@ computational
professor daniel martin katz danielmartinkatz.com
BLOCKCHAIN,
CRYPTOCURRENCY
AND LAW
professor nelson rosario
AN INTRODUCTION
TO BLOCKCHAIN
TECHNOLOGY
nelsonmrosario.com @ nelsonmrosario
BLOCKCHAINLAWCLASS.COM
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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
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WHILE WE WILL OFFER A
MORE DETAILED TREATMENT
IN FUTURE MODULES ….
BLOCKCHAINLAWCLASS.COM
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FOR NOW - WE WILL OFFER A
HIGH LEVEL OVERVIEW OF A
BLOCKCHAIN ENABLED
TRANSACTION …
BLOCKCHAINLAWCLASS.COM
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DAN NELSON
DAN WANTS TO SELL A CAR TO NELSON
FOR A SET AMOUNT
SAY $30,000
BLOCKCHAINLAWCLASS.COM
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DAN NELSON
ANALOG
TITLE TO VEHICLE
ANALOG
MONEY
BLOCKCHAINLAWCLASS.COM
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MAYBE NELSON DOES
NOT WANT TO GIVE
CASH BUT INSTEAD
WANTS TO WRITE A
CHECK OR UNDERTAKE
A WIRE TRANSFER
BLOCKCHAINLAWCLASS.COM
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BOTH OF THESE
HAVE AN
UNDERLYING
TRANSFER
PROTOCOL
BLOCKCHAINLAWCLASS.COM
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BUT
LET’S FOCUS ON
THE CHECK
THE CHECK INSTRUCTS A
TRUSTED AUTHORITY
(SUCH AS A BANK) TO
DO SOMETHING ….
BLOCKCHAINLAWCLASS.COM
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THE
CORRESPONDING
LEDGER ENTRIES
CREDIT TO DAN’S
ACCOUNT
DAN NELSON
DEBIT TO NELSON’S
ACCOUNT
BLOCKCHAINLAWCLASS.COM
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THE
CORRESPONDING
LEDGER ENTRIES
DAN NELSON
+$30,000
-$30,000
BLOCKCHAINLAWCLASS.COM
CREDIT TO DAN’S
ACCOUNT
DEBIT TO NELSON’S
ACCOUNT
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BOTH NELSON AND DAN
MIGHT BE CHARGED A FEE
FOR THIS TRANSACTION BY
THEIR RESPECTIVE BANKS
BLOCKCHAINLAWCLASS.COM
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THE BANK(S) MIGHT IMPOSE
A DELAY IN THE PROCESSING
OF THE TRANSACTION
BLOCKCHAINLAWCLASS.COM
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HISTORICALLY, WE NEEDED
THIS CENTRALIZED TRUST
INTERMEDIARY BECAUSE
MAINTAINING LEDGERS
OUTSIDE OF SUCH
INSTITUTIONS REQUIRED
TRUST AND EXTENSIVE
COORDINATION
BLOCKCHAINLAWCLASS.COM
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SUCH INSTITUTIONS HAVE
PROVIDED VALUE AMONG
OTHER THINGS THEY HELP
ELIMINATE THE ‘DOUBLE
SPEND’ PROBLEM
BLOCKCHAINLAWCLASS.COM
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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
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BUT IS THERE AN
ALTERNATIVE TO
CENTRALIZED ‘TRUST’
INSTITUTIONS ?
BLOCKCHAINLAWCLASS.COM
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THIS IS THE QUESTION
WHICH ANIMATED THE
CREATION OF BITCOIN
(AS WELL AS FOLLOW ON
FRAMEWORKS SUCH AS
ETHEREUM, ETC.)
BLOCKCHAINLAWCLASS.COM
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WE WILL USE BITCOIN AS THE
BASIS FOR OUR DISCUSSION
BLOCKCHAINLAWCLASS.COM
(WE WILL COVER OTHER
APPROACHES SUCH ETHEREUM,
ETC. IN LATER MODULES)
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IF WE ARE *NOT* GOING
TO USE THE TRUSTED
INTERMEDIARY …
BLOCKCHAINLAWCLASS.COM
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WE WILL NEED ANOTHER
WAY TO SOLVE FOR THE
TRUST PROBLEM(S)
ASSOCIATED WITH
TRANSACTING …
BLOCKCHAINLAWCLASS.COM
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WE COULD HAVE A
PUBLIC VERSION OF
THAT PRIVATE LEDGER …
BLOCKCHAINLAWCLASS.COM
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THE KEY IS TO ALLOW
THAT LEDGER TO BE
UPDATED AS TIME
TICKS FORWARD …
BLOCKCHAINLAWCLASS.COM
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THE TRANSPARENCY OF
PUBLIC LEDGER MUST BE
COUPLED WITH SOME
MECHANISM(S) TO PREVENT
FRAUDULENT ENTRIES …
BLOCKCHAINLAWCLASS.COM
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LETS SEE HOW NELSON
MIGHT TRANSFER FOUR
BITCOINS TO DAN …
BLOCKCHAINLAWCLASS.COM
DAN NELSON
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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
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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
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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
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USING ECONOMIC INCENTIVES,
THE EXISTING NETWORKED
INFRASTRUCTURE AND A BIT OF
CRYPTOGRAPHY
BLOCKCHAINLAWCLASS.COM
DAN NELSON
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THE NETWORK VERIFIES NELSON
HAS THE 4 BTC TO GIVE TO DAN
AND THEN PROCESSES THE
TRANSACTION
BLOCKCHAINLAWCLASS.COM
DAN NELSON
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WHEN NELSON ANNOUNCES
THE TRANSACTION THIS IS
ACTUALLY COUPLED WITH A
DIGITAL SIGNATURE FROM HIM
BLOCKCHAINLAWCLASS.COM
DAN NELSON
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‘FULL NODES’ ARE SPECIAL
NODES WHICH HAVE A
COPY OF THE ENTIRE
BLOCKCHAIN LEDGER
BLOCKCHAINLAWCLASS.COM
DAN NELSON
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BLOCKCHAINLAWCLASS.COM
DAN NELSON
FULL NODES WILL CHECK
AGAINST OTHER PENDING
TRANSACTIONS TO ENSURE THAT
NELSON DID NOT DOUBLE SPEND
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IF NO DOUBLE SPENDING THEN
FULL NODES WILL BROADCAST
ACROSS THE BITCOIN NETWORK
BLOCKCHAINLAWCLASS.COM
DAN NELSON
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EACH BITCOIN ADDRESS
COMES ALONG WITH A
PRIVATE KEY LINKED TO
THAT “ACCOUNT NUMBER”
BLOCKCHAINLAWCLASS.COM
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WHEN NELSON SEEKS TO
TRANSFER 4 BTC - HE PASSES
HIS PRIVATE KEY AND THE
TRANSACTION MESSAGE INTO
A CRYPTOGRAPHIC SIGNATURE
CREATOR FUNCTION
BLOCKCHAINLAWCLASS.COM
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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)
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ANATOMY OF A BITCOIN
TRANSACTION
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NELSON
HOW DO WE DECIDE THAT
DAN HAS BEEN OFFICIALLY
CREDITED 4 BTC ?
BLOCKCHAINLAWCLASS.COM
DAN
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NELSON
AND HOW DO MAKE SURE TO PLACE
NELSON’S TRANSACTION IN THE
PROPER ORDER ON THE LEDGER ?
BLOCKCHAINLAWCLASS.COM
DAN
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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
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IN THE PHYSICAL WORLD
MERCHANTS AND BANKS MUST
FIGHT AGAINST DOUBLE SPEND
BLOCKCHAINLAWCLASS.COM
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IN THE PHYSICAL WORLD WE
HAVE A RANGE OF GOOD (ALBEIT
IMPERFECT) MECHANISMS TO
PREVENT SUCH FRAUD
BLOCKCHAINLAWCLASS.COM
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HOW CAN WE DEVELOP SIMILAR
(OR EVEN BETTER) PROTECTIONS
IN THE COMPUTATIONAL WORLD ?
BLOCKCHAINLAWCLASS.COM
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HOW CAN WE DEVELOP SIMILAR
(OR EVEN BETTER) PROTECTIONS
IN THE COMPUTATIONAL WORLD ?
BLOCKCHAINLAWCLASS.COM
DEVELOP AN ‘IMMUTABLE’
TRANSACTION ORDER
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PUBLIC BLOCKCHAINS ARE
DISTRIBUTED PEER TO
PEER AND APPEND ONLY
TRANSACTION RECORDS
BLOCKCHAINLAWCLASS.COM
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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
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EVENTUALLY THIS TRANSACTION
WILL BE SORTED INTO TIME
ORDER WITH ALL OTHER
TRANSACTIONS …
BLOCKCHAINLAWCLASS.COM
NELSON
PENDING
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THIS IS DONE IN BATCH
(BLOCK) WITH A SET OF
OTHER TRANSACTIONS
https://medium.com/@micheledaliessi/how-does-the-blockchain-work-98c8cd01d2ae
BLOCKCHAINLAWCLASS.COM
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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)
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YOU HAVE TO SOLVE A
COMPUTATIONALLY
EXPENSIVE
CRYPTOGRAPHIC
PUZZLE
BLOCKCHAINLAWCLASS.COM
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THIS HELPS TO
PREVENT (BUT DOES
NOT GUARANTEE)
HIJACKING OF THE
OVERALL NETWORK …
BLOCKCHAINLAWCLASS.COM
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MINERS MAINTAIN
THE NETWORK
BLOCKCHAINLAWCLASS.COM
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MINERS RECEIVE REWARDS
BLOCKCHAINLAWCLASS.COM
COINS IF THEY SOLVE CRYPTO PUZZLE
AND IF THEIR BLOCKS ARE
ACCEPTED BY THE NETWORK
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MINERS RECEIVE REWARDS
BLOCKCHAINLAWCLASS.COM
THEY ALSO CAN RECEIVE
TRANSACTION FEES
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ALL THIS RESULTS IN
BLOCKCHAINLAWCLASS.COM
VERIFIABLE
DIGITAL
ASSET
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ALL THIS RESULTS IN
BLOCKCHAINLAWCLASS.COM
A NEW WAY TO
DELIVER TRUST
WITHOUT CENTRAL
COUNTERPARTIES
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BLOCKCHAINLAWCLASS.COM
FOR MORE MODULES VISIT
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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
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@ computational
professor daniel martin katz danielmartinkatz.com
BLOCKCHAIN,
CRYPTOCURRENCY
AND LAW
professor nelson rosario
AN INTRODUCTION
TO BLOCKCHAIN
TECHNOLOGY
nelsonmrosario.com @ nelsonmrosario
BLOCKCHAINLAWCLASS.COM