CRYPTOCURRENCIES

IN A NUTSHELL

Marco Samek, 2018

Introduction and basic definitions

of the Cryptoworld

Content

• Intro

• Blockchain

• Bitcoin/ Crypto currencies

• Miner – Creation of coins

• Exchange platforms

• Coin storage types

• ICO / ITO / ICS / TGE

• Q&A

What is Blockchain?

• Distributed

• Secure

• Ledger (Log file)

A Blockchain is a distributed database that maintains a continuously-growing list of records called blocks secured from tampering and revision.

Simply defined, a Blockchain is little more than a:

What is a distributed ledger?

Centralized Ledger

Bank

Client A

Client

C

Client D

Client

B

Distributed Ledger

Node A

Node B

Node CNode D

Node E

•

•

There are multiple ledgers, but Bank holds the “golden record”

Client B must reconcile its own ledger against that of Bank, and

must convince Bank of the “true state” of the Bank ledger if

discrepancies arise

• There is one ledger. All Nodes have some level of access to that

ledger.

• All Nodes agree to a protocol that determines the“true state” of

the ledger at any point in time. The application of this protocol is

sometimes called “achieving consensus.”

Source: IBM

Information & asset exchange in business networks – separate ledgers

Source: IBM

Information & asset exchange in business networks – shared ledgers

Types of networks

Transactions are secure, authenticated & verifiable

Business terms embedded in transaction database & executed with transactions

All parties agree to network

verified transaction

Append-onlydistributed

system of record shared across

business network

Source: IBM

4 key concepts of Blockchain

Blockchain ledger – a chain of blocks with records

Illustrative example of Blockchain principles

• Bob is an online buyer who just discovered Sally's online clothes shop. He found a nice suite there and wants to buy

it.

• Sally is running a little online shop and sells various kinds of clothes. Sally's little shop only accepts Paypal

transactions.

• Bob needs to pay Sally, using Paypal, before she sends him the suite.

This is how it happens in practice, with all the intermediates:

Banking is a system of

intermediaries across the

spectrum - ranging from

payment networks (e.g

Mastercard, Visa etc) to

Clearinghouses in Capital

Markets to Banks, etc.

And the reason these

intermediaries exist is to

establish trust between

two parties who do not

know each other.

Operation principle of a payment with Bitcoin

• A user wants to pay

another user some

bitcoins, he

broadcasts a

transaction to the

network.

• Miners add the

transaction as they

receive it to their

current block, the one

they are currently

working on

• Randomly, one of the

miner will solve a

mathematical puzzle

and "mine" the block

(we'll get back to

that)

• At that moment, this

new "definitive" block

is broadcasted to the

network and added

to everyone's copy of

the blockchain

THE BIG BANG AND

EVOLUTION OF BITCOIN

Source: IBM

Bitcoin – currency and technology

When did it start?

• “Satoshi Nakamoto” created the reference implementation that began with a Genesis Block of 50 coins

• 2008• August 18 Domain name "bitcoin.org" registered[1].

• October 31 Bitcoin design paper published

• November 09 Bitcoin project registered at SourceForge.net

• 2009• January 3 Genesis block established at 18:15:05 GMT

• January 9 Bitcoin v0.1 released and announced on the cryptography mailing list

• January 12 First Bitcoin transaction, in block 170 from Satoshi to Hal Finney

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

• A protocol that supports a decentralized, pseudo-anonymous, peer-to-peer digital currency

• A publicly disclosed linked ledger of transactions stored in a Blockchain

• A reward driven system for achieving consensus (mining) based on “Proofs of Work” for helping to secure the network

• A “scarce token” economy with an eventual cap of about 21M bitcoins

What is Bitcoin?

Transaction

is added to

a “block”.

Block is

replicated to

the

participants

that need to

validate the

transactions.

All network

parties

validate the

transaction.

Block is added

to the “chain”,

creating a

tamper-proof

audit log.

Recap: Bitcoin transaction flow

The Public Ledger

• Every viable transaction is stored in a public ledger

• Transactions are placed in blocks, which are linked by SHA256 hashes.

• https://blockchain.info

Miners and the “Proof of Work”

Bitcoin uses the Hashcash proof of work system.

For a block to be valid it must hash to a value less than the current target; this means that each block indicates that work has been done

generating it. Each block contains the hash of the preceding block, thus each block has a chain of blocks that together contain a large amount of

work.

Changing a block (which can only be done by making a new block containing the same predecessor) requires regenerating all successors and

redoing the work they contain. This protects the block chain from tampering.

https://www.cryptocompare.com/mining/#/equipment

Miner retribution and Bitcoin creation

Mining is also the mechanism used to introduce Bitcoins into the system: Miners are paid any transaction fees as well as a "subsidy" of newly created coins. This both serves the purpose of disseminating new coins in a decentralized manner as well as motivating people to provide security for the system.It gives miners incentive to put their computation power at the disposal of the blockchain network.

Because there is a reward of brand new bitcoins for solving each block, every block also contains a record of which Bitcoin addresses or scripts are entitled to receive the reward. This record is known as a generation transaction (or a coinbase transaction) and is always the first transaction appearing in every block.

The number of Bitcoins generated per block starts at 50 and is halved every 210,000 blocks (about four years).

Bitcoin wallet cryptography

A Bitcoin address, or simply address, is an identifier of 26-35 alphanumeric characters, beginning with the number 1 or 3, that represents a

possible destination for a bitcoin payment. Addresses can be generated at no cost by any user of Bitcoin.

There are currently two address formats in common use:

Common P2PKH which begin with the number 1, eg: 1BvBMSEYstWetqTFn5Au4m4GFg7xJaNVN2.

Newer P2SH type starting with the number 3, eg: 3J98t1WpEZ73CNmQviecrnyiWrnqRhWNLy.

Blockchain 2.0 – Smart Contracts

The Blockchain 2.0 is an

evolution of the blockchain

protocol enabling not only to

exchange transaction but

rather code and programs in

the form of Smart Contracts

Now developers are allowed

to build programs and API's

on the Blockchain Protocol.

This relatively new concept

involves the development of

programs that can be

entrusted with money.

Smart contracts are programs

that encode certain

conditions and outcomes.

For instance, When a

transaction between 2 parties

occurs, the program can verify

if the product/service has

been sent by the supplier.

Only after verification is the

sum transmitted to the

suppliers account.

Why does it matter?

193 Billion Dollar Market Cap!

http://coinmarketcap.com

https://www.cryptocompare.com/coins/#/usd

https://coincheckup.com

Where to purchase / exchange Bitcoins?

• In addition to mining bitcoins, they can be acquired from an exchange!

Who Accepts Bitcoins?

Ups and downs in Bitcoin acceptance: still at the start of the road

Source: IBM

Value of Blockchain technology

Source: IBM

Key factors that influence the future of Blockchain, crypto assets and smart contracts

Source: IBM

There is not one Blockchain protocol

Source: IBM

Potential of Blockchain extends across a wide range of application areas

18Beyond Bitcoin: What to do with Blockchain?

© 2017 TIBCO Software Inc.

Power created by a central source, andtransmitted to end consumers, often over

long distances.

Power generated locally, and distributed in

a peer-to-peer fashion via smart contracts.

(see Brooklyn microgrid as an example)

Node

Node

Node

Use Cases: Energy Distribution

ICO –THE REVOLUTION

IN FUNDRAISING

Some visible ICO problems