CRYPTOCURRENCIES
IN A NUTSHELL
Marco Samek, 2018
Introduction and basic definitions
of the Cryptoworld
Content
• Intro
• Blockchain
• Bitcoin/ Crypto currencies
• Miner – Creation of coins
• Exchange platforms
• Coin storage types
• ICO / ITO / ICS / TGE
• Q&A
What is Blockchain?
• Distributed
• Secure
• Ledger (Log file)
A Blockchain is a distributed database that maintains a continuously-growing list of records called blocks secured from tampering and revision.
Simply defined, a Blockchain is little more than a:
What is a distributed ledger?
Centralized Ledger
Bank
Client A
Client
C
Client D
Client
B
Distributed Ledger
Node A
Node B
Node CNode D
Node E
•
•
There are multiple ledgers, but Bank holds the “golden record”
Client B must reconcile its own ledger against that of Bank, and
must convince Bank of the “true state” of the Bank ledger if
discrepancies arise
• There is one ledger. All Nodes have some level of access to that
ledger.
• All Nodes agree to a protocol that determines the“true state” of
the ledger at any point in time. The application of this protocol is
sometimes called “achieving consensus.”
Source: IBM
Information & asset exchange in business networks – separate ledgers
Source: IBM
Information & asset exchange in business networks – shared ledgers
Types of networks
Transactions are secure, authenticated & verifiable
Business terms embedded in transaction database & executed with transactions
All parties agree to network
verified transaction
Append-onlydistributed
system of record shared across
business network
Source: IBM
4 key concepts of Blockchain
Blockchain ledger – a chain of blocks with records
Illustrative example of Blockchain principles
• Bob is an online buyer who just discovered Sally's online clothes shop. He found a nice suite there and wants to buy
it.
• Sally is running a little online shop and sells various kinds of clothes. Sally's little shop only accepts Paypal
transactions.
• Bob needs to pay Sally, using Paypal, before she sends him the suite.
This is how it happens in practice, with all the intermediates:
Banking is a system of
intermediaries across the
spectrum - ranging from
payment networks (e.g
Mastercard, Visa etc) to
Clearinghouses in Capital
Markets to Banks, etc.
And the reason these
intermediaries exist is to
establish trust between
two parties who do not
know each other.
Operation principle of a payment with Bitcoin
• A user wants to pay
another user some
bitcoins, he
broadcasts a
transaction to the
network.
• Miners add the
transaction as they
receive it to their
current block, the one
they are currently
working on
• Randomly, one of the
miner will solve a
mathematical puzzle
and "mine" the block
(we'll get back to
that)
• At that moment, this
new "definitive" block
is broadcasted to the
network and added
to everyone's copy of
the blockchain
THE BIG BANG AND
EVOLUTION OF BITCOIN
Source: IBM
Bitcoin – currency and technology
When did it start?
• “Satoshi Nakamoto” created the reference implementation that began with a Genesis Block of 50 coins
• 2008• August 18 Domain name "bitcoin.org" registered[1].
• October 31 Bitcoin design paper published
• November 09 Bitcoin project registered at SourceForge.net
• 2009• January 3 Genesis block established at 18:15:05 GMT
• January 9 Bitcoin v0.1 released and announced on the cryptography mailing list
• January 12 First Bitcoin transaction, in block 170 from Satoshi to Hal Finney
https://en.bitcoin.it/wiki/History
• A protocol that supports a decentralized, pseudo-anonymous, peer-to-peer digital currency
• A publicly disclosed linked ledger of transactions stored in a Blockchain
• A reward driven system for achieving consensus (mining) based on “Proofs of Work” for helping to secure the network
• A “scarce token” economy with an eventual cap of about 21M bitcoins
What is Bitcoin?
Transaction
is added to
a “block”.
Block is
replicated to
the
participants
that need to
validate the
transactions.
All network
parties
validate the
transaction.
Block is added
to the “chain”,
creating a
tamper-proof
audit log.
Recap: Bitcoin transaction flow
The Public Ledger
• Every viable transaction is stored in a public ledger
• Transactions are placed in blocks, which are linked by SHA256 hashes.
• https://blockchain.info
Miners and the “Proof of Work”
Bitcoin uses the Hashcash proof of work system.
For a block to be valid it must hash to a value less than the current target; this means that each block indicates that work has been done
generating it. Each block contains the hash of the preceding block, thus each block has a chain of blocks that together contain a large amount of
work.
Changing a block (which can only be done by making a new block containing the same predecessor) requires regenerating all successors and
redoing the work they contain. This protects the block chain from tampering.
https://www.cryptocompare.com/mining/#/equipment
Miner retribution and Bitcoin creation
Mining is also the mechanism used to introduce Bitcoins into the system: Miners are paid any transaction fees as well as a "subsidy" of newly created coins. This both serves the purpose of disseminating new coins in a decentralized manner as well as motivating people to provide security for the system.It gives miners incentive to put their computation power at the disposal of the blockchain network.
Because there is a reward of brand new bitcoins for solving each block, every block also contains a record of which Bitcoin addresses or scripts are entitled to receive the reward. This record is known as a generation transaction (or a coinbase transaction) and is always the first transaction appearing in every block.
The number of Bitcoins generated per block starts at 50 and is halved every 210,000 blocks (about four years).
Bitcoin wallet cryptography
A Bitcoin address, or simply address, is an identifier of 26-35 alphanumeric characters, beginning with the number 1 or 3, that represents a
possible destination for a bitcoin payment. Addresses can be generated at no cost by any user of Bitcoin.
There are currently two address formats in common use:
Common P2PKH which begin with the number 1, eg: 1BvBMSEYstWetqTFn5Au4m4GFg7xJaNVN2.
Newer P2SH type starting with the number 3, eg: 3J98t1WpEZ73CNmQviecrnyiWrnqRhWNLy.
Blockchain 2.0 – Smart Contracts
The Blockchain 2.0 is an
evolution of the blockchain
protocol enabling not only to
exchange transaction but
rather code and programs in
the form of Smart Contracts
Now developers are allowed
to build programs and API's
on the Blockchain Protocol.
This relatively new concept
involves the development of
programs that can be
entrusted with money.
Smart contracts are programs
that encode certain
conditions and outcomes.
For instance, When a
transaction between 2 parties
occurs, the program can verify
if the product/service has
been sent by the supplier.
Only after verification is the
sum transmitted to the
suppliers account.
Why does it matter?
193 Billion Dollar Market Cap!
http://coinmarketcap.com
https://www.cryptocompare.com/coins/#/usd
https://coincheckup.com
Where to purchase / exchange Bitcoins?
• In addition to mining bitcoins, they can be acquired from an exchange!
Who Accepts Bitcoins?
Ups and downs in Bitcoin acceptance: still at the start of the road
Source: IBM
Value of Blockchain technology
Source: IBM
Key factors that influence the future of Blockchain, crypto assets and smart contracts
Source: IBM
There is not one Blockchain protocol
Source: IBM
Potential of Blockchain extends across a wide range of application areas
18Beyond Bitcoin: What to do with Blockchain?
© 2017 TIBCO Software Inc.
Power created by a central source, andtransmitted to end consumers, often over
long distances.
Power generated locally, and distributed in
a peer-to-peer fashion via smart contracts.
(see Brooklyn microgrid as an example)
Node
Node
Node
Use Cases: Energy Distribution
ICO –THE REVOLUTION
IN FUNDRAISING
Some visible ICO problems