Bitcoin and the Blockchain: Hype springs eternal Stefano Grazioli

Nov.08 Satoshi Nakamoto paper Mt. Gox bankrupt Nov.08 Satoshi Nakamoto paper IRS recognizes BTC as property German finance ministry recognizes BTC as a unit of account Jan.09 Bitcoin (BTC) is launched Silk Road shut down by the FBI ‘09 BTC trades at $0.14 2009 2010 2011 2012 2013 2014 http://blockchain.info/charts/market-price?timespan=all&showDataPoints=false&daysAverageString=1&show_header=true&scale=0&address= “bitcoin: A Peer-to-Peer Electronic Cash System” was released in the internet by Satoshi Nakamoto

The last five years Bitcoin close to $20k Bitfinex (HK) hacked Mt. Gox bankruptcy ($450m) Bitfinex (HK) hacked ($72m)

Quotes on Bitcoin

“Stay Away!” Warren Buffett

“Bitcoin is exciting because it shows how cheap it can be.” Bill Gates

“It is a bubble, there is no question about it.” Robert J. Shiller, Professor of Economics at Yale “The central problem with Bitcoin … is that it doesn’t really solve any sensible economic problem.” A bubble is a special kind of fad, a mania for holding an asset in expectation of its appreciation. amplified by news of price increases justified by inspiring “new-era” stories http://www.businessinsider.com/robert-shiller-bitcoin-2014-1 attends a session at the annual meeting of the World Economic Forum (WEFT) in Davos January 24, 2014. http://www.nytimes.com/2014/03/02/business/in-search-of-a-stable-electronic-currency.html?_r=0

“Based on everything I know, I’m not guessing that it will work out.” Lloyd Blankfein, Goldman CEO A bubble is a special kind of fad, a mania for holding an asset in expectation of its appreciation. amplified by news of price increases justified by inspiring “new-era” stories http://www.businessinsider.com/robert-shiller-bitcoin-2014-1 attends a session at the annual meeting of the World Economic Forum (WEFT) in Davos January 24, 2014. http://www.nytimes.com/2014/03/02/business/in-search-of-a-stable-electronic-currency.html?_r=0

“…Lots of people will build businesses on top of that.” “The ability to create something which is not duplicable in the digital world has enormous value.” Eric Schmidt “…Lots of people will build businesses on top of that.” A bubble is a special kind of fad, a mania for holding an asset in expectation of its appreciation. amplified by news of price increases justified by inspiring “new-era” stories http://www.businessinsider.com/robert-shiller-bitcoin-2014-1 attends a session at the annual meeting of the World Economic Forum (WEFT) in Davos January 24, 2014. http://www.nytimes.com/2014/03/02/business/in-search-of-a-stable-electronic-currency.html?_r=0

“It won’t end well.” Jamie Dimon, JPM CEO “It’s a fraud and honestly I’m just shocked anyone can’t see it for what it is … [it is ] worse than tulip bulbs” https://www.ft.com/content/b1ee6c14-2cd0-3ad5-a9db-c8e82d993987

Gartner’s 2017 Hype Cycle for the Blockchain

VC money is drying up

Blockchain = the technology powering Bitcoin

Blockchain is a write-only fully replicated database that tracks transactions among accounts Anybody can obtain accounts for free Anybody can see the full content Transactions are free or very cheap Transactions are irreversible No central authority to mediate disputes No Central authority to verify transfers or to mediate disputes. Anybody can obtain accounts for free Anybody can see the ledger Transfers are free/very cheap Transfers are irreversible

Use of blockchain requires a pre-existing business agreement Carlos the consumer Account ABC123 with secret key Secret1 Mara the merchant Account XYZ456 with secret key Key2 “I accept BitCoin Payment 12 roses = 0.01 BTC Account: XYZ456” “Please send 12 roses to 839 Hilton Rd., Cville, VA. I am sending a transaction from account ABC123”

Blockchain uses cryptography (PKI) to insure non-repudiation and integrity Carlos the consumer Account ABC123 with secret key Secret1 Mara the merchant Account XYZ456 with secret key Key2 Transaction Transfer of funds Sender: ABC123 Transfer to: XYZ456 Amount: 0.1 BTC Proof of BTC ownership Sender: RST234 Transfer to: ABC123 Amount: 0.2 BTC Account name is the Public key, the secret is the private key Digital Signature: 973sdskhu9dft

Transactions are propagated through a P2P network (no central authority/server) Carlos the consumer Account ABC123 with secret key Secret1 Mara the merchant Account XYZ456 with secret key Key2 Blockchain P2P network Transaction Transfer of funds Proof of ownership Digital Signature Transfer of funds Proof of ownership Digital Signature Transfer of funds Proof of ownership Digital Signature Transfer of funds Proof of ownership Digital Signature Transfer of funds Proof of ownership Digital Signature Transfer of funds Proof of ownership Digital Signature Transfer of funds Proof of ownership Digital Signature Transfer of funds Proof of ownership Digital Signature Transfer of funds Proof of ownership Digital Signature

A special type of peers verify the ownership of funds using the block chain Blockchain P2P client network Unverified transactions Verified transactions Transfer of funds Proof of ownership Digital Signature Transfer of funds Proof of ownership Digital Signature Transfer of funds Proof of ownership Digital Signature Check Transfer of funds Proof of ownership Digital Signature Transfer of funds Proof of ownership Digital Signature Transfer of funds Proof of ownership Digital Signature ‘Locked’ into the next block of the Block Chain Transfer of funds Proof of ownership Digital Signature Transfer of funds Proof of ownership Digital Signature Transfer of funds Proof of ownership Digital Signature Transfer of funds Proof of ownership Digital Signature Transfer of funds Proof of ownership Digital Signature Transfer of funds Proof of ownership Digital Signature Transfer of funds Proof of ownership Digital Signature Transfer of funds Proof of ownership Digital Signature ‘Block Chain’ of verified transactions

Blockchain mining requires solving cryptopuzzles by brute-force methods Application Specific Integrated Circuit 1 ASIC = 70,000 Intel CPUs HashFast’s Eduardo deCastro says, “It would take 70,000 of Intel’s fastest chips to match one of ours.” (cost $15k) Source: HashFast

Once in the Blockchain, the transaction is irreversible Mara the merchant Account XYZ456 with secret key Key2

Vitalik Buterin 1994

Smart Contracts A smart contract is procedural code that is automatically executed in response to certain events on the blockchain.

April 15, 2018

What is the original Blockchain? A database technology Fully replicated Write-only Clear text in transit and at rest Permissionless Consensus mechanism: proof-of-work No central authority No legal remediation Slow Open source

Database triggers “A database trigger is procedural code that is automatically executed in response to certain events on a particular table or view in a database.” Introduced commercially in 1997, available on all major DB. - wikipedia

What is the state-of-the-art Blockchain? A database technology Fully replicated Write-only Clear text in transit and at rest Permissionless Consensus mechanism: proof-of-work No central authority No legal remediation Slow Open source Partially replicated

What is the difference? Smart contracts are replicated Smart contracts are written in XML