Introduction to Cryptocurrencies and Blockchain Technologymorozov/il1-en/il1en-7.pdf ·...

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Introduction to Cryptocurrencies and Blockchain Technology

mario@c.titech.ac.jpmario.larangeira@iohk.io

Prof. Mario Larangeira

Input Output Cryptocurrency Collaborative Research Chair

Fintech News

Remittance using cryptocurrencies

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Mobile and CryptocurrenciesBank of America 3,000,000,000 USD investment in Cryptocurrencies

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Governments are investing in Fintech

“Megabanks" are investing in Fintech

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Uniqlo and Bic CameraBusiness > Consumers

April 5, 2017 2:00 am JST

Japanese retailers quickly embracingbitcoin paymentsVirtual currency may be accepted at 260,000 shops by this summer

A sushi restaurant in Tokyo with a bitcoin ATM installed.

TOKYO -- Two Japanese retailing groups soon will accept bitcoin payments,a move that is likely to promote wider use of the virtual currency amongdomestic consumers.

Electronics chain Bic Camera is teaming up with Tokyo-based bitFlyer, whichruns the largest Japanese bitcoin exchange. This Friday, they will begin atrial run of bitFlyer's bitcoin payment system at Bic Camera's flagship shopin Tokyo's Yurakucho district and at Bicqlo Bic Camera, the hybrid outletwith Uniqlo located in Shinjuku.

Customers are allowed to pay up to 100,000 yen ($904) using thecryptocurrency, and they will also get reward points at the same rate as forcash payments. Bic Camera may introduce the payment system at otherlocations based on usage trends at the two Tokyo stores.

Recruit Lifestyle, the retail support arm of human resources conglomerateRecruit Holdings, is partnering with another Tokyo bitcoin exchange

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1 of 4 5/15/17, 5:26 PM

Overview●What is a Cryptocurrency●The most famous one: Bitcoin●The cryptography behind it●The remaining technical challenges●Tokyo Tech/IOHK

Presentation Goal● Promote this new technology

● Raise interest

● Nurture future interest in researching this topic

● More practical: when reading/watching news about blockchain related technologies, have a better understanding of how it works.

What is a cryptocurrency?

What is a dollar anyway?

What is a currency anyway?

What is a Currency● It is not a “thing”, it is a system:

● Group of people agrees to associate values to a “token”

● group of people: e.g., population of the country

● token: e.g., a bill (a dollar bill)

● It works because people accept it. They trade it for goods

What is a Cryptocurrency● It is not equal, but it is analogous

● It is not associated with a country, but with the system itself

● System: network of computers

● Token: the coin of the cryptocurrency

● Difference: the rules of the system are public and rely on the people using it (a decentralized system)

Decentralized vs Centralized● centralized: there is a third party, which the users

trust: e.g, RSCoin Protocol

● decentralized: there is no third party, that is a P2P network: e.g., Bitcoin, Ethereum, Monero, ZCash, etc…

● Without third party, the network and its users rule the system: accepted transactions, creation of currency, latency and etc…

Why consider a Cryptocurrency?(Why not to just stick with the “regular” currency?)

●Promote inclusion by giving access to banking systems●low costs for transactions

●Give security and reliability●blockchain: global database, anti-censorship

●Banking systems are too slow●smart contracts: programs over blockchain,

no human action

How to use a cryptocurrency?

How to use a Cryptocurrency?● How much does it worth?

1 BTC = US$1465

coinmarketcap.com

How to use a Cryptocurrency?

● You will need a digital wallet

● Assuming you have already some coins:

● you will transfer some of them to someone else

● From your address to the address of someone else

● How much does it worth?

● 1 Bitcoin costs US$ 1465

Digital Wallet

0.00000001 BTC = 1 Satoshi

462.678 BTC

462.678 BTC

More Questions● How do exactly I get a cryptocurrency?

● How do I get an address for me?

● How exactly the transfer works? Why somebody cannot take my coins and transfer without my authorization?

The Cryptography● and its Mathemagic

● Specially two cryptographic tools: Hash Functions and Digital Signatures

skSign

m �Hx H(x)

Hash Function● Hard to find x and x’, such that

H(x) = H(x’)

• Collision Resistance

• First Pre-image Resistance

• Second Pre-Image Resistance

Hx H(x)

Pre-Image Image

● Given y

hard to find x

such that y = H(x)

● Given x and y, and y = H(x)

hard to find x’

such that y = H(x’)

Actual Constructions for H(.) ● There is a rich variety of constructions for H(.)

● Some of them you may have already heard: SHA1, SHA2, more recently SHA3 …

● If you do not believe me:

https://en.wikipedia.org/wiki/List_of_hash_functions

SHA1: systems developers had been advised to abandon it for years, due to fear of collision finding methods. A paper in February/2017 finally made it practical.

Digital Signature

Signsk(m) = �

(pk,sk)

( m, )�

Ver(pk,m, ) = 1 or 0 �pk

Signm �sk Verm 1 or 0

pk

Transaction: General Idea● Transfer coins: Sign message using our own secret key,

to someone else public key (i.e., address)

● Transferring coins = Transaction (i.e., Tx)

● Intuition: The signature authorizes the coins to be transferred

● The other users see the authorization, and therefore understand that some coin has been spent

● How exactly the Hash function is used?

● Bitcoin Protocol and the Blockchain data structure

BitcoinThe most famous cryptocurrency (so far…)

History● Satoshi Nakamoto and its paper “A peer-to-peer

electronic cash system” in 2008

● Satoshi, who?

● Funny history: so far nobody knows who is “Satoshi Nakamoto”, there is still a lot of speculation about it

Bitcoin - Overview●Blockchain: global database (a ledger)●P2P Network●Decentralized●Value Transfer: Digital Signature●Proof-of-Work: the link on the

blockchain

Transfer of Value

pk1, sk1 pk2, sk2

Network/Peer-to-peer

Tx: = (value||pk2,Signpk1(value||pk2))

Tx Approved?● Tx is widely spread over the network , it is not valid

(yet!)

● The nodes collect all the transactions they see in the network

● Eventually, one node builds Block of transactions

● Building a single block is not a simple task

● The block is also spread over the network

Confirmation of Transaction

pk1, sk1 pk2, sk2

Tx: = (value||pk2,Signpk1(value||pk2))

Network/Peer-to-peer

One node succeeds Block

Tx-1

Tx-n

Tx-2...

https://blockexplorer.com

• Blocks have to accepted by

the network

• When accepted, it becomes

part of the blockchain …

Blockchain Data-Structure

H(B1||x2)B1

B2 B3

H(B2||x3) H(B3||x4)

B4

Blockchain Data-Structure

H(B1||x2)B1

B2 B3

H(B2||x3) H(B3||x4)

B4

H H(Bn-1||xn)Bn-1 || xn

• xn: Nonce• H(Bn-1||xn) has to have a number of 0’s:

00000…XXXXX• Trial-and-error: first and second pre-image

resistance property

• H(Bn-1||0000001) = 38402983471029

• H(Bn-1||0000002) = 98237029420420

• H(Bn-1||3425345) = 00000000020420Proof-of-Work

Review: Proof-of-Work

Transactions

Tx’s Hash

???????

Prev. BLK HASH

HA

SH

Transactions

• Collect transactions

Prev. BLK HASH

• Hash previous block

Tx’s Hash

• Hash transactions

NONCE

• Solve Proof-of-Work

• If you find it, you created a block!!!

Creating a new block is also known as Mining a block

The creator of a new block, receives automatically some bitcoins

Real Block

Still the Blockchain● Why such data structure?

● cannot be altered

● PoW prevents inserting/deleting blocks

● Global database

● a record for all transactions

● Public Ledger

Tx1- Alice sends 3 coins to Bob

Tx2- Jack sends 7 coins to John

Tx3 - Chris sends 30 coins to Daniel

Cryptocurrencies● There are several alternative cryptocurrencies

● Examples: Permacoin, Etherium, Namecoin, Dogecoin and etc…

● Differences: blockchain structure, reward structure, mining system, etc…

● Other functionalities: smart-contracts

Ethereum and Smart-Contracts● Ethereal: appeared Mid-2015

● Smart-Contract: program running over a virtual machine over the Blockchain

● It implements more complex smart-contract:

● Bitcoin: Script-like programming language

● Ethereum: Turing-complete programming language

Technical Challenges● Scalability: too slow, need more Tx

● PoW: too expensive● Alternatives:

• Proof-of-stake• Proof-of-retrivability• Etc…

● Anonymity: ZK, commitments, Ring and group signatures, Authenticated data structures, etc…

● Consensus algorithms/Analysis

● Game theory (block generation/reward)/ Analysis

Advanced Bibliography● “Bitcoin: A peer-to-peer electronic cash system”, Nakamoto -

2008

● “The Bitcoin Backbone Protocol: Analysis and Applications”, Garay and Kiayias – Eurocrypt 2015

● “ZeroCash: Decentralized Anonymous Payments from Bitcoin”, Ben-Sasson et. al – IEEE SSP 2014

● “SoK: Research Perspectives and Challenges for Bitcoin and Cryptocurrencies”, Bonneau et. al – IEEE SSP 2015

● “Bitcoin and Beyond: A Technical Survey on decentralized Digital Currencies”, Tschorsch and Scheuermann – IEEE Communications Survey & Tutorials 2016

Input Output Cryptocurrency Collaborative Research Chair

The Players

● Knowledge based company

● Goal: Design new cryptocurrencies

● Develop the theory behind cryptocurrency

● Make mission-critical software (available on git-hub)

● https://iohk.io (relevant papers, blog, research description)

● Tokyo Tech: I guess you know

● Educate

● Make research

● Tanaka Group: Cryptography research group

IOHK Research Centers● Tokyo Tech

● University of Edinburgh

● Athens Research Group

IOHK and Tokyo Tech

Collaboration Overview●Started on January/2017

●6 months before: July/2017

●Weekly research meetings

●Joint research/Publish papers

Already done

Future●Bring world class researchers to visit

Tokyo Tech

●New professor/researcher (prof. Bernardo David)

●Plan courses on Cryptocurrency and Cryptographic Protocols

Collaboration Final Goal

●Promote and develop the technology

●Nurture world class talent among the students

● Increase the collaboration between Tokyo Tech students/researches and international researchers

mario@c.titech.ac.jpmario.larangeira@iohk.io

Thank you!

Visit https://iohk.ioIOHK’s channel on Youtube

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