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Week 1 & 2: Bitcoin & crptocurrency (History (Satoshi Nakamoto…
Week 1 & 2: Bitcoin & crptocurrency
cryptocurrencies
Bitcoin
1st application
key strength / distinguishing factors
vs traditional DB
core features to solve new problems
cryptocurrency vs traditional / normal currency
mechanics
four parts in common consensus
special concepts or terms
decentralized bitcoin mixing
bitcoin game theory
cryptocurrency decal
proof of stake cryptoeconomics
bitcoin network attack
proof of work game theory
distributed bitcoin mixing
blockchain enabled future of ethical consumerism & environmental responsibility
non-fungible token (NFT: non-interchangable)
cybersecurities
case theory
Ethereum decentralized application
distributed hash tables
nature of bitcoin
digital
decentralized
cryptographic
economic & with currency value
blockchain based
append-only ledger
not able to deleted
originated from 80's cypherpunk (privacy) / libertarian (autonomy)
privacy
anonymous
independent from any financial intermediaries
by address, string of random letters & numbers
no censorship --> no need to provide personal info of identity
no kick out any users
allows nodes of computer come and go
vs bank account & identity for legitimate owners (trusting Gov, law & bank)
creating your identity on your own
validating transaction peer to peer, and verified and confirmed by the rest of the entire network, without involving the presence of any trusted third party
publicly verifiable
trust the validation protocols
vs censorship
problems
malicious users allowed
malicious messages infecting the network
causes inconsistency
double spending attack
vs real currency of uniqueness
challenging to ensure digital / virtual token to one person in the realm of distributed currency system
solutions:
blockchain
bitcoin mining
appending block of transactions
proof of wok (consensus protocols)
seems an inefficient system due to a decentralized network??
vs the decentralized power & privacy-centric technology
faulty nodes may joint
decentralization
vs central bank
vs centralization
every node keeps all the records
it is less chance of fault if a node has been hacked
built by users and used by users
no central bank or Federal reserve or equivalent on bitcoin network
everyone can verify and audit their own transactions
not affiliated or backup with gov or central institutes
inventor / researcher
in 2008, by Satoshi Nakamoto (not a real name)
structure and functions
peer to peer
working mechanisms
e.g. bitcoin network
validate the transactions
stores the entire transaction history
peer to peer
bitcoin protocols
shortages
slow, redundant, inefficient vs bank services
originates from cultural, political and technological factors
bitcoin vs bank
identity (pseudonymous)
without central authority to manage the identity authentication
functions
receiving $
claiming or spending $
blame?
analogy: locked mail box & physical keys to open vs
bitcoin public key & private key
public keys for receiving and private keys for redeeming
that allows no central authorities to assign and governing the identity
generate private key at random
generate the public key
generate the address
very very slim chance of having the same private key by two users
transaction (decentralized)
bitcoin network
decentralized vs centralized
complex in descentralized
how to make transaction valid
banking:
proof of the identity by signature
sufficient fund
no more than one spending on the same fund
Model of Unspent transaction Outpout (UTXO)
directly spend the transactions made to them
sum up and track the "piggy bank"
Amy: UTXOs of 100 & 50
Transaction:
one input of 100;
one input of 50;
one output of 101 --> her friend;
one output of 49 --> herself.
uniquely identifiable
make tracking transactions
consensus protocol for updating block of transactions (trust-less)
agreement / consensus
agree on the history of transactions
agree on a valid update and no corrupted data
one node proposes the transaction record
sender and receiver would be 100% know it
others would validate and disregard it if invalid found
issues
easily to make up an identities on network
double spending
the proposer may create and hold multiple bitcoin (digital) identities to cast the vote
sybil attack
51% attack
a malicious entity controls more than 50% of the mining power (say 51%)
it has the majority and is now able to mine an alternative chain (with a different transaction history) and make it the longest chain. Bitcoin users would then accept that chain as the “true” transaction history
With 51% of the mining power, malicious actors can double spend, and use the same bitcoins for two different transactions. A malicious actor may send the same bitcoin to a third party and then to itself, choosing to include and validate the latter transaction and avoiding payment altogether.
proof of work
it requires evidence of computation power as a member of the network
Satoshi Nakamoto’s “1 CPU 1 Vote” vision is not reflected perfectly in reality
forking
multiple blocks at the same height of the chain intentionally (e.g. double spending) or unintentionally
thus, miners following the protocols to validate which one is correct and continue to build the chain
soft fork
protocol updates to reduce the set of valid transactions
hard fork
allows previously invalid transactions become valid
record keeping (decentralized, immutable)
bitcoin is a trustless system in nature
not a few of nodes maintain the records of transactions or statuses
everyone is equal and vote on the validity of the transaction
everyone has its own data control and not decided by others
no one can bribe or cheat to alter the distributed database
no maintainers but everyone keeps a copy of the ledger
costly to distribute a transaction to everyone on the network
every update to bitcoin ledger is a group of a transaction which
is a block
each block is appended to the previous block
a block comprising a thousand of transactions
give database discrete state
each block contains the info of the previous block
any mutation to a block would cause invalidating to any future block appending so no more append happens
consistency among the members of the bitcoin network
who interest in this
traders
blockchain developers
History
Cypherpunk / crypto anarchists
seeking for the privacy of ones' information
hate censorship
central agent / gov / giant centers spy or access the info of general public / their personal info
e.g. bank could track the fund transfer among the accounts
so, the need of anonymous digital transaction system or currency system emerges
Eric Huges
UC
Berkeley
reserve their own autonomy
JP Morgan Chase
libertarianism
political ideology about minimal influence from the centralized authorities /
protect individual right
concepts
privacy not equal to secrecy
having choice to which or whom the info is disclosed to
many attempts to make cryptocurrency failed
mistakes to inspire the emergence of Bitcoin
Digicash
David Chaum, crptographer
Public Key & Private Key
1998, his company failed, bankrupted because of not able to deal with the overwhelming burden of validating every digital signature
protect the privacy of transaction
blind signature
not revealing the identity of the owner
hashcash
for email to avoid spam
the proof of work
before sending out an email, it is required to solve a crytographic puzzle as a proof of work
hashcash stamp at the header of email
it expends the cost of spammers so as to deincentivize them
used in Bitcoin
B-Money
Wei Dai, in 1998
anonymous digital disturbed electronic money
frameworks
hashcash as proof work to create money
work is verified by the community
authenticated by cryptography
collective book keeping & update
each has a copy of the collective ledger
broadcast the transaction with signing with digital signatures
Satoshi Nakamoto
distributed consensus: proof of work - one pc one vote
trust
via cryptographic proof
White paper at 2008
bitcoin peer to peer electronic cash system
trustless (no central agency)
anonymous
decentralized
every node maintains a copy of which address owns which coin
deflationary currency, say 21 millions at most
block rewards
first bitcoin at 2009 Jan 12 by Hal Finney
reward the miner
Bitcoin shortages
no third party to help in case of stolen private keys and coins
associate with hack and illegal activities
scalability
2018, one
block created in every 10 mins but it holds about 10MB transactions
about 3 transactions a second
2015, out of network capacity
block left out to be confirmed
so, SegWit emerged
Bitcoin XT
Bitcoin Classic
improve network processing capacity
method 1: increasing block size
method 2: enhance the consensus protocols
Ethereum
using turing complete language
platform for peer to peer smart contract application
code execution is fueled by Ether, internal token
2014 Aug, sold 7.4 million of ether
TheDAO project
2016 July, a theft stealing smart contracts of
ether worth 120 millions
3 more items...
members have needs of exchange and updates
but lack of proposal
nature of coincentric
meaning storing values
medium of payment
2010, Bitcoin exchange web site
Jeb McCaled
mtgox.com
the online game, Magic
online traded cards
2011 June 19, hackers
2014, handling 70% of transactions
2014 Feb, lost 744,000 bitcoins
silk road, "ebay of drug"
Ross Ultbricht
associate with black market and the use of bitcoin
2013 Oct, FBI shut down silk road and seized 26,000 bitcoins worth 3.6 millions at that time
2013 Nov, a bitcoin worth from 200 to 1000
2015, hit the peak at 1165
reasons
many chinese investors sold out because of gov warning
over promote by Mt. gox
other currencies emerge
altcoins
e.g. litecoin
stellar, ripple
new consensus algorithm
paypal partnered with coinbase, gocoin, bitpay
wallet software acts as an agent, no need to personally act with bitcoin
Ethereum
private or enterprise permissed blockchain
Initial Coin Options (ICOs)
not allowed by law
raise up a lot of money
Tezos
Bancor
filecoin
litecoin
ZCash
Stellar
Ethereum
Dash
Ripple
Monero
industry project
ethereum blockchain
cryptokitties
buy, breed, sell
blocking down the network due to high volume of transaction
Parity Wallet
multisignature wallet
for signing off on transaction
smart contract codes problem
a user deleted 300 million worth ether
coincheck
hack of 0.5 billion in 2018
work fields involved blockchain applications
finance
cryptocurrency - bitcoin
bank
energy?
IoT?
identity?
public / private
law
economics
computer science
researcher / developer
proof of stake cryptoeconomic
consensus mechanism for validating or mining
proof of wok game theory
consensus mechanism for making service request
blockchain ecosystem
consensus protocols
non-fungible token
indivisible / not interchangeable
unique to the owner
e.g. plane ticket
course structure
bitcoin protocol & consensus
four stages
identity
transaction
record keeping
consensus
blockchain history & development
cypherpunk moverment
libertarian ideals
JP Morgan chase
bitcoin mechanics & optimizations
bitcoin network
cryptography
cryptographic hash functions
bitcoin scripts
privacy
hash commitment schemes
let one commit to his/her choice and made not reversible but hidden the value to others first and will be released later. also, avoid collision with other participants
bitcoin in real life
wallet
mining
transaction
governance
how to use software to interface the bitcoin network
how to destroy the bitcoin
game theory
network attack
pool cannibalization
background: it requires some contributors to mining for Proof of Work
double spending
digital coin copy
forking attacks
Goldfinger attacks
malicious mining strategies
51% attacks
how to make bitcoin decentralized
ethereum
the 2nd largest blockchain platform
ethereum virtual machine
protocols different from bitcoin
UTXO - Unspend Transaction Output by bitcoin
can be spent as an input in new transaction
whereas ethereum account model
within ethereum virtual machine
using Turking complete programming languages
smart contracts
roles in blockchain development