blockchain-and-money.md

Notes for MIT 15.S12 Blockchain and Money

id - 8221b95996b98786920f966593ef7654

Readings
Slides

1. Introduction

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2. Money, Ledgers & Bitcoin

Fiat money

• Money is a social & economic consensus

• Fiat money is but the curient lead is in a long evoilution of money

• Fiat money has had chalanges and instability as well

• Leagers are method for Recordind Economic Activity & Finantial Relationships

• Central Banking and Finantial Sectors are built upon series of Ledgers

• We now live in electronic Curriency Age

• Many efforts have been made at Cryptographic Digital Curiencies

Why did earyly digital curencies failed

• Merchant adoption
• Centralization
• Double spending
• Consensus

Bitcoin: A Peer-to-Peer Electronic Cash System

3. Blockchain Basics & Cryptography

Design features

• Cryptography

• Append-only timestamped blocks

• Distributed consensus algorithm

• Networking

• Cryptographic hash function

• Asymetric cryptography

• Digital sigantures

• Double-spend problemm

Bitcoin technical features

• Cryptographic hash function

• Timestamp apend-only logs (Blocks)

• Block header & Merkle trees

• Asymetric Cryptography & Digital Signature

• Addresses

• Consensus through proof of work

• Network of Nodes

• Native curency

• Transaction inputs & outputs

• Unspent Transaction Output (UTXO)

Bitcoin hash functions

• Headers & Merkle trees - SHA 256
• Bitcoin Addresses - SHA 256 and RIPEMD160

Block Header

• Version
• Previous Block Hash
• Merkle Root Hash
• Timestamp
• Difficulty Target
• Nonce

Digital Signature Algorithms

• Generate Kay Pair - Public Key (PK) & Private Key (sk) - from random number
• Signature - Create Digital Signature (Sig) from message (m) and Private key (sk)
• Verification - Verify if signature is valid for message and public key
• Bitcoin digital sigature function - Elliptic Curve Digital Signature Algorithm (EDCSA)

4. Blockchain Basics & Consensus

Reading

• 'Geneva Report' Chapter 1 (page 1-7) ; Casey, Crane ...
• 'Blockchain technology review' NIST (pages 23-32, sections 3,4)
• 'The Byzantin General Problem' Lamport, Shostak, & Pease (382-387)
• 'A short guide to consenus protocol' CoinDesk

Decentralized Network Consensus

• Proof of work
• Native currency
• Network

Network

• Full Nodes - Store full blockchain & able to validate all transactions
• Pruning Nodes - Prune transactions after validation and aging
• Lightweight Nodes - Simplified paiment verification (SPV) nodes - store blockchain headers only
• Miners - Perform proof of work and create new blocks - do not need to be full nodes
• Mining pool operators
• Wallets - Store, View, Send and Receive Transactions & Create key pairs
• Mempool - Pool of unconfirmed (yet validated) Transactions

5. Blockchain Basics & Transactions, UTXO and Script Code

Readings

• 'Bitcoins academic pedigree' Narayanan and Clark
• 'Making sense of Cryptoeconomics' CoinDesck

Transaction reward for solving Proof of Work

• Only input is coinbase block reward
• Reward halves (1/2s) every 210 000 blocks
  • Originly 50 bitcons per block
• Output can not be used as a Transaction input until another 100 blocks

Bitcoin Script

• Stack based code with no loops
• Provides a flexible set of instruction for Transaction validation and signature authentication
• Most common sctipy types in UTXO
  • Transaction sent to hash of bitcoin address - 'Pay to PubkeyHash' - 81 %
  • Transaction sent to hash of Conditional script - 'Pay to ScriptHash' - 18 %
  • Transaction subject to Multiple Signatures - 'M to N Mulsting' - 0.7 %
  • Transaction sent to Bitcoin Addresses - 'Pay to Pubkey' - 0.1 % (sources: Perez-Sola , Delgado-Segura)