Blockchain: The Iceberg Beneath Bitcoin

Blockchain: The Iceberg Beneath Bitcoin John Callahan, PhD JHU/APL WARNING: many simplificafons ahead

bitcoin blockchain

Barter? =

Money: fungibility =

Banking

Banking 1. 8 3 5

Banking 1. 8 3 3 5

Banking 1. 5 6 5

Banking 2. 5 6 5

Bitcoin: a ledger of financial transfers? previous transfers Assume all previous transfers leave a balance of 8 for each person 728 729 73 8 4 4 8 4 4 16 2 14 731 2 1 1 transac.on amounts RED 8 728-8+4 4 729 +4 8 73 +14 22 731-2 2 transac.on amounts BLUE 8 728 +4 12 729 +4 16 73-16 731 +1 1 transac.on amounts GREEN 8 728 8 729-8 73 +2 2 731 +1 3

Each transacfon: IN = OUT IN(s) OUT(s) 728 8 4 4 hash pointer to previous transacfon returned to sender

Bitcoin: a public ledger of financial transac4ons? 1 8 4 4 2 8 4 4 3 16 2 14 4 2 1 1

* Bitcoin: a decentralized, public ledger of transacfons * on a peer- to- peer (p2p) virtual network

Step 1: broadcast new transacfon to peers 2 1 1

Step 2: append new transacfon to next block

Step 3: agempt to solve the block nonce puzzle B 3 D F 7 4 1 2 3 4 2 6 3 7 4 3 4 A Note: no single enfty should own >= 51% of compufng cycles

Step 4: solve the block nonce puzzle* 2 6 3 7 4 B 3 D F 7 3 4 A * and collect a small transacfon fee

Step 5: broadcast the valid nonce Note: here be race condifons (and vulnerabilifes)

Summary 1. YOU Broadcast new transacfon to peers 2. The Bitcoin Network Append new transacfon to the next block Agempt to solve the block nonce puzzle Solve the block nonce puzzle Broadcast the valid nonce 3. PROFIT! :- )

Blockchain: latest valid block appended to end of the chain previous block previous block Note: this is a solufon for achieving distributed consensus, but is sfll vulnerable to various agacks* * Details of agacks and counter- measures NOT covered in this talk

Blockchain: latest valid block appended to end of the longest chain previous block previous block previous block

Blockchain: a generic protocol for transacfons 4 2 1 1 private key: public key: 1CE74 private key: public key: EB451 private key: public key: 88AE7

Blockchain: a generic protocol for transacfons dependent on public key encrypfon 4 EB451 1CE74 88AE7 private key: public key: 1CE74 private key: public key: EB451 private key: public key: 88AE7

Note: Here be simplificafons previous transacfon 4 signed EB451 1CE74 88AE7 SCRIPTS!

Some standard transacfon scripts previous transacfon 4 signed script(s) EB451 1CE74 88AE7 Type Pay to Public Key Hash (P2PKH) Pay to Script Hash (P2SH) MulFsig Null Data Script OP_DUP OP_HASH16 <PubKeyHash> OP_EQUALVERIFY OP_CHECKSIG OP_HASH16 <Hash16(redeemScript)> OP_EQUAL <m> <A pubkey> [B pubkey] [C pubkey] <n> OP_CHECKMULTISIG OP_RETURN < to 4 bytes of data> BY DESIGN, the scripfng language is stack- based and NOT Turing- complete (source: hgps://bitcoin.org/en/developer- guide)

OP_RETURN: A decentralized, trusted means to send data

Crypto- Currency to Crypto- Economics Thousands Hundred of Thousands Millions Crypto- economy 2. Crypto- economy 3. Decentralized, Autonomous OrganizaFons Smart Contracts Pegged Services TransportaFon Online Storage Mesh Networks Healthcare Wagers BounFes Family Trusts Performance Proofs Escrow Naming IdenFty Ownership Membership VoFng Billions Crypto- economy 1. Currency Transfers Payments Tips Crowdfunding Source: Mougayar 214

Source: Pros and Cons Pro Con Freedom of payment Limited adopfon Extremely low fees High value volaflity Micropayments are going without a hitch SFll a bit shaky and unﬁnished Transparent and neutral Facilitates illegal and dubious pracfces Banking the unbanked No recourse to authority ProtecFon and control Coins can be stolen Lower risk for sellers A new and unfamiliar form of supervision

Final notes: bumps in the road ahead Told to Richard Feynman by a Buddhist monk: To every man is given the key to the gates of heaven; the same key opens the gates of hell ExisFng and Undiscovered VulnerabiliFes 51% rule Zero- day agacks? Wallet security problems Slow Performance Slow: minutes- to- hours per transacfon When to assume a transacfon is valid? Rule of thumb: aqer 6 blocks The future Lots of Fear- Uncertainty & Doubt (FUD) but one thing is for certain: Blockchain is here to stay

Credits Noun Project icons Iceberg by Florent from the Noun Project Cow by Chris Pyper from the Noun Project Chicken by Verena Gutentag from the Noun Project Pig by Ealancheliyan from the Noun Project Bitcoin quotes image from Block Chain 2.: The Renaissance of Money, Wired, January 215 Duivestein, Sander, et al., Design to Disrupt Blockchain: cryptoplauorm for a fricfonless economy, SogeF, 215 NASDAQ to develop blockchain services in Estonia, Reuters (Brendan McDermid)