An Introduction to Blockchain Technology

An Introduction to Blockchain Technology

These materials will offer an initial introduction to blockchain technology. A more detailed introduction to these technologies will be provided in future modules. v1.02

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Daniel Martin Katz

January 28, 2019
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  1. @ computational professor daniel martin katz danielmartinkatz.com BLOCKCHAIN, CRYPTOCURRENCY AND

    LAW professor nelson rosario AN INTRODUCTION TO BLOCKCHAIN TECHNOLOGY nelsonmrosario.com @ nelsonmrosario BLOCKCHAINLAWCLASS.COM
  2. DANIEL MARTIN KATZ E D U | I L L

    I N O I S T E C H + S TA N F O R D C O D E X B LO G | C O M P U TAT I O N A L L E GA L S T U D I E S . C O M PAG E | DA N I E L M A R T I N K AT Z . C O M C O R P | L E X P R E D I C T. C O M NELSON ROSARIO B LO G | L AWO F C RY P TO C U R R E N C Y. C O M PAG E | N E L S O N M RO S A R I O . C O M F I R M | S M O L I N S K I RO S A R I O L AW P. C . BLOCKCHAINLAWCLASS.COM L A B | T H E L AW L A B . C O M E D U | I L L I N O I S T E C H - C H I C AG O K E N T L AW
  3. WHILE WE WILL OFFER A MORE DETAILED TREATMENT IN FUTURE

    MODULES …. BLOCKCHAINLAWCLASS.COM
  4. FOR NOW - WE WILL OFFER A HIGH LEVEL OVERVIEW

    OF A BLOCKCHAIN ENABLED TRANSACTION … BLOCKCHAINLAWCLASS.COM
  5. DAN NELSON DAN WANTS TO SELL A CAR TO NELSON

    FOR A SET AMOUNT SAY $30,000 BLOCKCHAINLAWCLASS.COM
  6. DAN NELSON ANALOG TITLE TO VEHICLE ANALOG MONEY BLOCKCHAINLAWCLASS.COM

  7. MAYBE NELSON DOES NOT WANT TO GIVE CASH BUT INSTEAD

    WANTS TO WRITE A CHECK OR UNDERTAKE A WIRE TRANSFER BLOCKCHAINLAWCLASS.COM
  8. BOTH OF THESE HAVE AN UNDERLYING TRANSFER PROTOCOL BLOCKCHAINLAWCLASS.COM

  9. BUT LET’S FOCUS ON THE CHECK THE CHECK INSTRUCTS A

    TRUSTED AUTHORITY (SUCH AS A BANK) TO DO SOMETHING …. BLOCKCHAINLAWCLASS.COM
  10. THE CORRESPONDING LEDGER ENTRIES CREDIT TO DAN’S ACCOUNT DAN NELSON

    DEBIT TO NELSON’S ACCOUNT BLOCKCHAINLAWCLASS.COM
  11. THE CORRESPONDING LEDGER ENTRIES DAN NELSON +$30,000 -$30,000 BLOCKCHAINLAWCLASS.COM CREDIT

    TO DAN’S ACCOUNT DEBIT TO NELSON’S ACCOUNT
  12. BOTH NELSON AND DAN MIGHT BE CHARGED A FEE FOR

    THIS TRANSACTION BY THEIR RESPECTIVE BANKS BLOCKCHAINLAWCLASS.COM
  13. THE BANK(S) MIGHT IMPOSE A DELAY IN THE PROCESSING OF

    THE TRANSACTION BLOCKCHAINLAWCLASS.COM
  14. HISTORICALLY, WE NEEDED THIS CENTRALIZED TRUST INTERMEDIARY BECAUSE MAINTAINING LEDGERS

    OUTSIDE OF SUCH INSTITUTIONS REQUIRED TRUST AND EXTENSIVE COORDINATION BLOCKCHAINLAWCLASS.COM
  15. SUCH INSTITUTIONS HAVE PROVIDED VALUE AMONG OTHER THINGS THEY HELP

    ELIMINATE THE ‘DOUBLE SPEND’ PROBLEM BLOCKCHAINLAWCLASS.COM
  16. IN OTHER WORDS, A BANK CAN TRY YO VERIFY THAT

    THE COUNTERPARTY HAS THE MONEY (NOTE THIS DOES NOT ALWAYS WORK BUT THIS IS THE BASIC IDEA) BLOCKCHAINLAWCLASS.COM
  17. BUT IS THERE AN ALTERNATIVE TO CENTRALIZED ‘TRUST’ INSTITUTIONS ?

    BLOCKCHAINLAWCLASS.COM
  18. THIS IS THE QUESTION WHICH ANIMATED THE CREATION OF BITCOIN

    (AS WELL AS FOLLOW ON FRAMEWORKS SUCH AS ETHEREUM, ETC.) BLOCKCHAINLAWCLASS.COM
  19. WE WILL USE BITCOIN AS THE BASIS FOR OUR DISCUSSION

    BLOCKCHAINLAWCLASS.COM (WE WILL COVER OTHER APPROACHES SUCH ETHEREUM, ETC. IN LATER MODULES)
  20. IF WE ARE *NOT* GOING TO USE THE TRUSTED INTERMEDIARY

    … BLOCKCHAINLAWCLASS.COM
  21. WE WILL NEED ANOTHER WAY TO SOLVE FOR THE TRUST

    PROBLEM(S) ASSOCIATED WITH TRANSACTING … BLOCKCHAINLAWCLASS.COM
  22. WE COULD HAVE A PUBLIC VERSION OF THAT PRIVATE LEDGER

    … BLOCKCHAINLAWCLASS.COM
  23. THE KEY IS TO ALLOW THAT LEDGER TO BE UPDATED

    AS TIME TICKS FORWARD … BLOCKCHAINLAWCLASS.COM
  24. THE TRANSPARENCY OF PUBLIC LEDGER MUST BE COUPLED WITH SOME

    MECHANISM(S) TO PREVENT FRAUDULENT ENTRIES … BLOCKCHAINLAWCLASS.COM
  25. LETS SEE HOW NELSON MIGHT TRANSFER FOUR BITCOINS TO DAN

    … BLOCKCHAINLAWCLASS.COM DAN NELSON
  26. LETS SEE HOW NELSON MIGHT TRANSFER FOUR BITCOINS TO DAN

    … BLOCKCHAINLAWCLASS.COM DAN NELSON TRANSACTION MESSAGE FROM: NELSON (3Nxwen… TO: DAN (18rnfoQgGo… AMOUNT: 4 BTC
  27. OKAY BUT HOW DOES DAN ENSURE THAT NELSON HAS 4

    BTC TO GIVE HIM ? BLOCKCHAINLAWCLASS.COM DAN NELSON TRANSACTION MESSAGE FROM: NELSON (3Nxwen… TO: DAN (18rnfoQgGo… AMOUNT: 4 BTC
  28. NOW REMEMBER THAT IN REAL LIFE BITCOIN JUST CONTAINS ADDRESSES

    
 (NO NAMES) BLOCKCHAINLAWCLASS.COM DAN NELSON TRANSACTION MESSAGE FROM: NELSON (3Nxwen… TO: DAN (18rnfoQgGo… AMOUNT: 4 BTC
  29. USING ECONOMIC INCENTIVES, THE EXISTING NETWORKED INFRASTRUCTURE AND A BIT

    OF CRYPTOGRAPHY BLOCKCHAINLAWCLASS.COM DAN NELSON
  30. THE NETWORK VERIFIES NELSON HAS THE 4 BTC TO GIVE

    TO DAN AND THEN PROCESSES THE TRANSACTION BLOCKCHAINLAWCLASS.COM DAN NELSON
  31. WHEN NELSON ANNOUNCES THE TRANSACTION THIS IS ACTUALLY COUPLED WITH

    A DIGITAL SIGNATURE FROM HIM BLOCKCHAINLAWCLASS.COM DAN NELSON
  32. ‘FULL NODES’ ARE SPECIAL NODES WHICH HAVE A COPY OF

    THE ENTIRE BLOCKCHAIN LEDGER BLOCKCHAINLAWCLASS.COM DAN NELSON
  33. BLOCKCHAINLAWCLASS.COM DAN NELSON FULL NODES WILL CHECK AGAINST OTHER PENDING

    TRANSACTIONS TO ENSURE THAT NELSON DID NOT DOUBLE SPEND
  34. IF NO DOUBLE SPENDING THEN FULL NODES WILL BROADCAST ACROSS

    THE BITCOIN NETWORK BLOCKCHAINLAWCLASS.COM DAN NELSON
  35. EACH BITCOIN ADDRESS COMES ALONG WITH A PRIVATE KEY LINKED

    TO THAT “ACCOUNT NUMBER” BLOCKCHAINLAWCLASS.COM
  36. WHEN NELSON SEEKS TO TRANSFER 4 BTC - HE PASSES

    HIS PRIVATE KEY AND THE TRANSACTION MESSAGE INTO A CRYPTOGRAPHIC SIGNATURE CREATOR FUNCTION BLOCKCHAINLAWCLASS.COM
  37. THERE IS ANOTHER FUNCTION WHICH ALLOWS THOSE ON THE NETWORK

    TO VERIFY THE SIGNATURE BLOCKCHAINLAWCLASS.COM (WHILE NOT ALLOWING FOR REVERSE ENGINEERING OF NELSON’S PRIVATE KEY)
  38. ANATOMY OF A BITCOIN TRANSACTION

  39. NELSON HOW DO WE DECIDE THAT DAN HAS BEEN OFFICIALLY

    CREDITED 4 BTC ? BLOCKCHAINLAWCLASS.COM DAN
  40. NELSON AND HOW DO MAKE SURE TO PLACE NELSON’S TRANSACTION

    IN THE PROPER ORDER ON THE LEDGER ? BLOCKCHAINLAWCLASS.COM DAN
  41. NOTE THAT ORDER OF TRANSACTIONS IS IMPORTANT IN BOTH THE

    PHYSICAL WORLD AND IN THE CRYPTOCURRENCY WORLD “I CANT WAIT TO TRY TO DOUBLE SPEND …” BLOCKCHAINLAWCLASS.COM
  42. IN THE PHYSICAL WORLD MERCHANTS AND BANKS MUST FIGHT AGAINST

    DOUBLE SPEND BLOCKCHAINLAWCLASS.COM
  43. IN THE PHYSICAL WORLD WE HAVE A RANGE OF GOOD

    (ALBEIT IMPERFECT) MECHANISMS TO PREVENT SUCH FRAUD BLOCKCHAINLAWCLASS.COM
  44. HOW CAN WE DEVELOP SIMILAR (OR EVEN BETTER) PROTECTIONS IN

    THE COMPUTATIONAL WORLD ? BLOCKCHAINLAWCLASS.COM
  45. HOW CAN WE DEVELOP SIMILAR (OR EVEN BETTER) PROTECTIONS IN

    THE COMPUTATIONAL WORLD ? BLOCKCHAINLAWCLASS.COM DEVELOP AN ‘IMMUTABLE’ TRANSACTION ORDER
  46. PUBLIC BLOCKCHAINS ARE DISTRIBUTED PEER TO PEER AND APPEND ONLY

    TRANSACTION RECORDS BLOCKCHAINLAWCLASS.COM
  47. BLOCKCHAIN PROPERTIES BLOCKCHAINLAWCLASS.COM A LEDGER OF TRANSACTIONS THAT ARE STORED

    IN BLOCKS THE BLOCKS ARE LINKED TOGETHER USING CRYPTOGRAPHIC HASHES THE CHAIN OF BLOCKS GROWS BIGGER AND BIGGER WITH EACH BLOCK TRANSACTIONS BURIED IN THE BLOCKCHAIN GET HARDER AND HARDER TO CHANGE
  48. EVENTUALLY THIS TRANSACTION WILL BE SORTED INTO TIME ORDER WITH

    ALL OTHER TRANSACTIONS … BLOCKCHAINLAWCLASS.COM NELSON PENDING
  49. THIS IS DONE IN BATCH (BLOCK) WITH A SET OF

    OTHER TRANSACTIONS https://medium.com/@micheledaliessi/how-does-the-blockchain-work-98c8cd01d2ae BLOCKCHAINLAWCLASS.COM
  50. IN ORDER TO ‘VOTE’ ON ORDERING IN A PROOF OF

    WORK SYSTEM … BLOCKCHAINLAWCLASS.COM (WE WILL CONTRAST THIS WITH PROOF OF STAKE IN LATER MODULES)
  51. YOU HAVE TO SOLVE A COMPUTATIONALLY EXPENSIVE CRYPTOGRAPHIC PUZZLE BLOCKCHAINLAWCLASS.COM

  52. THIS HELPS TO PREVENT (BUT DOES NOT GUARANTEE) HIJACKING OF

    THE OVERALL NETWORK … BLOCKCHAINLAWCLASS.COM
  53. MINERS MAINTAIN THE NETWORK BLOCKCHAINLAWCLASS.COM

  54. MINERS RECEIVE REWARDS BLOCKCHAINLAWCLASS.COM COINS IF THEY SOLVE CRYPTO PUZZLE

    AND IF THEIR BLOCKS ARE ACCEPTED BY THE NETWORK
  55. MINERS RECEIVE REWARDS BLOCKCHAINLAWCLASS.COM THEY ALSO CAN RECEIVE TRANSACTION FEES

  56. ALL THIS RESULTS IN BLOCKCHAINLAWCLASS.COM VERIFIABLE DIGITAL ASSET

  57. ALL THIS RESULTS IN BLOCKCHAINLAWCLASS.COM A NEW WAY TO DELIVER

    TRUST WITHOUT CENTRAL COUNTERPARTIES
  58. BLOCKCHAINLAWCLASS.COM FOR MORE MODULES VISIT

  59. DANIEL MARTIN KATZ E D U | I L L

    I N O I S T E C H + S TA N F O R D C O D E X B LO G | C O M P U TAT I O N A L L E GA L S T U D I E S . C O M PAG E | DA N I E L M A R T I N K AT Z . C O M C O R P | L E X P R E D I C T. C O M NELSON ROSARIO B LO G | L AWO F C RY P TO C U R R E N C Y. C O M PAG E | N E L S O N M RO S A R I O . C O M F I R M | S M O L I N S K I RO S A R I O L AW P. C . BLOCKCHAINLAWCLASS.COM L A B | T H E L AW L A B . C O M E D U | I L L I N O I S T E C H - C H I C AG O K E N T L AW
  60. @ computational professor daniel martin katz danielmartinkatz.com BLOCKCHAIN, CRYPTOCURRENCY AND

    LAW professor nelson rosario AN INTRODUCTION TO BLOCKCHAIN TECHNOLOGY nelsonmrosario.com @ nelsonmrosario BLOCKCHAINLAWCLASS.COM