an exchange medium, subject to high volatility, perfectly deﬁned by demand/oﬀer mechanism Second, it’s not a FIAT money It has some important diﬀerences: •decentralized - no Federal Reserve or BCE to control BTC value •no inﬂaction - the overall number of BTC is ﬁxed (21M) •no reversal - transactions cannot be reversed because become part of the trust • no real economy - BTC value is not constrained to any state economics Third, it does not require a bank Money transfers can be achieved between two peers
to obtain Bitcoins (BTC)? Cryptocurrencies can be traded on markets: websites that handle conversions, deposits and retrieval of cryptocurrencies. To be purchased a crypto currency needs to be listed on a given markets. Remember blockchain has never been hacked, but markets can be hacked (and have been).
Every transaction has a source and a destination which are numeric equivalents to traditional bank account numbers. An user can have one or more addresses (since their creation is as easy as clicking a button) A private/public key pair Each account is paired to a couple of keys. The BTC account is the hash of a public key. To recover and claim ownership of an account, you need the private key counterpart. Remember your keys are the only way an account can be recovered. There is no bank in the middle to guarantee your identity. A Wallet Many addresses can receive/send cryptocurrencies, to safely store key pairs, some tools, named “wallets” have been created. There are many wallets around, some of them are online but not reliable while others are physical and more safe top hold signiﬁcant amounts of money (hardware wallets, paper wallets)
to obtain Bitcoins (BTC)? Cryptocurrencies can be traded on markets: websites that handle conversions, deposits and retrieval of cryptocurrencies. To be purchased a crypto currency needs to be listed on a given markets. Remember blockchain has never been hacked, but markets can be hacked (and have been). You can mine them… mining... WTF is Bitcoin mining? wait... we have to talk about the Blockchain!
the technology running bitcoin A better deﬁnition A blockchain is a distributed database that maintains a continuously-growing list of records called blocks secured from tampering and revision An even better deﬁnition The blockchain is a secured protocol enabling peer-to-peer exchanges on a distributed network in a secured, public and non repudiable way.
receives a transaction, in the form of a receipt, are expressed as digital number A Block within the blockchain Blocks hold batches of valid transactions that are hashed and encoded into a Merkle tree (an hashed tree). Each block includes the hash of the prior block in the blockchain, linking the two. The linked blocks form a chain. This iterative process conﬁrms the integrity of the previous block, all the way back to the original genesis block. Consensus and proof of work Bitcoin’s blockchain achieves consensus through sequential cryptographic hashing of the transactions and the ﬁnal ‘proof- of-work’ validation. A cryptographic hash function takes a message (transaction value) and converts it into an alphanumeric value. Hash functions are nearly impossible to invert thus the input value of a hash function can never be determined from its output value. Also, a small change to the input dramatically changes the output. In a blockchain protocol, the header of the latest block is a combined hash value of the set of latest transactions. To this combined hash number is appended a random number called the nonce.
a ﬁduciary relation between two parties with a supervisor, it has been extended to almost every transaction that has to bee guaranteed by a third party. It borrows from Common Law the terminology: Settlor - is the part that wants to contribute something to a beneﬁciary Beneﬁciary - is the part receiving something from a Settlor Protector - is an optional actor, that guarantees the trusted relation. If there is not a protector, the transaction is untrusted Transactions can be trusted or untrusted • Trusted transactions can be veriﬁed • Trusted transactions cannot be reversed once registered • Trusted transactions require a place where are stored, called general ledger • The Protector is a key actor in a trusted transaction (cannot occur without) Duty of a Protector A Protector maintains and guarantees the consistency of the ledger, that is the source of truth. The trust must be within the Protector: a malicious or faulty protector can break the trust.
is exchanged between two actors • The good end of the transaction relies on both actor consensus about such transaction • Any actor can contest transaction • Even more diﬃcult when extending to n participants
to the Protector, that stores it, partial transaction recorded into the ledger • The Protector sends the good to Beneﬁciary, transaction completion recorded into ledger • At any time, ledger can be consulted • Protector trustworthiness is given for granted need a hierarchy of Protectors to transfer trust)
seller and a buyer of a real estate is executed by a third party that acts on government behalf to record and execute transfers Democracy When a proposal or a candidate is voted, a third party (a teller at a pool) is required to count and validate votes, then crediting scores to the corresponding competitor. Quality Assurance When a certiﬁcation is required to establish a statement of quality for a given product or service, an external organization (a certiﬁcation company) is required to validate quality and provide trust information
it represents the source of truth of the transaction Issues with Protector Scalability A protector is required for each transaction that must occur, moreover some additional eﬀort is needed to guarantee ledger consistency across multiple Cost Since Protector is a key role within a transaction and brings a lot of responsibility (and often bureaucracy) its work has to be payed a considerable amount of money, often proportional to the value of exchanged good Censorship A protector can decide whether a transaction can occur or not
Each division has its own commander/general who is backed by one or more lieutenants. Generals sends messages to liutenants and to other divisions. A message can be either “attack” or “retire” Coordinated Attack Leading to Victory Uncoordinated Attack Leading to Defeat
function f(x) —> y that: 1. for any length of x it produces always an y of a given length 2. function cannot be inverted (i.e. does not exist a g(y) —> x function) 3. a slightly change of x values produces a signiﬁcant change of y 4. there is no an x’ ≠ x that has the same y value consider having an x made of a ﬁxed number (obtained to previous block) and a variable number (called nonce), so x = ﬁxed + nonce nonce is a random value, we deﬁne a valid POW when nonce value produces a given y that has a value smaller than a given number. Miners try diﬀerent nonces ‘till they match the required output, once this is done, it represents the POW of the block. Once a POW has been found, the corresponding block is added to the chain. The blockchain adjust the required maximum value of the output y and this is called diﬃculty. Diﬃculty is needed to guarantee blockchain reliability and ﬁxed mining throughput.
Buterin. Eveolves Blockchain introducing Smart Contracts •Contracts are deployed to Ethereum nodes and become part of the blockchain (every contract has an address) •Contracts run are payed with gas (representing computational power) •The unit of coin is called ether •Once a transaction is added to the blockchain, the corresponding contract is executed •Contracts can change ownership, ensure certiﬁcation, etc.