Exam III: Block Chain

What is a digital signature?

-A number that proves that a signing operation took place -A signature is mathematically generated from a hash of something to be signed (transaciton), plus the private key for each address -A hash of entire transaction is computed to give it a unique ID and then it is broadcast to the network.

What are two valuable services performed by trusted third parties like banks and credit card companies?

-Authenticate: you are who you say you are -Prevent double spending: trusted third party checks every transaction to make sure the money you want to spend is in your account and has not already been spent.

What are the top 5 cryptocurrencies as of June 2016, as measured by market capitalization?

-Bitcoin -Ethereum -Ripple -Litecoin -The DAO

Identify 7 problems solved with peer-to-peer cryptocurrencies

-Full transparency: the single ledger (called the blockchain) of every transaction that has ever occurred is public and available on every node in the network -Full Private: no personal data is collected - blockchain only stores account transactions -Rapid settlement: e.g. bitcoin transactions designed to settle every 10 mins -Low transaction fees: a small fraction of bitcoin transaction is offered to miners who add a block of transactions to the block chain ledger -One version of the truth: there is only one ledger and everyone has a copy -No currency exchange fees because of country: bitcoin is a universal currency -Volatility: NOT SOLVED YET, bitcoin protocol does have large swings in value -Cybercrime unprofitable: bitcoin protocol makes it unprofitable to hack the ledger, a criminal would need to spend 51% of the computing power of the entire network to try to change history -Rules are added: but not subtracted by bitcoin community

Identify 8 problems with traditional currencies issued by governments & transacted through trusted third parties

-Lack of transparency -Delays in settlements -High transaction fees -Multiple versions of the truth -Currency exchange fees -Exchange rate volatility -Cybercrime -Rules change at whims

What happened at MT Gox

-Mt gox was an established bitcoin exhange (70%) -march 2013, the price volatility goes crazy and suspends trading -feb 2014: mt gox closes its website, filed for bankruptcy -april 2014: announced that 850,000 bitcoins were stolen, 100,000 of their own wallet worth 450 million dollars -august 2015: mark karpeles, CEO stole 290 million dollars worth of bitcoin -WALLETS WERE HACKED NOT THE BLOCKCHAIN

What is a private key? what is a public key? Address? How are the three related

-Private key: used to sign transactions; only 1 person should have access to a private key (the private key uses a mathematical formula to create the public key) -Public Key: derived from private keys starting with a 04,03, or 02 -Address: shorter version of a public key starts with a 1 or 3

What are the data fields in a block header? Which data field can be altered?

-Protocol version -previous block hash: helps create the sequence of the chain -Merkle root: takes a hash of all the transition below int he pay load -timestamp: when the block was created -bits: condensed of the mining difficulty is -Nonce: the only on that is allowed to be changed, the winning arbitarty vale that produced the successful blockchain. Block Header always has 80 bits

How does a private key become a public key

-The wallet generates the private key -Uses elliptic curve cryptography (which is the process done by the software) -public address is created (used to verify if you do own the information)

How should bitcoin wallets be secured?

-Wallets can be cracked! -Becareful with online services -keep only small amounts in your wallet, just like real life -make password something you remember - you cannot recover a forgotten password -use a strong password -backup wallet in many places -encrypt wallet and backups -offline wallets for savings "cold storage" not connected to a network -Keep bitcoin software updated

What data is stored in a bitcoin wallet?

-bitcoin address -public-private key pairs- for each of the wallet owners addresses -transactions done from/to addresses -user preferences -reserve keys -versions number -key pool: new public and private keys are pre-generated and stored in a queue before use

What is the definition of a smart contract

-is a piece of software that stores rules for negotiating the terms of a contract, automatically verifies the contract and then executes the terms

Why is blockchain considered "unhackable"?

-it does not store any personal data at all, blockchain only stores account transactions. Also it is unprofitable to hack the blockchain

According to Tapscott and tapscott in blockchain revelution, what are ten implementation challanges?

-technology is not ready for prime time -the energy consumed is unsustainable -governments will stifle it -powerful incumbents will usurp it -incentives are inadequate -blockchain is a job killer -governing protocal like herding cats -skynet -big brother is always watching -criminals will use it

What happened at silk road>

-was an online black market and the first dark net market known as a platform selling illegal drugs, using Tor and Bitcoin -FBI shut down the site in oct 2013 -seized 26,000 bitcoins on silk road worth around 3.6 million -seized another 144,000 bitcions worth 28.5 million

What is a SHA256 hash? How is it different than RSA?

A hash is a transformation of one number to a different number (makes sure you can never go and use SHA256 hash: (secure has algorithm) this is the funstion using all over bitcoin functions. Always generates a 32 bit address RSA hash: created in 1977, the gold standard. Which produced a really large number

Bitcoin history: who is the real satoshi nakamoto

Australian entrepreneur craig wright

What is the purpose of a bitcoin wallet?

Contains the private keys for all the addresses a person owns Wallet term also describes the client software used to make transactions (send and receive bitcoins)

What is the difference between deterministic and non-deterministic smart contracts?

Deterministic smart contracts can run on thier own, the contract in blockchain has enough information to determine an outcome without outside information Non-Deterministic smart contracts needs outside confirmation from and oracle - an entity that verifies events but does not take ownership of any value.

What is double entry v triple entry accounting

Every transaction have three entries: the credit, the debit and the receipt (the cryptographic signed acknowledgement of the transaction verified by the crowd there are three parties who have copies of the transaction - the two account owners (called wallets in bitcoin) and the blockchain

With Smart contracts, which two triggers can be sent to/from the smart contract stored in a blockchain?

Gas prices: price per computational step Stop gas: maximum number of computational steps

Bitcoin history: after release of the white paper, how did bitcoin become a reality?

Jan 3 2009, the first block is mined, bitcoin now exists first transaction between nakamoto and hal finney

What is the structure of a bitcoin transaction?

Output have up to two address -an address owned by the receiver -an address owner by the sender for any change back input may have multiple addresses -sender may need to collect enough coins from multiple addresses that received coins as outputs in prior transactions stored in the blockchain -need to spend all the coins in a previously used address Joe must provide a newly created address when requesting money. Called address E Mary is in her wallet, she intends to send 10 bitcoins to address E -mary must create an address which is founded b addresses used in the past When mary tries to send bitcoins to jow, mary must authenticate with her private key that she owns the address and that the bitcoins have not been spend before.

What is the maximum number of bitcoins? will that maximum number likely be enough?

There are about 21 million bitcoins that will be mined byt the year 2140. Yes 21 million is enough, bitcoins can be divided, just like dollars can be divided into quarters, dimes, nickles, pennies....bitcoins can be divided into 100 million bits

How are bitcoins released into circulation?

Using the decreasing supply chain algorithm, bitcoins are released into circulations like the way gold is mined from the unmined bitcoins, bitcoins are released to a miner who works hard to earn it Initially the winning miner earned 50 bitcoins for each unit of work called a block A new opportunity to win more bitcoins occurs on average every 10 min until all 21 million coins have been mined in the year 2140

Bitcoin history: who wrote the 8-page white paper "bitcoin: peer-to-peer electronic cash system?"

an unknown person or group named Satoshi Nakamoto

Where are venture capitalists spending their money? how much have they spent in the last few years? where have investment dollars recently shfted - from where to where?

betwee 2009-2013 the funding is 93 million between 2014-2016 the funding is 993 million initially most of the venture capital went towards bitcoin now it has shift on how blockchain can be deployed -jan 1 2015 - feb 18 2016: 67% blockchain infrastructure; 33% bitcoin wallets, exchanges, mining Not just venture capital inverstors; visa, mastercard, citi, etc

Where are bitcoin wallets stored?

bitcoin wallets can be stored on you mobile, in hardware, on desktop, or in the cloud?

How is the miner reward amount determined

first miner won 50 bitcoin per win, then the reward halves every 210,000 wins

Bitcoin history: what is considered the first real transaction on Bitcoin in which bitcoins were used to pay for a physical item?

he first transaction happened may 22 2010 when 10,000 bitcoins were used to buy a pizza

Upon what metaphor is bitcoin based?

the metaphor of gold mining

What data fields are posted in the blockchain for each bitcoin transaction?

the outputs and the inputs for each transaction on the block chain. the software verifies that the address are not inputs and that they are outputs in the black chain. to prevent double spending.

How does a public key become and address?

the public key is transformed into an address by hashing it twice: the second has shortens the first hash to produce a shorter address What we use from out wallet and what is used in the black chain