How blockchain works? What is it all about? Introduction to technology behind bitcoin and look into future on smart contracts and ethereum framework.

1. Blockchain, smart contracts
introduction
© Lukasz Jarmulowicz 2016

2. TL; DR
- History, background
- Solved problems
- How it works (wallets, transactions, mining)
- Ethereum, Smart contracts
- Profit

3. Why bitcoin?

4. Ledger
A general ledger contains all the accounts for
recording transactions relating to a company's
assets, liabilities, owners' equity, revenue, and
expenses.
Purpose: To have financial statement

5. Double spendingByzantine Generals Problem
More generally, the B.G.P. poses the question
of how to establish trust between otherwise
unrelated parties over an untrusted network
like the Internet.
The problem to be solved is:
● All loyal generals need to decide upon
the same plan of action.
● A small number of traitors cannot cause
the loyal generals to adopt a bad plan.

6. Bitcoin
In October 2008, “Satoshi Nakamoto” published a paper describing the bitcoin
digital currency. In January 2009, Nakamoto released the first bitcoin software
that launched the network and the first units of the bitcoin cryptocurrency,
called bitcoins.

7. Distributed ledger - Blockchain
The block chain is a shared public ledger on which the entire Bitcoin network
relies. All confirmed transactions are included in the block chain. This way,
Bitcoin wallets can calculate their spendable balance and new transactions
can be verified to be spending bitcoins that are actually owned by the spender.

8. A mysterious new technology emerges, seemingly out of nowhere, but actually the
result of two decades of intense research and development by nearly anonymous
researchers.
...
Eventually mainstream products, companies and industries emerge to commercialize
it; its effects become profound; and later, many people wonder why its powerful
promise wasn’t more obvious from the start.
...
What technology am I talking about? Personal computers in 1975, the Internet in 1993,
and – I believe – Bitcoin in 2014
Marc Andreesen, creator of Netscape Navigator

10. Davos 2016 - big attention

11. Even in Russia...
https://www.youtube.com/watch?v=BXlAH2fhyoU

12. Ok, ok.. but how it works ?

13. Wallet

14. Transactions

15. Transaction signing - scripts inside
Small program inside each transaction that gets
executed to decide if a transaction is valid

16. Transaction chain gives balance

17. Confirming transactions - mining

18. Mining - blocks
Bitcoin mining is the process that puts
transactions into a block, to make sure everyone
has a consistent view of the transaction log.
Mining is also the mechanism for new bitcoins to
enter the system. When a block is successfully
mined, new bitcoins are generated in the block
and paid to the miner.
This mining bounty is large - currently 25
bitcoins per block (~ $14,000).

19. This is blockchain

21. Recap
Wallets
Transactions
Transaction chain > balance
Mining > creating linked blocks
Example?

22. Ethereum, smart contracts

23. Ethereum was initially proposed by Vitalik Buterin in late 2013 and in 2014 he described it as
"A Next-Generation Cryptocurrency and Decentralized Application Platform".
Ethereum's live blockchain was launched on 30 July 2015. The Ethereum software project was initially
developed by a Swiss company, Ethereum Switzerland GmbH (EthSuisse) and a Swiss non-profit
foundation, the Ethereum Foundation.

24. Ethereum Virtual Machine
Programmable blockchain - Rather than give
users a set of pre-defined operations (e.g.
bitcoin transactions), Ethereum allows users to
create their own operations of any complexity
they wish.
Bitcoin blockchain was purely a list of
transactions, Ethereum’s basic unit is the
account. The Ethereum blockchain tracks the
state of every account, and all state transitions
on the Ethereum blockchain are transfers of
value and information between accounts.
Platform for many different types of
decentralized blockchain applications, including
but not limited to cryptocurrencies.

25. Smart contracts
● Contracts lives on the Ethereum blockchain
● Have own Ethereum address and balance
● Can send and receive transactions
● “Activated” when you send a transaction to it

26. Smart contracts
● 4 Ethereum high level
languages
○ Solidity (similar to js)
● Compile (Mix IDE)
● Deploy (you pay for
execution gas - > eth)
● Interacting with smart
contracts
● Mining - little different than
bitcoin (few changes)

27. Plans for smart contracts usage

28. ETHEREUM AS A ‘WORLD
COMPUTER’
Computation on Ethereum is slow
and expensive.
(currently similar to smartphone?!)
For computation, there are better,
cheaper and faster alternatives that
don’t require blockchains and all
that.
Ethereum can create
various forms of economic
alignment, shared purpose
and coordination between
thousands of anonymous
people, at a fraction of a
cost compared to
alternatives (legal
frameworks).
Sharing economy (ex. uber,
airbnb) will be everywhere.

29. Decentralized autonomous organizations (“DAO”)
● Best comparable to a digital company, but without an attached legal entity
● The Owner (kind of admin) can add (or remove) voting members to the organization
● Any member can make a proposal (by sending transaction or execute contract)
● People vote on proposals
● Allows people to participate in risks & rewards of digital ventures

30. Cons
Scalability
Confidentiality
Valuations
No Buyer Protection - real time

32. Thank you.
Questions?
© Lukasz Jarmulowicz 2016