John Feminella on Bitcoin: A Peer-to-Peer Electronic Cash System

The original Bitcoin paper was published by a pseudonymous individual named Satoshi Nakamoto on Halloween 2008, in the quiet recesses of a small cryptography mailing list, where it was mostly ignored. A couple of months afterwards, Satoshi published the original Bitcoin client software that implemented the ideas in the paper.

Ten years later, a lot has happened both about cryptocurrency, and a lot of money has changed hands. In this talk, we explore the core ideas laid out in the paper, the historical background around digital currencies, and how these ideas and history were implemented in the original Bitcoin client.

Transcript

1. let’s build a blockchain an overview of Satoshi Nakamoto’s paper, “Bitcoin: A Peer-to-Peer Electronic Cash System” by: John Feminella at: Papers We Love NYC in: Two Sigma, New York, NY on: July 10, 2018
2. questions? ★ email: jxf@jxf.me Twitter: @jxxf http://jxf.me · @jxxf
3. JOHN FEMINELLA Pivotal http://pivotal.io http://jxf.me · @jxxf
4. in the beginning http://jxf.me · @jxxf
5. http://jxf.me · @jxxf "A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution. Digital signatures provide part of the solution, but the main benefits are lost if a trusted third party is still required to prevent double-spending. We propose a solution to the double-spending problem using a peer- to-peer network. The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work. The longest chain not only serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of CPU power. As long as a majority of CPU power is controlled by nodes that are not cooperating to attack the network, they'll generate the longest chain and outpace attackers."
6. http://jxf.me · @jxxf "A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution. Digital signatures provide part of the solution, but the main benefits are lost if a trusted third party is still required to prevent double-spending. We propose a solution to the double-spending problem using a peer- to-peer network. The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work. The longest chain not only serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of CPU power. As long as a majority of CPU power is controlled by nodes that are not cooperating to attack the network, they'll generate the longest chain and outpace attackers."
7. http://jxf.me · @jxxf "A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution. Digital signatures provide part of the solution, but the main benefits are lost if a trusted third party is still required to prevent double-spending. We propose a solution to the double-spending problem using a peer- to-peer network. The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work. The longest chain not only serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of CPU power. As long as a majority of CPU power is controlled by nodes that are not cooperating to attack the network, they'll generate the longest chain and outpace attackers."
8. http://jxf.me · @jxxf "A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution. Digital signatures provide part of the solution, but the main benefits are lost if a trusted third party is still required to prevent double-spending. We propose a solution to the double-spending problem using a peer- to-peer network. The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work. The longest chain not only serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of CPU power. As long as a majority of CPU power is controlled by nodes that are not cooperating to attack the network, they'll generate the longest chain and outpace attackers."
9. http://jxf.me · @jxxf "A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution. Digital signatures provide part of the solution, but the main benefits are lost if a trusted third party is still required to prevent double-spending. We propose a solution to the double-spending problem using a peer- to-peer network. The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work. The longest chain not only serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of CPU power. As long as a majority of CPU power is controlled by nodes that are not cooperating to attack the network, they'll generate the longest chain and outpace attackers."
10. http://jxf.me · @jxxf "A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution. Digital signatures provide part of the solution, but the main benefits are lost if a trusted third party is still required to prevent double-spending. We propose a solution to the double-spending problem using a peer- to-peer network. The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work. The longest chain not only serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of CPU power. As long as a majority of CPU power is controlled by nodes that are not cooperating to attack the network, they'll generate the longest chain and outpace attackers."
11. before money http://jxf.me · @jxxf 0
12. http://jxf.me · @jxxf $
13. a transaction http://jxf.me · @jxxf
14. http://jxf.me · @jxxf Alice
15. http://jxf.me · @jxxf ⋯
16. http://jxf.me · @jxxf ? Bob
17. http://jxf.me · @jxxf ? ⌚?
18. http://jxf.me · @jxxf ? ⌚?
19. http://jxf.me · @jxxf ? ⌚?
20. http://jxf.me · @jxxf ✓
21. a failed transaction http://jxf.me · @jxxf
22. http://jxf.me · @jxxf ? ⌚?
23. http://jxf.me · @jxxf ? ⌚?
24. http://jxf.me · @jxxf ? ⌚? ✗
25. fixing a failed transaction http://jxf.me · @jxxf
26. http://jxf.me · @jxxf ? ⌚? ?
27. http://jxf.me · @jxxf
28. “double coincidence of wants” http://jxf.me · @jxxf
29. http://jxf.me · @jxxf ?
30. http://jxf.me · @jxxf ? ✗ ✗ ✗ ✓
31. money http://jxf.me · @jxxf 1
32. what’s not money? http://jxf.me · @jxxf
33. http://jxf.me · @jxxf
34. http://jxf.me · @jxxf { ? }
35. http://jxf.me · @jxxf disintermediation? fungibility? resiliency? measurable? debt instrument?
36. http://jxf.me · @jxxf disintermediation? fungibility? resiliency? measurable? debt instrument?
37. http://jxf.me · @jxxf disintermediation? fungibility? resiliency? measurable? debt instrument?
38. http://jxf.me · @jxxf disintermediation? fungibility? resiliency? measurable? debt instrument?
39. http://jxf.me · @jxxf disintermediation? fungibility? resiliency? measurable? debt instrument?
40. http://jxf.me · @jxxf poor disintermediation poor fungibility low resiliency not easily measurable not a debt instrument
41. can we do better? http://jxf.me · @jxxf
42. fiat currency advocates think so http://jxf.me · @jxxf
43. http://jxf.me · @jxxf fiat: “it shall be”
44. http://jxf.me · @jxxf
45. http://jxf.me · @jxxf disintermediation! fungibility! resiliency! measurable! debt instrument!
46. transactions with money http://jxf.me · @jxxf
47. http://jxf.me · @jxxf ? ⌚/$?
48. http://jxf.me · @jxxf ? ⌚/$?
49. http://jxf.me · @jxxf ✓
50. but money requires trust http://jxf.me · @jxxf
51. http://jxf.me · @jxxf
52. http://jxf.me · @jxxf
53. http://jxf.me · @jxxf ?
54. a recipe for money http://jxf.me · @jxxf
55. http://jxf.me · @jxxf trust rules history
56. making fiat currency http://jxf.me · @jxxf
57. http://jxf.me · @jxxf trust rules history
58. http://jxf.me · @jxxf trust rules history
59. http://jxf.me · @jxxf trust rules history
60. http://jxf.me · @jxxf trust rules + + history
61. http://jxf.me · @jxxf these details are abstracted from users
62. can we do better? http://jxf.me · @jxxf
63. http://jxf.me · @jxxf "A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution."
64. cryptocurrency advocates think so http://jxf.me · @jxxf
65. http://jxf.me · @jxxf trust rules history
66. http://jxf.me · @jxxf trust rules history ≡ ⋯
67. http://jxf.me · @jxxf ≡ ⋯ 0101 0010 1010 1110 0110 0101 1000 0011 trust rules history
68. http://jxf.me · @jxxf 0101 0010 1010 1110 0110 0101 1000 0011 ≡ ⋯ trust rules history
69. http://jxf.me · @jxxf 0101 0010 1010 1110 0110 0101 1000 0011 trust rules history + + ≡ ⋯
70. http://jxf.me · @jxxf these details are abstracted from users (?)
71. http://jxf.me · @jxxf each currency’s rules and history make it unique 0101 0010 1010 1110 0110 0101 1000 0011 rules history +
72. a very different kind of money http://jxf.me · @jxxf
73. http://jxf.me · @jxxf 0101 0010 1010 1110 0110 0101 1000 0011 trust rules history ≡ ⋯
74. a very different kind of money http://jxf.me · @jxxf is it really money at all?
75. a very different kind of money http://jxf.me · @jxxf is it really money at all? we’ll come back to this
76. let’s build a cryptocurrency http://jxf.me · @jxxf
77. ledgers http://jxf.me · @jxxf 2
78. http://jxf.me · @jxxf Alice Bob Carol
79. http://jxf.me · @jxxf A B C
80. http://jxf.me · @jxxf A B C Alice paid Carol $15
81. http://jxf.me · @jxxf A B C Bob paid Alice $20 Bob paid Carol $30
82. shuffling cash is cumbersome http://jxf.me · @jxxf
83. can we do better? http://jxf.me · @jxxf
84. http://jxf.me · @jxxf A B C
85. http://jxf.me · @jxxf A B C $
86. http://jxf.me · @jxxf A B C Ledger
87. http://jxf.me · @jxxf our ledger records our transactions Ledger
88. Ledger http://jxf.me · @jxxf our ledger doesn’t run out of room
89. http://jxf.me · @jxxf Alice gets $100 Bob gets $100 Carol gets $100 (...) Ledger
90. http://jxf.me · @jxxf A B C Alice paid Carol $15
91. http://jxf.me · @jxxf our protocol describes how we use the ledger
92. http://jxf.me · @jxxf protocol: 1. anyone can add valid lines
93. http://jxf.me · @jxxf Alice gets $100 Bob gets $100 Carol gets $100 Alice paid Carol $15 (...) Ledger
94. http://jxf.me · @jxxf A B C Alice paid Carol $15 Ledger
95. http://jxf.me · @jxxf A B C Bob paid Alice $20 Bob paid Carol $30
96. http://jxf.me · @jxxf Alice gets $100 Bob gets $100 Carol gets $100 Alice paid Carol $15 Bob paid Alice $20 Bob paid Carol $30
97. http://jxf.me · @jxxf A B C Bob paid Alice $20 Bob paid Carol $30 Ledger
98. what about big transactions? http://jxf.me · @jxxf
99. http://jxf.me · @jxxf A B C Alice paid Carol $1,500 Ledger
100. http://jxf.me · @jxxf A B C Ledger Alice paid Carol $1,500 overspending!
101. http://jxf.me · @jxxf protocol: 1. anyone can add valid lines 2. settle up every week
102. http://jxf.me · @jxxf A B C $1,500?
103. http://jxf.me · @jxxf A B C ¯\_(ツ)_/¯
104. http://jxf.me · @jxxf A B C ¯\_(ツ)_/¯
105. http://jxf.me · @jxxf protocol: 1. anyone can add valid lines 2. no overspending
106. ledger is now its own currency () http://jxf.me · @jxxf
107. http://jxf.me · @jxxf Ledger
108. http://jxf.me · @jxxf Alice gets 100 Bob gets 100 Carol gets 100 Alice paid Carol 15 Bob paid Alice 20 Bob paid Carol 30 (...)
109. problem: malicious actors http://jxf.me · @jxxf
110. http://jxf.me · @jxxf Alice gets 100 Bob gets 100 Carol gets 100 B
111. http://jxf.me · @jxxf Alice gets 100 Bob gets 100 Carol gets 100 Carol paid Bob 100 B
112. problem: can’t trust the ledger forgery: actors can add lines that aren’t valid erasure: actors can remove lines that are valid http://jxf.me · @jxxf
113. how do we stop forgery? http://jxf.me · @jxxf
114. securing the ledger http://jxf.me · @jxxf 3
115. http://jxf.me · @jxxf "Digital signatures provide part of the solution."
116. http://jxf.me · @jxxf Alice paid Carol 15 Bob paid Alice 20 Bob paid Carol 30
117. http://jxf.me · @jxxf Alice paid Carol 15 Alice Bob paid Alice 20 Bob Bob paid Carol 30 Bob
118. physical signatures can be copied http://jxf.me · @jxxf
119. http://jxf.me · @jxxf Alice paid Carol 15 Alice Bob paid Alice 20 Bob Bob paid Carol 30 Bob Alice paid Bob 50 Alice B
120. let’s use digital signatures instead http://jxf.me · @jxxf
121. http://jxf.me · @jxxf sign(⋯) sign lines to authorize transactions verify(⋯) verify signed lines to ensure signature is valid
122. http://jxf.me · @jxxf A
123. http://jxf.me · @jxxf A public key (pk) secret key (sk)
124. http://jxf.me · @jxxf A public key (pk) secret key (sk)
125. http://jxf.me · @jxxf sign(m,sk) sign lines to authorize transactions secret key (sk) message (m) Alice paid Carol 15
126. http://jxf.me · @jxxf sign(m,sk) sign lines to authorize transactions secret key (sk) message (m) Alice paid Carol 15
127. http://jxf.me · @jxxf sign(m,sk) sign lines to authorize transactions
128. http://jxf.me · @jxxf sign(m,sk) sign lines to authorize transactions signature 0101 1101 1110 1010 0001 0111 [⋯] =
129. http://jxf.me · @jxxf changes in m produce unpredictable signatures sign(m’,sk) sign lines to authorize transactions signature 1010 1101 0010 0110 0111 0101 [⋯] =
130. http://jxf.me · @jxxf sign(m,sk) sign lines to authorize transactions verify(m,s,pk) sign lines to authorize transactions = signature 0101 1101 1110 1010 0001 0111 [⋯]
131. http://jxf.me · @jxxf sign(m,sk) sign lines to authorize transactions verify(m,s,pk) sign lines to authorize transactions = signature 0101 1101 1110 1010 0001 0111 [⋯]
132. http://jxf.me · @jxxf sign(m,sk) sign lines to authorize transactions verify(m,s,pk) sign lines to authorize transactions = signature 0101 1101 1110 1010 0001 0111 [⋯]
133. http://jxf.me · @jxxf sign(m,sk) sign lines to authorize transactions verify(m,s,pk) sign lines to authorize transactions = signature 0101 1101 1110 1010 0001 0111 [⋯]
134. http://jxf.me · @jxxf sign(m,sk) sign lines to authorize transactions signature 0101 1101 1110 1010 0001 0111 [⋯] verify(m,s,pk) sign lines to authorize transactions = = validation {true, false}
135. http://jxf.me · @jxxf sign(m,sk) sign lines to authorize transactions = signature 0101 1101 1110 1010 0001 0111 [⋯] virtually impossible very easy!
136. http://jxf.me · @jxxf sign(m,sk) sign lines to authorize transactions = signature 0101 1101 1110 1010 0001 0111 [⋯] virtually impossible very easy!
137. http://jxf.me · @jxxf sign(m,sk) sign lines to authorize transactions = signature 0101 1101 1110 1010 0001 0111 [⋯] computationally infeasible very easy!
138. http://jxf.me · @jxxf protocol: 1. anyone can add valid lines 2. no overspending 3. must sign lines to be valid
139. http://jxf.me · @jxxf Alice paid Bob 50 0111⋯ B
140. http://jxf.me · @jxxf Alice paid Bob 50 0111⋯ B
141. can no longer forge lines… http://jxf.me · @jxxf
142. http://jxf.me · @jxxf Alice paid Bob 50 1011⋯ B
143. http://jxf.me · @jxxf Alice paid Bob 50 1011⋯ Alice paid Bob 50 1011⋯ B
144. http://jxf.me · @jxxf Alice paid Bob 50 1011⋯ Alice paid Bob 50 1011⋯ B
145. but can duplicate legitimate lines! http://jxf.me · @jxxf
146. http://jxf.me · @jxxf sign(m,sk) sign lines to authorize transactions secret key (sk) 1 Alice paid Carol 15 message (m) add id to message
147. http://jxf.me · @jxxf 1 Alice paid Bob 50 1011⋯ 2 Alice paid Bob 50 1011⋯ B
148. http://jxf.me · @jxxf B 1 Alice paid Bob 50 1011⋯ 2 Alice paid Bob 50 1011⋯
149. http://jxf.me · @jxxf protocol: 1. anyone can add valid lines 2. no overspending 3. must sign lines to be valid 4. lines have unique identifiers
150. problem: ledger is centralized http://jxf.me · @jxxf
151. http://jxf.me · @jxxf A B C Ledger
152. distributing the ledger http://jxf.me · @jxxf 4
153. http://jxf.me · @jxxf A B C Ledger Ledger Ledger
154. http://jxf.me · @jxxf A B C Ledger Ledger Ledger
155. broadcast our ledger updates http://jxf.me · @jxxf
156. http://jxf.me · @jxxf A B C Ledger Ledger Ledger
157. http://jxf.me · @jxxf Ledger Ledger Ledger B
158. http://jxf.me · @jxxf Ledger Ledger Ledger 2 Bob paid Alice 50 1011⋯ B
159. http://jxf.me · @jxxf Ledger Ledger 2 Bob paid Alice 50 1011⋯ 2 Bob paid Alice 50 1011⋯ 2 Bob paid Alice 50 1011⋯ Ledger B
160. http://jxf.me · @jxxf Ledger Ledger 2 Bob paid Alice 50 1011⋯ 2 Bob paid Alice 50 1011⋯ 2 Bob paid Alice 50 1011⋯ Ledger B
161. http://jxf.me · @jxxf protocol: 1. anyone can add valid lines 2. no overspending 3. must sign lines to be valid 4. lines have unique identifiers 5. distribute the ledger
162. problem: what order to use? http://jxf.me · @jxxf
163. http://jxf.me · @jxxf 2 Alice paid Dave 30 1001⋯ 2 Alice paid Carol 30 0101⋯ Ledger B
164. http://jxf.me · @jxxf 2 Alice paid Dave 30 1001⋯ 2 Alice paid Carol 30 0101⋯ Ledger B double spending!
165. http://jxf.me · @jxxf protocol: 1. anyone can add valid lines 2. no overspending 3. must sign lines to be valid 4. lines have unique identifiers 5. distribute the ledger (how?!)
166. trusting the ledger http://jxf.me · @jxxf 5
167. http://jxf.me · @jxxf
168. http://jxf.me · @jxxf
169. http://jxf.me · @jxxf
170. http://jxf.me · @jxxf
171. how do we know it’s valid? http://jxf.me · @jxxf
172. http://jxf.me · @jxxf
173. http://jxf.me · @jxxf sign(m ⋯)
174. http://jxf.me · @jxxf sign(m + n) nonce
175. http://jxf.me · @jxxf sign(m + n) 01011101101⋯ nonce
176. http://jxf.me · @jxxf sign(m + n) 01011101101⋯ nonce
177. http://jxf.me · @jxxf sign(m + n) 01011101101⋯ ~1 2 nonce
178. http://jxf.me · @jxxf sign(m + n) 00101101101⋯ ~1 4 nonce
179. http://jxf.me · @jxxf sign(m + n) 00001101101⋯ ~ 1 16 nonce
180. http://jxf.me · @jxxf sign(m + n) 000000000000⋯ ~ 1 2 nonce
181. http://jxf.me · @jxxf signature
182. http://jxf.me · @jxxf signature nonce
183. http://jxf.me · @jxxf signature nonce
184. http://jxf.me · @jxxf signature nonce 175 <network> paid Dave 50 1001⋯
185. http://jxf.me · @jxxf $ $$$ $$ $$$ $ $$
186. http://jxf.me · @jxxf signature nonce previous
187. http://jxf.me · @jxxf signature nonce previous signature nonce previous signature nonce previous
188. http://jxf.me · @jxxf signature nonce previous signature nonce previous signature nonce previous
189. consensus: trust longest chain http://jxf.me · @jxxf
190. http://jxf.me · @jxxf
191. http://jxf.me · @jxxf
192. http://jxf.me · @jxxf
193. http://jxf.me · @jxxf
194. http://jxf.me · @jxxf
195. building with blockchains http://jxf.me · @jxxf 6
196. http://jxf.me · @jxxf Should I use a blockchain for my app? Probably not.
197. can I wait a while for consensus? http://jxf.me · @jxxf
198. is this better for me than a database? http://jxf.me · @jxxf
199. does my app need to be distributed? http://jxf.me · @jxxf
200. do I need to trust people? http://jxf.me · @jxxf
201. cryptocurrency challenges http://jxf.me · @jxxf
202. a very different kind of money http://jxf.me · @jxxf is it a good kind of money?
203. cryptocurrencies aren’t currency… http://jxf.me · @jxxf
204. cryptocurrencies aren’t currency… right now http://jxf.me · @jxxf
205. http://jxf.me · @jxxf blockchain.info price graph [source]
206. http://jxf.me · @jxxf blockchain.info price graph [source] $7,000 $1,000 2014 2017
207. deflationary currencies aren’t great http://jxf.me · @jxxf
208. http://jxf.me · @jxxf
209. deflation discourages production http://jxf.me · @jxxf
210. http://jxf.me · @jxxf
211. http://jxf.me · @jxxf
212. http://jxf.me · @jxxf
213. http://jxf.me · @jxxf $
214. http://jxf.me · @jxxf $ $ $ $
215. http://jxf.me · @jxxf $ $ $ $
216. http://jxf.me · @jxxf $ $ $ $
217. PoW is ecologically problematic http://jxf.me · @jxxf
218. http://jxf.me · @jxxf Vice Motherboard [source]
219. the future http://jxf.me · @jxxf 7
220. http://jxf.me · @jxxf 0101 0010 1010 1110 0110 0101 1000 0011 trust rules history + + ≡ ⋯
221. http://jxf.me · @jxxf 0101 0010 1010 1110 0110 0101 1000 0011 trust rules history + + ≡ ⋯
222. takeaways Bitcoin is a trustless, permissionless set of rules in software, those rules allow us to trustlessly exchange value the protocol has some serious problems blockchains have enormous potential … if we get it right http://jxf.me · @jxxf
223. takeaways Bitcoin is a trustless, permissionless set of rules in software, those rules allow us to trustlessly exchange value the protocol has some serious problems blockchains have enormous potential … if we get it right http://jxf.me · @jxxf
224. takeaways Bitcoin is a trustless, permissionless set of rules in software, those rules allow us to trustlessly exchange value the protocol has some serious problems blockchains have enormous potential … if we get it right http://jxf.me · @jxxf
225. takeaways Bitcoin is a trustless, permissionless set of rules in software, those rules allow us to trustlessly exchange value the protocol has some serious problems blockchains have enormous potential … if we get it right http://jxf.me · @jxxf
226. Thanks! ★ questions? email: jxf@jxf.me Twitter: @jxxf http://jxf.me · @jxxf