Understanding Cryptocurrency

1. Part 2:
Cryptocurrency Intuition

2. Plan of Attack
• What is Bitcoin?
• Bitcoin’s Monetary Policy
• Understanding Mining Difficulty
• Virtual Tour of a Bitcoin Mine
• Mining Pools
• Nonce Range
• How Miners pick transactions?
• How do Mempools work?
• Orphaned Blocks
• The 51% Attack
• Extra- Bits to target conversion

3. 3 Layers of Cryptocurrency

4. CoinMarketCap.com

5. What is Bitcoin?

7. Bitcoin’s Monetary Policy

8. HALVING

9. BLOCKCHAIN FREQUENCY

10. Understanding the Mining Difficulty

11. What is the current target and how does it feel?
Data:
X  Y 100 Rs
X  Amazon 1000 Rs
Y  Z 900 Rs

12. What is the current target and how does it feel?

13. What is the current target and how does it feel?

14. How is “mining difficulty” calculated?

15. How is “mining difficulty” calculated?
• https://qz.com/1054805/what-its-like-working-at-a-sprawling-
bitcoin-mine-in-inner-mongolia/

16. How is “mining difficulty” calculated?

17. How is “mining difficulty” calculated?

18. Mining Pools

19. Mining Pools
https://www.ebay.com/p/3005413737

20. Mining Pools
https://www.ebay.com/p/3005413737

21. Mining Pools

22. Mining Pools

23. Nonce Range
Data:
X  Y 100 Rs
X  Amazon 1000 Rs
Y  Z 900 Rs

24. Nonce Range

25. Nonce Range
Data:
X  Y 100 Rs
X  Amazon 1000 Rs
Y  Z 900 Rs

26. Nonce Range
Data:
X  Y 100 Rs
X  Amazon 1000 Rs
Y  Z 900 Rs

27. Unix Time

28. Nonce Range
Data:
X  Y 100 Rs
X  Amazon 1000 Rs
Y  Z 900 Rs

29. Nonce Range

30. Nonce Range
Data:
X  Y 100 Rs
X  Amazon 1000 Rs
Y  Z 900 Rs

31. Nonce Range

32. How Miners Pick Transactions?

33. How Miners Pick Transactions?

34. How Miners Pick Transactions?

35. How Miners Pick Transactions?

36. How Miners Pick Transactions?

37. How Miners Pick Transactions?

38. How Miners Pick Transactions?

39. How Miners Pick Transactions?

40. How Miners Pick Transactions?

41. How Miners Pick Transactions?

42. CPU, GPU and ASIC’s machines used by miners

43. How do mempools work?

44. How do mempools work?

45. How do mempools work?

46. How do mempools work?

47. How do mempools work?

48. How do mempools work?

49. How do mempools work?

50. How do mempools work?

51. How do mempools work?

52. How do mempools work?

53. How do mempools work?

54. How do mempools work?

55. How do mempools work?

56. Orphaned Blocks
Orphan blocks or stale blocks, are blocks that are
not accepted into the blockchain network due to a
time lag in the acceptance of the block in question
into the blockchain, as compared to the other
qualifying block. Orphan blocks are valid and
verified blocks but have been rejected by the chain.

57. The 51% Attack

58. The 51% Attack

59. The 51% Attack

60. The 51% Attack

61. Deriving the current target

62. Deriving the current target

63. Deriving the current target

64. Where do Transaction Fees come from?

65. Where do Transaction Fees come from?

66. Where do Transaction Fees come from?

67. Where do Transaction Fees come from?

68. Where do Transaction Fees come from?

69. Where do Transaction Fees come from?
Gauri Me 0.1 BTC
SatishMe 0.1 BTC
Prachi  Me 0.4 BTC
Shreyas Me 0.3 BTC
Prachi Me 0.3 BTC
I want to buy a bicycle for 0.9 BTC and an apple for 0.02 BTC
TRANSACTION:
Input:
0.4 BTC from Prachi
0.3 BTC from Shreyas
0.3 BTC from Prachi
Output:
0.9 BTC to the bike shop
0.02 BTC to the fruit shop
0.06 BTC to myself
FEES: 0.02 BTC
UTXOs
UTXO for the bike shop
UTXO for the friut shop
UTXO for me
UTXO for the miner

70. Gauri Me 0.1 BTC
SatishMe 0.1 BTC
Prachi  Me 0.4 BTC
Shreyas Me 0.3 BTC
Prachi Me 0.3 BTC
Me  Me 0.06 BTC
Where do Transaction Fees come from?

71. How Wallets Work ?
Gauri Me 0.2 BTC
AkashMe 0.1 BTC
Prachi  Satish 0.5 BTC
Me  Me 0.25 BTC
Gauri Akash 0.1 BTC
MaimunaMe 0.1 BTC
Prachi  Gauri 0.3 BTC
Shreyas Me 0.2 BTC
Me  Bicycle Shop 0.1 BTC
Me  Friut Shop 0.1 BTC
Me  Me 0.4 BTC
Shreyas Me 0.3 BTC
Me  Maimuna 0.1 BTC
Me Me 0.1 BTC
Prachi  Me 0.4 BTC
Shreyas Akash 0.3 BTC
Balance = 2.05 BTC

72. Signatures: Public and Private Keys

73. Signatures: Public and Private Keys
https://tools.superdatascience.com/blockchain/public-private-keys/keys

74. Create Cryptocurrency Demo
Flask==0.12.2: pip install Flask==0.12.2
# Postman HTTP Client: https://www.getpostman.com/
# requests==2.18.4: pip install requests==2.18.4
#Requests is a Python module that you can use to send all kinds of HTTP requests.

75. Importing the Libraries
import datetime
import hashlib
import json
from flask import Flask, jsonify, request
import requests
from uuid import uuid4
from urllib.parse import urlparse

76. Implementation in 3 Parts
1. Building Blockchain to create a cryptocurrency.
2. Mining new blocks to welcome some new transactions of
the cryptocurrency currencies between several persons.
3. Decentralizing the blockchain.

77. Part 1: Building a Blockchain
class Blockchain:
def __init__(self):
self.chain = []
self.transactions = []
self.create_block(proof = 1, previous_hash = '0')
self.nodes = set() //required for consensus implementation
def create_block(self, proof, previous_hash):
block = {'index': len(self.chain) + 1,
'timestamp': str(datetime.datetime.now()),
'proof': proof,
'previous_hash': previous_hash,
'transactions': self.transactions}
self.transactions = []
self.chain.append(block)
return block

78. Part 1: Building a Blockchain
def add_transaction(self, sender, receiver, amount):
self.transactions.append({'sender': sender,
'receiver': receiver,
'amount': amount})
previous_block = self.get_previous_block()
return previous_block['index'] + 1

79. Part 1: Building a Blockchain
def add_node(self, address):
parsed_url = urlparse(address)
self.nodes.add(parsed_url.netloc)

80. Part 1: Building a Blockchain
def replace_chain(self):
network = self.nodes
longest_chain = None
max_length = len(self.chain)
for node in network:
response = requests.get(f'http://{node}/get_chain')
if response.status_code == 200:
length = response.json()['length']
chain = response.json()['chain']
if length > max_length and self.is_chain_valid(chain):
max_length = length
longest_chain = chain
if longest_chain:
self.chain = longest_chain
return True
return False

81. Part 2: Mining a Blockchain
# Creating a Web App
app = Flask(__name__)
# Creating an address for the node on Port 5000
node_address = str(uuid4()).replace('-', '')
# Creating a Blockchain
blockchain = Blockchain()

82. # Mining a new block
@app.route('/mine_block', methods = ['GET'])
def mine_block():
previous_block = blockchain.get_previous_block()
previous_proof = previous_block['proof']
proof = blockchain.proof_of_work(previous_proof)
previous_hash = blockchain.hash(previous_block)
blockchain.add_transaction(sender = node_address, receiver = ‘Jyoti', amount = 1)
block = blockchain.create_block(proof, previous_hash)
response = {'message': 'Congratulations, you just mined a block!',
'index': block['index'],
'timestamp': block['timestamp'],
'proof': block['proof'],
'previous_hash': block['previous_hash'],
'transactions': block['transactions']}
return jsonify(response), 200

83. # Adding a new transaction to the Blockchain
@app.route('/add_transaction', methods = ['POST'])
def add_transaction():
json = request.get_json()
transaction_keys = ['sender', 'receiver', 'amount']
if not all(key in json for key in transaction_keys):
return 'Some elements of the transaction are missing', 400
index = blockchain.add_transaction(json['sender’],
json['receiver'], json['amount'])
response = {'message': f'This transaction will be added to Block
{index}'}
return jsonify(response), 201

84. # Part 3- Decentralizing the Blockchain
# Connecting new nodes
@app.route('/connect_node', methods = ['POST'])
def connect_node():
json = request.get_json()
nodes = json.get('nodes')
if nodes is None:
return "No node", 400
for node in nodes:
blockchain.add_node(node)
response = {'message': 'All the nodes are now connected. The Icoin
Blockchain now contains the following nodes:',
'total_nodes': list(blockchain.nodes)}
return jsonify(response), 201

85. # Replacing the chain by the longest chain if needed
@app.route('/replace_chain', methods = ['GET'])
def replace_chain():
is_chain_replaced = blockchain.replace_chain()
if is_chain_replaced:
response = {'message': 'The nodes had different chains so the
chain was replaced by the longest one.',
'new_chain': blockchain.chain}
else:
response = {'message': 'Great. The chain is the largest one.',
'actual_chain': blockchain.chain}
return jsonify(response), 200

86. {
"nodes": ["http://127.0.0.1:5001",
"http://127.0.0.1:5002",
"http://127.0.0.1:5003"]
}
Contents of nodes.JSON File

87. {
"sender": "",
"receiver": "",
"amount":
}
Contents of transaction JSON File

88. 1. Create three nodes with port 5001, 5002, and 5003
2. Create three python files and copy the same code to each file with names as icoin_node_5001, icoin_node_5002,
icoin_node_5003
3. Change the port nos. accordingly in the files
# Running the app
app.run(host = '0.0.0.0', port = 5000)
4. Execute all the three files in three different python consoles representing three nodes but on single machine.
5. Open Postman and create three tabs representing three nodes with the following URLs
http://127.0.0.1:5001/
http://127.0.0.1:5002/
http://127.0.0.1:5003/
6. First request on all the 3 nodes will be http://127.0.0.1:5002/get_chain()
7. Second will be to connect the node. Open Body/ Raw/Text(Select json). Then add the nodes json file. Remember that when you
are connecting from node 1 the json file will contain the addresses of second and third node. Same applied to node 2 and the
json file will contain addresses of nodes 1 and 3 and node 3 will contain a json file with addresses of nodes 1 and 2.
8. Use get_chain request at node one and then mine_block request. Now node 1 contains two blocks but node 2 and 3 contain only
a single block.
9. Check for the consensus. Check for the chain length. Use the get request replace_chain on the two nodes. The blockchain at these
two nodes is replaced by the longest chain.
10. Check the add_transaction post request. You need to enter the transaction json file in Postman in body/raw/text-json where you
specify the sender, receiver and amount. In real life you need to give the public key instead of sender name here. Private key is
used for wallets.
Executing the Cryptocurrency Program