Bitcoin and Blockchain (fiction, fallacy, fact, fun and future)UNC, September 2016...
Transcript of Bitcoin and Blockchain (fiction, fallacy, fact, fun and future)UNC, September 2016...
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UNC, September 2016
Bitcoin and Blockchain (fiction, fallacy, fact, fun
and future)Bebo White
SLAC National Accelerator Laboratory/Stanford University
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UNC, September 2016
A few observations
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Bitcoin/cybercurrency• Is not science fiction
• Is not a computer science fantasy
• Is not strictly the domain of criminals and hackers
• Is a global empowering tool for 21st century society OR
• “Bitcoin and blockchain are a flawed solution to a problem that does not exist” (Izabella Kaminska, FT Alphaville)
• It frightens some or threatens the status quo
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UNC, September 2016
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Who owns bitcoin?
Why?/Why Not?
bitcoin is everywhere
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UNC, September 2016
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Does this suggestlegitimacy?
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What is Bitcoin?• “Bitcoin” is the protocol; “bitcoins” are the units (BTC)
• Designed for an “Internet Society” using Internet technologies
• Decentralized and independent of “state currencies”
• Can be used for anonymous transactions like “hard currency” (i.e., unlike credit cards)
• Potential to revolutionize E-Commerce - online exchange, no specific currency, micro payments
• Easily convertible to “state currencies”
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UNC, September 2016
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It all started with• 2008
• Defined a protocol for generating, validating, and exchanging cybercurrency
• Implemented in publicly available, open source software
• Described a technology platform that goes far beyond its original purpose (the blockchain)
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UNC, September 2016
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Remember what this paper started…
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UNC, September 2016
People are using it…
• Not just for illegal activities (e.g., Silk Road)
• Some financial analysts advise portfolio diversification with BTC
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• wordpress.com
• overstock.com
• Subway
• Tesla
• Bitcoin.Travel
• Zynga
• Paypal/Ebay
• The Sacramento Kings
• Zappos
• Whole Foods
• PizzaForCoins.com
• etc,etc,etc.
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First, a very quick look at money…
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Token Money
• Represented by a physical object (token) such as a banknote, coin, traveler’s check, etc.
• Without that token, the value is lost
• No intermediary is required for spending
• BUT - requires faith in the ISSUER, usually a government or a bank
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Notational Money
• Represented by a notation in a ledger, passbook or database (e.g., a bank account)
• Notational money cannot be lost
• BUT - requires an intermediary (bank or clearing house) for spending
• ALSO - requires faith in the MAINTAINER of the ledger
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Hybrid Money
• Requires BOTH a token AND a ledger account (e.g., personal check, stored value or gift card)
• Can be lost AND requires faith in the ISSUER
• AND requires an intermediary (bank or clearing house) for spending
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Virtual Money (?)• No token
• No ledger
• No issuer, no government backing (or supervision)
• No intermediary required for spending
• Is this even possible?
• Who creates the money? Why is it money?
• Without a token or ledger, how do you know how much you have? What is its value?
• How do you know the spender is the owner?
• What prevents spending the same money twice?
BUT
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Another reason to backup…
• Your money is just a string of bytes (data) on your device
• Device failure means your money is gone
• Device intrusion means your money can be stolen
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Analogy: real estate• Land ownership is defined by a “chain of title,” a sequence of deeds
leading from the original owner to the present owner
• Deeds are recorded in the Land Registry
• Ownership determined by searching the Registry
• The Land Registry is, in effect, a ledger holder
• If the Registry is altered, ownership can be lost
• Double-selling is prevented by timestamps
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Distributed Registry/Ledger• Suppose we broadcast ALL deeds to thousands of nodes
of a de-centralized public network?
• IF the deeds are genuine AND the network members agree on the chain of title, THEN we can tell who owns a piece of property
• Ask the network and count the responses - if a majority say that someone is the owner, then they are
• There must be enough honest members that false responses cannot dominate (or they have some incentive)
• The registry is NOT under government control
REMEMBER THIS CONCEPT!
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A Little Math - Hash Functions
• A “hash” is a short function of a message
• BUT: a hash is not uniquely reversible
• Hash function H produces a fixed size hash of message M, usually 128-512 bits
• h = H(M)
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One-way hash functions
• Hashes are easy (fast) to compute but computationally difficult to invert
• Should not be able to find any message corresponding to a given hash
• Bitcoin uses a well-known published hash function SHA-256, which produces 256 bit hashes
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A little more math/CS - asymmetric encryption• Same as public-private key encryption
• Provides the security in PKI/certificates, HTTPS, secure e-mail, digital signatures, etc.
• Everyone has a public key (which they openly share) and a private key (which they protect) that are linked by very complex mathematics
• Insures end-to-end security, non-repudiation, etc.
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What is Bitcoin really?• No physical object, not even a character string
• “A chain of digitally signed transaction records leading from the original owner to the current holder” - similar to a chain of land deeds
• The transaction records contain
• Hashes that are difficult to find AND
• Virtual/anonymous owner IDs (addresses)
• There is NO bitcoin registry, NO centralization
• Bitcoin blockchains are broadcast to everyone; anyone can verify them; they encompass all the past and the present transactions
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Bitcoin Addresses• Bitcoin software generates bitcoin addresses of 25-44
characters for users
• Sample address: 1BBsbEq8Q29JpQr4jygjPof7F7uphqyUCQ
• The address is actually an elliptic curve public key; a 44 character key is as secure as a 7000-bit RSA key
• To send bitcoins, user specifies a receiving address and amount then clicks “send”
• To receive bitcoins, just tell the sender your public address!
• Addresses are not registered to users. A user can have a different address for every transaction
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(https://www.ft.com/content/eb1f8256-7b4b-11e5-a1fe-567b37f80b64#axzz3qe4rV5dH)
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What is happening here?
• The security, privacy, trust, and immutability that has come from centralized or third-party systems is being replaced by
• Strong encryption technologies
• De-centralized peer-to-peer consensus
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If I can’t remember my public key…
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How do you get bitcoin?
• Sell something for BTC
• Salary (legal ramifications?)
• Donation/gift?
• Use a bitcoin exchange (including bitcoin ATMs)
• Games, rewards, gambling
• Bitcoin mining (least likely)
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Bitcoin mining (1/5)
• Bitcoin blockchain begins with data “mined” by using a large number of hash function computations
• “Mining” software is run on mining machines
• A “miner” tries many different (e.g., 10^15) numbers, trying to find one whose hash value is less than a given threshold (A); a “brute force” computation
• Verified success is rewarded with a number of bitcoins (N)
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Bitcoin mining (2/5)x = blockchainy= proposed added blockn = additional number (nonce)A = threshold valueN = miner’s reward
find n such that:H(x,y,n) < A
Miner includes N BTC in “y” for themselves
Miner broadcasts solutionto network for
verification
N began at 50 andis halved every210,000 blocks
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Bitcoin mining (3/5)
• Example: problem or “proof of work”
• Find a number (nonce) so that the cryptographic hash of the block and the nonce starts with some required number of binary zeros (e.g., 40)
• Once solved the miner transmits the block to the network for verification, collects reward, and starts on new block
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Bitcoin mining (4/5)• The threshold (A) adjusted every 2 weeks (to
establish rate of 6 blocks/hour)
• Therefore, bitcoin hashes are progressively more difficult to find (i.e., finding “n” more difficult); part of finding “n” involves verifying that no bitcoin transacted in block “y” has already been spent in blockchain “x” (Merkle trees)
• There will never be more than 21 million BTC. (2*50*210,000); divisible into units as small as 1/100 millionth of a BTC (satoshi)
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Controlled bitcoin inflation
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Bitcoin mining (5/5)
• Miner’s reward (N) halves after 210,000 blocks (~4 years)
• Era 1 = 50 BTC
• Era 2 = 25 BTC
• Era 3 = 12.5 BTC
• …….
• Era 33 = 1 satoshi
July 2016
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Why is mining so difficult?
• Because of bitcoin’s “public” structure, it needs a defense against malicious attacks
• Uses POW to make it computationally difficult to add a block
• Has created a cost (equipment + running) of mining and therefor a need for incentivization
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Transaction fees are meant to replace block rewards
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Supply of bitcoins
• Current maximum number of bitcoins = 21*10^6
• Current maximum number of satoshis = 2.1*10^15
• Amount of $US in the world = 10^12
• As value of BTC increases, most transactions are likely to be in satoshis
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Is this really different from stock market, currency market,
commodities market fluctuations?
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Bad things do happen because of value
• Silk Road and black market crime
• Ransomware and blackmail enablement
• Hacks and embezzlement
• MT Gox (2011, 2013,2014)
• Bitfinex
• Bitstamp
• Poloniex
• BTC-E
• BitcoinTalk
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Possible vulnerabilities• No way to reverse a transaction without the
payee’s cooperation
• Software bugs
• Bank robbery by hackers
• Malware attacks against wallets
• Government attempts to control
• Competing cybercurrencies easy to make (forks) - imitation is flattery
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UNC, September 2016
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UNC, September 2016
Summary - the 5 elements of cybercurrency
• Currency - send units of value, convertible, divisible
• Commodity - scarcity stores wealth, market fluctuates with speculation
• Brand - marketing message, community and sharing knowledge
• Protocol - decentralized trust on the block chain
• Technology - services and solutions implemented and integrated
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UNC, September 2016
Possible future of Bitcoin/cybercurrencies (social)• For the world’s unbanked, there is no choice
• For small businesses, freelancers and startups in developing nations, there is no choice
• When you have choice, it is hard to imagine those without
• New generation growing up with instant expectations, who are or will be disillusioned by huge economic bailouts
• From stones to precious metals to paper to bytes
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UNC, September 2016
Possible future of Bitcoin/cybercurrencies (economic/political)
• A future with digital currencies and decentralized stores is guaranteed - people trust math over people
• National adoption of decentralized currencies would bring political transparency and economic neutrality
• Developing nations seeking to curb corruption and break free of economic dependence on other countries could see potential in these technologies
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UNC, September 2016
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UNC, September 2016
Possible future of Bitcoin/cybercurrencies (impact)• Bitcoin itself may well not be relevant in the future
(though won’t/can’t disappear?), but
• The discussion has been started
• Cybercurrencies will be a part of the future with features that Bitcoin lacks (e.g., Ethereum); links to actual resources (e.g., Colored Coins), or different schemes for POW or POS
• Bitcoin’s biggest legacy will likely be the Blockchain/DLT
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UNC, September 2016
Blockchain common elements
• Is digitally distributed across computer network in almost real-time
• Uses many participants in the network to reach consensus
• Uses cryptography and digital signatures to prove identity
• Has mechanisms to make it almost impossible to change historical records
• Is time-stamped
• Is programmable
• Blockchain is independent of Bitcoin
Is a platform!
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UNC, September 2016
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UNC, September 2016
Can blockchain help drive the next important tech eras?
• Or is it the next important tech era after mainframe, PC, Internet/Web, cloud, mobile?
• Internet: transfer of information; Blockchain: transfer ownership
• De-centralized systems vs. centralized systems
• Public, private, parallel/forking, and intersecting blockchains
• Potential role in
• Commerce/business/shared economies
• Internet of Things
• etc,etc,etc.
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UNC, September 2016
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UNC, September 2016
(Melanie Swan)
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UNC, September 2016
“Blockchain is the new quantum physics:A really, really hard science that no oneunderstands, ambushed by clowns likeDeepak Chopra looking to make a quickbuck on solutionist nonsense”——-Chris DeRose (TED talk)
“Blockchain does nothingbut circumvent the ruleswe have imposed onbanks to keep them honest”——-Izabella Kaminska (FT Alphaville)
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UNC, September 2016
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UNC, September 2016
Blockcom• A company formed and functioning on blockchain
technologies; for example
• Lighthouse - peer-to-peer crowdfunding
• Factom - distributed registry
• Gems - decentralized messaging
• Maidsafe - decentralized applications
• Storj - distributed cloud
• Tezos - decentralized voting
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UNC, September 2016
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UNC, September 2016
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UNC, September 2016
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UNC, September 2016
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UNC, September 2016
Summary and conclusions (IMHOs)
• Bitcoin and blockchain
• are significant disruptive technologies based upon established principles that is likely to impact many fields and society in general
• will evolve and spawn/fork exciting new variations
• provides a powerful development platform comparable to that of the Internet
• will continue to raise non-trivial issues surrounding adoption and regulation
• defines a rich area for innovative research
• requires a new wave of SMEs and developers
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UNC, September 2016
I encourage you to get onboard - your ideas are needed!
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UNC, September 2016
Thank You!Questions? Comments?
Want the slides?