Chapter 1- Blockchain Fundamentals
explain the use case of decentralized autonomous supply chains
- Implementing smart objects and smart contracts across a supply chain can lead to a more frictionless and ultimately automated supply chain, where the rules and decisions can be codified -supply chains would "run themselves"
explain asset-tracking potential of bitcoin & why it would be so useful
- would provide the ability to quickly and efficiently track assets like medicine, art, land, & food all the way from the producer to the consumer -Tracking an asset through a blockchain means that the complete history of the asset can be made available to anyone we wish to share this with - has been done w/ music/songs to remove record labels and become self-manager
what is a 51% hack?
-An attack on a blockchain by a group of miners controlling more than 50% of the network's mining hash rate, or computing power. -would require a huge amnt of computing power & money -The larger the network gets, the more difficult this kind of attack would be.
Proof of Work
-POW is basically a way to confirm that that significant work is being done to validate transactions securely - A system that ties mining capability to computational power. [[[*a consensus mechanism*]]] - Blocks must be hashed, which is in itself an easy computational process, but an additional variable is added to the hashing process to make it more difficult. - When a block is successfully hashed, the hashing must have taken some time and computational effort. Thus, a hashed block is considered proof of work
explain the identity management use case
-other blockchain applications can leverage (or reference) the current state of your identity to create whole new applications. -would verify FOR REAL, not through questions, a consumer's identity -By managing your personal identity on a blockchain via smart contracts, you can decide how much information you want to share with companies or other people. This is an area of blockchain innovation known as "self sovereign identity"
Explain some of the ethical & privacy issues of blockchain
-potential unforseen consequences of not using a centralized 3rd party to verify transactions (bug or glitch?) - who is to be held responsible for fund losses or code errors? - populations w/o access to technology will be left behind or could be taken advantage of -prediction/assassination markets have started to form...some people use the anonymous feature to do bad things
explain the internet of things (IoT) integration use case
-smart objects like wearables and vehicles will eventually be identified on a blockchain and will have their own wallets (accounts) and smart contracts. They can then transact w/ other devices ex: smart solar panels on people's homes selling extra energy to one another
private blockchains (permissioned) are useful for businesses who want a little more privacy and want to restrict usage of their blockchain to just their company or firm. Public blockchains (permisssionless) however, allow anyone to use and edit and function similar to a Wikipedia page
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Bitcoin blocks are around ___ MB in size and taken around _______ mins to create.
1 MB 10 minutes
What are the 4 downsides/barriers to blockchain adoption?
1. Not scalable 2. Pose privacy & confidentiality risks in transactions 3. Not inter-operable 4. image problem/ has gotten a bad rap in media
6 biggest blockchain trends for 2021
1. blockchain for vaccine tracking & distribution 2. ongoing rise of enterprise blockchain 3. rise of NFTs 4. blockchain-as-a-service 5. blockchain expertise as a highly tradeable skill 6. cryptocurrency craziness continues but stable coins offer some sanctuary
bitcoins are built out of what 3 layers of technology?
1. core infrastructure at bottom 2. middleware in middle 3. applications at the top *pyramid structure
list the 3 most popular potential blockchain use cases
1. identity management 2. asset tracking (supply chains) 3. internet of things
trade & exchange in human history has evolved in 3 main stages. Name them!
1. informal rules (bartering & trusting the other indiv won't try to trick or cheat you) 2. formal institutions (like banks) 3. online institutions (mobile banking, venmo)
list the 5 qualities of blockchain that make it unique
1. security 2. resiliency 3. immutability 4. transparency 5. permissibility
What 2 things does bitcoin use in order to solve the double spend problem?
1. time-stamps 2. cryptography
What is a smart contract?
A computer program that is designed to self-execute on the basis of pre-specified terms and conditions agreed to by parties to a contract. -basically, the contract would fulfill its own terms (i.e. automatically pull $ out of accounts) once the terms are met and verified by code. This removes the need for any middlemen or blind trust between the 2 parties -contains series of "if-then" stmnts -also called self-enforcing or self-executing contracts -can be used to lower uncertainty by using programmable transactions
DASH
A cryptocurrency started in 2014 which attempts to operate as a self-governing DAO, funding itself by allocating 10% of mining fees associated with its cryptocurrency propagation to the DAO
what is a decentralized database?
A database is a collection of info or data. A decentralized DB is a database where there is NO single, central storage of data and no single authority or administrator *multiple people can edit
Define Blockchain
A decentralized database that stores an agreed-upon and append only history of transactions across a peer-to-peer network
digital tokens/coins
A digital token= a way to represent value on a blockchain application. They help motivate indvs to participate in blockchain as a full node and secure the transactions in the database
Asymmetric Cryptography
A form of cryptography that uses two separate, but mathematically related, keys for encryption and decryption; also called public key cryptography.
Consensus Mechanism
A method of authenticating and validating a value or transaction on a Blockchain or a distributed ledger without the need to trust or rely on a central authority. Consensus mechanisms are central to the functioning of any blockchain or distributed ledger.
Ethereum is similar to Bitcoin. What is it?
A more generalized blockchain that uses smart contracts to program transactions
what is a hash?
A number generated by an algorithm from a text string.
Ethereum
A permissionless and public blockchain where miners obtain "ether" as the digital token for validating transactions and creating new blocks. It is one of the most mature blockchain platforms and has seen widespread adoption among large corporations, academics and vendors. Ether does function as a cryptocurrency and can be traded on altcoin exchanges, but some new private blockchains have started using forks of the Ethereum protocol mainly for its smart contract features.
Blockchain is a ledger. What is a ledger?
A record that keeps track of transactions.
The DAO
A venture fund that accepted proposals for projects to be built on Ethereum and grow the ecosystem of innovation for the platform. -Its main difference from a traditional fund was that its "code was law," and the smart contract code governing The DAO enabled owners of DAO-tokens to vote on submitted projects through the blockchain and then automatically appropriate funds to those winners.
Dapps (decentralized applications)
Applications that are designed to run on peer-to-peer networks of computers as opposed to just running on a single computer (think the old music sharing app Napster!)
Nodes in blockchain- what are they? What are the 2 types?
Nodes in a blockchain are simply any computer connecting to a blockchain network. There are 2 types: partial & full nodes. PARTIAL nodes= any computer that connects to the blockchain network. FULL nodes (peer to peer network)= more active participants of blockchain who have a computer connected to the network and who have downloaded a full copy of the blockchain software onto their computer. This download process could take several days & requires tons of RAM, broadband, and free space on the user's hard drive.
how do blocks work?
Once a block is created, its linked to the previous block using a special address & cryptography. (The grouping of these blocks creates the "blockchain"!)
Quorum
Open-source, cross-industry platform built on the Ethereum platform in a collaborative effort between JP Morgan and the Ethereum Foundation. -It is a permissioned blockchain that does not incorporate any cryptocurrencies. It does not use the Proof of Work consensus algorithm of Ethereum, but instead uses a voting algorithm, and can process smart contracts much more quickly than Ethereum.
private key/public key- explain this concept
Public keys are used to convert a message into an unreadable format. Decryption is carried out using a different, but matching, private key. Public and private keys are paired to enable secure communication. **essentially, the public key encrypts the message and the private key decrypts the message! keeps things secure and private
To perform transactions on a blockchain, you need to digitally sign your transactions with your private key. T/F?
TRUE
blockchain are essentially an "internet of agreements" that describe & execute any kind fo transactions across a network. T/F?
TRUE
writing & the introduction of standardized currency were foundational changes to how humans conducted trade: T/F?
TRUE
what is an "information superhighway"?
Term given to the Internet due to the amount of information transferred over an extensive electronic network -term emerged in 1993 on a Time magazine cover
bitcoin mining
The process by which transactions are verified and added to the public ledger, known as the Blockchain, and also the means through which new bitcoin are released. Anyone with access to the internet and suitable hardware can participate in mining. The mining process involves compiling recent transactions into blocks and trying to solve a computationally difficult puzzle. The participant who first solves the puzzle gets to place the next block on the block chain and claim the rewards.
Who is Satoshi Nakamoto?
The pseudonym for the individual who began bitcoin in 2009 with his oct 2008 paper -pulled all prior research together in his 9 page paper & finally solved the double-spend problem -was a reaction to the financial crisis -identified as a male -still has almost 1million in his crypto wallet; all attempts to ID him have failed -linked to world of cyberpunks??
Double-spend problem- what is it? How is it prevented with cash & credit cards?
The risk that a digital currency can be spent twice because digital information can be reproduced pretty easily using the internet (think screenshots, downloads, forwarding...) cash: physical product cannot be replicated; has unique serial number & we trust banks not to double print dollar bills credit cards: we trust banks to manage CCs and ensure that $ cant be taken out twice. CC fraud/abuse still is a huge issue though.
Distributed Ledger Technology (DLT)
This is a common term used to describe the technology that controls bitcoin. DLts run on peer 2 peer networks and use a consensus protocol among the peers to verify transactions instead of using a centralized DB.
in order for blockchain applications to grow, it's important to have many nodes on the network. Why is this so vital? What should the nodes 'look' like?
This is so vital because more nodes means greater blockchain security and a larger community to verify transactions. The nodes should be as independent as possible so that the network is greatly decentralized and more secure.
All nodes on the bitcoin network contain copies of the entire blockchain. What are the consequences/effects of this feature?
This means that if one node malfunctions, all other nodes will continue working and will NOT compromise the entire system.
Ripple
Used mainly for global currency exchange across borders- they are nearly free -financial services industry focused -cryptocurrency is called "Ripple" or "XRP" -faster & more scalable than Bitcoin/Ethereum
You can think or peer 2 peer networks as a group of _____________ ____________ acting as ________
a group of independent computers acting as one
blocks
a virtual object that holds a set of information and is linked to other blocks.
explain the transparency feature of bitcoin
all transaction stored in a blockchain are visible to all participants, no matter their size: -each transaction is time-stamped - allows community verifiability
relational database management system
allows users to create, read, update, and delete data in a relational database
blockchain infrastructure is a technology for transforming our existing digital economy toward what?
an *internet of value*, where transactions are synchronized to form a consistent global database
What is a transaction?
any exchange or interaction between people. Can be financial, value, informational, contractual, or recreational
transactions on a blockchain transfer value or information between what?
between public keys
the ________________ represents a chronological history of all the events that occurred in a network, including the alphanumeric addresses and the hash of the previous blocks
blockchain
explain the "resiliency" feature of blockchain
blockchains have "fault tolerance"- their peer 2 peer feature makes it unlikely that the system will crash due to power failures or weather issues since the computers in the network are likely located all around the world.
smart contracts
computer program that directly controls the transfer of digital currencies or assets between parties once certain conditions have been met
Instead of trying to equate different amounts and types of goods in what seemed like a fair exchange, humans developed _____________
currency -currency lowers uncertainty in trade & expands our ability to transact on a larger scale
blockchains have the qualities of being both ____________ and _____________
decentralized & distributed
what is the main motivator to get people to participate in blockchain as a full node / peer 2 peer network?
digital tokens (or coins)
A ___________ _____________ is one where all the nodes on the network contain information and they are equal and have equal rights
distributed database
another foundational change in how humans did business was ________ _____ _________, beginning in Italy in 1340 CE. It provided an "error-detection" tool for accounts.
double-entry bookkeeping
what are some examples of centralized & decentralized databases? how do you know?
google- google is the keeper of "truth"; they provide all the answers to the questions we type in banks- the bank's record of a transaction is the ultimate one and they are the top authority in overseeing all activity WIKIPEDIA- DECENTRALIZED! anyone can edit Wikipedia and make changes with equal authority. It 'works' bc everyone holds everyone else accountable for any changes
the main issue with today's modern day global transactions with credit cards and banking is...
hacking & identity theft & credit card fraud -banks still act as middlemen for our transactions
blockchain is an "append only" technology. What does this mean?
means that transactions being recorded are held locally by each node (each computer) and can only be added to, NOT deleted. the DB is effectively permanent. ***think of a library book's check-out list. It is a record over time, cant be deleted but can be added to!
miners perform computationally difficult mathematical puzzles in order to further the network and place the next block on the chain. Their prize is what?
newly minted tokens
explain the immutability feature of blockchain
once a block has been added it cannot be changed or removed: -history of ownership can be tracked very easily as a result
permissionless blockchains VS permissioned blockchains
permisionless: allow for anyone to participate as a node by installing the software and copying the blockchain onto their computers, such as in the case of Bitcoin permissioned: scoped to a much narrower set of trusted or semi-trusted participants.
signature or "signing" the transaction refers to the...
private key
A system that ties mining capability to computational power & uses a lot of energy.
proof of work
blockchain contains _________ for coming to a _______________ on the validity of transactions. This replaces the authority of a central figure or institution
protocols consensus
list the popular enterprise blockchain platforms (5)
quorum, ripple, hyperledger R3 corda, ethereum
the 1st historical examples of writing from Sumeria over 5,000 yrs ago depict what?
records of trade transactions! -log citizens' payment of taxes to the gov. -banks were created to store valuables
A _________ __________ is basically a small computer program that runs on a blockchain
smart contract
public permissioned blockchain represent the rare scenario when....
the database is visible to anyone (read and verify functions), but the write function is limited to a set of known participants.
Immutability of blockchain
transactions can be added but not deleted
One of the main advantages of blockchain is that it lowers _______________ in our transactions
uncertainty
_____________ is a measure of the benefit of a good/service & is usually measured in units of currency
value
decentralized autonomous organization/corporation (DAO/DAC)- what are they? provide 2 examples
virtual entities that run & maintain their rules and transactions on a blockchain using smart contracts. -its an "automated business" -ex: DASH & "The DAO"
