Blockchain and Bitcoin
blockchain in certificates of authenticity
DNV in partnership with Deloitte established instant verification of Certificates of Authenticity 1. added 90000 certificates to be verifiable on blockchain 2. improved tamper-resistance 3. reduced fraud and counterfeiting
What happens if a block is modified?
It's hash may no longer be valid. If this happens, every block following it will be invalidated. However, simply re-mining the modified block will not validate the following blocks. Every single block must then be re-mined
1BTC > 1000
Nov 28, 2013
Nonce
Number Used Once random number used for figuring out how to make a specific block give a valid hash
What is SHA256
Secure Hash Algorithm developed by NSA. Used in Bitcoin. One way, meaning that text can generate a hash, but text cannot be generated from a hash
controlled supply of bitcoins
The Halving Every 4yrs or 210k blocks, the amnt of bitcoin issued as reward is halved
Trustless
There is no need for a 3rd party to certify and bring trust to process of transactions. Blockchain enables the trust w/o 3rd party
blockchain in Humanitarian Aid
United Nations World Food Programme 1. uses Ethereum to aid syrian refugees 2. 10k Syrian refugees living in the Azraq camp in Jordan 3. increased transparency 4. reduced fraud and intermediary costs
blockchain in supply chain management
Walmart established blockchain trial with IBM to track pork products across China reduced time it takes to track food from days to minutes 1% reduction in foodborne disease in USA 48mil ppl in US become ill from food borne disease
When is a block valid?
When its hash has certain number of leading 0s
block height
last block that was mined
mempool
place wehre transactions are kept while waiting to be confirmed
what purpose do banks serve with traditional currency
verify transactions, determining if they are real or not. Used to combat double spend problem
Litecoin
cryptocurrency similar to Bitcoin. Instead of waiting 10min for a new block to be created, only 2 and a half minutes
difficulty level
determined by the number of leading 0s. Determines how difficult it is to get the equivalent cryptographic hash for block.
What does mining do?
determines the Nonce needed to generate a valid hash from the data
4 key concepts of bitcoins
1. Disintermediated 2. distributed 3. Decentralized 4. Trustless
What is bitcoin?
digital asset that can be bought, sold, or transferred digitally over internet used to store value but can also be used to buy products, services, and make payments
Blockchain tokens
digital asset to which anything can be assigned (e.g. real estate, piece of art, etc)
segwit transaction
digital signature is segregated to an extended block separate from transaction Frees up 60-63% of the data includes input and amount as part of digital signature
Peer-to-Peer connection
direct connection between two parties e.g. instant messaging/email. How people communicate on the internet
smart contracts
disintermediates any form of contractual obligation by transferring value digitally using a blockchain. A computer program that automates concepts of a contract and runs it on a blockchain self executing and immutable
How does Bitcoin mining work?
1. Every 10 minutes, Bitcoin software issues a new cryptography challenge to find the Nonce which will make the hash for a block valid. 2. Miner race to solve the challenge through random guessing 3. A miner solves the crypto challenge first 4. rest of miner community verifies the validity of the new block mined 4. If the Nonce is correct (proof of work), the block is valid and the new block of transactions is added to the Bitcoin blockchain 5. Winning miner earns a reward for solving the challenge first. This reward is currently 12.5 bitcoins
How is money usually sent over web?
A 3rd party such as a bank or credit card or other institution 1. controls/verifies the transfer, prevents double spending 2. keeps record of transaction 3. keeps data in centralized manner
Why is blockchain so secure?
In order for an attack to corrupt/modify a block, they would need to mine the specific block and every block following it faster than the rest of the network. Would need to have at least 51% of the network's hashing power to validate the new blockchain with their modified changes. This would have to be done in less than 10 minutes because new blocks are mined every 10 minutes
Genesis Block
Jan 3rd, 2009, first block of transactions published on bitcoin blockchain
Distributed
entire network runs on a network of thousands of distributed computers that are sharing the workload. Rather than one centralized computer to handle work, distribute across multiple computers more reliable, b/c no single point of failure that can be taken down.
difference between cryptocurrency and a fiat currency like the U.S. dollar
fiat currencies are printed by a centralized institution. cryptocurrencies created by same mathematical formulas that make the currency work. Cannot just be created at will
how can we send bitcoin to someone else over internet without some 3rd party to certify that a transfer took place?
global network of thousands of computers called Bitcoin Network together with decentralized ledger technology called Blockchain. Data stored and verified across the entire Bitcoin Network. Because data is decentralized and distributed over many computers, there is no single point of failure.
difference between hashing and encryption?
hashing is one way, encryption is 2 way when you decrypt encrypted data
hard fork
introduces a change that forces everyone to upgrade
soft fork
introduces change that is backwards compatible. Doesn't need upgrade
advantage of decentralized ledger
more immune to fraud and tampering no single point of failure
What is Bitcoin cash?
new cryptocurrency developed from a "hard fork" in Bitcoin blockchain. NOT Bitcoin. Increaseses block size to 8MB from the 1MB limit prior to the fork Also decentralized and run by global community
Decentralized
no central control/repository of data and no middle management that tells Bitcoin what to do. Thus no central point of failure. IF you were to remove any computers from distributed network, no difference b/c decentralized no centralized authority overseeing what Bitcoin does.
differences between bitcoin and typical currency
no physical transaction no 3rd party clearing house like bank or credit card. Instead, sent directly and securely to another party using peer-to-peer connection.
How is Bitcoin sent?
peer-to-peer. Bitcoin network takes the place of a third party to control transfers and verify there was a transfer of value between two parties
What do bitcoin miners do?
process and confirm transactions using powerful computers to solve cryptography math problems. For this task, miners are paid in bitcoin. Essentially, the role of a miner is to build the blockchaain of records that form the bitcoin ledger
What is SegWit?
protocol upgrade. Improves scalability w/o increasing block size addresses transaction malleability (vulnerability in bitcoin) does not require upgrading to remain on the blockchain
double spend problem
sending a copy of something, rather than the original. E.g. when emailing a photo, there are now 2 copies of the photo: the original on my computer and the one you sent
What is a Fork?
takes place when a blockchain splits into 2 different paths forward
What is Cryptocurrency?
type of digital asset which can be used to exchange value between parties. It uses encryption to secure how it's transferred and to control the creation of new units of that currency
common misconceptions about Bitcoin/blockchain
1. Bitcoin is anonymous NOT anonyoums, it is pseudonymous. When you move money with your Bitcoin address, everyone can see it. Your Bitcoin address is like your stage name to the world. 2. Bitcoin is used for laundering money/criminal activities. All transactions can be tracked on open blockchain. Thus not good choice for criminal activity 3. Blockchain is a better type of database. It is a ledger, NOT a database. Not limited by datastructure of blockchain. Leaves permanent immutable record. So nothing can be modified like in a database 4. Blockchain is Bitcoin Blockchain expanded far and above Bitcoin. It is the technology Bitcoin relies on. 5. You need to Buy a full bitcoin Not necessary. You can just buy part. Divisible into a hundred million parts, each of which is called a Satoshi
4 components of Bitcoin
1. Software 2. Cryptography to regulate transfer between parties and creation 3. Hardware - thousands of computers running the Bitcoin client 4. Gaming Theory
3 key areas that Blockchain supports
1. Value: enables a unique asset to be transferred over the internet w/o a middle centralized agent 2. Trust: creates a permanent, secure, and unalterable record of who owns what. Using advanced Hash Cryptography, "information integrity" is preserved 3. Reliability: decentralized network structure ensures there is no single point of failure which could bring the entire system down
What does a block consist of?
1. block number 2. data 3. cryptographic hash 4. Nonce 5. Prev field which is tied to the hash of the previous block
August 24th Soft Fork: SegWit (Segregated Witness)
1. done through UASF: User Activated Soft Fork 2. locked in on 8 / 2017 at block 479,707 3. official activation on 8/24/17 at block 481,824 4. did not cause split in chain 5. replaces block size limit with block weight limit 6. Miners that have already upgraded to SegWit can now process/create transactiosn using SegWit. Miners who haven't upgraded can still remain on the chain; they just can't participate in SegWit transactions
limitations of blockchain
1. early stage 2. lack of awareness 3. limited available technical talent 4. immutable so no reversals or modifications 5. key management 6. Not scalable enough for massive volumes currently (with Bitcoin) 7. time to process takes about 10minutes. Not optimal for banks doing high speed transfers frequently
interesting facts about forks
1. forks on Bitcoin happen regularly 2. 2 or more miners solve a block at the same time - for a while there are extra chains 3. eventually one chain wins over the others. Longest chain wins and everyone follows longest 4. When blocks that were not the longest are orphan blocks and are pushed back into the Mempool
3 components of bitcoin transaction
1. input: where coins are coming from 2. amount 3. output: where coins are heading There is also a digital signature
Nick Szabo on smart contracts (1994)
A smart contract is a computerized transaction protocol that executes the terms of a contract. The general objectives are to satisfy common contractual conditions (such as payment terms, liens, confidentiality, and enforcement), minimize exceptions both malicious and accidental, and minimize the need for trusted intermediaries. Related economic goals include lowering fraud loss, arbitrations and enforcement costs, and other transaction costs
blockchain in real estate
Australian banks ANZ and Westpac in partnership with IBM 1. digitized commercial property lease guarantees 2. increased transparency 3. reduced risk, error, and fraud
DAO
Decentralized Autonomous Organization or Decentralized Autonomous corporation (DAC) collection of smart contracts (agreements that are self-executing and immutable done automatically on a blockchain) Not limited to financial agreements, can be used with devices like IoT.
blockchain and insurance
Maersk in partnership w/Microsoft handling shipping insurance 1. successful 20wk proof of concept 2. made auditing aspects of a shipping supply chain easier 3. improved tamper-resistance' 4. enabled sharing of data in realtime
first retail purchase
May 22, 2010 first time anyone used BTC to buy any kind of product 2 pizzas for 10,000 bitcoin (+/- 25 USD)
Bitcoin Whitepaper
October 31, 2008 Satoshi Nakamoto published white paper, beginning the movement
What is blockchain?
a constantly growing decentralized ledger that keeps a permanent record of all transactions that have taken place, in a secure, chronological and immutable way provides a verifiable, tamper-proof, unchangeable proof of transactions. Consists of blocks, each one containing every transaction that has ever taken place. New blocks added every 10min with new transactions. Goes all the way back to the first transaction ever created: the Genesis Block from Jan 3rd, 2009
What is a cryptographic hash?
a digital fingerprint of a certain amount of data. an amount of data alphanumerically of a certain length
Disintermediation
act of removing the middle man, replacing it with the Bitcoin network. eliminates inefficiency of using 3rd party
Distributed trustless consensus
all nodes agree that a transaction occurred
What happens when there are no more bitcoins left to mine?
bitcoin miners will continue to mine because they receive the transaction fees associated with any successfully mined block.
August 1, 2017 hard fork
block 478,558 viaBTC pool produced a 1.9MB block which is not valid on the legacy Bitcoin network This caused a split, creating Bitcoin Cash, which is a totally different cryptocurrency Thus there are 2 parallel cryptocurrencies that are not compatible. Anyone receiving Bitcoin prior to block 478,558 automatically received a Bitcoin cash coin for each bitcoin already owned