Blockchain, bitcoin, ethereum and ICOs

Blockchain,Bitcoin
Ethereum, ICO
Principles
Bogdan Fiedur
bogdanfiedur@gmail.com

The Economist
Economist; 01/9/88, Vol. 306, pp 9-10

The Economist
Title of article: Get Ready for the Phoenix
Source: Economist; 01/9/88, Vol. 306, pp 9-10
THIRTY years from now, Americans, Japanese, Europeans, and people in many other rich
countries, and some relatively poor ones will probably be paying for their shopping with the
same currency. Prices will be quoted not in dollars, yen or D-marks but in, let’s say, the
phoenix. The phoenix will be favoured by companies and shoppers because it will be more
convenient than today’s national currencies, which by then will seem a quaint cause of much
disruption to economic life in the last twentieth century.

Blockchain
Blockchain is important because.
1. It puts control in hands of people
2. It is much secure than current financial solutions
3. It is much faster than current financial solutions

What is blockchain
Blockchain is a distributed ledger of immutable digital records
saved in a chain of units called blocks. This distributed ledger is a
database which is a consensus of replicated, shared, and
synchronized data spread over multiple sites, countries, and
institutions. A new block contains cryptographically hashed data
and is built upon the previous block in the chain, ensuring that the
data in the blockchain cannot be compromised.

The Byzantine Generals Problem

Blockchain philosophy & principles
● How do you solve Byzantine general’s problem within financial
world in trustless fashion?
● How Alice can send money to Bob without depending on third party
with guarantee that Alice owns money she is sending?
Answer:
Create distributed public blockchain (ledger).

Blockchain philosophy & principles

Features of the Blockchain Technology
● Decentralization
● A distributed ledger
● Safe and Secure Ecosystem
● Minting

Decentralization – storing assets on multiple computers without
need for central server.
Through decentralized technology, the owner has direct control
via their private key, which is directly linked to the asset. The
owner can transfer the asset whenever desired and to anyone
without third parties.
(No need for a bank, government or escrow )

Benefits of decentralization
● Empowered users
● Fault tolerance
● Durability and attack resistance
● Free from scams
● Removing third-party risks
● Higher transaction rate
● Lower transaction costs
● Transparency
● Immutability
● Authenticity

A distributed ledger
● A blockchain is a public ledger that provides information of all
the participants and all digital transactions that have ever been
executed
● Due to this attributes, distributed ledger can be used
● Track ownership
● Store digital assets
● For financial services
● Voting rights

A distributed ledger uses
● Fraud protection
● Easing of the management
● Assures ownership
● Removes mediator and speeds up the process

Safer and secure ecosystem by providing tamper
free environment
● All data is embedded in the network
● Huge computing power required to overpower the network and corrupt it
● No single point of failure as date is linked and verified
● Participants are incentivized to ensure watching for integrity of the network
● Each block has information about transaction hash of previous transaction
and itself
● By comparing the hash of the data, authenticity of the data can be verified.

Minting
● Minting can be accomplished through mining, which is rewarding miners for their work.
● Miners are active nodes which are running mining software.
● Proof of Work (PoW). Solving mathematical equation.
● Another concept is Proof of Stake (PoS)
● Master nodes.

Blockchain concepts
● Consensus mechanism is used to ensure that entire network agrees to state of Blockchain.
● Proof of Work (PoW) is used to ensure that nobody cheats and it is implemented through a
mathematical problem. Whoever solves problem first, has right to update state of the
Blockchain (create next block) and receives bounty in form of newly created coins and
transaction fees.
● Every other node in the network is then instructed to update their ledger with new block.
● Concept of mining has been created to provide rewards to active nodes. Miner earns
transaction fees and bounty in form of newly created coins.
● (PoW) difficulty is adjusted periodically through algorithm, to ensure that cheating is more
expensive than working according to expected behavior.

Blockchain concepts
● It would be possible to cheat the system through setting up large amount of nodes, but
this would require lots of hardware and electricity, which would be more expensive
than simply getting bounties.
● Parties interested in suppressing the Blockchain can still be interested in corrupting the
network.
● Nodes across the planet come to consensus without requiring third party for trust. The
system is trustless.
● When new block is created it covers previous blocks and their state can’t be changed
anymore. Blockchain is immutable. Can’t be altered.
● Block is a group of transactions created during set time intervals e.g. 10 minutes.

Blockchain concepts
● Chain is a series of blocks connected to each other.
● Not every block contains the same amount of transactions.
● Miner chooses which transactions to include, meaning they will
choose transactions with higher transaction fees.
● Transactions which are included in the block are called “confirmed”
transactions, transactions awaiting to be included are called
“unconfirmed”.

Blockchain concepts
● There is no guarantee that transaction will be included in the block.
● Sender of transaction has the option to specify the fee. The danger of
specifying fee too low is that transaction might be never included in the
block or it might take very long to process it.
● To speed up transaction, sender can increase transaction fee.
● It is advisable that one should wait about 6 confirmations to assume
that payment is permanent.

Blockchain concepts
● 6 blocks on average means 60 minutes in Bitcoin. Why so slow?
● It is possible that more than one computer wins mathematical problem at the
same time and they both keep creating new blocks which differ, meaning that
blockchain is in a state of “soft fork”.
● All computers in the network receive both winning blocks.
● At this stage blockchain is “out of synch”. Due to latency various computers will
receive both winning blocks in different order.
● Now whichever computer wins next block and it is accepted, other computers will
accept longest chain as the correct one.

Blockchain concepts
● The transactions in the losing chain, go back to unconfirmed transaction, unless they
have been already included in the winning chain.
● Soft forking is the main reason why system has to be slowed down via the math
problem and high energy requirement.
● Without this, consensus would be not achievable, because due to network slowness,
some groups of nodes would have different state of blockchain and would never agree.
They would be in constant state of correcting without clear winner. No consensus.
● With growing of computer power in the network, system continually increases difficulty
to ensure that block takes 10 minutes to build.

Bitcoin concepts
● Bitcoin was developed by pseudo-anonymous developer called Satoshi
Nakamoto. Nobody knows for sure who Nakamoto is and most analyst
believe this is fake name.
● Bitcoin is open source, meaning any software developer can look at it and
analyze its code. Without trusting who wrote it anyone can compile the code
and join the network.
● Bitcoin is a collection of technologies called cryptocurrency and allows
people to transact with each other.
● Only 21 million bitcoins will be ever created and last coin will be created May
7th, 2140

Bitcoin concepts
● Bitcoin can be sent by knowing other parties public key and has to be signed by sender
private key.
● Public key looks like this -> 1CcKaHfPy683G2YgqUQBwKUEArt8edrt1N
● Private key has to be kept private and revealing it, is equivalent with giving access to
your account to anyone.
● You will need to reveal public key whenever you want to receive money, much like
giving someone your email address for PayPal transaction.
● You will need to access your private key if you want to spend money, much like
providing password when logging into your PayPal account.

Bitcoin concepts
● Bitcoin can offer you privacy. You don’t need to reveal your name when sending it to
someone.
● In contrast, credit card contains your name, and your security code on the back for
anyone to see.
● Bitcoin is light years ahead of our current credit card technology in terms of privacy.
● Bitcoin is a payment network and currency simultaneously.
● Bitcoin runs on Blockchain.

Bitcoin concepts
● Mining is consuming a lot of energy, but it is still profitable. Currently it costs around
$2000 to create on Bitcoin.
● It is first full consensus system.
● Bitcoin is incorruptible and it has 3 concepts which ensure this.
○ Hash Function
○ Digital Signatures
○ Hash Pointers.

Bitcoin concepts
1. Hash function, which converts random set of inputs to an output of fixed size
● It is one way function
● It is collision free (only theoretically due to technology limitations)

Bitcoin concepts
2. Digital Signatures having following properties
Only you can sign but anyone can verify
Bitcoins is using ECDSA for digital signature.
(Elliptic Curve Digital Signature Algorithm)
p = 2256 – 232 – 29 – 28 – 27 – 26 – 24 – 1, a very large prime number

Bitcoin concepts
H(this-block) = H(H(previous-block) + data-in-this-block)
Hash Pointers

Bitcoin concepts
Putting it all together
1. New transactions are broadcast to all nodes.
2. Each node collects new transactions into a block.
3. Each node works on finding a “difficult” proof-of-work for its block.
4. When a node finds a proof-of-work, it broadcasts the block to all nodes (and gets paid in
terms of a monetary value).
5. Nodes accept the block only if all transactions in it are valid and not already spent.
6. Nodes express their acceptance of the block by working on creating the next block in the
chain, using the hash of the accepted block as the previous hash.

Ethereum
● Ethereum was created in 2015 by Vitalik Buterin.
● Bitcoin’s sole purpose is to be the virtual currency of
the internet, and uses blockchain to do this.
● Ethereum is also a blockchain platform but in
addition to sending money enables one to add logic.
Logic may or may not involve sending money.
● Logic created on Ethereum is called smart
contract.
● Ethereum has programing language called Solidity.
● To connect web pages with Ethereum one needs
Javascript libraries like Web3.
Vitalik Buterin
23 years old

Ethereum features
● Decentralised platform
○ Ethereum is a decentralized platform that runs smart contracts
● Smart contracts
○ applications that run exactly as programmed without censorship, fraud or third-party
interference.
● DAPPs (Distributed Apps)
○ This enables developers to create markets, store registries of debts or promises, move
funds in accordance with instructions given long in the past (like a will or a futures
contract) and many other things that have not been invented yet, all without a
middleman or counterparty risk.”

Ethereum features
● The big idea behind Ethereum is that anybody can use this new, decentralized network to
create and run decentralized applications. No permission is needed because third parties are no
longer required.
● Think of Ethereum as a technology platform that allows anybody to run applications on its
global network.
● Because these applications no longer use a central server, they are known as decentralized
applications (or dApps). In other words, no central authority is needed to create and run them.
● Ethereum users are located all around the world and volunteer their computers to help run the
Ethereum network. They are called miners and they earn transaction fees and bounty.

Ethereum Smart contract example
● Uber on blockchain
○ John wants a ride and places the order.
○ Alice sees the order and responds to John with the price.
○ Jim sees the order and responds to John with the price.
○ John looks at the reputation of Jim and Alice and chooses Alice even if she is more
expensive because she has more seniority and lots of good reviews.
○ John places the payment into the smart contract (escrow account).
○ Alice arrives and takes John to his destination.
○ John releases the the funds.
(John can’t get back the funds unless Alice agrees on this.)
○ John provides review for Alice service.
○ Alice has option to provide review.

Ethereum Features
● Create your own currency in minutes
● ERC20 Token contract
● contract ERC20Interface {
string public name = "Token Name";
string public symbol = "SYM";
uint8 public decimals = 18; // 18 is the most common number of decimal places
function totalSupply() public constant returns (uint);
function balanceOf(address tokenOwner) public constant returns (uint balance);
function allowance(address tokenOwner, address spender) public constant returns (uint
remaining);
function transfer(address to, uint tokens) public returns (bool success);
function approve(address spender, uint tokens) public returns (bool success);
function transferFrom(address from, address to, uint tokens) public returns (bool success);
event Transfer(address indexed from, address indexed to, uint tokens);
event Approval(address indexed tokenOwner, address indexed spender, uint tokens);
}

Ethereum Features
Ethereum denominations:
1 Ether = 1000000000000000000 Wei (18 zeros)
● 1 Ether = 1000000000000000 Kwei
● 1 Ether = 1000000000000 Mwei
● 1 Ether = 1000000000 Gwei
● 1 Ether = 1000000 Szabo
● 1 Ether = 1000 Finney
● 1 Ether = 0.001 Kether
● 1 Ether = 0.000001 Mether
● 1 Ether = 0.000000001 Gether
● 1 Ether = 0.000000000001 Tether

Ethereum Features
Gas
● Gas is a unit of measurement for computational steps. Every transaction is required to include a gas limit and a fee that it is
willing to pay per gas (that is, pay per computation); miners have the choice of including the transaction and collecting the
fee. If the gas used by the transaction is less than or equal to the gas limit, the transaction processes. If the total gas
exceeds the gas limit, then all changes are reverted, except that the transaction is still valid and the fee (that is, the product
of the maximum gas that can be used and gas price) can still be collected by the miner.
● The miners decide the gas price (that is, price per computation). If a transaction has a lower gas price than the gas price
decided by a miner, the miner will refuse to mine the transaction. The gas price is an amount in a wei unit. So, a miner can
refuse to include a transaction in a block if the gas price is lower than what it needs.

Ethereum
http://www.ethviewer.live/

Ether Stats
https://ethstats.net/

Etherscan
ICO for SocialX Crowdfunding contract.
https://etherscan.io/address/0xbd59ed7c40f4df71d4638ea192411edc2c925a1b

ICO (Initial Coin Offering)
● IPO is not the same as ICO
● Whitepaper
● Team
● Website
● Advisors
● Communication channels
● Prototype
● Roadmap
● Blog
● Marketing Team
● Strategic Partners

ICO Resources and Calendars
● https://icobench.com/
● https://tokenmarket.net/
● https://icowatchlist.com/
● https://hacked.com/ico/
●

The Future of ICOs
https://www.polymath.network/
The Polymath Solution
The Polymath platform opens up the blockchain to legally compliant securities offerings with a network of services
designed to lower associated transaction costs.
At a high level, Polymath:
1. Provides a decentralized protocol for trading securities tokens.
2. Enables individuals to authenticate their identity, residency, and accreditation status to participate in a wide pool of
security token offerings (STOs).
3. Allows legal delegates to bid on new issuances to ensure offerings are done in a regulatory compliant manner.
4. Allows issuance of new security tokens by matching issuers with developers, who can translate their Security Offering
parameters into secure code that generates ERC20 compatible tokens. Polymath’s system can be modeled as a set of
Participants, Assets, Marketplaces, and Processes.

Are you interested in Blockchain
programming?
● There are potential opportunities to be involved in Winnipeg
● Working as freelancer through Upwork
● Finding opportunities through Linkedin

Job opportunities
Looking for developers for the Blockchain office in Winnipeg
2 blockchain / smart contracts
2 backend nodes.js
2 front end ui (react.js)
Some of the requirements
● Javascript (ES6 and beyond)
● Next.js, ReactJS, Redux, Apollo/Relay, GraphQL
● RESTful API design and implementation
● Ethereum / Hyperledger
● Smart Contracts / Solidity

Contact me
bogdanfiedur@gmail.com
http://blockchainexperts.io/

Blockchain, bitcoin, ethereum and ICOs

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