Blockchain, smart contracts

introduction

© Lukasz Jarmulowicz 2016

TL; DR- History, background

- Solved problems

- How it works (wallets, transactions, mining)

- Ethereum, Smart contracts

- Profit

Why bitcoin?

LedgerA general ledger contains all the accounts for recording transactions relating to a company's assets, liabilities, owners' equity, revenue, and expenses.

Purpose: To have financial statement

Double spendingByzantine Generals Problem

More generally, the B.G.P. poses the question of how to establish trust between otherwise unrelated parties over an untrusted network like the Internet.

The problem to be solved is:● All loyal generals need to decide upon

the same plan of action.● A small number of traitors cannot cause

the loyal generals to adopt a bad plan.

BitcoinIn October 2008, “Satoshi Nakamoto” published a paper describing the bitcoin digital currency. In January 2009, Nakamoto released the first bitcoin software that launched the network and the first units of the bitcoin cryptocurrency, called bitcoins.

Distributed ledger - BlockchainThe block chain is a shared public ledger on which the entire Bitcoin network relies. All confirmed transactions are included in the block chain. This way, Bitcoin wallets can calculate their spendable balance and new transactions can be verified to be spending bitcoins that are actually owned by the spender.

A mysterious new technology emerges, seemingly out of nowhere, but actually the result of two decades of intense research and development by nearly anonymous researchers....

Eventually mainstream products, companies and industries emerge to commercialize it; its effects become profound; and later, many people wonder why its powerful promise wasn’t more obvious from the start....What technology am I talking about? Personal computers in 1975, the Internet in 1993, and – I believe – Bitcoin in 2014

Marc Andreesen, creator of Netscape Navigator

Davos 2016 - big attention

Even in Russia...

https://www.youtube.com/watch?v=BXlAH2fhyoU

Ok, ok.. but how it works ?

Wallet

Transactions

Transaction signing - scripts insideSmall program inside each transaction that gets executed to decide if a transaction is valid

Transaction chain gives balance

Confirming transactions - mining

Mining - blocksBitcoin mining is the process that puts transactions into a block, to make sure everyone has a consistent view of the transaction log.

Mining is also the mechanism for new bitcoins to enter the system. When a block is successfully mined, new bitcoins are generated in the block and paid to the miner.

This mining bounty is large - currently 25 bitcoins per block (~ $14,000).

This is blockchain

RecapWallets

Transactions

Transaction chain > balance

Mining > creating linked blocks

Example?

Ethereum, smart contracts

Ethereum was initially proposed by Vitalik Buterin in late 2013 and in 2014 he described it as "A Next-Generation Cryptocurrency and Decentralized Application Platform".

Ethereum's live blockchain was launched on 30 July 2015. The Ethereum software project was initially developed by a Swiss company, Ethereum Switzerland GmbH (EthSuisse) and a Swiss non-profit foundation, the Ethereum Foundation.

Ethereum Virtual MachineProgrammable blockchain - Rather than give users a set of pre-defined operations (e.g. bitcoin transactions), Ethereum allows users to create their own operations of any complexity they wish.

Bitcoin blockchain was purely a list of transactions, Ethereum’s basic unit is the account. The Ethereum blockchain tracks the state of every account, and all state transitions on the Ethereum blockchain are transfers of value and information between accounts.

Platform for many different types of decentralized blockchain applications, including but not limited to cryptocurrencies.

Smart contracts● Contracts lives on the Ethereum blockchain

● Have own Ethereum address and balance

● Can send and receive transactions

● “Activated” when you send a transaction to it

Smart contracts

● 4 Ethereum high level languages

○ Solidity (similar to js)

● Compile (Mix IDE)

● Deploy (you pay for execution gas - > eth)

● Interacting with smart contracts

● Mining - little different than bitcoin (few changes)

Plans for smart contracts usage

ETHEREUM AS A ‘WORLD COMPUTER’

Computation on Ethereum is slow and expensive.

(currently similar to smartphone?!)

For computation, there are better, cheaper and faster alternatives that don’t require blockchains and all that.

Ethereum can create various forms of economic alignment, shared purpose and coordination between thousands of anonymous people, at a fraction of a cost compared to alternatives (legal frameworks).

Sharing economy (ex. uber, airbnb) will be everywhere.

Decentralized autonomous organizations (“DAO”)

● Best comparable to a digital company, but without an attached legal entity

● The Owner (kind of admin) can add (or remove) voting members to the organization

● Any member can make a proposal (by sending transaction or execute contract)

● People vote on proposals

● Allows people to participate in risks & rewards of digital ventures

ConsScalability

Confidentiality

Valuations

No Buyer Protection - real time

Thank you.

Questions?

© Lukasz Jarmulowicz 2016