introduction to cryptocurrencies and blockchain technologymorozov/il1-en/il1en-7.pdf ·...
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Introduction to Cryptocurrencies and Blockchain Technology
[email protected]@iohk.io
Prof. Mario Larangeira
Input Output Cryptocurrency Collaborative Research Chair
Fintech News
Remittance using cryptocurrencies
Fintech News
Mobile and CryptocurrenciesBank of America 3,000,000,000 USD investment in Cryptocurrencies
Fintech News
Governments are investing in Fintech
“Megabanks" are investing in Fintech
Fintech News
Uniqlo and Bic CameraBusiness > Consumers
April 5, 2017 2:00 am JST
Japanese retailers quickly embracingbitcoin paymentsVirtual currency may be accepted at 260,000 shops by this summer
A sushi restaurant in Tokyo with a bitcoin ATM installed.
TOKYO -- Two Japanese retailing groups soon will accept bitcoin payments,a move that is likely to promote wider use of the virtual currency amongdomestic consumers.
Electronics chain Bic Camera is teaming up with Tokyo-based bitFlyer, whichruns the largest Japanese bitcoin exchange. This Friday, they will begin atrial run of bitFlyer's bitcoin payment system at Bic Camera's flagship shopin Tokyo's Yurakucho district and at Bicqlo Bic Camera, the hybrid outletwith Uniqlo located in Shinjuku.
Customers are allowed to pay up to 100,000 yen ($904) using thecryptocurrency, and they will also get reward points at the same rate as forcash payments. Bic Camera may introduce the payment system at otherlocations based on usage trends at the two Tokyo stores.
Recruit Lifestyle, the retail support arm of human resources conglomerateRecruit Holdings, is partnering with another Tokyo bitcoin exchange
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Overview●What is a Cryptocurrency●The most famous one: Bitcoin●The cryptography behind it●The remaining technical challenges●Tokyo Tech/IOHK
Presentation Goal● Promote this new technology
● Raise interest
● Nurture future interest in researching this topic
● More practical: when reading/watching news about blockchain related technologies, have a better understanding of how it works.
What is a cryptocurrency?
What is a dollar anyway?
What is a currency anyway?
What is a Currency● It is not a “thing”, it is a system:
● Group of people agrees to associate values to a “token”
● group of people: e.g., population of the country
● token: e.g., a bill (a dollar bill)
● It works because people accept it. They trade it for goods
What is a Cryptocurrency● It is not equal, but it is analogous
● It is not associated with a country, but with the system itself
● System: network of computers
● Token: the coin of the cryptocurrency
● Difference: the rules of the system are public and rely on the people using it (a decentralized system)
Decentralized vs Centralized● centralized: there is a third party, which the users
trust: e.g, RSCoin Protocol
● decentralized: there is no third party, that is a P2P network: e.g., Bitcoin, Ethereum, Monero, ZCash, etc…
● Without third party, the network and its users rule the system: accepted transactions, creation of currency, latency and etc…
Why consider a Cryptocurrency?(Why not to just stick with the “regular” currency?)
●Promote inclusion by giving access to banking systems●low costs for transactions
●Give security and reliability●blockchain: global database, anti-censorship
●Banking systems are too slow●smart contracts: programs over blockchain,
no human action
How to use a cryptocurrency?
How to use a Cryptocurrency?● How much does it worth?
1 BTC = US$1465
coinmarketcap.com
How to use a Cryptocurrency?
● You will need a digital wallet
● Assuming you have already some coins:
● you will transfer some of them to someone else
● From your address to the address of someone else
● How much does it worth?
● 1 Bitcoin costs US$ 1465
Digital Wallet
0.00000001 BTC = 1 Satoshi
462.678 BTC
462.678 BTC
More Questions● How do exactly I get a cryptocurrency?
● How do I get an address for me?
● How exactly the transfer works? Why somebody cannot take my coins and transfer without my authorization?
The Cryptography● and its Mathemagic
● Specially two cryptographic tools: Hash Functions and Digital Signatures
skSign
m �Hx H(x)
Hash Function● Hard to find x and x’, such that
H(x) = H(x’)
• Collision Resistance
• First Pre-image Resistance
• Second Pre-Image Resistance
Hx H(x)
Pre-Image Image
● Given y
hard to find x
such that y = H(x)
● Given x and y, and y = H(x)
hard to find x’
such that y = H(x’)
Actual Constructions for H(.) ● There is a rich variety of constructions for H(.)
● Some of them you may have already heard: SHA1, SHA2, more recently SHA3 …
● If you do not believe me:
https://en.wikipedia.org/wiki/List_of_hash_functions
SHA1: systems developers had been advised to abandon it for years, due to fear of collision finding methods. A paper in February/2017 finally made it practical.
Digital Signature
Signsk(m) = �
(pk,sk)
( m, )�
Ver(pk,m, ) = 1 or 0 �pk
Signm �sk Verm 1 or 0
pk
�
Transaction: General Idea● Transfer coins: Sign message using our own secret key,
to someone else public key (i.e., address)
● Transferring coins = Transaction (i.e., Tx)
● Intuition: The signature authorizes the coins to be transferred
● The other users see the authorization, and therefore understand that some coin has been spent
● How exactly the Hash function is used?
● Bitcoin Protocol and the Blockchain data structure
BitcoinThe most famous cryptocurrency (so far…)
History● Satoshi Nakamoto and its paper “A peer-to-peer
electronic cash system” in 2008
● Satoshi, who?
● Funny history: so far nobody knows who is “Satoshi Nakamoto”, there is still a lot of speculation about it
Bitcoin - Overview●Blockchain: global database (a ledger)●P2P Network●Decentralized●Value Transfer: Digital Signature●Proof-of-Work: the link on the
blockchain
Transfer of Value
pk1, sk1 pk2, sk2
Network/Peer-to-peer
Tx: = (value||pk2,Signpk1(value||pk2))
Tx Approved?● Tx is widely spread over the network , it is not valid
(yet!)
● The nodes collect all the transactions they see in the network
● Eventually, one node builds Block of transactions
● Building a single block is not a simple task
● The block is also spread over the network
Confirmation of Transaction
pk1, sk1 pk2, sk2
Tx: = (value||pk2,Signpk1(value||pk2))
Network/Peer-to-peer
One node succeeds Block
Tx-1
Tx-n
Tx-2...
https://blockexplorer.com
• Blocks have to accepted by
the network
• When accepted, it becomes
part of the blockchain …
Blockchain Data-Structure
H(B1||x2)B1
B2 B3
H(B2||x3) H(B3||x4)
B4
Blockchain Data-Structure
H(B1||x2)B1
B2 B3
H(B2||x3) H(B3||x4)
B4
H H(Bn-1||xn)Bn-1 || xn
• xn: Nonce• H(Bn-1||xn) has to have a number of 0’s:
00000…XXXXX• Trial-and-error: first and second pre-image
resistance property
• H(Bn-1||0000001) = 38402983471029
• H(Bn-1||0000002) = 98237029420420
• H(Bn-1||3425345) = 00000000020420Proof-of-Work
Review: Proof-of-Work
Transactions
Tx’s Hash
???????
Prev. BLK HASH
HA
SH
Transactions
• Collect transactions
Prev. BLK HASH
• Hash previous block
Tx’s Hash
• Hash transactions
NONCE
• Solve Proof-of-Work
• If you find it, you created a block!!!
Creating a new block is also known as Mining a block
The creator of a new block, receives automatically some bitcoins
Real Block
Still the Blockchain● Why such data structure?
● cannot be altered
● PoW prevents inserting/deleting blocks
● Global database
● a record for all transactions
● Public Ledger
Tx1- Alice sends 3 coins to Bob
Tx2- Jack sends 7 coins to John
Tx3 - Chris sends 30 coins to Daniel
Cryptocurrencies● There are several alternative cryptocurrencies
● Examples: Permacoin, Etherium, Namecoin, Dogecoin and etc…
● Differences: blockchain structure, reward structure, mining system, etc…
● Other functionalities: smart-contracts
Ethereum and Smart-Contracts● Ethereal: appeared Mid-2015
● Smart-Contract: program running over a virtual machine over the Blockchain
● It implements more complex smart-contract:
● Bitcoin: Script-like programming language
● Ethereum: Turing-complete programming language
Technical Challenges● Scalability: too slow, need more Tx
● PoW: too expensive● Alternatives:
• Proof-of-stake• Proof-of-retrivability• Etc…
● Anonymity: ZK, commitments, Ring and group signatures, Authenticated data structures, etc…
● Consensus algorithms/Analysis
● Game theory (block generation/reward)/ Analysis
Advanced Bibliography● “Bitcoin: A peer-to-peer electronic cash system”, Nakamoto -
2008
● “The Bitcoin Backbone Protocol: Analysis and Applications”, Garay and Kiayias – Eurocrypt 2015
● “ZeroCash: Decentralized Anonymous Payments from Bitcoin”, Ben-Sasson et. al – IEEE SSP 2014
● “SoK: Research Perspectives and Challenges for Bitcoin and Cryptocurrencies”, Bonneau et. al – IEEE SSP 2015
● “Bitcoin and Beyond: A Technical Survey on decentralized Digital Currencies”, Tschorsch and Scheuermann – IEEE Communications Survey & Tutorials 2016
Input Output Cryptocurrency Collaborative Research Chair
The Players
● Knowledge based company
● Goal: Design new cryptocurrencies
● Develop the theory behind cryptocurrency
● Make mission-critical software (available on git-hub)
● https://iohk.io (relevant papers, blog, research description)
● Tokyo Tech: I guess you know
● Educate
● Make research
● Tanaka Group: Cryptography research group
IOHK Research Centers● Tokyo Tech
● University of Edinburgh
● Athens Research Group
IOHK and Tokyo Tech
Collaboration Overview●Started on January/2017
●6 months before: July/2017
●Weekly research meetings
●Joint research/Publish papers
Already done
Future●Bring world class researchers to visit
Tokyo Tech
●New professor/researcher (prof. Bernardo David)
●Plan courses on Cryptocurrency and Cryptographic Protocols
Collaboration Final Goal
●Promote and develop the technology
●Nurture world class talent among the students
● Increase the collaboration between Tokyo Tech students/researches and international researchers
