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![Verification : When can an UTXO not be used?
1. When UTXO does not belong to the
“person” [ or the “wallet” or the
“public key” ] who is transferring
the asset
this can be easily checked from the signature
used to sign the transfer.
1. If the UTXO does not exist in the
database!
KPuA 800
KPuA 200
KPuB 1500
KPuB 500
KPuC 700
KPuC 800
KPuD 200
KPuE 1000
KPuB 600
KPuA 400
KPuE 100
KPuD 100
KPuC 700
KPuD 2500
KPuC 800
KPuB 500
sigC
sigC
sigC
sigC](https://image.slidesharecdn.com/wafi8vxdtsgozozcsdyk-signature-c1647b1a3714370cea583dbd934db202f2724382baefe57e77f63427977a11a9-poli-160220055812/85/Bitcoin-Blockchain-and-the-Crypto-Contracts-Part-2-6-320.jpg)
Uploaded byPrithwis Mukerjee
Bitcoin, Blockchain and the Crypto Contracts - Part 2
The document explores the concept of a shared ledger in the context of cryptocurrency, focusing on ownership and transfer of assets. It discusses the verification of transactions through a central ledger and how distributed ledgers maintain anonymity while preventing double spending. Additionally, the document covers the process of block verification and mining, outlining how a blockchain operates as a read-only database of validated transactions.
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Bitcoin, Blockchain and the Crypto Contracts - Part 2
- 1. Bitcoin, Blockchain & CryptoContracts Part 2 theshared ledger Prithwis Mukerjee, PhD, Praxis Business School, Calcutta, India
- 2. Establishing Ownership &Transfer of an Asset Problem with any non-material, or dematerialised asset is the question of ownership Arup can write a cheque to Bina without having money in the bank Or can write two cheques of Rs 1000 each to Bina and Dipa while having only Rs 1000 in the bank Arup may not have a house to sell Or may try to sell the same house twice
- 3. Ownership verified witha central ledger Each transaction is validated or allowed by a bank, or a share depository or a land registry office depending on the “balance” available in the central ledger Name Bal Arup 1000 Bina 2000 Chandru 1500 Dipa 200 Esha 4000 Arup transfers 600 to Bina Bina transfers 1500 to Chandru Chandru transfers 2500 to Dipa Dipa transfers 100 to Esha
- 4. The Distributed Ledger NameBal Arup 1000 Bina 2000 Chandru 1500 Dipa 200 Esha 1000 Arup xfers 600 to Bina Bina xfers 1500 to Chandru Chandru xfers 2500 to Dipa Dipa xfers 100 to Esha Name Bal Arup 1000 Bina 2000 Chandru 1500 Dipa 200 Esha 1000 Name Bal Arup 1000 Bina 2000 Chandru 1500 Dipa 200 Esha 1000 Everyone can keep a copy of the ledger. All copies are updated simultaneously. Anyone can verify any transaction. However everyone need not do so. Does not maintain ledger, only transacts
- 5. In reality, notbalance but are stored KPuA 800 KPuA 200 KPuB 1500 KPuB 500 KPuC 700 KPuC 800 KPuD 200 KPuE 1000 Arup xfers 600 to Bina KPuA 800 KPuA 200 KPuB 600 KPuA 400 KPuA 800 KPuA 200 KPuB 1500 KPuB 500 KPuC 700 KPuC 800 KPuD 200 KPuE 1000 KPuB 600 KPuA 400 Dipa xfers 100 to Esha KPuD 200 KPuE 100 KPuD 100 KPuA 800 KPuA 200 KPuB 1500 KPuB 500 KPuC 700 KPuC 800 KPuD 200 KPuE 1000 KPuB 600 KPuA 400 KPuE 100 KPuD 100 Chandru xfers 2500 to Dipa KPuA 800 KPuA 200 KPuB 1500 KPuB 500 KPuC 700 KPuC 800 KPuD 200 KPuE 1000 KPuB 600 KPuA 400 KPuE 100 KPuD 100 KPuC 700 KPuC 1000 KPuD 2500 The ledger stores public key, not name. Hence anonymous UTXO - Unspent Transaction Output KPuC 800 KPuB 500 What is a public key? See this slide deck!
- 6. Verification : Whencan an UTXO not be used? 1. When UTXO does not belong to the “person” [ or the “wallet” or the “public key” ] who is transferring the asset this can be easily checked from the signature used to sign the transfer. 1. If the UTXO does not exist in the database! KPuA 800 KPuA 200 KPuB 1500 KPuB 500 KPuC 700 KPuC 800 KPuD 200 KPuE 1000 KPuB 600 KPuA 400 KPuE 100 KPuD 100 KPuC 700 KPuD 2500 KPuC 800 KPuB 500 sigC sigC sigC sigC
- 7. Suppose Arup “DoubleSpends” KPuA 800 KPuA 200 KPuB 1500 KPuB 500 KPuC 700 KPuC 800 KPuD 200 KPuE 1000 Arup xfers 600 to Bina KPuA 800 KPuA 200 KPuB 600 KPuA 400 KPuA 800 KPuA 200 KPuB 1500 KPuB 500 KPuC 700 KPuC 800 KPuD 200 KPuE 1000 KPuB 600 KPuA 400 Arup xfers 800 to Esha KPuA 400 KPuA 500 KPuE 800 KPuA 800 KPuA 200 KPuB 1500 KPuB 500 KPuC 700 KPuC 800 KPuD 200 KPuE 1000 KPuB 600 KPuA 400 KPuA 100 KPuA 500 KPuE 800 KPuA 100 Arup creates a fake transaction and publishes a corrupt version of the ledger Will his fake transaction be accepted?
- 8. Network has fullnodes and light nodes (wallets) ledger ledger ledger ledger The ledger is huge ( ~ 50GB+) and growing. Not everyone can afford to have the ledger on his or her own machine for verification & transaction only transaction
- 9. Whose ledger iscorrect? Suppose Arup has “friends” who agree to take a copy of his “corrupt” ledger and declare that this is the ledger that they will follow Can this copy of the corrupt ledger become the accepted ledger? Yes, if a “sufficient” number of members of the network agree that this is indeed the true ledger and start using it What is a “sufficient” number? Say 51% but then .. total number of members in a peer-to-peer network is never known! So it is technically possible for a group of people acting in concert to inject fake UTXOs into the system thus creating a “parallel” ledger undermining the credibility of the “real” ledger
- 10. Verification A>B V1 C>D V2 P>QV6 A>B V1 C>D V2 M>N V7 G>K V8 C>D V2 M>N V7 A>B V1 C>D V2 P>Q V6 Pool of unverified transactions Multiple full nodes verify some transactions and assemble them into a BLOCK Block 234:id wxd Block 235:id esf Block 236 BLOCK CHAIN Ordered set of verified, valid transactions. Shared with all and cannot be changed. Which of these 4 blocks will be accepted as #236?
- 11. Proof of Work A>BV1 C>D V2 P>Q V6 A>B V1 C>D V2 M>N V7 G>K V8 C>D V2 M>N V7 A>B V1 C>D V2 P>Q V6 Block 234:id wxd Block 235:id esf A>B V1 C>D V2 M>N V7 Prev Block ID = esf “nonce” = 1,2,3 … set of valid txns hash keep trying various values of the nonce until you get a hash value that begins with a defined number of 0s A>B V1 C>D V2 M>N V7 whoever wins “the race” gets to place his block into the blockchain and then the race starts again for the next block verifying a block is easy, but locating the proof of work is computationally hard - you need a lot of raw CPU power the only way a false transaction can get into the block chain if a group of “criminals” control more than 50% of the computing power of the network “If a majority of CPU power is controlled by honest nodes, the honest chain will grow the fastest and outpace any competing chains” Satoshi Nakamoto
- 12. Reward! - theCoinbase transaction A>B V1 C>D V2 M>N V7 Block 234:id wxd Block 235:id esf A>B V1 C>D V2 M>N V7 miner R Why should anyone use his computational resources AND electric power to verify transactions for the network? Winner is allowed to add one coinbase transaction into the block chain that has No INPUT ONLY OUTPUT favouring winner This add value to the economy in general the wallet of the winner that he can use in subsequent transactions
- 13. The Mining Process Aself-sustaining mechanism 1. Validate Transactions 2. Demonstrate Proof-of-Work 3. Collect Rewards Keeps the Crypto-Economy running forward Block 234: id wxd Block 235: id wst Block 236: id qlp Block 237: id bre time >>> Block 238: id ??? Pool of unvalidated transactions BlockChain of of validated transactions
- 14. Latency, Simultaneity andthe Fork Since the size of the network is large, there is definite, non-zero time lag between the discovery of a new block and its announcement or detection in a “distant” node In this interval there is a finite, non-zero probability of another new block being discovered and hence detected before the other new block The block chain is “forked” and both parts of the chain (with the red block and the blue block) are kept as candidates UNTIL …. Block 234: id wxd Block 235: id wst Block 236: id qlp Block 237: id bre Block 238: id opx Block 238: id wer Note :Each block is chained to and defined by its predecessor
- 15. Until … thenext new block is detected! If the new block is derived from the red block then it elongates, the red fork of the chain. Otherwise it elongates the blue fork of the chain. Whichever chain is longer, has more “proof of work” and is generally accepted by the majority of nodes. Now all miners will try to locate the next block that will be derived from the latest block (239) and the blue fork ( containing 238) will be dropped or forgotten Block 234: id wxd Block 235: id wst Block 236: id qlp Block 237: id bre Block 238: id opx Block 238: id wer Block 239: id sur
- 16. Block Chain --the Shared Ledger The block chain is a read-only database of validated transactions that is shared by all but cannot be changed by anyone except the one who “discovers” the next block at the “head” of the chain. ❖ Can non-asset data be stored in transactions? ❖ Yes! Bitcoin is just one application The size of the Bitcoin blockchain in Feb 2015 is 55GB and is growing exponentially. It can be pruned, compressed and otherwise compacted but it is estimated that even if Bitcoin transactions exceed Visa card transactions, scalability will not be an issue because of Moore’s law. Block 234: id wxd Block 235: id wst Block 236: id qlp Block 237: id bre Block 238: id opx Block 238: id wer Block 239: id sur Beyond
- 17. So what doesthe shared ledger store? A new kind of 1. Crypto Currency 2. Crypto Commodity 3. Crypto Corporation Prithwis Mukerjee, PhD, Praxis Business School, Calcutta, India This question will be addressed next. See next presentation