Unchain Blockchain by Eva Rez

Prezentáció címe
Unchain BlockChain
Eva Rez
December 2015
Satoshi Nakamoto

BlockChain – What is it?
A Value Exchange Protocol (Email for Money)
 TCP/IP is a COMMUNICATIONS protocol, whilst the Block
Chain is a VALUE-EXCHANGE protocol.
– IP: the IP address still acts like a unique postal address that enables any
phone, tablet or computer to identify itself on the internet.
– TCP technology: guarantees delivery of the data packets by dividing
them into segments.
– HTTP (Hyper Text Transfer Protocol): became a way for Web browsers
to communicate with Web Servers.
– A whole suite of protocols like DNS and ARP, work together to provide
us with the network experience.
– Email, Search Engines, Web pages, APIs and other Internet Services
(SaaS, PaaS, IaaS) are all products that have evolved on this framework.
=> DIGITAL ECONOMY
Source: http://www.wired.com/insights/2015/01/block-chain-2-0/

BlockChain – What is it?
Distributed Ledger
 A ledger in accounting is a book that you cannot edit once
you have written in it.
 Instead, if you have made a mistake, the only way to fix it
is to add another transaction to the ledger that undoes the
error. -> Fraud (transact without recording; make ex post
changes)
 BLOCKCHAIN: It is the bitcoin ledger, which uses the fact
that there are many copies of it that are broadly
distributed combined with a fair bit of Math to ensure that
once a transaction has been recorded in the blockchain
that transaction can not be changed after the fact.
Source: https://www.usv.com/blog/bitcoin-as-protocol

Distributed Ledger
Source: http://santanderinnoventures.com/wp-content/uploads/2015/06/The-Fintech-2-0-Paper.pdf

BlockChain – The Technology Behind
Source: http://www.ft.com/cms/s/2/eb1f8256-7b4b-11e5-a1fe-567b37f80b64.html#axzz3tGNw2MWS
 BlockChain: is a P2P network
of computers, all of which
must approve a transaction
has taken place before it is
recorded, in a “chain” of
computer code.
 Bitcoin: the first application
of the technology, applied to
money.
 In the present system a
central ledger is likely to act
as the custodian of that
information. But on a
BlockChain the information is
transparently held in a shared
database, without a single
body acting as middleman.

Types of BlockChains
Source: https://blog.ethereum.org/2015/08/07/on-public-and-private-blockchains/
Public BlockChain: fully decentralized; anyone can read it, send transactions, participate in
the consensus process
- Advantages: users are more protected from developers; network effect (e.g. domain
name)
Consortium BlockChain (hybrid): partly decentralized; the consensus process is controlled
by a pre-selected set of nodes (e.g. financial institutions) -> e.g. 10 out of 15 institutions
have to sign the block in order the block to be valid
Private BlockChain: centralized; write permissions are kept centralized to one organization
(e.g. database management, auditing)
- Advantages: revert transactions, modify balances; validators are known – no collusion;
cheaper transactions; faster; more privacy

The BlockChain Universe
Source: Goldman Sachs Report
http://www.paymentlawadvisor.com/files/2014/01/GoldmanSachs-Bit-Coin.pdf
creation
miner
block
hash
nonce
Reward:
25BTC = $16k
21 mBTC
mining
farms
&pools
buy
100 exchanges (Bitstamp,
BTC-e, BTC China, Huobi)
individuals
KYC
AML
ATM (paper receipt)
storage
wallet
software
(PC hard
drive)
proof-of-work
(hashcash)
mobile
web based
pseudonymous
public key
– to receive –
private key
– to spend –
hot wallet
– online –
cold wallet
– offline –
transaction
input (from where)
amount
output (to where)
forward past transaction
spend
specialized e-commerce
online retailers and
services
gamblingtrading

Bitcoin Mining
Source: https://www.bitcoinmining.com/

Hash Each Transaction
Source: https://chrispacia.wordpress.com/2013/09/02/bitcoin-mining-explained-like-youre-five-part-2-mechanics/
Original transaction
Once hashed it looks like this

A Block & the Merkle Tree

Proof-of-Work (PoW)

Nonce
 So what if you produced an output that does not start with the
correct number of zeros?
 This is where the nonce comes in.
 The nonce is simply a random number that is added to the block
header for no other reason than to give us something to increment
in an attempt to produce a valid hash.
 If your first attempt at hashing the header produces an invalid hash,
you just add one to the nonce and rehash the header then check to
see if that hash is valid.
 The nonce that is needed to produce a valid block will also be
different for each miner.

Proof-of-work (PoW)
 Example: Let's say the base string that we are going to do work on is
"Hello, world!". Our target is to find a variation of it that SHA-256
hashes to a value beginning with '000'. We vary the string by adding
an integer value to the end called a nonce and incrementing it each
time. Finding a match for "Hello, world!" takes us 4251 tries (but
happens to have zeroes in the first four digits).
Source: https://www.usv.com/blog/bitcoin-as-protocol
Nonce Hash

The Difficulty Metric

So How To Buy Bitcoins?
 Create a wallet
 Coinbase allows you to transfer money to your wallet
Source: http://techcrunch.com/2013/04/08/how-to-mine-bitcoins/

BlockChain – Volume (bitcoin, November 2015)
Source: http://www.ft.com/cms/s/2/eb1f8256-7b4b-11e5-a1fe-567b37f80b64.html#axzz3tGNw2MWS, Goldman Sachs Report
120,000
transactions / day
$75m
exchanged / day
380,000
blocks
45 Gbites
Database
Computational
output:
more than 1400
times the
combined capacity
of the top 500
supercomputers in
the world

Coinbase – Facts & Figures (2015 YTD)
Source: https://www.coinbase.com/, Goldman Sachs Report
970,000 consumer
wallets
24,000 merchants
In 32 countries
$2.5B exchanged
2.9 million customers
served
80% speculation,
20% real payment
1% conversion fee

Pros & Cons
Source: http://www.ft.com/cms/s/2/eb1f8256-7b4b-11e5-a1fe-567b37f80b64.html#axzz3tGNw2MWS, Goldman Sachs Report
Transparency: Provides an unforgeable record of identity,
including the history of an individual’s transactions. ->
Validated KYC data. /PwC/
Open source, & “permissionless” system -> Decentralised
and open to anyone!
Virtually impossible to counterfeit.; It’s safe. (Private Key);
Illegal activity is very low (Silk Road represented less than
1% of all activity).
Is it robust and secure? (theft by hackers, hard drive crash,
corruption, spending on bad purposes) -> It has to
convince regulators.
Savings: Cutting out inefficient banking intermediaries
(costs reduced by $15bn-$20bn a year from 2022)
/Santander/
BTC: A poor substitute for fiat currency, unable to
overcome likely government opposition, public distrust. ->
High volatility; Speculative bubble?; Rather a commodity
than a currency?; Not a stable store of value; „Much better
shot at influencing payments technology than taking off as
a currency.”
The speed of execution is so much faster for securities
settlement. -> Lower capital requirements for banks.
/Deutsche Bank/
BTC: Money supply is not controlled by economists or
monetary experts, but technology experts and
programmers.
New opportunities for business models: micro-
transactions, smart contracts, many other future
applications
Transactions in BlockChain are not reversible.
It is scalable: BTC is divisible down to 8 decimals. A very
large number of units can be created. Creating more BTC
would require 51% of the computing power of the
network.
Scalability?
Pros Cons

The Bitcoin StorySource:GoldmanSachsReport
Source:GoldmanSachsReport

Security Issues 1/2
 Private key: „Really nothing more than a text file with gibberish
inside” -> Risks: theft, loss
 Theft
– Malware: Malicious software that gets into the computer through an
email attachment. -> You can only see the public key where your
money was transferred, but you don’t know the identity associated
with it
– Protection: Encrypting the private key with a password, cold storage
(you can still receive bitcoins), hard copy in a safe deposit box.
 Counterfeit, double spending: very unlikely
– Mt. Gox case: Exchange sends money to a client -> client changes the
hash -> exchange cannot find the transaction -> resends the money
(malleability -> protocol now fixed).; Other customer service and
governance issues.

Security Issues 2/2
 DDoS attacks (Distributed Denial of Service Attacks): BlockChain is
less vulnerable
– More information sent to the network than it can process to disrupt
the system. -> Attacks against bitcoin exchanges only slowed down the
transaction speed.
 Goldfinger Attack: very unlikely
– Buying up all of the bitcoins and then forcefully losing them or freezing
the private keys. -> Bitcoins are effectively out of the system.
 A ROBUST SYSTEM
– There have been many attacks again BlockChain/bitcoin.
– The most vulnerable point is exchanges. -> PROPER GOVERNANCE!

Regulation
 US
– Regulation on virtual currencies: AML, banking laws, money
transmission laws, (potentially) commodity & securities laws
– Anti-money-laundering: According to FinCEN (financial crimes
enforcement network) bitcoin should be treated like currency for AML
laws. -> Register with FinCEN, KYC, reporting suspicious transactions.
– On state level: Licensed as money transmitter (costly & time-
consuming).
– CFTC (Commodities Futures Trading Commission): For bitcoin
derivatives
– SEC: For bitcoin securities (e.g. ETF)
– IRS: If bitcoin is an asset -> capital gains.; If bitcoin is foreign currency
-> ordinary income.
 Europe
– Hands-off approach: No money transfer license, no AML policy.

BlockChain in Financial ServicesSource:http://startupmanagement.org/2015/10/22/the-global-landscape-of-
blockchain-companies-in-financial-services

Bitcoin as a Payment Solution
 Advantages
– Transfer money as easily as sending an email
– Lower transaction costs
– No cross-border fees
 Risks
– Regulatory & operating costs are increasing
 Savings for consumers could amount to USD 43 billion per
year do to lower transaction costs. (World Bank estimate)
 Banks are working on the development of their digital
currency strategy.

The Bitcoin StorySource:GoldmanSachsReport
Source:GoldmanSachsReport

Coloured Coins
 Colored Coins is a concept that allows attaching metadata
to Bitcoin transactions and leveraging the Bitcoin
infrastructure for issuing and trading immutable digital
assets that can represent real world value.
 Financial assets (securities like shares, commodities like
Gold or new currencies), proof of ownership (a digital key
to a house or a car, a concert ticket), storing information
(documents, certificates), creating smart contracts
 Advantages: transparency, immutability, ease of transfer
and non-counterfeitability
Source: https://github.com/Colored-Coins/Colored-Coins-Protocol-Specification/wiki/Introduction

Streamlining Settlement (Smart Contracts)
Source: http://santanderinnoventures.com/wp-content/uploads/2015/06/The-Fintech-2-0-Paper.pdf

Why Distributed Ledgers Are Big News?
Source: http://www.keynote2015.com/
Bitcoin ETF

BlockChain – Further Applications
 „Almost two dozen of the world’s largest banks (Digital Ledger Group),
including JPMorgan, UBS and Barclays, have thrown their weight behind R3
CEV, a start-up venture, to set up a private BlockChain open only to invited
participants who between them maintain and run the network.”
 „A tamper-proof ledger could be used to hold medical records or develop
transparent electoral voting systems.”
 „One day it would not surprise me if physical locks did not exist; you
should be able to walk through a door because you send a very small
fraction of a bitcoin out from your address to another address, and you
can prove that you own that address by signing that transaction with your
private key, which authorizes you to enter the door.”
 „Capital Markets is also known as the quadrillion dollar opportunity, and it
is where we are seeing a lot of high stakes venture capital bets and
startups that are swinging for the fences wanting to solve the many facets
of the clearing-to-settlement post-trade conundrum.”
Source: http://www.ft.com/cms/s/2/eb1f8256-7b4b-11e5-a1fe-567b37f80b64.html#axzz3tGNw2MWS
http://startupmanagement.org/2015/10/22/the-global-landscape-of-blockchain-companies-in-financial-services/, Goldman Sachs Report

Bitcoin – Facts & Figures 1/2

Bitcoin – Facts & Figures 2/2

Release Active Currency Symbol Founder Hash Algorithm Timestamping Notes
2014 Active Auroracoin AUR
Baldur Odinsson
(pseudonym)
Scrypt POW Created as an alternative to fiat currency in Iceland.
2009 Active Bitcoin BTC Satoshi Nakamoto SHA-256d POW First decentralized ledger currency.
2014 Active BlackCoin BC, BLK Rat4 (pseudonym) Scrypt POS
BlackCoin secures its network through a process called
minting.
2014 Inactive Coinye KOI, COYE Scrypt POW
Used American hip hop artist Kanye West as its mascot,
abandoned after trademark lawsuit.
2014[9] Active Dash DASH
Evan Duffield &
Kyle Hagan
X11 POW & POS
Adds privacy to transactions through a decentralized coin-
mixing system called Darksend.
2013 Active Dogecoin DOGE
Jackson Palmer &
Billy Markus
Scrypt POW Based on an internet meme.
2014 Active DigitalNote XDN
XDN-dev team,
dNote
CryptoNight POW
DigitalNote (XDN) is a new private cryptocurrency with
an instant untraceable crypto messages and first
blockchain banking implementation, use CryptoNote
protocol.
2015 Active Ethereum ETH Vitalik Buterin Dagger Hashimoto POW Turing complete smart contracts.
2011 Active Litecoin LTC Charles Lee Scrypt POW First successful scrypt cryptocurrency.
2013 Active Mastercoin MSC J. R. Willett SHA-256d N/A
Mastercoin is both digital currency and communications
protocol built on top of the existing bitcoin block chain.
2014 Active MazaCoin MZC
BTC Oyate
Initiative
SHA-256d POW
The underlying software for MazaCoin is derived from
that of another cryptocurrency, ZetaCoin.
2014 Active Monero XMR Monero Core Team CryptoNight POW
Monero (XMR) is a new privacy-centric coin using the
CryptoNote protocol.
2011 Active Namecoin NMC Vincent Durham SHA-256d POW Also acts as an alternative, decentralized DNS.
2013 Active Nxt NXT
BCNext
(pseudonym)
SHA-256d POS
Nxt is specifically designed as a flexible platform to
build applications and financial services around its
protocol.
2012 Active Peercoin PPC
Sunny King
(pseudonym)
SHA-256d POW & POS First to use POW and POS functions.
2013 Active Emercoin EMC EvgenijM86 SHA-256 POW & POS
Trusted storage for any small data: acts as an
alternative, decentralized DNS, PKI store, SSL
infrastructire and other.
2014 Active PotCoin POT Scrypt POW Developed to service the legalized cannabis industry
2013 Active Primecoin XPM
Sunny King
(pseudonym)
1CC/2CC/TWN POW
Primecoin uses the finding of prime chains composed of
Cunningham chains and bi-twin chains for proof-of-work,
which can lead to useful byproducts.
2013 Active Ripple XRP Chris Larsen & ECDSA "Consensus"
Based on peer to peer debt transfer. The term Ripple
can refer to both the digital currency or the payment
network.
2014 Active Titcoin TIT
Edward Mansfield
& Richard Allen
SHA-256d POW
First cryptocurrency to be nominated for a major adult
industry award.
Unreleased Inactive Zerocoin
Matthew Green,
Ian Miers and
Christina Garman
Proposed bitcoin extension to add true cryptographic
anonymity.
2014 Active Woodcoin LOG
Funkenstein the
Dwarf
Skein POW

Market Cap of Cryptocurrencies (December 10, 2015)
Source: http://coinmarketcap.com/

Unchain Blockchain by Eva Rez

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