Basics of blockchain and decentralized applications - Koshik Raj 

Agenda ● Blockchain background and basics ● Basics of decentralization using Distributed Ledger Technology ● Bitcoin consensus algorithm and transactions 

When did it all start? 

Bitcoin history ● Several cypherpunks attempted to implement cryptocurrencies in 1990s. ○ Bit gold, DigiCash ● "Bitcoin: A Peer-to-Peer Electronic Cash System" a paper was published by Satoshi Nakamoto. ● It was implemented as a decentralized accounting system. 

Why was it created? 

Centralization concerns in the past ● Cyber attacks on major institutions. ○ Sony pictures, JP Morgan Chase data breach. ○ Target customer confidential data breach. ● Expensive transaction fee. ● Subprime mortgage crisis in 2008. 

Decentralization ? 

Byzantine generals’ problem 

Decentralization problem ● Trustless entities ● How to believe on single truth? 

How Bitcoin solved it? 

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Distributed Ledger Technology (DLT) Each node holds a copy of the blockchain Blockchain + p2p+ Consensus algorithm = DLT 

Cryptography in blockchain ● Hashing ● Digital signatures 

Blockchain Hash value Previous block hash value 

Blockchain 1234 1234 1235 1235 1237 

Blockchain 

Consensus mechanism ● Algorithm to reach a global truth ● Consensus mechanism solves the byzantine generals’ problem. ● Bitcoin’s proof-of-work is the first and well known consensus algorithm. 

Consensus algorithm: proof-of-work ● Uses hash puzzle to do work ● Incentivizes miner for their work from transaction fee + new coins ● Hash cash proposed in 1997 by Adam Back ● Reduce email spam and DOS attacks 

Hash puzzle Find a hash value which is less than a specified value 0000000000000756af69e2ffbdb930261873cd71 

Peer-to-peer network Decentralized network is achieved with the peer-to-peer protocol. Every node in the network has equal responsibility. 

Achieving consensus Each node has to perform a few tasks to achieve the consensus. ● Validate each incoming block ● Select the longest blockchain ● Create a valid block 

Bitcoin addresses ● Bitcoin uses asymmetric cryptography to generate public-private key pair ● Public key is used to generate the public address ● Private key is used to sign the transactions ○ bitcoin-cli getnewaddress 1JK1yCXbP2WkwgzbAUqpWTeo9rQkA9seNg ○ bitcoin-cli dumpprivkey 1JK1yCXbP2WkwgzbAUqpWTeo9rQkA9seNg L2NAKvQsbkeQZyhfPRWw1juQ19ohxGCFbdr8izQSHEmKWYFtVjXK 

Bitcoin transactions ● Bitcoin does bookkeeping with a transaction based ledger ● Every transaction must be validated by the node ● Every transaction consists of inputs and outputs ● Transaction fee must be paid for every transaction created ● Unconfirmed transactions are maintained in mempool: https://www.blockchain.com/btc/unconfirmed-transactions 

Transaction verification ● Bitcoin uses Turing incomplete stack-based language called "Script" ● Uses locking and unlocking scripts ○ Locking: 4 OP_ADD 6 OP_EQUAL ○ Unlocking: 2 

Smart contracts ● protocol that allows contracts to be verified and enforced in a self-executing manner. 

Ethereum basics ● Ethereum is a widely-used platform for creating decentralized applications (https://www.stateofthedapps.com/stats) ● Ethereum houses its own distributed virtual machine, and scripting language called Salidity 

Ethereum VM and Solidity ● EVM provides a runtime environment to execute smart contracts ● EVM runs on a node that is isolated from the Ethereum network ● Only the smartcontract output can be inserted to the blockchain ● EVM executes the compiled Solidity bytecode ● Solidity is a contract-oriented programming language influenced by C++, Python and JavaScrip 

Let's build a DApp 

Contact me: Koshik Raj linkedIn: koshikraj GitHub: koshikraj twitter: rajkoshik [email protected] www.koshik.me “keep calm and create DApps”