blockchain technology bitcoin and beyond · david v duccini, executive director, strength in...

David V Duccini, Executive Director, Strength in Numbers Foundation

Blockchain Technology Bitcoin and Beyond

www.cybersecuritysummit.org #CSSMN2016

Overview/1

•  What is a Blockchain •  What is Bitcoin •  Where did Bitcoin come from? •  How does a Blockchain get built •  How does a Blockchain get verified

Overview/2

•  Weaknesses of Blockchain technology •  Value •  Current applications of Blockchain technology •  Future applications of Blockchain technology •  Q & A

Who am I? •  Serialentrepreneursinceage16-firstcomputerwasanApple][+•  Codingsince1980ineverymajorlanguage(andalotofminorones)•  WroteaBBSfromscratch–forcedtolearnassemblylanguage;-)•  MScSoLwareEngineering,UST&MBACarlsonSchoolofManagement

Some of my hobbies

Blockchain Defined

SimplydefinedaBlockchainisliSlemorethana:

•  Distributed•  Secure•  Logfile

Adigitalcurrencywasinalotofwaysthefirstdemonstrableuse

What is Bitcoin ? •  Aprotocolthatsupportsadecentralized,pseudo-anonymous,peer-

to-peerdigitalcurrency*

•  ApubliclydisclosedlinkedledgeroftransacYonsstoredinablockchain

•  Arewarddrivensystemforachievingconsensus(mining)basedon

“ProofsofWork”forhelpingtosecurethenetwork

•  A“scarcetoken”economywithaneventualcapofabout21Mbitcoins

*IwouldargueitbehavesmorelikeasecuritylikeaStockorBondthanacurrency,acrypto-equity

Bitcoin Whitepaper – 2008.10.31*

*Halloween

Features of Bitcoin •  EssenYallyit’s“deflaYonary”–therewardiscutinhalfeveryfouryears,and

tokenscanbeirrevocablydestroyed•  NearlyinfinitelydivisiblecurrencyunitssupporYngeightdecimalplaces

0.00000001(knownasaSatoshiorNoncent*)•  NominaltransacYonfee’spaidtothenetwork

–  Samecosttosend$.01as$1,000,000•  Consensusdriven–nocentralauthority•  Counterfeitresilient

–  Cannotaddcoinsarbitrarily–  Cannotbedouble-spent

•  Non-repudiaYon–aka“gonebabygone”–norecourseandnoonetoappealtoreturnsenttokens

hSp://www.urbandicYonary.com/define.php?term=Noncents

When did it start?

•  “SatoshiNakamoto”createdthereferenceimplementaYonthatbeganwithaGenesisBlockof50coins

•  2008

–  August18 Domainname"bitcoin.org"registered[1]. –  October31 Bitcoindesignpaperpublished–  November09BitcoinprojectregisteredatSourceForge.net

•  2009–  January3 Genesisblockestablishedat18:15:05GMT–  January9 Bitcoinv0.1releasedandannouncedonthe

cryptographymailinglist–  January12 FirstBitcointransacYon,inblock170fromSatoshitoHalFinney

hSps://en.bitcoin.it/wiki/History

Why does it have value?

Theworthofathing

isthepriceitwillbring.

Why does it matter?

9.8BillionDollarMarketCap!

hSp://coinmarketcap.com

Decentralized

•  The“digitalwallet”operatesinapeertopeermode•  Whenitstartsitbootstrapstofindotherwallets

–  OriginallyitusedtheInternetRelayChat(IRC)network–  NowbasedonDNSand“seednodes”

•  ThewalletwillsynchronizewiththenetworkbydownloadingALLofthetransacYonsstarYngfromtheGENESISblockifnecessary–  433,679blocksatYmeofslideprep–  Justover90GB

•  Usinga“gossipprotocol”thewalletssharealltransacYoninformaYonwiththeirpeers

•  hSp://en.wikipedia.org/wiki/Gossip_protocol

Coins flow from Inputs to Outputs

Acoinownertransferscoinsbydigitallysigning(viaECDSA)ahashdigestoftheprevioustransacYonandthepublickeyofthenextowner.Thissignatureisthenappendedtotheendofthecoin.

Pseudo Anonymous

•  Usingpublickeycryptography,specificallyEllipYcCurveCryptographyduetoitskeystrengthandshorterkeys

•  TransacYonsaresenttopublickey“addresses”

1AjYPi8qryPCJu6xgdJuQzVnWFXLmxq9s31Give4dbry2pyJihnpqV6Urq2SGEhpz3K

Addresses are like Accounts •  ThewalletlistensfortransacYonsaddressedtoanyof

itspublickeysandintheoryistheonlynodethatisabletodecryptandacceptthetransfer

•  “Coins”are“sent”bybroadcasYngthetransacYonto

thenetworkwhichareverifiedtobeviableandthenaddedtoablock

•  KeyscanrepresentaMULTI-SIGaddressthatrequiresaNofMprivatekeysinordertodecryptthemessage

The Public Ledger

•  EveryviabletransacYonisstoredinapublicledger

•  TransacYonsareplacedinblocks,whicharelinkedbySHA256hashes.

•  hSps://blockchain.info

“What is Bitcoin” – Video

•  hSp://weusecoins.com

Arriving at Consensus

•  Althoughtheacceptedchaincanbeconsideredalist,theblockchainisbestrepresentedwithatree.

•  Thelongestpathrepresentstheacceptedchain.•  AparYcipantchoosingtoextendanexisYngpathintheblockchain

indicatesavotetowardsconsensusonthatpath.Thelongerthepath,themorecomputaYonwasexpendedbuildingit.

Consensus Process = Mining

•  OriginallythedigitalwalletcouldalsoparYcipateintheconsensusprocessbyaSempYngtosecurethenetworkdirectly

•  Thisprocessisknownas“mining”•  MininginvolvesaSempYngtofindanumericalvalue,known

asa“nonce”thatwhencombinedwithallopentransacYonscanbe“hashed”intoavaluethatsaYsfiesacertain“difficulty”

•  Custom,purposebuilt-hardwarehaslongsincereplacedthefuncYonsuchthatitsnolongerproducYveforsimpleCPUbasedsystemstocompeteintheminingprocess,andthusitwasremoved

Hashcash (Or How to Pay a Byzantine Generals Salary)

•  Likemanygreatideastobecomerealized,ittakesaconfluenceofothergreatideas

•  BasedontheideaofHashCash,aProofofWorkconceptinventedbyAdamBackin1997(hSp://www.hashcash.org/papers/hashcash.pdf)

•  OriginallyproposedasananY-spamthroSlingmechanism•  ThecoreideaisthatbeforeaccepYngatransacYon,thesendermustfirst

demonstratea“cost”viaacomputaYonally“hard”problemthatcansimultaneouslybeeasilyverified.

•  Thisgenerallyreferredtoasa“ProofofWork”

The Role of Hashing

•  AhashfuncAonisanyfuncAonthatcanbeusedtomapdigitaldataofarbitrarysizetodigitaldataoffixedsize,withslightdifferencesininputdataproducingverybigdifferencesinoutputdata.

•  MD5,SHA1,SHA256•  Forexample,theMD5hashesof‘abc’comparedto‘abC’

abc0bee89b07a248e27c83fc3d5951213c1

2217c53a2f88ebadd9b3c1a79cde2638

“TheQuickBrownFoxJumpedOvertheLazyDog” 2dfd75162490ed3b4c893141f9ab37cf

Proof of “Work” ( or proof of waste :-)

•  Apubliclyauditablecost-funcYoncanbeefficientlyverifiedbyanythirdpartywithoutaccesstoanytrapdoororsecretinformaYon.

•  Afixedcostcost-funcYontakesafixedamountofresourcestocompute.ThefastestalgorithmtomintafixedcosttokenisadeterminisYcalgorithm.

•  Aprobabilis2ccostcost-funcYonisonewherethecosttotheclientofminYngatokenhasapredictableexpectedYme,butarandomactualYmeastheclientcanmostefficientlycomputethecost-funcYonbystarYngatarandomstartvalue.SomeYmestheclientwillgetluckyandstartclosetothesoluYon.

The Hash Lottery

•  Hashingisstraigh~orward,butnotchallenging•  Unlessthegoalistosay,findmeahashvaluethatsaYsfiesacertainlevelof

“difficulty”•  Forexample,let’ssaythechallengeisfindahash-valuethatbeginswitha

numberofzeros,foragiveninput•  TheProofofWorkcomesfromfindinganumber(knownasaNONCE)that

whenaddedtotheinputchangestheoutputofthehashvaluetosaYsfythedifficulty.

•  IntheBitcoinworldthisiswhat“mining”isandineffectisliSlemorethanalotofhash-powerspentonguessingwinningloSerynumbersthatsaYsfythedifficultyoftheprobleminordertoobtaintherewardfromthenetwork

The Payout

•  ThenodethatfindsthebestsoluYontothechallengeisprovisionallygrantedareward

•  OriginallyinBitcoinitwas50newcoins,todayit’s12.5•  CompeYngsoluYonsareevaluatedbasedonwhichnodeoffersthe

highernumberoftransacYonsincludedinthecandidateblockaswellasthelevelofover-saYsfyingthedifficulty.

•  Forexample,iftwonodesofferasoluYontothechallengeandbothhavethesamenumberoftransacYons,therewardwillgotothenodethatfoundaNONCEthatbeatthechallenge–  E.G.Findahashthatbeginswith4zeros–  Thenodethatsuppliesahashthathas5zerosbeatsthenodethatonly

findstheminimum

Transaction Confirmation •  HavingatransacYonprovisionallyacceptedintoacandidateblocksignals

thatthenetworkhasverifiedthattheinputswereviable•  EverynewblockacceptedintothechainaLerthetransacYonwasaccepted

isconsideredaconfirmaAon•  CoinsarenotconsideredmatureunYltherehavebeen6confirmaYons

(basicallyanhourassuminga10minuteblockcadence)•  NewCoinscreatedbytheminingprocessarenotvalidunYlabout120

confirmaYons•  Thisistoassurethatanodewithmorethan51%ofthetotalhash-power

doesnotpullofffraudulenttransacYons

“What is Bitcoin Mining” – Video

•  hSp://www.bitcoinmining.com

Why 51% Matters •  “Whendoes1+1=3?”*

*Wheneveryonesaysitdoes!

•  InthecaseofBitcoin“consensus”goestothechainwiththehighestnumberofblocks

•  Notjustintheory,butinpracYceseverallargeminingpoolshavegenerated

sixblocksinarow

•  TodatethenetworkhasvoluntarilyshiLeditsminingpoweraroundorfacedDistributedDenialofServiceaSacks

Purchase / Exchange Bitcoins InaddiYontominingbitcoins,theycanbeacquiredfromanexchange!

Who Accepts Bitcoins?

Merchants Accepting Bitcoin •  Overstock.com•  Newegg.com•  MicrosoLXBOXNetwork•  TelsaMotors•  TimeInc(publisher)•  VirginGalacYc•  Wordpress•  BitPayclaims44,000merchants!

•  hSp://www.bitcoinvalues.net/who-accepts-bitcoins-payment-companies-stores-take-bitcoins.html

Other Uses of Blockchain Tek •  Registeries•  AuthoritaYveSystemsofRecord•  DirectoryServices•  TimestampingServices(“ProofofExistence”)

•  Counter-partyExchanges

Registries

Namecoin ThefirstforkofBitcoinwithapurpose

•  Securelyrecordandtransferarbitrarynames(keys).•  ASachavalue(data)tothenames•  (upto520bytes,moreinthefuture).•  Transactnamecoins,thedigitalcurrency(NMC).

Namecoin as a fault-tolerant Domain Name System

CanactasadecentralizedDomainNameServicethatisresilienttocensorshiphSp://bit.namecoin.info

Alternates to Bitcoin aka Altcoins

•  “GoodarYstscopy.GreatarYstssteal.”•  ThefirstalternateblockchainasmenYonedwasNamecoin•  EarlyaSemptsto“re-leveltheplayingfield”weremadebychangingthe

hashingfuncYonfromSHA256toSCRYPTorsetsofhashfuncYons(X11)•  SCRYPTisa“memoryintensive”funcYonthatwasthoughttoberesistantto

customizedhardware(false)•  ChangestotheblockemitYmetargetwerealsochangedfromBitcoins10

minutesto2.5minutestoincreasethevelocity•  NewerALTSincorporateeverescalaYnghashfuncYons,chainedtogetherin

novelwaystoresistgivingpurposebuilthardwareanadvantageoverCPUbasedmining

A Babel of Altcoins •  Nowwellover640“alternate”coinstoBitcoin(and67“assets),

comprising~2,300markets!•  99.999%ofthemaresimplybrands/clones•  MostYnkerwith:

–  thetotalcoinsupply–  thehashingfuncYons(SHA256,SCRYPT,X11etal)–  blockemitYmetargets–  ProofofSomething(ProofofWork,ProofofStake)

•  NotableAlts:Ripple,Litecoin,Dogecoin•  TotalMarketCap:$12B(Bitcoinis9.8Bofthat)•  hSp://coinmarketcap.com

It’s Better 2GIVE! •  hSps://2Give.Info

Bitcoin 1.5 COUNTERPARTY.ORGCounterpartyworksbystoringextradatainregularBitcointransacYons,whichmakeseveryCounterpartytransacYonaBitcointransacYon,albeitaverysmallone.MASTERCOIN.ORG

•  TheMasterProtocolfacilitatesthecreaYonandtradingofsmartproperYesandusercurrenciesaswellasothertypesofsmartcontracts.

•  Mastercoinsserveasthebindingbetweenbitcoins(BTC),smartproperYesandsmartcontractscreatedontopoftheMastercoinProtocol.

NXT.ORGAssetcreaYonandexchangeonitsownblockchain

Bitcoin 2.0

•  SmartContracts–  Escrow-freeexchange–  Insurance

•  VoYng•  DistributedAutonomousOrganizaYons•  IdenYty&ReputaYonSystems

–  hSp://bit.ly/idcoins

•  NotableImplementaYons

Ethereum.org Turing complete contracts on a blockchain. •  ContractsarethemainbuildingblocksofEthereum.•  Acontractisacomputerprogramthatlivesinsidethedistributed

Ethereumnetworkandhasitsownetherbalance,memoryandcode.

•  EveryYmeyousendatransacYontoacontract,itexecutesitscode,whichcanstoredata,sendtransacYonsandinteractwithothercontracts.

•  Contractsaremaintainedbythenetwork,withoutanycentralownershiporcontrol.

•  ContractsarewriSeninlanguagesinstantlyfamiliartoanyprogrammerandpoweredbyEther,Ethereum'scryptofuel.

Bad Uses for Good Technology “Guns Don’t Kill People. People Kill People” •  Bitcoinhashaditsfairshareof“badpress”•  SilkRoad

–  Anonlineanonymousmarketplacefor“censorship-free”commerce

•  BiYnstant–  CharlieShrempleadguiltytoaidingmoneylaundering

•  MT-GOX–  aka“MagicTheGatheringOnlineeXchange”–  700,000coins“missing”

•  Bitstamp

Resources

•  Bitcoin:APeer-to-PeerElectronicCashSystemhSps://bitcoin.org/bitcoin.pdf

•  hSp://coinmarketcap.com•  Hashcash.org•  IDCoins:AWebofTrustBlockchainforIdenYtyandReputaYon,

DavidVDuccini,hSp://bit.ly/idcoins•  “MasteringBitcoin”,AndreasM.Antonopoulos,O’ReillyMedia•  hSp://www.bitcoinsecurity.org/2012/07/22/what-is-bitcoin/•  hSps://www.weusecoins.com

Contact Info

•  TwiSer: @TheLiSleDuke•  Skype: The_LiSle_Duke•  LinkedIN: hSp://linkedin.com/in/dvduccini

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