Blockchain and bitcoin fundamentals (usages and applications)
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The document provides a comprehensive overview of blockchain technology and Bitcoin, explaining their fundamental concepts, functionalities, and the role of miners in transaction verification and record-keeping. It discusses the benefits of blockchain, such as decentralization, security, and the permanence of records, while addressing common misconceptions and the future of Bitcoin mining. Additionally, it highlights the applications of blockchain in cryptocurrencies and smart contracts, as well as the challenges and limitations faced by the technology.
Blockchain and bitcoin fundamentals (usages and applications)
- 2. Blockchain and Bitcoin Fundamentals • What is Block chain • What is Bitcoin • Key Concepts in Bitcoin • The Value of Blockchain • Common Misconceptions • Getting Started with Bitcoin
- 3. What is Block chain • How to Guaranteed The Real things • How you trust the quality of data that you received • Blockchain can Provide single source of truth that’s: • Verifiable • Tamper proof • Unchangeable
- 4. What is Block chain • A Blockchain is constantly growing ledger (Like a file of financial accounts) that keeps a permanent record of all the transactions that have taken place, in a secure (uses very advanced cryptography) , chronological (following the order in which they occurred) and immutable (unchanging over time) way.
- 5. What is Bitcoin • Payments & exchanges without any secured third party • So no use of: • Banks • Credit cards • Not a physical coin • It communication type is peer to peer • Why we can not do transactions via email like a photo? • Double spend Problem: Be cause we can have copy of that like its original one
- 6. What is Bitcoin • Why we can not do transactions via email like a photo? • Double spend Problem: Be cause we can have copy of that like its original one and they can copy and paste it as much as they can • Banks Verified that as a third party
- 7. What is Bitcoin • Solve: the global networks with thousands of computers that is called Bitcoin Network with its Decentralized ledger technology called blocked blockchain • Block chain is the key technology that is underlined bitcoin • All the data is stored securely verify, confirm and record each transactions via using math and cryptography that is stored inside entire computes of network so there is no single point of failure
- 8. The Role of Bitcoin Miners • The role of Miners is Processing and confirming Transactions • Any body can be a miner • Need a very powerful Bitcoin mining Computers • Solving Cryptography math Problems to secure transactions that ensures nobody can tampering with that data • For this task miners Rewarded in Bitcoin • Money does not create in bitcoin like conventional ones like us dollar • Bitcoin is created by Rewarding that to miners
- 9. How the bitcoin blockchain is built • The role of miner is to build the blockchain of records that form the bitcoin ledger. • Each block contains all different transactions that have taken place • A new block is added every ten minutes as new bitcoin transactions take place (in real some thing near that happens) • Miner builds a block and when it is confirmed the block well be added to the blockchain • The bitcoin blockchain provides a permanent record of all bitcoin transactions to the beginning
- 10. Demo Hash Functions • SHA256 (Secure Hash Algorithm) Hash • SHA256 is created by NSA (United States National Security Agency) • Is used in bitcoin network • Is unique for each data inputs • is one way directional function and there is no way to give data from hash
- 11. Block hashing • https://anders.com/blockchain/block.html • Block # = 1 Nonce (Number Used Once) = 72608 Data = “” • Hash = 0000f727854b50bb95c054b39c1fe5c92e5ebcfa4bcb5dc279f56aa96a365e5a
- 12. How Block Hashes Work in a Blockchain • https://anders.com/blockchain/blockchain.html • Hashes shall start with zeros (here is four zeros) that calls difficulty level. • If every one tries to tampers any block, the whole blocks after that must be recalculated and mined again with above 50% of calculation power of network less than ten minutes before new block is created. • Difficulty level adjusted every two weeks to solve cryptographic problems every ten minutes to mine new blocks • Difficulty levels increases as the computers power in networks increase
- 13. How Block Hashes Work in a Blockchain Block #1 Block #2 Block #3 Block #4 Block #5 Nonce: 11316 Nonce: 35230 Nonce: 12937 Nonce: 35990 Nonce: 56265 Data:”” Data:”” Data:”” Data:”” Data:”” Previous: 0000000000000000000000 0000000000000000000000 00000000000000000000 Previous: 000015783b764259d38201 7d91a36d206d0600e2cbb3 567748f46a33fe9297cf Previous: 000012fa9b916eb9078f8d9 8a7864e697ae83ed54f5146 bd84452cdafd043c19 Previous: 0000b9015ce2a08b61216ba 5a0778545bf4ddd7ceb7bbd 85dd8062b29a9140bf Previous: 0000ae8bbc96cf89c68be6e 10a865cc47c6c48a9ebec3c6 cad729646cefaef83 Hash: 000015783b764259d38201 7d91a36d206d0600e2cbb3 567748f46a33fe9297cf Hash: 000012fa9b916eb9078f8d9 8a7864e697ae83ed54f5146 bd84452cdafd043c19 Hash: 0000b9015ce2a08b61216ba 5a0778545bf4ddd7ceb7bbd 85dd8062b29a9140bf Hash: 0000ae8bbc96cf89c68be6e 10a865cc47c6c48a9ebec3c6 cad729646cefaef83 Hash: 0000e4b9052fd8aae92a8af da42e2ea0f17972ea67cead 67352e74dd6f7d217c
- 14. How Block Hashes Work in a Blockchain (after change in Data of Block #3) Block #1 Block #2 Nonce: 11316 Nonce: 35230 Data:”” Data:”” Previous: 0000000000000000000000 0000000000000000000000 00000000000000000000 Previous: 000015783b764259d38201 7d91a36d206d0600e2cbb3 567748f46a33fe9297cf Previous: 000012fa9b916eb9078f8d9 8a7864e697ae83ed54f5146 bd84452cdafd043c19 Hash: 000015783b764259d38201 7d91a36d206d0600e2cbb3 567748f46a33fe9297cf Hash: 000012fa9b916eb9078f8d9 8a7864e697ae83ed54f5146 bd84452cdafd043c19
- 15. How Block Hashes Work in a Blockchain (after Mining block #3) Block #1 Block #2 Block #3 Nonce: 11316 Nonce: 35230 Nonce: Data:”” Data:”” Data:”salam” Previous: 0000000000000000000000 0000000000000000000000 00000000000000000000 Previous: 000015783b764259d38201 7d91a36d206d0600e2cbb3 567748f46a33fe9297cf Previous: 000012fa9b916eb9078f8d9 8a7864e697ae83ed54f5146 bd84452cdafd043c19 Previous: 0000a0dde691875c51c805 d4d4db47431b9d176456a3 7bbe9f504a185af8330c Hash: 000015783b764259d38201 7d91a36d206d0600e2cbb3 567748f46a33fe9297cf Hash: 000012fa9b916eb9078f8d9 8a7864e697ae83ed54f5146 bd84452cdafd043c19 Hash: 0000a0dde691875c51c805d 4d4db47431b9d176456a37 bbe9f504a185af8330c
- 16. How Block Hashes Work in a Blockchain (after Mining block #3 #4 #5) Block #1 Block #2 Block #3 Block #4 Block #5 Nonce: 11316 Nonce: 35230 Nonce: 12536 Nonce: 34587 Nonce: 9663 Data:”” Data:”” Data:”salam” Data:”” Data:”” Previous: 0000000000000000000000 0000000000000000000000 00000000000000000000 Previous: 000015783b764259d38201 7d91a36d206d0600e2cbb3 567748f46a33fe9297cf Previous: 000012fa9b916eb9078f8d9 8a7864e697ae83ed54f5146 bd84452cdafd043c19 Previous: 0000a0dde691875c51c805d 4d4db47431b9d176456a37 bbe9f504a185af8330c Previous: 000096c38bf97bc51de5169 c56fbdf13ba3d5844a582e6c 405c1c8a3ab900cfc Hash: 000015783b764259d38201 7d91a36d206d0600e2cbb3 567748f46a33fe9297cf Hash: 000012fa9b916eb9078f8d9 8a7864e697ae83ed54f5146 bd84452cdafd043c19 Hash: 0000a0dde691875c51c805d 4d4db47431b9d176456a37 bbe9f504a185af8330c Hash: 000096c38bf97bc51de5169 c56fbdf13ba3d5844a582e6c 405c1c8a3ab900cfc Hash: 0000527893a9e1bf88144c5 b61c90b4a894da022544885 31111e4890adb326b3
- 17. Virtual Field Trip The Bitcoin Blockchain at Work • https://coinmarketcap.com/ • https://blockchain.info/ • https://live.blockcypher.com/btc/ Block Height Age Transactions Total Sent Total Fees Block Size (in bytes) Transaction for each Block Transaction Hash BTC amount Time Miner Preference
- 18. Virtual Field Trip The Bitcoin Blockchain at Work
- 19. Virtual Field Trip The Bitcoin Blockchain at Work
- 20. Virtual Field Trip The Bitcoin Blockchain at Work
- 21. Virtual Field Trip The Bitcoin Blockchain at Work
- 22. Virtual Field Trip The Bitcoin Blockchain at Work
- 23. Important Key Concepts in Bitcoin • Sending Money Over the Internet • Problems: • Double Spending • First Solution: • 3rd Party Can Control Transactions • Keep Records of transaction • Centralized • Second Solution: • Disintermediated (No 3rd Party) • Distributed (No Central Failure Point) • Decentralized(No Central Control) • Trustless (No Need to Be Centralized Certified) • Distributed Trustless Consensus (general agreement.)
- 24. The Birth of Bitcoin • Genesis Block (Block #0) • Satoshi Nakamoto • Bitcoin: A Peer-to-Peer Electronic Cash System • A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.
- 25. The Birth of Bitcoin
- 26. Earlier Attempts at Electronic cash • 1976 Mutual Distributed Ledgers (MDL) • New Directions in Cryptography • Two kinds of contemporary developments in cryptography are examined. Widening applications of teleprocessing have given rise to a need for new types of cryptographic systems, which minimize the need for secure key distribution channels and supply the equivalent of a written signature. • Ecash – 1983 • Hashcash Proof-of-Work-1997 • b-money-1997 • Bitgold-1998
- 27. The Value of Blockchain • Bitcoin is one application of Blockchain • Internet is Designed to share of data • Blockchain Supports 3 Key Areas • Value: • Enable a unique asset to be Transferred over the internet without middle centralized agent (No Copy) • Trust: • Creates a permanent, secure and unalterable record of who owns that. Using advanced Hash Cryptography, “Information integrity” is preserved. • Reliability: • Decentralized network structure ensures that there is no single point of failure which could bring the entire system down.
- 28. The Value of Blockchain: Cryptocurrency • Cryptocurrency is a type of digital asset which can be used to exchange value between parties. • It uses encryption to secure: • How it’s transferred and • To control the creation of new units of that currency like Bitcoin. Cryptocurrency Examples: • Litecoin • Bitcoin Cash • Z-Cash (Anonymous transactions) • Monero (Anonymous transactions) • Dash (Digital Cash)
- 29. The Value of Blockchain: Digital Tokens • Blockchain Tokens: are a representation of a particular asset or utility, that usually resides on top of another blockchain. Tokens can represent basically any assets that are fungible and tradeable. • difference between coin and token: • Coins are currencies that can be used for buying and selling things. You can buy a token with a coin, but not vice versa. • Coin operates independently, while token has a specific use in the project's ecosystem. • For example if the token is being created on Ethereum, the creator will need to spend some Ether to get the network’s miners to validate the token transaction (creation).
- 30. The Value of Blockchain: Digital Tokens • WePower (WPR) is a good example of a token that represents a physical thing — it represents electricity. The WePower project is a dApp that allows users to buy and sell electricity on the blockchain using smart contracts. Its token (WPR) represents a certain amount of energy.
- 31. The Value of Blockchain: Digital Tokens • Musicoin is a token that allows users to access different features of the Musicoin platform. This could be watching a music video or streaming a song.
- 32. The Value of Blockchain Smart Contracts
- 33. The Value of Blockchain: The Birth of Smart Contracts • Nick Szabo is father of smart contract 1994: • A smart contract is a computerized transaction protocol that executes the terms of a contract. • The general objectives are to satisfy common contractual conditions. (such as payment Terms, liens, confidentiality, enforcement) • Minimize exceptions both malicious and accidental • Minimize the need for trusted intermediaries. • Related economic goals include lowering: • fraud loss • arbitration and enforcement costs • Transaction costs • A smart contract is a computer protocol • intended to digitally facilitate, verify, or enforce the negotiation or performance of a contract. • Smart contracts allow the performance of credible transactions without third parties. • These transactions are trackable and irreversible.
- 34. The Value of Blockchain Smart Contracts • Disintermediated (No 3rd Party) • Automation ( All Conditions are written in Programming Language) • Self Executing and Immutable (Based on set time in the past) • Cost Reduction (No 3rd Party fees) • Distributed (No Central Failure Point) • Decentralized(No Central Control) • Trustless (No Need to Be Centralized Certified) • Distributed Trustless Consensus (general agreement)
- 35. The Value of Blockchain DAOs and DACs • Decentralized autonomous Organization (DAO) • Decentralized autonomous Corporation (DAC) • Collection of Agreements • Collection of smart contracts • Distributed networks on a blockchain • Internet of Things (IoT) • Peer to Peer Connection Between: • Human to Human • Human to Things • Things to Things
- 36. The Value of Blockchain: DAOs and DACs Example • Iranian Online Taxi Driver ORG is an organization that allows you to call a car for yourself using a mobile app while you receive it and reaching to your destination app will calculate the cost of that. If you have a artificial intelligence and driving with no driver in a blockchain all things will be done automated self executing and immutable. This cause you connect to AI directly without any Third party. • It means that self driving car can go to gas station and fill the car with gasoline and all payments will be done automatically via smart contract with self gas station based on AI.
- 37. Limitations of Blockchain Technology • Blockchain in a Early stage • Lack of Awareness of Blockchain Value • Limited Available Technical Talent (Technical Developers) • It is Immutable • No Reversals or Modifications • Key Management (Private key and Public key) • Scalability (Can be done in future) • Time to Process (Ten minutes for verification)
- 38. Common Misconceptions (Top Ten) # Misconceptions Reality 1 Blockchain is Bitcoin Bitcoin is an app of Blockchain Network 2 Blockchain is a Better Database Because of Limitations Like No Reversals, Key Management ,Time to Process is not 3 All Blockchain are Distributed Some Private Blockchains are not 4 Bitcoin Has Been Hacked Exchangers or wallets may be, personal wallet robbery doesn’t mean bank robbery 5 Bitcoin is Anonymous Bitcoin is Pseudo-Anonymous, All Transactions and Addresses are kept in Networks 6 Bitcoin is used to launder Money Bitcoin is Pseudo-Anonymous, All Transactions and Addresses are kept in Networks 7 Bitcoin is a Pyramid Scheme Bitcoin Network is Decentralized and it is Network is Distributed 8 Bitcoin Can Be Turned Off Bitcoin Network is Decentralized and it is Network is Distributed 9 Number of Nodes Keeps Integrity Hashing Power (computational power) Keeps Integrity 10 You Have to Buy a Full Bitcoin 1 (BTC) is 100,000,000 satoshi so it can bought via satoshi unit
- 39. On the future of Bitcoin mining • What happens when there are no more bitcoins left to mine? • there are 21000000 bitcoin can be mined every ten minutes about 12.5 bitcoin and will be halved every 4 years till 2140 and after that there is no bitcoin to mine and after that only transaction fees will be rewarded to miners. • The price of bitcoin is increasing due to its applicability so with a constant fees its USD price is also increasing. So its fee will be profitable. • Because of its block size and transaction data increasing ,rate of fee will be increased due to fee calculation base(BTC/KB)
- 40. What determines Bitcoin price? • The Price of a Bitcoin is Determined by the Free Market • A clear example of how this works... using pizza. • At the time, Laszlo paid 10,000 bitcoin for 2 pizzas. The price of those 2 pizzas in 2010 was an approximate total value of $25.00 USD • With that purchase, Laszlo effectively set the real price of 1 bitcoin, in other words - what you could get in exchange for it, at 1/4 of a cent (ie. 4 bitcoin = $0.01 USD) • Nowadays 10,000 bitcoin which were worth $25 USD on May 2010, are currently worth over $35 Million USD
- 41. Important Dates in Bitcoin History • October 31st, 2008: Bitcoin Whitepaper by Satoshi Nakamoto • January 3rd, 2009: Genesis Block • May 22nd, 2010: First Retail Purchase(2 pizzas for 10000 BTC 25 USD) • November 28th, 2013: 1 BTC > $1000 • March 2nd, 2017: 1 BTC > 1 Oz of Gold
- 42. bitcoin • Choose a wallet • Get and Address (can have multiple addresses) • Public and Private Key • Get Bitcoins • Mining • Buying • Gift Bitcoin • Spend bitcoins • Dell • Microsoft • …
- 43. Choose your Bitcoin wallet • Receive Bitcoin • Send Bitcoin • Store Bitcoin • https://bitcoin.org/en/choose-your-wallet • First test your ability with little values of bitcoin to be professional • You can create 2 different wallets and send your bitcoin from first to second wallet. • Hot wallet refers to any cryptocurrency wallet that is connected to the internet. ... But, hot wallets are also more susceptible to hackers, possible regulation, and other technical vulnerabilities. Cold storage refers to any cryptocurrency wallet that IS NOT connected to the internet.
- 44. Choose your Bitcoin wallet • A hardware wallet is a special type of bitcoin wallet which stores the user's private keys in a secure hardware device. • They have major advantages over standard software wallets: • private keys are often stored in a protected area of a microcontroller, and cannot be transferred out of the device in plaintext • immune to computer viruses that steal from software wallets • can be used securely and interactively, private keys never need to touch potentially-vulnerable software • much of the time, the software is open source, allowing a user to validate the entire operation of the device
- 45. Types of wallets: Cold Wallets: • Hardware wallets • Paper wallets Hot Wallets: • Cloud wallets • Multi-signature wallets
- 46. Hot Wallet and Cold Storage: Pros & Cons Hot Wallet: Pros & Cons • Pros: • Efficient access to your digital currencies. • User-friendly applications streamline the payment interface. • Cons: • Digital currencies are prone to cybercrime and fraud. • Your funds may be permanently lost. Cold Storage: Pros & Cons • Pros: • A robust method for storing large amounts of cryptocurrencies for a long period of time. • Greater security as the funds are stored offline. • Cons: • Vulnerable to external damage, human error and theft. • Not efficient for micropayments and daily transactions.
- 47. Sending and Receiving bitcoins 1 2 3 4