Bitcoin & Blockchain Bina Ramamurthy 2/22/2019

References https://bitcoin.org https://marmelab.com/blog/2016/04/28/blockchain-for-web-developers-the-theory.html https://en.bitcoin.it/wiki/Block_hashing_algorithm https://blockexplorer.com/ https://www.ibm.com/blockchain/hyperledger.html 2/22/2019

Overview What is bitcoin? What is its main contribution? What is Blockchain? Why is there so much excitement about this technology? Which are the main businesses involved in Blockchain as a provider? How can you get involved? Where can you learn more? 2/22/2019

Bitcoin Bitcoin : peer-peer cryptocurrency that does not require a middle entity such as a bank to complete a transaction between the sender and receiver. Created by a secretive person known as Satoshi Nakamoto. Runs on the Internet so all transactions are “virtual” To keep track of the transactions, an ingenious ledger technology has been devised. This ledger is distributed and is a collection of blocks of transactions. How do you trust the ledger? The trust model out of this distributed ledger is an important contribution of Bitcoin. The distributed ledger is called the “Blockchain” Bitcoin “technology” is the genesis for this Blockchain revolution. 2/22/2019

Core Idea Reference: THE BLOCKCHAIN: A GENTLE FOUR PAGE INTRODUCTION, J.H. White, Record and Currency Management, Dec, 2016. “Blockchain is a distributed database that keeps a chronologically-growing list (chain) of records (blocks) secure from tampering and revision. While computerisation has changed the nature of a ledger from clay tables in the old days to digital records in modern days, blockchain technology is the first true innovation in record keeping that could potentially revolutionise the basic principles of information keeping.” 2/22/2019

Why Blockchain? Almost every field that has multiple parties interacting a “trust model” and some of trusted record keeping (ledger) either by a centralized authority or by a trusted third party. Of course, these approaches have potential issues such a single point failure, tampering and hacking the single ledger, deliberate manipulation by the central authority and the trusted third party. Blockchain can address these issues using a distributed ledger, a trust model based on consensus and immutable chains/records. 2/22/2019

What is a Blockchain? 2/22/2019

Transaction {Public-key private-key pair} plays an a critical role in sending “money” from party to another. Each transaction has one or more inputs, one or more outputs and several header information such a transaction#, timestamp etc. Lets say Alice wants to send money to Bob. Alice gets Bob’s hashed public key Encodes details of the transactions in Bob’s public key and outputs it as Unspent Tx Output (UTXO) to Bob. Only Bob can decrypt it with his private key and it displays as unspent money in Bob’s wallet. 2/22/2019

Enabling Technology1: Cryptography Transcription cryptography: only as good as the key chart Symmetric key : Same key used for encryption and decryption: efficient but insecure, only as good as long as the key is secure RSA (Rivest-Shamir-Adelman) public key – private key asymmetric encryption Elliptical curve encryption (ECC) public key-private key asymmetric encryption 2/22/2019

Block The bitcoin network involves a very important role that of “miner”. A miner collect a bunch of transactions typically about 2016+/- (the typical number of transactions in 10 minutes) and hashes them together. Merkel tree is used for this hash process. Then a “nonce” in the header is adjusted to bring this hash to a number below a certain target value. Many miners are competing to do this operation. The one who finishes first gets to create the block and gets rewarded in bitcoin. He/she will also very the transactions in the block. And include a hash form a previously completed block thus forming “immutable” (trusted) block chain. 2/22/2019

Block and Blockchain 2/22/2019

Blockchain Stack Applications Application Framework: Smart Contract Hardware & Operating Systems Blockchain Platform on a Network (Intranet/Internet) Blockchain Application Framework: Smart Contract Applications

Blockchain Revolution Instead of money, a transaction could embed an important document, a testimony, a congressional bill, a old textbook, contracts. It provides a “trust model” It is open and at the same time secure Internet of assets (instead of Bitcoins) Tracking provenance of precious gems, collectables 2/22/2019

Main Players Bitcoin is the main thrust and innovation behind “Blockchain” Ethereum is another major player IBM and Linux open source are collaborating on another distributed ledger called “hyperledger” There are several others start-ups: Root Stock Kit (RSK), ..zcash 2/22/2019

IBM’s Comparison of three Blockchain Products Bitcoin Ethereum Hyperledger Cryptocurrency required bitcoin ether, user-created cryptocurrencies none Network public public or permissioned permissioned Transactions anonymous anonymous or private public or confidential Consensus proof of work PBFT Smart contracts (business logic) yes (Solidity, Serpent, LLL) yes (chaincode) Language C++ Golang, C++, Python Golang, Java 2/22/2019

Summary How can you buy bitcoin? Bitcoin can be bought like a stick on exchanges. Today 1 bitcoin = 1,000,000,000 satoshi 1 bitcoin’s market value today is: $2500 (highly volatile) Bitcoin has more clout for its technology than as a currency. Many prominent players are taking the innovation of bitcoin and morphing it into platforms with better governance and application. IBM’s direction seems to be best one in the market now, I plan to explore it for hands on experience. Other blockchains: Monax, Ethereum have developer APIs. 2/22/2019