering and revision. Each block contains a timestamp and a link to a previous block. 4
  5. 5. Bitcoin A distributed, decentralized, digital cryptocurrency that relies on Blockchain technology. 5
  6. 6. Ethereum A blockchain-based distributed computing platform, featuring smart contract functionality. It provides a decentralized virtual machine that can execute peer-to-peer contracts using a cryptocurrency called ether. 6
  7. 7. Blockchain : Bitcoin : Ethereum Core Tech Gen 1: Special Purpose Apps Next Gen: Platform for Apps 7
  8. 8. A Bitcoin Payment What is a typical bitcoin flow? 8
  9. 9. Creates BTC Wallet (software) Unique wallet address: 1F1t...xaN Buy BTC for USD/INR Alice 9
  10. 10. Alice’s wallet ‘signs’ the transaction. Txn sent out on Bitcoin Network 1F1t...xaN 1a1b...79F Bob 10
  11. 11. ‘Miners’ collect transactions. Cryptographically validates them. Transactions grouped into block. Adds ‘fees’ for txn. New BTC reward for mining block. Miner 11
  12. 12. New block sent out on network. Other nodes validate. Connects new block to previous block. Thus forming a chain of blocks. 12
  13. 13. BTC shows up in Bob’s wallet. No central, controlling, approving authority was involved. 13
  14. 14. Anticipated Questions ● Why use Blockchain? ● Can Alice send a copy of the same coins to Chanakya? ○ The double-spend problem. ● What if two miners create a block at the same time. ○ Who wins? ● What if the miners cheat? ○ Byzantine Generals problem 14
  15. 15. Why Use Blockchain? What issues does the blockchain solve? 15
  16. 16. Current Issues ● Trust is centralized ○ Centralized ledger ● Power and abuse at the center ● Deniability with alteration ● Long Time for Transactions ● Hefty charges ● Non-resilient ● Cost of maintaining software ● Security breaches on ‘one truth’ 16
  17. 17. With Blockchain ● Trust without a central figure ○ Decentralized ledger ○ Transact with anybody on the network ○ Confirms: spender has the money ○ Confirms: Not a fraudulent transaction ● Immutability ● Resilient ○ Works with intermittent connectivity ● Fast ● Cheap ● Micro-transactions 17
  18. 18. Bitcoin: A Peer-to-Peer Electronic Cash System “We propose a solution to the double-spending problem using a peer-to-peer network. The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work. The longest chain not only serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of CPU power... The network itself requires minimal structure.” bitcoin.org/bitcoin.pdf - Satoshi Nakomoto 18
  19. 19. ‘On the Shoulders of Giants’ ● Distributed Systems ● Peer-Peer Networks ● Hashing Functions ● Cryptography The astonishing innovation was in bringing it all together in a way that it works. 19
  20. 20. Networks & Data Decentralized networks and storage. 20
  21. 21. Centralized, Decentralized, Distributed 21
  22. 22. BitTorrent Protocol ● Distributed ● Resilient ● Owned by no one person ● BitTorrent client required ● Once started, lives on its own ● Uses computing resources 22
  23. 23. A Database & A Linked List A database is an organized collection of data. 1 2 3 A Singly Linked List can be traversed in one direction. 23
  24. 24. Analogy: Hop Route 1.2.3.4 1.2.3.4 1.2.3.5 1.2.3.4 1.2.3.5 1.2.3.6 1.2.3.4 1.2.3.5 1.2.3.6 1.2.3.7 1.2.3.4 1.2.3.5 1.2.3.6 1.2.3.7 1.2.3.8 24
  25. 25. Transactions & Blocks 25
  26. 26. Cryptographic Hashes A hash as a unique identifier. 26
  27. 27. Hash Function ● Used to map data of arbitrary size to data of fixed size ● Used in data structures like hashtable/dictionary/map 27
  28. 28. Cryptographic Hash ● Fixed length output ● Must be fast ● Pre-image resistance: it should be computationally hard to reverse a hash function ● Second Pre-Image Resistance: given an input and its hash, it should be hard to find a different input with the same hash ● Collision Resistance: it should be hard to find two different inputs of any length that result in the same hash. blockchain the competition creating new blocks is known as mining a blockchain consists of blocks that hold batches of valid transactions. each block includes the hash of the prior block in the blockchain, linking the two. the linked blocks form a chain. variants of this format were used previously, for example in git, and it is not by itself sufficient to qualify as a blockchain. CMPDLDIBJO UIF DPNQFUJUJPO DSFBUJOH OFX CMPDLT JT LOPXO BT NJOJOH B CMPDLDIBJO DPOTJTUT PG CMPDLT UIBU IPME CBUDIFT PG WBMJE USBOTBDUJPOT. FBDI CMPDL JODMVEFT UIF IBTI PG UIF QSJPS CMPDL JO UIF CMPDLDIBJO, MJOLJOH UIF UXP. UIF MJOLFE CMPDLT GPSN B DIBJO. WBSJBOUT PG UIJT GPSNBU XFSF VTFE QSFWJPVTMZ, GPS FYBNQMF JO HJU, BOE JU JT OPU CZ JUTFMG TVGGJDJFOU UP RVBMJGZ BT B CMPDLDIBJO. 9184ae16 8e347c28 a3a928ee source Simple Cipher Crypto Hash 28 blockchaim CMPDLDIBJN a598fc4b9
  29. 29. Block with Transactions Field Purpose Updated When ... Bytes Example version Block Version No. s/w upgrade 4 02000000 Prev Block # 256bit # of prev block header A new block arrives 32 c12959edab Merkle Root # 256bit # of all Txns in Block A Txn is accepted 32 d3f4bac86b2 Timestamp Current Timestamp Block Creation 4 358a2903 Bits Current Difficulty Target Difficulty is adjusted 4 f3591e20 Nonce 32bit number Proof of Work Nonce 4 537629132 Txn Count Count of Txns Each Block 63 Coinbase Txn, User Txn 1, User Txn 2, User Txn ... # Entire Block 29
  30. 30. Block 23 Block 24 Block 25 Merkle Tree ● Each transaction is hashed ● Hash values are combined and hashed ● Final hash added to block header ● If any transaction is tampered with, final header hash will not match Txn α Txn β Txn γ Txn δ #α #β #γ #δ #αβ #γδ Prev Block 25 #αβγδ Timestamp + Nonce Current Block 26 30
  31. 31. Private/Public Key Cryptography How do we ensure authenticity of the spender? 31
  32. 32. Private Key → Public Key → Wallet Address 32
  33. 33. Asymmetric Key Cryptography 33
  34. 34. Address + Signature Verifies Authenticity 34
  35. 35. Consensus Trust on a non-trusted network. 35
  36. 36. Consensus? ● No central authority to verify ● Then who verifies? ● Everybody? ○ Maybe, but how many nodes are there? ● A few specific nodes? ○ Maybe, but will they abuse power? ● Sybil attack? ○ Reputation system subverted by forged identities. 36
  37. 37. Byzantine Generals Problem ● Generals of army surround enemy city ● Action in unison required to win ● Some generals may be traitors ○ Prevents loyal generals from reaching agreement ○ Sabotages the collective action with misinformation ○ Fail to act ● Distributed systems must cope with failure/sabotage of its constituents 37
  38. 38. Proof of Work ● Effort is Investment ● In exams, directly giving final answer could be fraudulent ○ must give long proof ● Uses computer cycle time to validate transactions ● Costly - hardware, energy wastage 38
  39. 39. Proof of Stake ● Personal Stake is Investment ● Parents → Children; Shares → CEO 39
  40. 40. Mining Why do miners do what they do? 40
  41. 41. Mining Process ● Free software. Run it. Get Bitcoins!! ○ Not really. ● #(Rand No. + Prev Block#) < 0x00012 ● Because # is unpredictable, only way to generate fitting value is to keep trying in a loop for Rand No. (nonce) ● Consumes huge amount of processing power - hardware + electricity 41
  42. 42. Bitcoin Mining Farms 42
  43. 43. Mining ‘Difficulty’ Value ● Measure of difficulty in finding hash value below target value (256 bit number) ● Mining Difficulty α1/Target Value ● Average mining time is about 10min per block 43
  44. 44. Resolving Multiple Chains ● Mine on ‘longest’ chain ○ I.e. add block to the longest valid chain ● Other chains have to kept for a while ● Significant resources/time goes into each block ● Tampering with transactions will require rebuilding many blocks again before others add new block ○ Hence immutable ● Each added block is a ‘confirmation’ that Txn is accepted ● Wait multiple confirmations if Txn is large 44
  45. 45. Mining Payout ● Every 210k blocks BTC reward halves ● Started with 50 BTC/block ● Today: 12.5 BTC/block ● Fees for txns adds up with more txns fees btc reward 45
  46. 46. Regulations What is the legality in India? 46
  47. 47. RBI Report ● December 2013: RBI warns investors about volatility ● Not specifically regulated as of now ○ But they are keeping an eye on it ○ Could/Will be regulated eventually ● Have to follow contract laws, pay income or capital gains taxes, only do legal activities as per other laws 47
  48. 48. Trading Can I trade cryptocurrency like stock and currency? 48
  49. 49. BTC/USD jul 19, 2010: 0.07$ -> oct 13, 2016: 635.02$ = 907,171% appreciation 1 Lakh -> 90.71 Crores 49
  50. 50. Costly Pizzas In 2010, a Florida programmer paid 10,000 BTC for 2 Pizzas Oct 2016: $ 6,297,500 | ₹ 42,51,66,196.50 50
  51. 51. Poloniex, EthexIndia, BTCxIndia, GDAX 51
  52. 52. Key Tech Takeaway All this is overwhelming. ELI5 please. 52
  53. 53. Blockchain is a storage technology. (with multiple benefits: tamper-proof, forward growing, resilient, etc.) Bitcoin is one application of it in the area of currencies. It can also be used in insurance, banking, retail, logistics, owner identification, authenticity validation, medical records, etc. There will be platforms (like Ethereum) that you can use to build your own apps. Unmasking the Blockchain 53
  54. 54. thank you Questions @sathishvj 54
  55. 55. References & Courtesy ● http://blockstrap.com/en/a-complete-beginners-guide-to-blockchain-technology/ ● Types of Blockchains - https://blockchainhub.net/blockchains-in-general/ ● http://www.economist.com/news/briefing/21677228-technology-behind-bitcoin-lets-people-who-do-not-know-or-tr ust-each-other-build-dependable ● http://ethereum.stackexchange.com/questions/118/whats-the-difference-between-proof-of-stake-and-proof-of-work ● https://www.igvita.com/2014/05/05/minimum-viable-block-chain/ ● http://www.economist.com/news/briefing/21677228-technology-behind-bitcoin-lets-people-who-do-not-know-or-tr ust-each-other-build-dependable ● http://www.flaticon.com/ - for many of the free icons 55
  56. 56. References & Courtesy ● http://ethereum.stackexchange.com/questions/268/ethereum-block-architecture ● http://ethereum.stackexchange.com/questions/700/what-are-the-differences-between-bitcoin-blockchain-and-ether eum-blockchain?noredirect=1&lq=1 ● http://ethereum.stackexchange.com/questions/4351/are-there-any-drawbacks-of-being-turing-complete?noredirect= 1&lq=1 ● http://ethereum.stackexchange.com/questions/2286/what-diagrams-exist-to-illustrate-the-ethereum-blockchain-cre ation-process?noredirect=1&lq=1 ● http://ethereum.stackexchange.com/questions/6400/what-is-the-exact-data-structure-of-each-block?noredirect=1&l q=1 ● http://ethereum.stackexchange.com/questions/1294/what-is-actually-removed-during-a-contract-suicide-and-why-d oesnt-this-cause-t?noredirect=1&lq=1 ● https://ethereum.stackexchange.com/questions/315/why-are-suicides-used-in-contract-programming ● http://blockstrap.com/en/a-complete-beginners-guide-to-blockchain-technology/ 56

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