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Cryptocurrency Bitcoin and the Blockchain
8th March, 2016Monik Pamecha
Going back
Barter System
Physical ObjectsWORKS
WHAT ABOUT HIM?!FAILS
FIAT CURRENCIES
MONEY
HAVE FAITH AND HOPE OTHERS WILL HAVE
FAITH
SO WHAT ABOUT BITCOIN?
?
NAME BALANCE
ROHIT 5.00
JOHN 7.32
VINNY 230.22
AWAIZ 93.32
LIST OF RECORDS - LEDGER
6.00
229.22
TRA Transaction
But banks do that any way
So what is different?
BANKS LEDGER
YOU NEED TO TRUST
The banks/authorities
EVERYBODY MAINTAINS A COPYImage: http://www.imponderablethings.com/2013/07/how-bitcoin-works-under-hood.html
Image: http://www.imponderablethings.com/2013/07/how-bitcoin-works-under-hood.html
NETWORK OF RANDOM
STRANGERSBUT EVERYBODY
KNOWS EVERYTHING!!!!
600.00 for a date with Alisha
240.00 for a date with Akansha
1200 for a date with Rohini20.00 Vada Pav
with himself
JOEY’s Pizza
Dosa guy outside
6 and 3/4 Hills
OUR INSANELY DELICIOUS FOOD SERVING CANTEEN
HARSH’s TRANSACTIONS
So Harsh can’t remain the player
he isBut luckily with bitcoin he can
600.00 for a date with Alisha
240.00 for a date with Akansha
20.00 Vada Pav
with himself
JOEY’s Pizza
Dosa guy outside
6 and 3/4 Hills
OUR INSANELY DELICIOUS FOOD SERVING CANTEEN
1HB5XMLmzFVj8ALj6mfBsbifRoD4miY36
v
1K9C8kGBhb6e5i2VYN6NXEqBbsd635Lt9y1PjoMgwHZ9LoBR14ibgSpcBLsWciMjjitq
185X18qsBYtWMKvBMK1dtN2EZEZW
zwn2tW
158H1mtB4iDNkZyVxtK82rZoF6S2xMH69S
?
1200 for a date with Rohini
?
?
COMPLETE ANONYMITY
NO Links between real identity and public address on
bitcoin network
So what is a bitcoin transaction like?
Marco Polo 4.00 BTC
1HB5XMLmzFVj8ALj6mfBsbifRoD4miY36v
Marco’s Public Address
Every node* on network is updated
*node = user
That’s easyI can spend everyone
else’s money!
Not so easy
AMIT’s Addres
sYUKTI’s Address5000.0
Signature : ????
1EdL1yeBQCLXaFw97VH3Zuq2dCgDt9Ag9u
L38gXdAApcQd3z8W9zLtZKKzpM9MkG82ttapu4HiVQJ1CbvzfP7n
PUBLIC KEY : SAFE TO SHOW TO THE WORLD
PRIVATE KEY : KEEP IT WITH YOURSELF
EVERY WALLET
AMIT’s Addres
sYUKTI’s Address5000.0
Signature : ????
Signature comes from a function
Transaction Content : Who to and how much?
Your Wallet’s Private Key
304502206e21798a42fae0e854281abd38bacd1aeed3ee3738d9e1446618c4571d1090db022100e2ac980643b0b82c0e88ffdfec6b64e3e6ba35e7ba5fdd7d5d6cc8d25c6b241501
Your Wallet’s Public Key!
Recap
Image: http://www.imponderablethings.com/2013/07/how-bitcoin-works-under-hood.html
AMIT’s Address
YUKTI’s Address
5000.0 304502206e21798a42fae0e854281abd38bacd1aeed3ee3738d9e1446618c4571d1090db022100e2ac980643b0b82c0e88ffdfec6b64e3e6ba35e7ba5fdd7d5d6cc8d25c6b241501
1EdL1yeBQCLXaFw97VH3Zuq2dCgDt9Ag9u
EVERY NODE WILL CHECK
1HB5XMLmzFVj8ALj6mfBsbifRoD4
miY36v
DO THEY MATCH?
This function gives public key from
signature
AMIT’s Address
YUKTI’s Address
5000.0 304502206e21798a42fae0e854281abd38bacd1aeed3ee3738d9e1446618c4571d1090db022100e2ac980643b0b82c0e88ffdfec6b64e3e6ba35e7ba5fdd7d5d6cc8d25c6b241501
1EdL1yeBQCLXaFw97VH3Zuq2dCgDt9Ag9u
AMIT’s Address
PIYA’s Address
4000.0 304402201df3f048877aff61e41066415f4e446033bdb49833a24d37102794a0683c73d5022038d19ad1a71367c285e0e4ff4408405a8b37df4c8a9e36edc3e42fe2ac862f0201
185X18qsBYtWMKvBMK1dtN2EZEZWzwn2tW
They are different! Each transaction will have a
different sign!
What are f(x) and g(x)?
Elliptic Curve Digital Signature Algorithm
AMIT’s Addres
sYUKTI’s Address5000.0
Signature : ????
304402201df3f048877aff61e41066415f4e446033bdb49833a24d37102794a0683c73d5022038d19ad1a71367c285e0e4ff4408405a8b37df4c8a9e36edc3e42fe2ac862f0201
Transaction Content : Who to and how much?
Your Wallet’s Private Key
304502206e21798a42fae0e854281abd38bacd1aeed3ee3738d9e1446618c4571d1090db022100e2ac980643b0b82c0e88ffdfec6b64e3e6ba35e7ba5fdd7d5d6cc8d25c6b241501
5000 to Yukti
What do we know?Each transaction = unique
signatureEach transaction = Can be verified who signed it
Each transaction = Any attempt to manipulate transaction invalidates the sign
Questions?
NAME BALANCE
ROHIT 5.00
JOHN 7.32
VINNY 230.22
AWAIZ 93.32
LIST OF RECORDS - LEDGER
6.00
229.22
TRA Transaction
Transactions are stored
+0.008
Transaction
Inputs OutputsPeople giving me bitcoins Me giving people bitcoins
=They must be equal!
What if tx1
tx2
5 btc
7 btc
I want to pay 9 onlyWhat about
extra 3?Send 3 back
to myself
All inputs in a transaction must be
used up
Back to Transactions
Every single bitcoin can be traced to the start
Types of Transactions
Spent
Unspent
Solves the double spending problem partially
Questions?
Double spending problem
1. Alice wants buy stuff from Bob2. Alice sends Bob some bitcoins3. Takes the items4. Alice sends himself some bitcoins
referencing same inputs5. Possibility that Alice’s transaction to
himself gets confirmed6. All other users will reject Alice -> Bob
transaction7. Alice get’s the stuff for free!
PROBLEM
ORDERING OF TRANSACTIONS
Which transactions occurred first?
SOLUTIONTHE BLOCKCHAIN
Image: http://www.imponderablethings.com/2013/07/how-bitcoin-works-under-hood.html
Block = Group of transactions
Image: http://www.imponderablethings.com/2013/07/how-bitcoin-works-under-hood.html
So can anybody add their own block?
Yes, but with some effort
Image: http://www.imponderablethings.com/2013/07/how-bitcoin-works-under-hood.html
What is HashingDemo
Computers guess the hash values using
computational power
A single computer = require years
Bitcoin network = Approx. 10 minutes
When will the problem get solved?
EUREKA! PROBLEM SOLVED
WAIT, SOMEBODY ALREADY SOLVED IT BEFORE!
Switch to the longest chain
Multiple chains get orphaned
One more problem
Image: http://www.imponderablethings.com/2013/07/how-bitcoin-works-under-hood.html
How difficult is it to mine consecutive
blocks successfully?
q=0.1
z=0 P=1.0000000 z=1 P=0.2045873 z=2 P=0.0509779 z=3 P=0.0131722 z=4 P=0.0034552 z=5 P=0.0009137 z=6 P=0.0002428 z=7 P=0.0000647 z=8 P=0.0000173 z=9 P=0.0000046 z=10 P=0.0000012
As number of blocks to catch up increase,Probability to catch up decreases exponentially
Satoshi Whitepaper : http://bitcoin.org/bitcoin.pdf
Us Against The World
For a malicious node
Questions?
Final PartWhy should anybody invest money and computational power to mine
blocks?
The bitcoin reward per block
Smart way of introducing bitcoins into the economy
Rewards halve every year and will eventually stop
Current Reward = 50 bitcoins
Transaction Fees
But bitcoins are limited?
Deflationary Currency
Bitcoins are divisible upto 1 satoshi = 0.00000001 BTC
Blockchain as a consensus mechanism