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Blockchain 101
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- 2. About Oded Noam ChiefArchitect @ ORBS Head of Blockchain Architecture @ Kik oded@orbs.network Developing blockchain infrastructure for mass-market applications
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- 6. Principles Public DecentralizedTransparent Permissionless Bitcoin ✔ ✔ ✔ ✔ Ethereum ✔ ✔ ✔ ✔ Ripple ✔ ✔ ✔ ~✘ Stellar ✔ ✔ ✔ ~✘ Chain.com ✘ ✔ ✘ ✘ Hyperledger ✘ ✔ ✘ ✘ IOTA ✘ ✘ ✔ ✔
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- 8. Crypto Primitives Cryptographic Hash ● Hashany binary object to a fixed-size number ● Changing 1 bit completely changes the hash; Impossible to reverse ● Uniformly distributed; the collision probability of 256-bit hash is 1:2128 (i.e. “never”)
- 9. Crypto Primitives Public-Key Cryptography ● Encryptwith public key → must have private key to decrypt ● Encrypt with private key → anyone with the public key can decrypt ● Latter method can be used for signing: hash a message, encrypt the hash with your private key. Now anyone who has your public key can verify you are the signer (this is in fact a more common use of PK than encryption)
- 10. Crypto Primitives State Machine Replication ● Goal:Create a mechanisms for many computers to agree on their memory contents (e.g. ledger) ● Method: Start with a predefined initial state, then periodically agree on a set of differences ● Blockchain: the initial state is the genesis block, each set of differences is coded into a block referencing the previous
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- 12. Consensus Protocols Challenges of Consensus ●Must have consensus over ○ Content of blocks ○ Order of blocks ● Agreement on blocks has winners and losers → consensus is hard ● Decentralization opens the door to Byzantine Faults ● Being permissionless opens the door to Sybil Attacks
- 13. Consensus Protocols Proof-of-Work ● Mitigate sybilattack by requiring validator to prove they spent money on signing a block ● Mostly, use a hash puzzle: ○ Block has placeholder for arbitrary data ○ Validators must find a number that yields hash(block) < target number ○ Lower the target to make it harder to solve (difficulty) ○ Solver gets fees (and optionally a reward) ● Drawbacks: Wasteful, carbon footprint, slow
- 14. Consensus Protocols Proof-of-Stake ● Mitigate sybilattack by allocating voting power based on currency ownership (stake) ● Most implementations have validator put a collateral; if found cheating the collateral is confiscated ● Drawbacks: hard to engage all stake owners, circular logic
- 15. Consensus Protocols Permissioned Protocols ● Notsubject to Sybil attacks ● Byzantine fault tolerant algorithms exist ● Drawbacks: not entirely open
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- 17. Economics Bitcoin Economics ●Predetermined supply, asymptotic to 21m ● Distribution through mining: PoW rewards (decreasing in size; started at ₿50; today ₿12.5) ● Fees determined by market price ○ Transaction sender can determine the fee ○ Miners choose which transactions to include ○ Block size is limited, price surges when network busy
- 18. Economics General MonetaryPrinciples ● Coins can be minted or mined (or both - e.g. Ether) ● Supply can be ○ Fixed (most ICOs) ○ Predetermined schedule (Bitcoin, Ether) ○ Dynamic (Bancor) ● Mining also creates distribution ● Minting enables funding through crowd-sale
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- 20. Smart Contracts Blockchain Consensus isan Infrastructure for Decentralized Apps ● Past: Decentralized Apps (protocols) needed their own network ○ Fax ○ Internet ○ WWW ○ BitTorrent ○ Bitcoin ● Present: execute ĐApp code on Blockchain ○ Turing-complete virtual machine ○ Consensus on execution outcome
- 21. Smart Contracts Current Gen SmartContracts ● Ethereum pioneers smart contract network ● Execution is duplicated on ~20,000 nodes ● Very slow and costly ● Killer app: crypto tokens; other uses very rare ● Naïve governance: immutable contracts
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- 23. Incumbent Limitations Bitcoin ● Low throughput(~6 tx/s) ● High latency (10 min/block, suggested 6-block depth for high probability of confirmation) ● Monetary system unfit as means of exchange ● Limited privacy ● Questionable compliance with AML regulation ● Messy governance, forks
- 24. Incumbent Limitations Ethereum ● Low throughput(~20 tx/s) ● Variable latency (confirmation time between few seconds to several hours) ● Very limited privacy ● Questionable compliance with AML regulation ● Centralized governance (hard fork controversy)
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