The document discusses problems with the current financial system and how blockchain technology and open source can help address these issues. It outlines issues like slow adaptation, high costs, and perverse incentives of legacy banking as well as the Byzantine Generals' Problem of distributed consensus. It then provides an overview of how blockchain and cryptocurrency technologies like Bitcoin work through the use of cryptography, hash functions, mining, and scripting to enable applications like payments, smart contracts, and sidechains in a decentralized, open source manner.

1. Bitcoin, the Blockchain,
and Open Source
Why Finance is the Next Frontier for Open Source
Eric Martindale · All Things Open · Raleigh, NC · October 19th, 2015

2. What’s the problem?
Money as DebtLegacy Banking Infrastructure Confabulation of Money & State
● slow to adapt
● highly expensive
● possibly malicious
● perverse incentives
● not very scalable
● possibly malicious
● perpetual interest
● questionable merit
● probably malicious

3. What’s the problem?
private key

4. Ledgers

5. Shared Ledgers?
Problem: each party must
trust all of the others; any
malicious actor “cooking
the books” can lie about
how much they have!
Sally Bank
KT Bank Co.
Bob Co.
Alice’s
Credit
Leaping Lou
Investments

6. Byzantine Generals’ Problem

7. Byzantine Generals’ Problem
Byzantine Fault:
Any fault presenting different symptoms to different observers.

8. Byzantine Generals’ Problem
Byzantine Fault:
Any fault presenting different symptoms to different observers.
Byzantine Failure:
The loss of a system service due to a Byzantine fault in systems
that require consensus.

9. Byzantine Generals’ Problem
Solution: Open Source All The Things!

10. Cryptography

11. Elliptic-Curve Cryptography

12. Asymmetric Cryptography

13. Bitcoin Transactions

14. Hash Functions

15. Hash Functions, Important Features
Cryptographically-strong hash
functions must be easy to
compute, but impossible to
reverse.
A one-way function with no
inverse function.
Cryptographically-strong hash
functions should therefore have
unpredictable output, so they
cannot be easily reversed.
Changing one byte of the input
should completely change the
output.

16. Bitcoin Mining
000000000000000011d1ae8e1400bc7d7abc19de5769270083841b6b3...
arbitrary criteria
Meeting these arbitrary
criteria will grant you
50 25
new Bitcoin.

17. Bitcoin Mining

18. Bitcoin Mining

19. Bitcoin Scripting (basic transaction)
Objective: verify that the original owner of the tokens being redeemed is in
possession of the same private key as this new redemption transaction.

20. Bitcoin Scripting (basic transaction)
Objective: verify that the original owner of the tokens being redeemed is in
possession of the same private key as this new redemption transaction.
OP_DUP OP_HASH160 62e907b15cbf27d… OP_EQUALVERIFY OP_CHECKSIG

21. Bitcoin Scripting (basic transaction)
Objective: verify that the original owner of the tokens being redeemed is in
possession of the same private key as this new redemption transaction.
OP_DUP OP_HASH160 62e907b15cbf27d… OP_EQUALVERIFY OP_CHECKSIG
duplicate top stack item
(tx hash)
hash the top stack item
make top stack item
equal 62e90…
compare top stack
item with register
check signature of top
stack item

22. Bitcoin Scripting (basic transaction)
private key

23. Bitcoin Scripting (basic transaction)
private key a26ec7025e8f7f01c07d2dfcdb2256ef00…
4356d540433581084a1b3ca91cca9ac13d…public key

24. Bitcoin Scripting: Multi-Sig

25. Bitcoin Scripting: Multi-Sig
Objective: implement multi-factor authentication to prevent loss or theft in the
event of a security compromise.

26. Bitcoin Scripting: Multi-Sig
Objective: implement multi-factor authentication to prevent loss or theft in the
event of a security compromise.
2 519d4ba… ab19bef… d3ba14d… 3 OP_CHECKMULTISIGVERIFY

27. Bitcoin Scripting: Multi-Sig
Objective: implement multi-factor authentication to prevent loss or theft in the
event of a security compromise.
2 519d4ba… ab19bef… d3ba14d… 3 OP_CHECKMULTISIGVERIFY
number of signatures
required all the public keys
allowed to sign
number of total
keys provided
verify signatures, continue if
minimum is met

29. Use Cases

30. Bitcoin Scripting: Data
Objective: store some data permanently.
OP_RETURN Hello, world!
return opcode
data to return

31. Bitcoin Scripting: Data
Objective: store some data permanently.
OP_RETURN Hello, world!
return opcode
data to return
As long as someone, somewhere is
running the Bitcoin client, this data
cannot be deleted!

32. Bitcoin Scripting: Data
Bitrated
https://www.bitrated.com/

34. Smart Contracts
Objective: write some arbitrary program and run it without trusting a server.

35. Sidechains

36. Sidechains

37. Use Cases
Smart Contracts:
https://en.bitcoin.it/wiki/Contract
Multi-sig:
https://copay.io
Sidechains:
https://blockstream.com

38. Questions?
or comments. I’ll take those too.
Eric Martindale · All Things Open · Raleigh, NC · October 19th, 2015
martindale
martindale
eric@decentralize.fm

39. Open Source Finance