SKBI Cryptocurrency Technical Seminar Series Seminar 1: Basics: Cryptography and Transactions

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1 SKBI Cryptocurrency Technical Seminar Series Seminar 1: Basics: Cryptography and Transactions Zhiguo Wan Sim Kee Boon Institute for Financial Economics Singapore Management University

2 Schedule of bitcoin seminar series Seminar 1 Basics: Cryptography and Transactions, 3 Dec Seminar 2 Mining, Verification and the Blockchain, 8 Dec Seminar 3 Wallets, Payments and Contracts, 15 Dec

3 Outline Cryptographic basics An overview of Bitcoin system Bitcoin address, keys and transactions Demos 1) use bitcoin core utility bitcoin-cli 2) use our own code

4 Cryptographic Basics: hash functions X, X : arbitrary strings X X 1. Collision resistance SHA256 SHA Onewayness Y (256-bit string) Y (256-bit string) Collision

5 Cryptographic basics SHA bit digest, possible values Brute-force attack O(2 128 ) Hash times to find a collision 128-bit security (80-bit security is enough currently) Negligible collision probability! No absolute security Analogue to air crash probability

6 Avalanche effect (SHA1) Cryptographic basics: hash functions

7 Public key cryptography Private key: only owner knows Generate signatures Decryption Public key: everyone knows Verify signatures Encryption ECDSA: Elliptic curve digital signature algorithm Private key Public key

8 Public key cryptosystem Symmetric key cryptosystem Plaintext Symmetric Symmetric Encryption Ciphertext Decryption Plaintext Public key crypto/asymmetric key cryptosystem Plaintext Asymmetric Ciphertext Asymmetric Plaintext Encryption Decryption

9 Public key cryptosystem Plaintext Asymmetric Ciphertext Asymmetric Plaintext Encryption Decryption Digital signature Plaintext Asymmetric Asymmetric Encryption Signature Decryption Plaintext

10 Elliptic Curve cryptography Generator point G Private key: a random scalar k (256-bit) Public key: K= k*g

11 Overview of bitcoin: a big picture From Mastering Bitcoin, O Reilly

12 Overview of bitcoin

13 Bitcoin address and key

14 Bitcoin address and key AD64A87AE8A2FE83C1AF1A8403CB53F53E486 D8511DAD8A04887E5B23522CD A299FA9E ABC11A1DF38855ED6F2EE187E9C582BA6 SHA FFE422B4E00731A59557A5CCA46CC A447BDB2D98D4B408 RIPEMD D E5E39F86A0D273BEE SHA256 twice D61967F63C7DD183914A4AE452C9F6AD5D462C E3D B107615C1A8A D E5E39F86A0D273BEE D61967F6 Base58 16UwLL9Risc3QfPqBUvKofHmBQ7wMtjvM

15 Bitcoin address and key

16 Bitcoin Transaction

17 Types of Transactions Bitcoin Transaction

18 Bitcoin Transaction

19 Bitcoin Transaction

20 DEMO 1: BITCOIN-CLI Bitcoin-cli: a utility to interact with the bitcoin client via RPC (remote procedure call) Check info about the client, blockchain, blocks Maintain keys and addresses Process transactions

21 DEMO 2: OUR OWN CODE Bit-level demo on keys, address and transactions Manage addresses and keys Create bitcoin transactions Sign the transactions

22 TRANSACTION DETAILS version input count 01 previous output hash (reversed) 48 4d 40 d4 5b 9e a0 d6 52 fc a8 25 8a b7 ca a eb f9 6f b5 0c d7 32 c8 b4 81 (256-bit) input previous output index script length scriptsig script containing signature sequence ff ff ff ff output count 01 value output script length scriptpubkey script containing destination address block lock time

23 SIGNATURE SCRIPT ScriptSig PUSHDATA signature data and SIGHASH_ALL PUSHDATA public key data PUSHDATA sequence 30 length 44 integer 02 length 20 signature (DER) X integer 02 length 20 2c b2 65 bf b f c3 51 5d d3 d1 6f c c 58 ec 0a 0f f4 48 a6 76 c5 4f f7 13 Y 6c d7 62 a1 fc ef e ad 8f a c0 5b 13 c f1 65 4e 6a d e 82 SIGHASH_ALL 01 PUSHDATA type 04 X 14 e3 01 b2 32 8f c 0b d7 87 bf 3d 8a 40 4c fb d0 70 4f 13 5b 6a d4 b2 d3 ee public key Y 10 f e 53 a6 e8 c3 9b d7 d3 fe fd 57 6c 54 3c ce 49 3c ba c f2 65 1d 1a ac bf cd

24 PUBKEY SCRIPT ScriptPubKey OP_DUP OP_HASH160 PUSHDATA Bitcoin address (public key hash) OP_EQUALVERIFY OP_CHECKSIG OP_DUP 76 OP_HASH160 a9 PUSHDATA public key hash c8 e c7 c6 08 0e e c 68 4e d9 04 d1 4c 5c OP_EQUALVERIFY 88 OP_CHECKSIG ac

25 FINAL TRANSACTION version input count 01 previous output hash (reversed) 48 4d 40 d4 5b 9e a0 d6 52 fc a8 25 8a b7 ca a eb f9 6f b5 0c d7 32 c8 b4 81 input previous output index script length scriptsig a c b2 65 bf b f c3 51 5d d3 d1 6f c c 58 ec 0a 0f f4 48 a6 76 c5 4f f c d7 62 a1 fc ef e ad 8f a c0 5b 13 c f1 65 4e 6a d e e3 01 b2 32 8f c 0b d7 87 bf 3d 8a 40 4c fb d0 70 4f 13 5b 6a d4 b2 d3 ee f e 53 a6 e8 c3 9b d7 d3 fe fd 57 6c 54 3c ce 49 3c ba c f2 65 1d 1a ac bf cd sequence ff ff ff ff output count 01 value script length 19 output 76 a9 14 c8 e c7 c6 08 0e e c 68 scriptpubkey 4e d9 04 d1 4c 5c 88 ac block lock time

26 References [1] Ken Shirriff s blog, Bitcoins the hard way: Using the raw Bitcoin protocol [2] Bitcoin wiki, Technical background of version 1 Bitcoin addresses. [3] Mastering bitcoin, O Reilly Publish [4] Bitcoin.org, Developer examples.

27 BASE58 ENCODING Specially used in bitcoin ABCDEFGHJKLMNPQRSTUVWXYZabcdef ghijkmnopqrstuvwxyz Without 0,O,I,l Avoid misunderstanding Looks like an account number No punctuations Good for doubleclick & copy.

28 DIFFICULTY Difficulty The block hash should be smaller than a target (leading 0s) Difficulty 1 target(a): FFFFFFFF. Current Difficulty target(b): d4cdc1aacfeb689cd32a4c4e 72bfe5c77abcb27a14e (block ) Difficulty = (A)/(B)

29 BIG ENDIAN AND LITTLE ENDIAN Little endian Most significant bytes at the end Least significant bytes at the beginning Big endian Reverse to little endian Example: 0x90 AE 3C 62 Little endian: 0x62 3C AE 90 Big endian: 0x90 AE 3C 62