Blockchain: the technologies behind Bitcoin, Ethereum, ICO, and more

Copyright 2017 Aaron Li ([email protected])


BlockchainThe technologies behind Bitcoin, Ethereum, ICOs…

Aaron [email protected]

Oct 28, 2017

mailto:[email protected]





Me & Blockchain

• Miner 2011-2012• Built several mining clusters and tools

• Evangelist / supporter 2011 -

• Investing / trading occasionally

• Interested in core tech / products / apps

https://www.linkedin.com/in/aaronqli/



https://www.linkedin.com/in/aaronqli/



What is

Bitcoin?

Ethereum?

ICO?

Blockchain?





History: 2008 - Present

Tech: P2P Distributed Cryptographic Ledger

Coins: Bitcoin, Ethereum, Litecoin, …

Applications: Finance, Law, Businesses, Computing, …

Jobs: Security, Infrastructure, Trading, Applications, …





Basic Technical Topics

• Blockchain Overview• Proof of Work, Transactions, Consensus

• Bitcoin• Mining: Hardware, Pools, Mechanism…

• Ethereum• Ether, Smart Contract, Applications

• Others: Litecoin, ICO, …





History





2008 - Bitcoin Paper

Satoshi Nakamoto

image from: Google Image





https://bitcoin.org/bitcoin.pdf



https://bitcoin.org/bitcoin.pdf



• Decentralised digital currency• Backed by math & algorithms• No government / company control

• Low fee P2P international transfer

• “Anonymous” & verifiable transactions

What is Bitcoin?https://youtu.be/Gc2en3nHxA4https://www.weusecoins.com/



https://youtu.be/Gc2en3nHxA4

https://www.weusecoins.com/



What is Bitcoin?

• 1 Bitcoin = 1 BTC = 1 (Ƀ, ฿, …)

• BTCs are stored in an address• e.g. 3J98t1WpEZ73CNmQviecrnyiWrnqRhWNLy

• Max circulation: 21 millions (by ~2033)

• Minimum unit: 0.00000001 (1e-8) = 1 satoshi

• Transaction = one address send BTC to another




Copyright 2017 Aaron Li ([email protected])image from: weusecoins.com



http://weusecoins.com


Copyright 2017 Aaron Li ([email protected])image from: weusecoins.com



http://weusecoins.com



2009 - Early days

Open Source Software & early supporters




Copyright 2017 Aaron Li ([email protected])bitcoin.org July, 2009

image from: archive.org



http://bitcoin.org


Copyright 2017 Aaron Li ([email protected])image from: archive.org





Bitcoin in 2009 - 2011• No applications

• People just doing it for fun

• Almost no one accepts Bitcoin

• First community: bitcointalk.org



http://bitcointalk.org



Bitcoin in 2009 - 2011

• 10,000 Bitcoins = 2 pizzas

• Alpaca Socks • First vendor accepting Bitcoin

image from: Google Image search





2011: Tipping Point

https://bitcoincharts.com/charts/mtgoxUSD#czsg2010-10-29zeg2012-10-30ztgSzm1g10zm2g25zvzcv







What happened in 2011?

GPU Mining

Mass Media Reports

Alternatives & Forks (Litecoin, etc.)





2011: My first miner

15 GPUs (HD5850)

Power: 4kWh

Cooling: Water / Fan

@ Balcony & Tent





2012 - 2015+ Speculators (non-tech people)

+ Exchanges (- MtGox)

+ Merchants (Shipito, Overstock, …)

+ Services (POS, Wallets, …)





2012 - 2015

https://bitcoincharts.com/charts/bitstampUSD#czsg2012-10-29zeg2015-10-30ztgSzm1g10zm2g25zvzcv







2015 - NowThe Biggest Thing

“Decentralised Turning Complete Virtual Machine”

image from: ethereum.org



http://ethereum.org



What is Ethereum?

• Decentralised Computer• Run “Smart Contracts” (programs)• Turing-complete machine

• Use Ether (ETH) to operate

• Not a currency, but is treated as one

https://ethereum.org/



https://ethereum.org/



2015 - Now: Other Big Things

ICOs

Ripple, Tether, BitGo, Qtum, …

Coinbase & GDAX

Regulations: SEC, China, US Laws …



https://www.icoalert.com/

https://ripple.com/

https://tether.to/

https://www.bitgo.com/

https://qtum.org

https://www.coinbase.com/

https://www.gdax.com/



Nowhttps://coinmarketcap.com/



https://coinmarketcap.com/



TradingCoinbase: Good for starters. Easiest to setup. High fees (1-5%)

Use credit card / banks. Need ID verification.

Support BTC, ETH, LTC

in USA, Canada, Australia, Singapore, most Europe

USA based (reports earning to IRS!)



https://www.coinbase.com/



GDAX: Professional version of Coinbase; Low fees (0% - 0.3%)

limit/stop orders, depth graph, order book, history, …

margin trading (temporarily unavailable)

USA based (reports earning to IRS!)

Trading



https://www.gdax.com



TradingBitstamp: Professional exchange, low fees (0% - 0.3%)

Supports BTC, XRP, LTC, ETH and many fiat currencies



https://www.bitstamp.net



Others

See bitcoincharts.com



http://bitcoincharts.com



Initial Coin Offering (ICO)

• Similar benefits compared to IPO:

• Allow general public to participate

• Raise large sum of money ($1M’s - $100M’s)

• Public trust, public audit & examination

New way to raise money for a project / company





• Better than IPO in some areas:

• Much less complicated legal paperwork

• Can be started by any person / team

• Much easier for the public participate & trade


Successes: Ethereum, Filecoin, Bancor, Tezos, BAT



https://www.ethereum.org/

https://filecoin.io/

https://www.bancor.network/#/

https://www.tezos.com/

https://basicattentiontoken.org/




• Issues, compared to IPO:

• Many projects are scams / impossible to deliver

• No regulations exist to sue / recoup damages

• No supervision to project owners

Failures: DAO, and many others



https://www.wikiwand.com/en/The_DAO_(organization)




• Usual Process:

• Get a team

• Write a white paper

• Get people to talk about it

• Set up a beautiful website

• ICO!






• Future talks:

• What is expected in whitepapers?

• Open source tools for designing / launching ICO

• Case studies

• For startups: Future of ICOs v.s. VC?





Career OpportunitiesFriends’ companies with successful ICOhiring engineers, etc.

• Orchid ($4.7M, a16z, etc.)

• WeTrust ($>10M)

• doc.ai

• many more…



https://www.coindesk.com/tokenized-tor-orchid-blockchain-decentralized-internet/

https://www.wetrust.io/

http://doc.ai



Tech





BlockchainGoal: Design a distributed ledger such that

• All transactions are recorded and verifiable

• Owners can remain anonymous

• No central authority required (“trustless”)

• Resistant to malicious attacker

• Participants are incentivised and rewarded





BlockchainSolution: Store transactions distributively as

a chain of blocks (“blockchain”)

Issues: How to (efficiently)

definecreateverifystore

transactions?

track





Blockchain

Issues: How do we make sure the transactions are

respecting every participant’s privacy?

resilient to attackers?robust against malicious users?





Bitcoin Blockchain• Fully decentralised network

• Each node is a user

• Some nodes are miners

• Miners: nodes that verify transactions between users

• Miners are incentivised by two types of rewards• Transaction fees• Validating a new block (hard)

image from: Google Image Search





Bitcoin BlockchainAddress: an object for receiving Bitcoins

Address = Hashes of public keySee this article of details

• Controlled by corresponding private key

• Key pairs can be arbitrarily generated (address too)

• Intended to be used only once

define and create transactions



https://en.bitcoin.it/wiki/Technical_background_of_version_1_Bitcoin_addresses



Bitcoin BlockchainTransaction: A sends some X coins to B

Process: 1. A controls an address P with X coins

2. A obtain an address Q controlled by B (B could generate Q with a new private key)

3. A creates a transaction T transfer X Bitcoins from P to Q

4. A signs T using private key of P

Define and create transactions





Bitcoin Blockchainverify transactions

• What about all transactions before that?

• How do we know A did not spend his Bitcoin twice?

• How do we know A has X Bitcoins before sending them to B?

Single transaction: verifiable using hashes / public key

(To be discussed later in “blocks”)





Bitcoin TransactionsExample: 1 Bitcoin transferred through owner 0, 1, 2, 3, …

1 Bitcoin ….

track transactions

image from: [Nakamoto, 2008] (Bitcoin paper)





Bitcoin Transactions• Can have multiple in/out

• Combine fractions / divide coins

• Unspent coins are stored in new address

0.1 BTC

1.3 BTC

….

0.5 BTC

…

track transactions






Bitcoin Blockchain

1. Store transactions in blocks

2. Simplify the blocks (just enough to verify things)

3. Store blocks to all nodes in network

How to efficiently store and verify transactions?





Bitcoin Blockchainblockchain = A chain of blocks

Bitcoin Block = Block Header + (Hashes of) Transactions

Header = Last Block’s Hash + Nounce + (Root Hash of Transactions)

Nounce = a sequence of bytes to show proof-of-work

track transactions






Bitcoin Blockchain

Issue: Most nodes don’t want to store all transactions

They only want to verify a transaction is in the blockchain





Bitcoin BlockchainGoal: minimise information needed to verify a transaction

Solution: Merkle tree






Bitcoin BlockchainBitcoin Merkle tree construction:

1. Compute hashes of transactions in a block2. Compute hashes of each pair of hashes recursively

1. Load / verify root hash R

2. Load H, the hash of TP(H), the ancestors of HS(P(H)), the siblings of P(H)

3. Reproduce and verify R and P(H) using these

To verify a transaction T is in the blockchain:






Bitcoin BlockchainMore on Merkle tree

A Certified Digital Signature, R. Merkle (written in 1979) Proceeding CRYPTO '89 Proceedings on Advances in cryptology

Protocols for public key cryptosystems, R. Merkle, 1980 IEEE Symposium on Security and Privacy

Used in a wide range of applications• version controls (Git, …)• file systems (IPFS, ZFS, …)• databases (Cassandra, Dynamo, …)• P2P systems (BitTorrent, …)• and many more

image from: Google Search



http://www.merkle.com/papers/Certified1979.pdf



http://www.merkle.com/papers/Protocols.pdf





Bitcoin BlockchainBitcoin block chain, with Merkle Tree

Miners generate blocks, and validate transactions






Bitcoin BlockchainProof-of-work:

1. a block is valid iff hash (SHA2) of block header has N leading zero bits(miners must find it by solving the value of nounce by brute-force)

2. longest block chain is the only valid block chain3. once a valid block is found, it is propagated to all nodes

controls generation speed of new blocks (~1 block / 10 minutes)

A valid nounce is (artificially made) hard to compute






Bitcoin Blockchain

Blocks and transactions are immutable

Transactions are secured by private/public keys

resilient to attackers?

resilient to forgery:

resilient to DDOS: Miners can charge transaction fees





Bitcoin BlockchainIf someone wants to alter their own past transactions (using private keys), and create fake history, he must….

1. Find the blocks which contain those transactions

2. Change the transactions and recompute Merkle trees

3. Re-compute all blocks on his own until his chain is longest

In the meantime, other nodes continue to produce new blocks…

Impossible to catch up unless he has >50% CPU of whole network!

robust against malicious users?





respecting every participant’s privacy?

Bitcoin Blockchain






Bitcoin Blockchainincentives?

Miners are rewarded with…

1. X Bitcoins, for each valid new block found (manifested by attaching a reward transaction in new block)

2. Transaction fees, for all transactions in the new block

Bitcoin has controlled supply, so X is halved every 210000 blocks

Year 2008: X = 50

210000 blocks ~= 4 years



https://en.bitcoin.it/wiki/Transaction_fees

https://en.bitcoin.it/wiki/Controlled_supply



General Blockchain

: State of blockchain at timestamp t

: The block, containing all (general) transactions: State transition function: Block finalisation function

See details in Ethereum yellow paper

image from: [Wood, EIP-150 2017] (Ethereum Yellowpaper)



https://ethereum.github.io/yellowpaper/paper.pdf



EthereumInstead of wasting CPUs for computing hashes of proof-of-work, let nodes do some useful work!

• Introduced new concepts: accounts, contracts, messages, …

• Transactions: define function calls, execution model, data, …

• Proof-of-work: still rely on nounce, but deprecating soon

• (Theoretically) much broader applications

• Not meant to be a currency, but people got crazy





EthereumResources:

Ethereum Wallet + Mist Browser & Serverless app tutorial

White paper: https://github.com/ethereum/wiki/wiki/White-Paper

Yellow paper: https://ethereum.github.io/yellowpaper/paper.pdf

Programming: Build Helloworld DApp (decentralised app)

DApps for Beginners: https://dappsforbeginners.wordpress.com/



https://github.com/ethereum/mist/releases

https://blog.ethereum.org/2016/07/12/build-server-less-applications-mist/

https://github.com/ethereum/wiki/wiki/White-Paper

https://ethereum.github.io/yellowpaper/paper.pdf

https://medium.com/@mvmurthy/full-stack-hello-world-voting-ethereum-dapp-tutorial-part-1-40d2d0d807c2

https://dappsforbeginners.wordpress.com/



LitecoinBased on Bitcoin. Designed to make GPU/FPGA/ASIC ineffective

• 2.5 minutes per new block, instead of 10 minutes

• Proof-of-work: use scrypt hashing algorithm, instead of SHA256

scrypt:

• time-memory tradeoff: parallelisation becomes ineffective

• fast with large memory, and slow with little memory

• See paper for details



https://www.wikiwand.com/en/Scrypt

http://www.tarsnap.com/scrypt/scrypt.pdf



More

• Mining: history, hardware, future alternatives

• Ethereum: technical design, programming, applications

• ICOs: applications and technical advancements

• Blockchain: enterprise applications

• and more…

Topics for future talks



Blockchain: the technologies behind Bitcoin, Ethereum, ICO, and more

Technology