An introduction to Cryptocurrencies · Altcoins Many variants of Bitcoin o ering exciting new...
Transcript of An introduction to Cryptocurrencies · Altcoins Many variants of Bitcoin o ering exciting new...
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An introduction to Cryptocurrencies
Giorgos Panagiotakos
Computer SecurityCourse Organizers: Myrto Arapinis and Kami Vaniea
November 27, 2016
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Bartering
Trade through bartering:
Figure: http://www.forbes.com/
problem: meet of demand
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Bartering
Trade through bartering:
Figure: http://www.forbes.com/
problem: meet of demand
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Commodity money
Use an intermediate commodity as ‘store-of-value’
Figure: http://asia.nikkei.com
I in Japan rice
I in India cowry shells
Meet of demands problem solved!
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Commodity money
Use an intermediate commodity as ‘store-of-value’
Figure: http://asia.nikkei.com
I in Japan rice
I in India cowry shells
Meet of demands problem solved!
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Currency
Money as an abstract form of value.
I Metal coins ( ≈ 1000BC )
I Paper money ( ≈ 1100AD )
I Electronic payment systems
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Currency
Money as an abstract form of value.
I Metal coins ( ≈ 1000BC )
I Paper money ( ≈ 1100AD )
I Electronic payment systems
![Page 8: An introduction to Cryptocurrencies · Altcoins Many variants of Bitcoin o ering exciting new possibilities I Ethereum: Turing complete transaction system I Namecoin: Decentralized](https://reader034.fdocuments.net/reader034/viewer/2022042314/5f01ff0a7e708231d402101e/html5/thumbnails/8.jpg)
Currency
Money as an abstract form of value.
I Metal coins ( ≈ 1000BC )
I Paper money ( ≈ 1100AD )
I Electronic payment systems
![Page 9: An introduction to Cryptocurrencies · Altcoins Many variants of Bitcoin o ering exciting new possibilities I Ethereum: Turing complete transaction system I Namecoin: Decentralized](https://reader034.fdocuments.net/reader034/viewer/2022042314/5f01ff0a7e708231d402101e/html5/thumbnails/9.jpg)
Double spending
How are users protected from double spending?
I centralized control: ask the bank whether to accept atransaction or not
I too much power in one actor e.g. Wikileaks
I Why not make this system decentralized?
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Double spending
How are users protected from double spending?
I centralized control: ask the bank whether to accept atransaction or not
I too much power in one actor e.g. Wikileaks
I Why not make this system decentralized?
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Double spending
How are users protected from double spending?
I centralized control: ask the bank whether to accept atransaction or not
I too much power in one actor e.g. Wikileaks
I Why not make this system decentralized?
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Double spending
How are users protected from double spending?
I centralized control: ask the bank whether to accept atransaction or not
I too much power in one actor e.g. Wikileaks
I Why not make this system decentralized?
![Page 13: An introduction to Cryptocurrencies · Altcoins Many variants of Bitcoin o ering exciting new possibilities I Ethereum: Turing complete transaction system I Namecoin: Decentralized](https://reader034.fdocuments.net/reader034/viewer/2022042314/5f01ff0a7e708231d402101e/html5/thumbnails/13.jpg)
Cryptocurrency
A cryptocurrency is a medium of exchange using cryptography tosecure the transactions and to control the creation of new units.
Main properties
I Trust Distribution
I Verifiability
I Pseudonimity/Anonymity/Traceability
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BitcoinCurrently most popular cryptocurrency.
Figure: https://www.flickr.com/photos/btckeychain/
I Introduced by Satoshi Nakamoto in 2008.
I 1 Btc = 730$
I Distributed public ledger of transactions open to anyone
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Distributed Ledger
Figure: http://blogs.wsj.com/cio/2016/02/02/cio-explainer-what-is-blockchain/
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Different roles of Bitcoin participants
Figure: Rainer Bohme: The Bitcoin Economic Ecosystem
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Transactions
Figure: Satoshi Nakamoto: Bitcoin: A Peer-to-Peer Electronic Cash System
I an account is a pair of cryptographic keys
I coins are send from a public key to another public key
I transaction needs to be signed by the sender
I order of transactions matters!
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Transactions
Figure: Satoshi Nakamoto: Bitcoin: A Peer-to-Peer Electronic Cash System
I an account is a pair of cryptographic keys
I coins are send from a public key to another public key
I transaction needs to be signed by the sender
I order of transactions matters!
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Blocks of transactions
Figure: Satoshi Nakamoto: Bitcoin: A Peer-to-Peer Electronic Cash System
I each block depends on the hash of the previous block
I a chain of blocks contains the whole history of transactions
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Append-only log
Cannot replace an earlier block due to collision resistance!
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Permissionless
Anyone can be a miner!
I problem: Sybil attack
I solution: spend some kind of limited resource to be eligible
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Permissionless
Anyone can be a miner!
I problem: Sybil attack
I solution: spend some kind of limited resource to be eligible
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Permissionless
Anyone can be a miner!
I problem: Sybil attack
I solution: spend some kind of limited resource to be eligible
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Proof of Work [Dwork,Naor ’92]
A proof that an amount of computational work has been done.
I Hash (SHA-256) must be less than 268
I 1 block is generated every 10 minutes.
I Difficulty is adjusted every 2016 blocks.
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Agreement
problem: more than one chains can be created
I solution: pick the longest one
I Honest majority provably leads to consensus on transactionhistory! [Garay, Kiayias, Leonardos 2015]
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Agreement
problem: more than one chains can be created
I solution: pick the longest one
I Honest majority provably leads to consensus on transactionhistory! [Garay, Kiayias, Leonardos 2015]
![Page 27: An introduction to Cryptocurrencies · Altcoins Many variants of Bitcoin o ering exciting new possibilities I Ethereum: Turing complete transaction system I Namecoin: Decentralized](https://reader034.fdocuments.net/reader034/viewer/2022042314/5f01ff0a7e708231d402101e/html5/thumbnails/27.jpg)
Agreement
problem: more than one chains can be created
I solution: pick the longest one
I Honest majority provably leads to consensus on transactionhistory! [Garay, Kiayias, Leonardos 2015]
![Page 28: An introduction to Cryptocurrencies · Altcoins Many variants of Bitcoin o ering exciting new possibilities I Ethereum: Turing complete transaction system I Namecoin: Decentralized](https://reader034.fdocuments.net/reader034/viewer/2022042314/5f01ff0a7e708231d402101e/html5/thumbnails/28.jpg)
Block rewards
problem: Why should anyone be a miner?
I solution: miners are rewarded for the blocks they mine.
I Rewards are halved every 4 years, currently 12.5Btc ≈ 8000$
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Block rewards
problem: Why should anyone be a miner?
I solution: miners are rewarded for the blocks they mine.
I Rewards are halved every 4 years, currently 12.5Btc ≈ 8000$
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Block rewards
problem: Why should anyone be a miner?
I solution: miners are rewarded for the blocks they mine.
I Rewards are halved every 4 years, currently 12.5Btc ≈ 8000$
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Sounds good! Many open challenges...
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Transactions rate
problem: transaction rate on Bitcoin is too slow...
Figure: http://believeinplace.com
I Bitcoin: 7 tps
I Paypal: 115 tps
I VISA: 47000 tps
solution: Make block generation faster! Security deteriorates...
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Transactions rate
problem: transaction rate on Bitcoin is too slow...
Figure: http://believeinplace.com
I Bitcoin: 7 tps
I Paypal: 115 tps
I VISA: 47000 tps
solution: Make block generation faster! Security deteriorates...
![Page 36: An introduction to Cryptocurrencies · Altcoins Many variants of Bitcoin o ering exciting new possibilities I Ethereum: Turing complete transaction system I Namecoin: Decentralized](https://reader034.fdocuments.net/reader034/viewer/2022042314/5f01ff0a7e708231d402101e/html5/thumbnails/36.jpg)
Difficulty through time
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Energy Consumption
Finding small hashes requires energy.
By 2020 bitcoin is expected to need as much energy as Denmark!
solution: Proof-of-Stake
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Energy Consumption
Finding small hashes requires energy.
By 2020 bitcoin is expected to need as much energy as Denmark!solution: Proof-of-Stake
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Privacy issues
Certain coins may have been used in ‘illegal’ transactions
I problem: fungibility, not all coins are equal
I solution: full anonymity! (see Zerocash and NIZK)
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Privacy issues
Certain coins may have been used in ‘illegal’ transactions
I problem: fungibility, not all coins are equal
I solution: full anonymity! (see Zerocash and NIZK)
![Page 41: An introduction to Cryptocurrencies · Altcoins Many variants of Bitcoin o ering exciting new possibilities I Ethereum: Turing complete transaction system I Namecoin: Decentralized](https://reader034.fdocuments.net/reader034/viewer/2022042314/5f01ff0a7e708231d402101e/html5/thumbnails/41.jpg)
Privacy issues
Certain coins may have been used in ‘illegal’ transactions
I problem: fungibility, not all coins are equal
I solution: full anonymity! (see Zerocash and NIZK)
![Page 42: An introduction to Cryptocurrencies · Altcoins Many variants of Bitcoin o ering exciting new possibilities I Ethereum: Turing complete transaction system I Namecoin: Decentralized](https://reader034.fdocuments.net/reader034/viewer/2022042314/5f01ff0a7e708231d402101e/html5/thumbnails/42.jpg)
Altcoins
Many variants of Bitcoin offering exciting new possibilities
I Ethereum: Turing complete transaction system
I Namecoin: Decentralized DNS
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Future
Can or should bitcoin replace national currencies?
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Price history