Tmc mastering bitcoins ppt

Tmc mastering bitcoins ppt

• 1.
  Mastering Bitcoins Khushboo Chitre(MT17020) Urvashi Choudhary (MT17062)
• 2.
  Contents ➔ Introduction. ➔ Keys,Addresses and Wallets. ➔ Transactions. ➔ The Blockchain. ➔ The Bitcoin Network. ➔ Mining and Consensus. ➔ Miscellaneous Topics. ➔ Bitcoin Weakness. ➔ Bitcoin Security. ➔ Hyperledger.
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  INTRODUCTION TOPICS COVERED ➔Blockchain. ➔ Cryptocurrency. ➔ Bitcoin. ➔ Bitcoin Elements, functioning and cryptography.
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  Blockchain ● It isa continuously growing list of records known as “blocks”. ● Each block is linked to the other by storing the hash of the other block. ● Linked and secured using cryptography. ● First described by Stuart Haber and W. Scott Stornetta in 1991. ● Conceptualised by Satoshi Nakamoto in 2008. ● Bitcoin cryptocurrency was the first implementation of the blockchain technology. ● Other applications: Smart Contracts, Identity Records of people etc... Contains the Hash of previous block H( ) Block n H( ) Block n-1 …… ….. H( ) Block 1
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  Properties of Blockchain ●Immutable Data. ● Decentralized. ● Accessible. ● Time Stamping. ● Tamper Resistance. ● Cryptography.
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  Cryptocurrency ● Digital asset ●Medium of exchange ● Uses cryptography ● Subset of digital currencies ● Uses decentralized control
• 7.
  Introduction to Bitcoin ●Bitcoin is the first decentralized cryptocurrency. ● It was developed by Satoshi Nakamoto in 2009. ● It holds some specific value and therefore allows us to perform transactions. ● Its protocol stack is available as an open source software and can run on a number of devices. ● They are completely virtual with no physical existence.
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  Continued…. ● Bitcoin consistsof: ○ A decentralized peer-to-peer network (bitcoin protocol). ○ Public Transaction ledger (the blockchain). ○ Set of rules for currency issuance (consensus rules). ○ Mechanism for reaching global decentralized consensus (Proof-of-work).
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  History of Bitcoin. 2008 InNovember 2008, a paper named ”Bitcoin: A Peer-to-Peer Electronic Cash System” was published by Satoshi Nakamoto. 2010 Nakamoto handed the responsibility of the Bitcoin Core to a group of volunteers. 2008 In August 2008, domain name “bitcoin.org” was registered. 2009 First implementation by Satoshi Nakamoto was released. 2017 In August 2017, first hard-forked version named as Bitcoin Cash was created. 2017 In November 2017, another hard-forked version named as Bitcoin Gold was created.
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  Bitcoin elements Peer-to-peer network.Miners Mining Consensus Transaction Mining Reward Keys 1bwhw2b1kj2jk1howb1fkjwbu2bsjkbjei3 rfjrn.. Addresses Digital Public Ledger
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  How does BitcoinFunction A digital wallet generates transactions and broadcasts it to the network Nodes in the network verify a transaction 1 2
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  H( ) Block Miner creates acandidate block by including all the valid transactions, adds the hash of the recent block to this block. Solves a hard mathematical problem known as proof of work to prove that enough resources have been used in verifying these transactions. The miner who computes this mathematical problem first wins this global election and gets the miner reward. 3 4 5
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  The block isadded to the blockchain where it can be verified by other nodes. As the number of blocks are added on top of it, the trust on that block increases. When a miner wins, he gets a reward and new coins are generated. When a block is mined, the block is broadcasted into the network and this indicates that this block has been mined and the miners start mining another block. 6 7 8
• 14.
  Cryptography in Bitcoin Propertiesof an Ideal Hash function: 1. Collision resistance: Given two inputs a and b, then H(a)!=H(b). 2. Preimage resistance: Given hash h(x), then it should be difficult to find out x. 3. Second Preimage resistance: Given a message ‘a’, then it should be hard to find out another message b with h(a)=h(b) and a!=b. Examples of Hash functions: MD-4, MD-5, SHA-1, SHA-2 etc. Variable size input message Hash Function Fixed Size output HASH FUNCTIONS
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  HASH FUNCTIONS CONTINUED... Thetwo main hash functions used by Bitcoin are: ● SHA-256 (returns 256 bit unsigned integers) ● RIPEMD-160 (returns 160 bit unsigned integers)
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  ● Cryptographic systemwhich uses pair of keys: ○ Public key, which is disclosed to everyone and ensures the authenticity of the receiver. ○ Private key, which is a secret key which is known only to the owner and ensures that only the owner can decrypt the message. ● Private and public keys are mathematically related. ● Computationally infeasible to guess private key given a public key. ● Bitcoin uses “Elliptic Curve Multiplication” as the basis for public key cryptography. Public key for encryptionPrivate key for decryption PUBLIC KEY CRYPTOGRAPHY
• 17.
  Elliptic Curve Cryptography ●It is a public key cryptography based on elliptic curves. ● Bitcoin uses a specific elliptic curve and set of mathematical constants, as defined in a standard called secp256k1. ● y 2 = (x 3 + 7)over(Fp), Where Fp is a very large prime number. ● If P and Q are two points on the curve, R= P+Q is also on the curve. ○ The ‘+’ operation is different from the mathematical operation and its graphical representation is shown in the image. ○ In case P=Q, the line becomes a tangent and intersects the curve at exactly only more position. Img source: https://www.google.co.in/search?q=elliptic+curve+cryptography+picture&source=lnms&tbm=isch&sa=X&ved=0ahUKEwi7ovXR5tPaAhWLgI8KHdH5CL4Q_AUICygC&biw=1476&bih=756#imgrc=z2Qpr_i9-1PkJM:
• 18.
  Generating private Keys ●‘k’ is the private key. ● ‘G’ is the generator. ● The public key is generated by repeatedly finding points on the curve that satisfy K = k * G. ● The point ‘G’ is specified in the secp256k1. ● It is extremely difficult to get ‘k’ from ‘K’. Image source: Reprinted from “Mastering Bitcoin: Unlocking Digital Cryptocurrencies”
• 19.
  DIGITAL SIGNATURES ● Mathematicaltechnique which is used to validate the authenticity and integrity of the message. ● Developed by Whitfield Diffie and Martin Hellman in 1976. ● Unique to each signer. ● These are based on Public key cryptography as it uses public/private key pair. ● Digital signature provides authenticity, integrity and non-repudiation of the communication. ● Before digitally signing the document, it is first hashed using a hashing algorithm. ● Hash converts the message to a fixed length hash which saves the time while encrypting the message.
• 20.
  Alice Computes hash AH78….0000…. Sign usingAlice’s Private key AH78….0000…. AH78….0000 …. Digitally signed by Alice AH78….0000 …. Sent to Bob Decrypt using Alice's public key Compute hash of the document AH78….0000…. AH78….0000…. If they are same BOB can verify that the document was digitally signed by Alice.
• 21.
  KEYS, ADDRESSES AND WALLETS TOPICSCOVERED ➔ Bitcoin Addresses. ➔ Advanced Keys and Addresses. ➔ Wallets.
• 22.
  Establishing Ownership BitcoinWallets Digital Keys Bitcoin Addresses Ownership Ownershipis established through: ● Digital Keys ○ Keys represents the private keys associated with the user. ● Bitcoin Address ○ Addresses provide a unique pseudonymous identity. ● Bitcoin Wallet ○ Wallets store the keys and are like a small database or file.
• 23.
  Bitcoin Private andPublic Keys ● In case of Bitcoin, the public key is the Bitcoin address. ● But, not all bitcoin addresses are public keys, they also represent other beneficiaries. ● Private key is used to generate the public key. Private Key A Number Picked at random Public Key Derived from Private key Bitcoin Address Lorem ipsum dolor sit amet, consectetur adipiscing. One way cryptographic function One way hash function
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  Private Keys ● Itis simply a number picked at random. ● Private key is used to create signatures that are used to spend the coins, by proving their ownership. ● Private key must be secure at all times and must be backed up. ● The bitcoin software depends on the operating systems random number generator and produces 256 bit key.
• 25.
  Public Key ● Thepublic key is calculated from the private key using elliptic curve multiplication, which is irreversible: K = k * G where k is the private key, G is a constant point called the Generator Point and K is the resulting public key.
• 26.
  Bitcoin Addresses ● Abitcoin address is a string of alphanumeric characters. ● It is derived from the public key. ● It begins with ‘1’. ● A bitcoin address can represensent a person, a company or even a script. ● The bitcoin address is presented in a base 58 number system to the user which helps in the representation of larger numbers in a very compact way.
• 27.
  Wallets ● Wallets actas a container for private keys. ● It can be stored in the form of simple database or structured files. ● There are two ways of generating a wallet: ○ Deterministic ■ New private key is generated from the hash of previously generated private key. ■ All the keys are sequentially linked together. ■ The first key is known as the seed or master key. ○ Non-deterministic ■ Private key is a number which is randomly generated. ■ It is simply a collection of randomly generated private keys.
• 28.
  Type of Bitcoinwallets (Based on Platform). ● Desktop wallet. ○ Wallets which runs on desktop. ● Mobile wallet. ○ Wallet which can be used on an Android or Apple iOS phone. ○ Simple and easy to use. ● Web wallet. ○ Accessed through web browser. ○ Stores the user’s wallet in a server owned by a third party. ● Hardware wallet. ○ Special type of bitcoin wallet which stores the private keys of the user in secure hardware device. ● Paper wallet. ○ Also known as cold storage, can be stored in printed form for long term storage.
• 29.
  TRANSACTIONS TOPICS COVERED ➔Bitcoin transaction. ➔ Types of Transactions. ➔ Input and output. ➔ Locking and unlocking scripts. ➔ Adding transaction to the ledger. ➔ Verification and consensus.
• 30.
  Bitcoin Transaction ● ATransaction has one or more inputs. ● Can have multiple outputs. ● The inputs and outputs do not necessarily add up. A Transaction is like an entry in the double entry book keeping ledger. It basically tells the network that the owner of the bitcoin has authorised the transfer of these bitcoins to another owner. Input Amount Input Amount Transaction Transaction fee Output Amount Output Amount
• 31.
  Bitcoin Transaction Input An inputis where the coin value is coming from, usually a previous transaction output. Output A transaction output assigns a new owner to the value by associating it with a key. It imposes a requirement for a signature for the funds to be redeemed. This forms a chain of ownership
• 32.
  Alice Pays toBob Previous Transaction Locked against Alice’s key Alice signs and uses the bitcoins she owned. Transaction Now, Bob needs to provide the signature to be able to use it.
• 33.
  Types of Transactions Inputsigned by Alice Transaction Output Amount to Alice Output Amount to Bob MOST COMMON TYPE OF TRANSACTION ● Payment is made from one address to another. ● Some amount given to new address, change goes back to the owner. ● Has one input and two outputs.
• 34.
  Types of Transactions Input1 Transaction Output AGGREGATING TRANSACTIONS ● Aggregate several inputs to one single input. ● Just like getting a pile of notes exchanged for a single larger note. ● Has multiple inputs and one output. Input 2 Input 3
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  Types of Transactions Output1 TransactionInput DISTRIBUTIVE TRANSACTIONS ● Distributes input into many outputs. ● Depicts a scenario of distributing funds in commercial entities. ● Has single input and multiple outputs. Input 1 Output 1 Output 1
• 36.
  Constructing a Transaction ●Transactions are constructed by the bitcoin wallets. ● The construction can be done offline, even when not connected to the bitcoin network. GETTING THE CORRECT INPUT ● The wallet has to find the unspent bitcoin transactions that are locked with wallets own key. ● A full index client has all the transaction, but its too heavy. ● Wallets usually use lightweight clients which query the bitcoin network to get the output. ● The response is reference to an unspent transaction.
• 37.
  CREATING OUTPUTS ● Thetransaction is created in the form of a script which is locked by the key. ● When Alice pays Bob, the script creates an encumbrance on the value and can only be used by Bob, if her provides the key to unlock it. ● Since, only Bob has the key corresponding to the address, only he can unlock it and spend it. Transaction Visualization 0627052b6f28912f2703066a912ea577f2ce4da4caa5a5fbd8a57286c345c2f2 The resulting transactions is sent to the neighbouring nodes.
• 38.
  Bitcoin Script ● NotTuring-complete language used to perform bitcoin transactions. ● A script is attached to every transaction. ● The script consists of instructions of how the bitcoins can be used by the user receiving them. ● A transaction is valid if the value present on the top of the stack is True (non-zero) when the script ends.
• 39.
  Concept of Lockingand Unlocking script Locking Script Unlocking Script ● Locking Script is present in the output. ● Locking script consists of the Public/Bitcoin key which will generate the destination address. ● ScriptPub key ● Unlocking script is embedded in the input which consists of the digital signature generated by the sender to prove his/her identity. ● Also known as scriptSig.
• 40.
  Continued…. ● Unlocking scriptis executed first using the stack. ● If the script is executed without error i.e. no leftovers in the stack, then the main stack is copied. ● The locking script is executed. ● If the result of the locking script along with the data of the unlocking script which was copied on the stack is True, then the bitcoins are valid and can be spent.
• 41.
  Why Script isnot Turing-Complete? ● No loops or complex flow control capabilities ensures that the language is not Turing-Complete. ● In case of Bitcoin, the program needs to be terminated quickly with an answer that whether the coins can be moved or not. ● Quick termination of program guarantees that DoS (Denial of Service) attack cannot be performed.
• 42.
  Adding Transaction tothe Ledger TRANSACTION PROPAGATION ● In the bitcoin network, nodes are connected to each other. ● A new unseen transaction is immediately forwarded to other nodes in the network. ● Within a few seconds, a transaction reaches major part of the network. BLOCK CREATION ● New transactions get added to the temporary pool of unverified transaction. ● Miners add unverified transactions to the pool and calculate a mathematical problem. SOLVING THE MATHEMATICAL PROBLEM ● Once a block is ready, miners solve a mathematical problem known as the proof of work to prove the validity of the new block. AS MORE BLOCKS ARE ADDED ● New blocks added on top of the mined block add more trust on the block. 1 2 3 4
• 43.
  The decentralized consensusemerges from the following four processes. ● Independent verification of transactions by the full nodes. ● Independent aggregation of new blocks, by mining nodes couples with demonstration of proof of work algorithm. ● Independent verification of each block before assembly into the chain. ● Independent selection of the chain with the most cumulative computation by the miner.
• 44.
  Independent Verification ofTransactions ● Each nodes verifies a transaction against a long list of criteria. ○ Transaction syntax and data structures are checked. ○ Input output lists must not be empty. ○ Size of the transaction should be correct. ○ Matching transaction must exist in the pool. ○ Sum of input values must be greater than the output values. ○ And many more … ● These rules can be modified to defend against attacks or to include more transactions.
• 45.
  Aggregation of Transactionsand Mining ● After verification of the transaction, transactions are added to the memory pool or the mining pool. ● Transactions are added according to new block on the basis of priority, this ensures old transactions are favoured after some duration. ● The first transaction added to the block is known as generation or coinbase transaction which contains the reward for mining effort. 100djnd2nx3e3bdhbewkfjbewkjfbxljbfjrbkjxe Xv3hjev32kxedxjbwkjbwkjbkjbkjcbkwjbq w3 Vx3hjrv23hxkr2brebqjwgrqixhk2nroi3hxriq3 Xvj3rv2j3rxh2dnjqxkbkj3xnriuh croi4cr3rh2 Vxr2k3rx33rjknc v 4iru4voijccbjbjbxjkbrkqxh Create a new block Verified Transaction Transaction Pool Candidate Block Mining the block
• 46.
  Validating a newblock ● The newly created block is propagated to the network. ● The nodes validates the block by performing some checks, such as: ○ Block data structure is a valid one. ○ The hash of the block header is less than the target value of the difficulty. ○ The block size is less than the acceptable size of the blocks. ○ The first transaction is the coinbase transaction. ● As soon as all the nodes validates the block, it gets added to the blockchain.
• 47.
  THE BLOCKCHAIN TOPICSCOVERED ➔ Blockchain. ➔ Structure of Blockchain. ➔ Block Header. ➔ The Genesis Block. ➔ Merkle Trees.
• 48.
  Blockchain ● It isan ordered block of transactions. ● Each block points to its previous block, as it contains the SHA256 hash of its previous block. ● The previous block is also referred to as the parent block. ● A block can have only one parent block. ● But a parent block can have multiple children block. ● The very first block of the blockchain is known as Genesis block.
• 49.
  Structure of aBlock Table 7-1, The Structure of a Block. Source: Chapter 7, Mastering Bitcoin. Block Header - Version - Parent’s hash - Merkle Root - Timestamp - Difficulty target - Nonce
• 50.
  Block Header Table 7-2,The Structure of the block header. Source: Chapter 7, Mastering Bitcoin.
• 51.
  Block Identifiers - Blockheader hash - Unique SHA-256 hash generated for every block. - Block height - Position of a block in the blockchain.
• 52.
  The Genesis Block ●The first block in every blockchain is fixed. ● This block is known as the genesis block. ● Genesis block is statically encoded in the bitcoin client software. ● The hash of this block is the following : “000000000019d6689c085ae165831e934ff763ae46a2a6c172b3f1b60a8ce26f ”.
• 53.
  Merkle Trees ● Alsoknown as Binary Hash tree. ● It is used in the blocks to store the summary of all the transactions present in the blocks. ● The block header stores the root of the Merkle tree.
• 54.
  Continued….. ● The transactionsare present in the leaf nodes of the Merkle tree. ● These transactions are stored in the hashed form. ● SHA256 is used to hash the nodes and the hashing is performed twice. ● The parent node consists of the hash of its child nodes. ● If there are odd number of transactions in the block, then the last transaction is duplicated in order to make the number of transactions even. ● To search for a specific transaction, only log2 N hashes needs to be produced where N is the number of transactions in a block. Fig. 7.2, Calculating the nodes in a Merkle Tree. Source: Chapter 7, Mastering Bitcoin.
• 55.
  How Merkle Treeensures the Integrity of a block? ● Only the merkle root is stored in the header. ● It makes sure that the transactions are not modified. ● If any transaction is modified, the root will be modified which changes the block header and ultimately changes the block hash.
• 56.
  The Bitcoin Network ➔ Peer-to-PeerNetwork Architecture. ➔ Bitcoin Network. ➔ Bitcoin Node. ➔ Full Node. ➔ Simple Payment Verification Nodes. ➔ Simple Payment Verification . ➔ Bloom Filters.
• 57.
  Peer-to-Peer Network Architecture ●Bitcoin follows Peer-to-Peer Network Architecture. ● Peer-to-Peer Network Architecture is also known as P2P. ● In P2P architecture, all the participating nodes in the network are treated equally. ● All the nodes are peers to each other. ● All the nodes are responsible in providing the same amount of services to the network. ● These nodes are connected in the form of mesh topology. ● The network is not centralized.
• 58.
  The Bitcoin networkrepresents the collection of nodes which are using the P2P Network Architecture. The Bitcoin Network
• 59.
  Bitcoin Node ● TheBitcoin nodes are treated equally in the Network. ● But the nodes can play different roles in the Bitcoin Network. ● The Bitcoin node is a collection of: ○ Routing (Network node). ○ The Blockchain database. ○ Miner. ○ Wallet services.
• 60.
  Full Node ● Fullnode consists of all the four functions which are mentioned in the previous slide. ● It also consists of the complete copy of the blockchain with all the transactions. ● Full nodes can perform the independent verification of the transactions. ● It waits for the updates from the network about the new transactions, verifies them and adds it to the local copy of the blockchain maintained by the full nodes. ● Bitcoin Core is the most popular implementation of the Full node clients.
• 61.
  Simple Payment Verification(SPV) Nodes ● A node which only consists of the Wallet and the Network node. ● It maintains only a subset of the blockchain. ● These nodes uses a method for the verification of the transactions known as Simple Payment Verification. ● These are also known as Light-weight Clients. ● These nodes does not hold the entire block instead it holds only the header of each block.
• 62.
  Simple Payment Verification ●It is used by some lightweight power-space constrained devices, which cannot download the entire blockchain. ● SPV nodes verify transactions by relying on the peers to provide partial views of relevant parts of the blockchain ondemand. What is it? This technique verifies whether a transaction has been included in the blockchain or not, without actually downloading the entire blockchain.
• 63.
  Continued…. ● An SPVnode needs to download the copy of the block header of the longest proof of work chain. ● Then the transactions are verified by referencing to their depth in the blockchain instead of their height. ● SPV nodes establish a link between the transaction and the block that contains it using a merkle path.
• 64.
  Some important points: -SPV cannot be persuaded that a transaction exists when it does not. - An SPV node can definitely prove that a transaction exists but cannot verify that transaction, such as a double-spend of the same UTXO, doesn’t exist because it doesn’t have a record of all transactions. This type of attack can be used as a Denial-of-Service attack or as a double-spending attack against SPV nodes. - To defend against this, an SPV node needs to connect randomly to several nodes, to increase the probability that it is in contact with at least one honest node.
• 65.
  Risk involved inSPV ● SPV nodes checks whether a transaction is present in the blockchain or not by querying about the specific transaction to all of its peers. ● This involves privacy issue, as this can reveal the address of its wallet. To overcome the Privacy issue, a feature known as Bloom Filters was introduced.
• 66.
  Bloom Filters ● Probabilisticdata structure because it definitely tells that the element is not present or may be present in the set. ● False positive results are possible due to collision property of the hashing function. ● It is possible that two values may generate the same hash and one of the value may not be present in the set but the filter gives the result that the element may be present in the set. What is it? Bloom filter is a space efficient probabilistic data structure, that is used to test whether an element is a member of a set.
• 67.
  How are bloomfilters used by SPV nodes? ● SPV nodes ask their peers about a specific pattern which matches the needed transaction without actually disclosing the entire public address. ● SPV node initializes the bloom filter as empty and it does not matches any pattern in this state. ● SPV node will then make a list of all the address present in its wallet. ● Creates search pattern matching of the transactions to each address.
• 68.
  Continued…. ● To checkwhether a transaction is present in the blockchain or not following steps takes place: ○ Generate hash of the transaction. ○ Check the pattern of the block headers which are created after the wallet has been generated. ○ If the pattern of the transaction matches any of the pattern of the block headers, then the filter says that the transaction may be present in the block. ○ Else it returns a result saying the transaction is not present in the block.
• 69.
  Example of BloomFilter ● Let the bit vector be as the following: ● To add an element to the Bloom filter, the value is hashed few times and the value of the bit vector is set to 1 depending on the hashed value. ● When the input string is “hello”, the bit vector changes to the following: ● To test the membership of the value, hash the value using same hash function and check whether the pattern matches the bit vector or not.
• 70.
  Mathematics of BloomFilter ● Let k be the number of hash functions, m be the total number of bits in the vector and n be the number of items in the set. ● Probability that certain bit will still be 0 after 1 insertion= (1-1/m)k . ● Then, after n insertions the probability will be (1-1/m)kn . ● So, the probability of false positives= (1-(1-1/m)kn )k .
• 71.
  MINING AND CONSENSUS TOPICS COVERED ➔Mining. ➔ Proof-of-Work. ➔ Difficulty.
• 72.
  So Far ● Wallets ●Transactions ● Propagated to network ● Candidate block created by miner Let’s start mining!
• 73.
  What is mining? ●Hash pattern generated cannot be determined in advance. ● A pattern cannot be created that will create a particular hash value. ● This ensures that the hash can be generated only by modifying the value in the block and try again and again, until the hash matches the target value by chance. The process of hashing the block repeatedly, after changing a parameter in the block so that the hash obtained matches a specific pattern or a target value.
• 74.
  Bitcoin Mining Mining servestwo purposes: ● New coins are created. It is like printing of new notes. The amount of coins created per block are fixed and diminish over time. ● Ensures a block is confirmed only when enough computational power has been devoted to it. Proof of Work Mining is the process of creating a new block, and solving a computationally intensive mathematical problem. This mathematical problem is known as the “Proof of Work”.
• 75.
  Mining Diagrammatically Block Data TransactionHeader Compute Hash of the block header Matches target hash pattern Block Mined Yes No Modify the content of the block
• 76.
  Nonce How is blockmodified to get different hash values? ● The block header contains a file called nonce. ● This nonce is like a counter and after every iteration of the block is not mined, it is incremented. ● Even a small change creates a completely different hash, therefore while mining only the nonce value is modified.
• 77.
  Hashing while mining ●The hash function used is SHA-256. ● Only the header of the block is hashed. ● Since the merkle root is included in the hash it is not necessary to calculate hash of the entire block.
• 78.
  Proof of Work Block ------------------------------------ ------------------------------------ ------------------------------------ ------------------------------------ NonceString Choose a Nonce String Compute Hash If Hash <Target Add block to block chain If Hash > Target ● The probability of a miner of finding the correct solution/hash depends on the computational power of the resources he/she has. ● More the computational power, more strings can be generated and hence the probability of finding the solution increases. ● When the Miner finds valid solution, the solution is broadcasted to the entire network. ● The other nodes validates the solution and the block is added to the blockchain. ● The Miner gets the reward and transaction fee.
• 79.
  Mining Difficulty ● Bitcoindifficulty is adjusted every 2 weeks i.e. after generation of 2016 blocks. next_difficulty = previous_difficulty * 2-weeks /time to mine last 2016 blocks ● Difficulty depends on the number of nodes present in the Bitcoin network, as the number of nodes increases the difficulty increase i.e. the target value becomes much smaller.
• 80.
  MISCELLANEOUS TOPICS TOPICS COVERED ➔ CAPTheorem. ➔ Multi-Signatures. ➔ Hardware Wallets. ➔ Ethereum. ➔ Ethereum vs Bitcoin. ➔ Litecoin. ➔ Litecoin vs Bitcoin. ➔ Hard-forking.
• 81.
  CAP Theorem ● Proposedby Eric Brewer, (Symposium on Principles of Distributed Computing, 2000). ● Proven by Seth Gilbert and Nancy Lynch in 2002. Theorem It is impossible for a distributed data store to achieve more than two of the following properties simultaneously: Availability, Consistency and Partition Tolerance. Availability Consistency Partition Tolerance Every request receives a (non-error) response- without guarantee that it contains the most recent write. Every read receives the most recent write or an error. The system continues to operate despite an arbitrary number of messages being dropped(or delayed) by network between nodes.
• 82.
  Fig(1): Pictorial representationof CAP theorem Source:https://www.google.co.in/search?client=ubuntu&channel=fs&dcr=0&biw=1853&bih=928&tbm=isch&sa=1&ei=zfCQWpLRO4mP8wX8hLaA Dw&q=cap+theorem&oq=cap+theorem&gs_l=psy-ab.3...48402.48402.0.48604.1.1.0.0.0.0.0.0..0.0....0...1c..64.psy-ab..1.0.0....0.Elq3o2_Ld-E#img rc=cUR_a47RWUvYtM
• 83.
  CAP Theorem andBlockchain ● In case of distributed ledger, the CAP properties mean: ○ Availability ■ Network accepts transactions at any time. ○ Consistency ■ All nodes have the same ledger at the same time. ○ Partition Tolerance ■ Network is resistant to the node failure.
• 84.
  Continued….. ● Only twoproperties can be picked. ● C A System: ○ Partition Tolerance sacrificed. ○ Bitcoin can only run on networks that can reliably deliver messages. ● C P System: ○ Availability sacrificed. ○ If there is a problem in connectivity, Bitcoin read write operations cannot be performed. ● A P System: ○ Consistency sacrifice. ○ We can send a transaction but it may or may not be received by other parties.
• 85.
  Which CAP propertyis sacrificed by blockchain? ● Consistency is sacrificed. ● Because: ○ Availability and Partition tolerance are revenue generating properties. ○ Eventual consistency can be achieved by fixing transactions, in the case of blockchain with the help of consensus.
• 86.
  Difference between strongconsistency and eventual consistency. A Transaction Application Always consistent with the database. A Transaction Application Transactions are not guaranteed to be written onto the database. Queued, not written on to database right away. May or may not be consistent at this point. Consistently written on the database. Always Consistent.
• 87.
  How is EventualConsistency achieved in Bitcoin System? ● Eventual consistency states that the system eventually gets consistent after a specific amount of time. ● In the bitcoin system, whenever a new block is generated by the miner, miner adds the block into his/her copy of the blockchain and sends the block to other miners for the validation purpose. ● As soon as the miner gets some confirmations, the block is added to the global ledger after a specific amount of time. ● The average time taken by the bitcoin system to add a block to the blockchain is 10 minutes. ● So, in this way the Bitcoin system eventually becomes consistent.
• 88.
  Consistency and Bitcoinsystem ● The Bitcoin system achieves eventual consistency and not the strong consistency. ● We can conclude that at a specific point of time, the bitcoin system becomes consistent, available and partition tolerant.
• 89.
  Introduction to MultiSignatures ● Multi Signature refers to the requirement for a transaction to have two or more signatures before it can be executed. ● Also referred to as M-of-N transactions (Multisig). ● Some of the applications of Multisignature are: ○ 2-of-2: Husband and wife savings account, requires the signatures of both the account holders to perform the transactions. ○ 2-of-3: Parent’s saving account for the child, requires the signature of one of the parent along with the signature of the child. ● It is more secure as compared to the single signature transaction.
• 90.
  Multi Signatures inCryptocurrencies ● The first multisignature wallet was launched in August 2013 by BitGo. ● In 2011 and 2012, Bitcoin 1.5 protocol was introduced which uses multisignature transactions. ● Bitcoin uses 2-of-3 addresses which means that to perform a transaction 2 out of 3 signatures are enough. ● It requires multiple users to sign a transaction before it is broadcasted to the bitcoin network. ● The above point implies that it requires multiple private keys to authorize the transaction.
• 91.
  Continued…. ● The requirednumber of signatures is agreed at the start, once people agree to create the address. ● In layman terms, we can say that the wallet is now being shared with the multiple users. ● Multisignature in bitcoin is just a tuple of distinct user’s signatures. Additional Points - Standard transactions on bitcoin network are single signature transactions, however complex multisig transactions can be supported. - Some multisig bitcoin wallets are: Armory (Desktop Wallet), Electrum (Mobile/Desktop wallet), Copay (Mobile and Desktop wallet).
• 92.
  Advantages of usingMulti Signatures ● Adds additional layer of security for cryptocurrency transactions. ○ With 2-of-2 address, the two private keys can be kept on two different machines. ○ An attacker will now need two private keys in order to perform identity theft. ○ As the keys are kept on two different machines, it becomes difficult for an attacker to steal both the private keys. ● More flexible. ○ With 2-of-3 address, any two out of three keys are sufficient to authorize a transaction. ○ If the user losses any one of the three keys, then it is still possible for the user to use two keys and authorize the transaction.
• 93.
  Hardware Wallets ● Itis a special type of bitcoin wallet which stores the private keys of the user in secure hardware device. ● Major advantages are: ○ Stored in protected area of microcontrollers and are never sent out of the device in the form of plaintext. ○ Immune to computer viruses which steals information from the software wallets. ○ Generally, the software is open source which allows the user to validate the entire operation of the device. ○ The hardware device will confirm every transaction by the user before performing it.
• 94.
  TREZOR- The Bitcoinsafe ● It is a secure bitcoin storage. ● It generates private keys and stores them as well in a secure manner. ● As the keys are stored in a hardware device, it cannot be attacked by a malware. ● It can store unlimited keys. ● When the device is initialized, it generates a recovery seed. ● This recovery seed can be used if the device gets lost. ● All the data stored in the device can be retrieved in the another device using the seed. ● It prevents keylogging when a PIN or any sensitive information is entered.
• 95.
  Ledger Nano- S ●Secure bitcoin hardware wallet. ● Can be connected to the computer through the USB. ● Consists of open source embedded bitcoin App. ● Built-in 4 digit security pin. ● USB connectivity. ● Generates a seed (12/18/24 words) to ensure easy recovery. ● Consists of small OLED display. ● Some other Hardware wallets such as Keep Key, Bitlox, Digital Bitbox etc.
• 96.
  Ethereum ● Initially describedby Vitalik Buterin in a white paper(2013). ● Ethereum is: ○ an open source, ○ public, ○ blockchain based distributed computing platform, ○ Operating system featuring smart contract (scripting) functionality. ● Formal development of the Ethereum software project began in early 2014 through a Swiss Company, Ethereum Switzerland GmbH (EthSuisse). ● Development was funded by an online public crowdsale during July–August 2014, with the participants buying the Ethereum value token (ether) with another digital currency, bitcoin.
• 97.
  Continued…. ● Ethereum enablesdevelopers to build and deploy decentralized applications. ● Ether is the cryptocurrency which generated on Ethereum platform. ● Miners work to earn Ether. ● The transaction fees are also paid in the form of Ether. ● Ethereum is a whole network, and has its own: ○ Internet Browser. ○ Coding language. ○ Payment system.
• 98.
  Bitcoin vrs. Ethereum Bitcoin ●Peer-to-peer electronic cash system which enables online bitcoin payments. ● Block time is 10 minutes. ● Rate of generation of new bitcoins halves every 4 years. ● Transaction fees is higher. ● It uses Proof-of-work technique. ● It works on UTXO scheme. ● The language used for Bitcoins is not Turing-complete. Ethereum ● Focuses on running the programming code of any decentralized system. ● Block time is 14 to 15 seconds. ● Rate of generation of new Ether remain constant except during hard-forking. ● Transaction fee are generally lower. ● Wants to shift to Proof-of-Stake technique. ● It does not rely on UTXO scheme. ● The language used for Ethereum is Turing-complete.
• 99.
  Hard-Forking ● Change tothe protocol which makes the previously invalid transaction/blocks valid or vice versa. ● Permanent divergence from the previous version of the blockchain. ● Blocks generated from the previous version will no longer be treated as valid. ● All the nodes/users need to update their version of blockchain. ● Hard forking is helpful to overcome the limitations of the previous versions.
• 100.
  Bitcoin Gold ● Createdby Jack Liao. ● Hard forked version of bitcoin. ● Purpose is to allow everyone having the GPU graphic cards to become the member of bitcoin network and participate in bitcoin mining. ● But the problem with Bitcoin Gold is: ○ Still in the development stages. ○ Does not provide enough resources to the users.