Blockchain 101, Enabler of Cryptocurrencies - v1.0en (2021/03)
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Introduction to Blockchain. Describes what blockchain is, how it works, how it guarantees trust. Introduces to to different use cases and how blockchain can enable the new economies based on trust.
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Blockchain 101, Enabler of Cryptocurrencies - v1.0en (2021/03)
- 1. Creasoft.dev 2021 Blockchain 101 Enabler of Cryptocurrencies Young Suk Ahn Park / MSEng March 2021
- 2. Creasoft.dev 2021 About this Deck Synopsys An introduction to Blockchain, the underlying technology of Cryptocurrency. What it is? How it works? What are the use cases? Target Audience Anyone interested in understanding about blockchain, and finding application or investing in blockchain-based technologies or assets. Requirements No prior technical knowledge Outline 1. Background: the Problem Space 2. What is Blockchain? a. Structure b. Hash 3. How Does Blockchain Work? a. Mining & Consensus 4. Use Cases
- 3. Creasoft.dev 2021 NATURAL FIT FOR INFORMATION SHARING Internet
- 4. Creasoft.dev 2021 How About Transferring Assets? Would you sell your domain? John owns awesome.com Sure, $5,000! Deal! Give me the $$, then I transfer you the domain I don’t think so, transfer me the domain, I will deposit the $$ Hmm, how do I know he’s the real owner? Can I trust her? Lisa wants to buy the domain stalemate
- 5. Creasoft.dev 2021 INTERNET LACKS TRUST Digital Art Digital Money Identity Energy Stock Contract Intellectual Property Votes Domain Name Music Video Bonds Lottery Articles
- 6. Creasoft.dev 2021 We Need an Intermediary Take escrow fee SLOW, TEDIOUS, COSTLY Prove identity Prove identity Transfer money Transfer money Transfer domain awesome.com Transfer domain awesome.com
- 7. Creasoft.dev 2021 The Intermediaries ● Who are they? ○ Government, banks, escrow companies, credit bureaus, etc. ● What are problems? ○ Too much power ○ Vulnerable to hacking ○ People can get excluded ○ Limited transparency ○ Slow, tedious, costly process How can we do without intermediaries?
- 8. Creasoft.dev 2021 Blockchain Enters Distributed Ledger Technology
- 9. Creasoft.dev 2021 What Makes it Trustworthy? Cryptographic fingerprint: each block is signed with unique seal Consensus protocol: majority has to agree on the validity of the block
- 10. Creasoft.dev 2021 List of Records Linked by Cryptography Metadata Payload Previous Hash Metadata Payload Previous Hash Metadata Payload Previous Hash Metadata Payload Previous Hash Metadata Payload Previous Hash Metadata Payload Previous Hash Metadata Payload Previous Hash Hello, I am a block and I form a chain If data is changed, the hash in this and subsequent blocks get invalidated
- 11. Creasoft.dev 2021 So What is Hash? It is a function that given a text of any length, it returns a unique output of fixed lent. Used to verify that a data has not been tampered. MIT’s Live demo: http://blockchain.mit.edu/hash hash( ) = I am a text of arbitrary length a005dcf82f9dd4367 Bitcoin uses SHA-256 hash( ) = Hello e633f4fc79badea1d
- 12. Creasoft.dev 2021 A List of Transactions: Distributed Digital Ledger Metadata: Data Previous Hash Metadata Data Previous Hash Metadata Data Previous Hash $ From To $ From To $ From To $ From To $ From To $ From To $ From To $ From To $ From To a1 a1 fd fd 32 Timestamp, nonce, difficulty, data root, .. MIT’s Live example Real Live Bitcoin Bitcoin uses Merkle tree for data
- 13. Creasoft.dev 2021 The Mining and the Consensus Transaction 3000 BTC MyAddr ToAddr I am the new block on the chain
- 14. Creasoft.dev 2021 The Competition, aka: Proof of Work Has someone mined current block? hash( BLOCK_DATA + nonce ) < difficulty nonce = nonce + 1 NO Broadcast for other to validate YES: Problem Solved! NO Discard the current, pick the next candidate block to mine Listen to network Update local copy of blockchain YES This is expensive computationally
- 15. Creasoft.dev 2021 Hmm, I still Have Doubts.. Isn’t it Possible to Spend Twice? After all, it is just a digital data, I can copy and send it again. How about miners colluding to cheat? After all, someone could influence 51%
- 16. Creasoft.dev 2021 Blockchain Properties 1. Immutable - It is (almost) impossible to modify once stored 2. Robust - Relies on distributed governance, No Single Point of Failure 3. Transparent - All history is stored 4. Open - Source code, as well as network is open → Transparency, Authentication & auditing
- 17. Creasoft.dev 2021 What Can We Do With This Technology that Provides Trust?
- 18. Creasoft.dev 2021 March 12, 2021
- 19. Creasoft.dev 2021 Use Cases 1. Financial Services 2. Supply Chain 3. Health 4. The Internet of Things 5. Property Rights 1. Telecom 2. Energy & Climate 3. Manufacturing 4. Identity 5. Government
- 20. Creasoft.dev 2021 Examples of Usage 1. Cryptocurrencies 2. Telecom: Telefonica’s TrustOS 3. Financial services: OnePay FX 4. Energy trading: Brooklyn microgrid 5. Supply chain: FoodTrad, TradeLens 6. Intellectual property: MyceliaMusic 7. Healthcare: Synaptic
- 21. Creasoft.dev 2021 GREATER EMPOWERMENT Evolution of Web Web 1.0 The Static Web Web 2.0 The Social Web Web 3.0 The Executable Web Internet of Information ● Read ● Data are mostly unstructured ● Users only access data ● Usuario only consumes data Internet of Content ● Read, Write ● Data are structured ● Users produces data and interacts with services ● Users relinquish rights to the platform Internet of Values ● Read, Write, Execute ● Data and services are semantically annotated and trust verifiable ● Users controls their data ● Users defines smart contracts that executes without intermediaries
- 22. Creasoft.dev 2021 No Intermediary Agreement Agreement awesome.com Transfer domain awesome.com Transfer money Blockchain-based smart contract
- 23. Creasoft.dev 2021 Challenges 1. Used by crime 2. High energy consumption 3. Regulation and Governance 4. Requirement of internet connected device
- 24. Creasoft.dev 2021 The blockchain platform brings trust to internet Trust is power And trust brings new opportunities!
- 27. Creasoft.dev 2021 Inventor: Satoshi Nakamoto ● Pseudonymous person(s) who developed bitcoin. ● First to solve the double- spending problem for digital currency using a peer-to-peer network. ● Active in the development of bitcoin up until Dec. 2010
- 28. Creasoft.dev 2021 Bitcoin’s Hash function: SHA-256 Fuente: https://en.cryptonomist.ch/
- 29. Creasoft.dev 2021 Blockchain can Enhance all Financial Functions 1. Authenticate & Attest to Value 2. Transfer value 3. Store value 4. Lend value 5. Exchange value 6. Fund & invest 7. Insure value & Manage Risk 8. Analyze value 9. Account for and audit value
Editor's Notes
- Blockchain 101, ver 1.0 (en) -- DESCRIPTION -- Introduction to Blockchain. Describes what blockchain is, how it works, how it guarantees trust. Introduces to to different use cases and how blockchain can enable the new economies based on trust. -- TAGS -- Blockchain, internet of value, cryptocurrency, bitcoin, hash, consensus, mining, proof of work, Web 3.0, smart contract, Foto: https://www.pexels.com/photo/ripple-etehereum-and-bitcoin-and-micro-sdhc-card-844124/
- What else: Cryptocurrency Decentralized Finance & Smart Contract
- It is difficult to imagine a world without internet today, we live in internet era. The data flows easily from one device to another. What we usually do is to share information, and what we see ar copies of data. What about assets? Financial assets: money, stock, bonds, etc. Non-financial assets: IP, and other works of arts, even a vote.
- How about transferring an asset, an object of value? Let’s examine this scenario where a person, John, is trying to sell his domain to Lisa, the buyer https://www.ted.com/talks/don_tapscott_how_the_blockchain_is_changing_money_and_business
- Internet lacks trust. No one will simple transfer a good of value over internet to newly met person expecting that the person will fully pay for the.good afterwards.
- So what do we do? We hire agree on an impartial intermediary who both trust. And we go through the process that includes Verifying the identity and claims of both parties Transfering the goods and funds to the intermediary Intermediary chasing a fee or taking a cut as commission And finally transfering the goods and funds to the respective parties. The process is slow, tedious and costly
- Who are the intermediaries? They are the government institutions, banks, escrow companies, credit bureaus, etc. There are few problems with this model The intermediaries can become too powerful, dictating the rule (have you read all the fine print in the bank T&C?) The centralized system can be hacked compromising your personal information People can get excluded. E.g. Bank may refuse to open account to certain people, let alo lend them money The transparency is limited So is there a way to establish trust without intermediaries? And the answer is yes. https://www.informationisbeautiful.net/visualizations/worlds-biggest-data-breaches-hacks/
- Enters Blockchain, a Distributed Ledger Technology. A technology which its property allows people to use as trusted medium.
- BLockchain combines strong two key elements to achieve a high level of trust: Cryptographic fingerprint: each block is signed with unique signature, and each block contains hash of the previous block, making the chain tampering proof. And the consensus protocol: where the majority has to agree on the validity of the block, makes the the data in the chain another level of security. https://www.technologyreview.com/2018/04/25/143246/how-secure-is-blockchain-really/
- Blockchain is basically list of records linked by cryptographic fingerprint called hash. The key is the hash that validates the integrity of the data of the block and all subsequent blocks. If a data of a block is modified it will invalidate the hash of the chain.
- Hash is a function that given a data of any size, it returns a unique output of fixed length. It’s a one way function so you cannot obtain the original data from the hash value. Hence it is perfect as a digital signature (or fingerprint).
- With the understanding of hash function as digital fingerprint, let’s see how it fits as distributed digital ledger. Each block contains a payload which is list of transactions sorted by timestamp, the ledger’s data. In addition the block also includes the additional data for housekeeping: block timestamp, data root (Merkle tree root), nonce, difficult target, and others. All blocks are linked with previous hash and signed with hash of the entire block data. Cryptocurrency like Bitcoin is a concrete use of a distributed digital ledger.
- This is a diagram of a transaction flow: Lisa makes a transaction and signs it, The transaction entry is broadcast to the miners in the network The miners validates the data and compete to solve the mathematical puzzle (the proof of work) the solution is a hash that meets the difficulty condition. The winner broadcast the block to the rest of the network. Once the new block is validated, it is added to the chain The transaction has been completed. The recipient can now use the funds. https://www.bitpanda.com/academy/en/lessons/what-is-bitcoin-mining-and-how-does-mining-work/ https://www.bitcoinmining.com/ computer.org/portal/web/tlt
- Here is more detail of the mining process: The miner continuously listens to the updates from the network for new transaction as well as new block by other miners New transactions are added to the candidate block. Miner attempts to solve the mathematical puzzle by trying to get a smaller number than the difficulty target with different nonce numbers. -- In practice, this process is analogous to lottery. When a hashing the content with a nonce value produces a smaller number than the target, solution is found, the new block is sent out to the network for other to validate. A block is mined every 10 minutes or so and adjusted for CPU improvement In Bitcoin difficulty is adjusted every 2016 blocks Valid data includes: Block header hash is less than the target Block size is within acceptable limits Block timestamp is less than two hours in the future. The first transaction is a coinbase transaction ( and only the first ) The coinbase transaction has a valid reward. All transactions within the blocks are valid ( also have a checklist on their own ) https://dev.to/damcosset/blockchain-what-is-mining-2eod
- Blockchain addresses the double-spend problem by making difficult to modify the data. It is still possible to perform 51% attack. When the network is large and there are a lot of miner, it is difficult to achieve 51%, but when the network is relatively small, it is possible to rent CPU and increase the hashrate. So far, there have been no successful 51% attacks on Bitcoin in its history, but we have seen successful attacks on other coins like Ethereum Classic. https://www.crypto51.app/ https://dci.mit.edu/51-attacks https://braiins.com/blog/how-much-would-it-cost-to-51-attack-bitcoin
- We can derive these blockchain properties from those key elements. https://www.youtube.com/watch?v=SSo_EIwHSd4 http://blockchain.mit.edu/how-blockchain-works
- Like internet, blockchain is a technology conceptually simple to understand, with the potential to bring significant changes.
- https://www.nytimes.com/2021/03/12/arts/beeple-nft-buyer-ether.html
- Blockchain can optimize many processes that happens on daily basis by providing trust and allowing peer contribution from the participants. Protecting rights (land titles) through immutable records Creating a true sharing economy Ending the remittance ripoff Recapturing our identity Ensuring compensation for the creator of value Medical records Resource sharing (disk space) (filecoin) Sensor & IoT https://www.youtube.com/watch?v=WdXQ0uWjnAg https://www.gartner.com/en/documents/3987450/hype-cycle-for-blockchain-technologies-2020
- The next Web evolution, the Web 3.0 is about semantic, execution and trust. Blockchain is the enabler of trust. https://www.gartner.com/smarterwithgartner/the-cios-guide-to-blockchain/ https://blockchainhub.net/web3-decentralized-web/ https://medium.com/@essentia1/why-the-web-3-0-matters-and-you-should-know-about-it-a5851d63c949
- So how would our early example of John and Lisa could be? Using blockchain-based smart contract, it would be just matter of agreeing on the conditions and the contract will execute. Simple, fast and affordable.
- Blockchain is not a panacea, it has challenges.
- Trust is powerful, it can create new relation, new economies. A network based on transparency and trust will not only make processes more efficient, but also encourage more ethical practices.