BITCOIN PROTOCOL & CONSENSUS: A HIGH LEVEL OVERVIEW
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1 BITCOIN PROTOCOL & CONSENSUS: A HIGH LEVEL OVERVIEW Rustie Lin Wang Move the area1 over the image a little inside and then right click, replace image to change the background. (and delete this box while you re at it.) try unsplash.com for photos! Doesn t have to be blockchain related.
2 2 LECTURE OUTLINE 1 WHAT IS BITCOIN? 2 IDENTITY 3 TRANSACTION 4 RECORD-KEEPING (THE BLOCKCHAIN) 5 CONSENSUS
3 3 1 WHAT IS BITCOIN?
4 4 BASIC CONCEPTS The first and most widely used cryptocurrency. completely digital, decentralized, currency built on principles of computer science, cryptography, and economics Bitcoin: refers to the community, the network, and the software bitcoins: the currency itself, a unit Inspiration for the blockchain: the underlying data structure that stores a permanent history of all transactions to ever occur in the history of bitcoin AUTHOR: NADIR AKHTAR EDITOR: MENGYI WANG
5 5 THE CYPHERPUNK MOVEMENT BITCOIN S GENESIS Cypherpunks = a group of individuals who advocate for the protection of privacy using cryptography Bitcoin was created by Satoshi Nakamoto in 2009 He created the first ever decentralized, pseudonymous, and trustless system for transactions Image source: wanson/ AUTHOR: MENGYI WANG
6 6 SATOSHI NAKAMOTO S INNOVATION SOLVING THE DOUBLE SPEND PROBLEM Bitcoin attempts to solve two problems that decentralized networks typically face: Inconsistent transaction records held by different nodes Malicious pseudonymous actors might broadcast false messages and divide the network Double spending attack: some value is used for more than it s worth The blockchain and consensus protocol are the solution AUTHOR: MENGYI WANG
7 7 BITCOIN VS. BANKS IN BANKS WE DISTRUST Account and Identity Management Service Record Management Trust Links personal Transfers money Updates and Provides services information to and redeems tracks account by professionals bank account and money balance under regulations verifies ownership AUTHOR: NADIR AKHTAR EDITOR: MENGYI WANG of government
8 8 BITCOIN VS. BANKS IN BITCOIN WE TRUST Account and Identity Management Service Record Management Trust Gives users Sends funds Updates every Provides trusted autonomously between peers node, which keeps protocol which created and directly (P2P) its own ledger incentivizes actors (blockchain) to behave managed identities AUTHOR: NADIR AKHTAR EDITOR: MENGYI WANG honestly
9 9 2 IDENTITY
10 10 IDENTITY IDENTITY IN BITCOIN What s the role of identity in the context of currencies? AUTHOR: NADIR AKHTAR
11 11 IDENTITY IDENTITY IN BITCOIN What s the role of identity in the context of currencies? Authentication Receiving money Claiming/Spending money Blame Integrity Identity in daily life: Houses have addresses and mailbox keys s have aliases and passwords Bitcoin has public keys and private keys AUTHOR: NADIR AKHTAR
12 12 IDENTITY PUBLIC AND PRIVATE KEYS Analogy: Private key: physical key Public key: locked chest Public key for receiving, private key for redeeming Private key chosen at random Public key generated from private key Note: public key =/= address in reality -- we ll make the distinction clear in later sections Image source: om/images/i/51rh0s9vdyl.jpg AUTHOR: NADIR AKHTAR & RUSTIE LIN
13 13 IDENTITY PUBLIC KEY SECURITY AUTHOR: NADIR AKHTAR lustration/sandy-planet-earth-sand-gr avel-pebbles
14 14 IDENTITY PUBLIC KEY SECURITY AUTHOR: NADIR AKHTAR lustration/sandy-planet-earth-sand-gr avel-pebbles
15 15 IDENTITY SECURITY: HIDDEN IN PLAIN SIGHT What if someone guesses my private key?! Bitcoin is hidden in the large amount of public keys 2160 (1,461,501,637,330,902,918,203,684,832,716,283,019,655,932,542,97) possible addresses Practically impossible for anyone to overlap using random generation of public key For reference: Grains of sand on earth: 263 With 263 earths, each with 263 grains of sand: 2126 total grains of sand 2126 is only % of 2160 Population of world: 7.5 billion in April 2017 Every person could have about 2127 addresses all to themselves AUTHOR: MAX FANG UPDATED BY NADIR AKHTAR
16 16 3 TRANSACTIONS
17 17 TRANSACTIONS VALIDITY What makes a transaction valid? AUTHOR: NADIR AKHTAR
18 18 TRANSACTIONS VALIDITY What makes a transaction valid? Proof of ownership (a signature) Available funds No other transactions using the same funds AUTHOR: NADIR AKHTAR
19 19 TRANSACTIONS UTXO MODEL To To Rustie Unspent Transaction Output (UTXO) Bitcoin s model for transactions Chests (accounts) vs Piggy banks (UTXOs) AUTHOR: NADIR AKHTAR Source: File:Transaction.png To Derrick
20 20 TRANSACTIONS UTXO MODEL Unspent Transaction Output (UTXO) Bitcoin s model for transactions UTXO s as Piggy Banks source: ures-of-money/ AUTHOR: NADIR AKHTAR & RUSTIE LIN
21 21 TRANSACTIONS UTXO MODEL Unspent Transaction Output (UTXO) Bitcoin s model for transactions UTXO s as Piggy Banks source: AUTHOR: NADIR AKHTAR & RUSTIE LIN
22 22 AUTHOR: RUSTIE LIN
23 23 To Output (100) AUTHOR: RUSTIE LIN Source:
24 24 To Output (100) To Output (50) AUTHOR: RUSTIE LIN Source:
25 25 To To Rustie Output (100) Output (101) To Output (50) AUTHOR: RUSTIE LIN Source:
26 26 To To Rustie Output (100) Output (101) To Output (50) AUTHOR: RUSTIE LIN Source:
27 27 To Output (100) To Rustie Output (101) To Output (50) AUTHOR: RUSTIE LIN Source:
28 28 To Output (100) To Rustie Output (101) To Output (50) AUTHOR: RUSTIE LIN Source:
29 29 To Output (100) To Rustie Output (101) To Output (50) AUTHOR: RUSTIE LIN Source:
30 30 To Output (100) To Rustie Output (49) Output (101) To Output (50) AUTHOR: RUSTIE LIN Source:
31 31 To Output (100) To Rustie Output (49) Output (101) To Derrick Output (101) To Output (50) AUTHOR: RUSTIE LIN Source:
32 32 To Output (100) To Rustie To Derrick Output (49) Output (101) Output (101) To Output (50) AUTHOR: RUSTIE LIN Source:
33 33 4 RECORD-KEEPING (THE BLOCKCHAIN)
34 34 RECORD-KEEPING DISTRIBUTED DATABASES Rustie Derrick? Nick Nadir AUTHOR: NADIR AKHTAR Sender Recipient Amount (BTC) Derrick Nadir 0.5 Rustie 4.2 We know how to represent identities and transactions---how do we store all that information? How do we keep track of this ledger of transactions? With a distributed database
35 35 RECORD-KEEPING EVERYONE S THE BANK Sender Recipient Amount (BTC) Derrick Rustie 0.5 Nadir 4.2 Sender Recipient Amount (BTC) Derrick Rustie 0.5 Nadir 4.2 Rustie Everyone stores the ledger Derrick Sender Recipient Amount (BTC) Derrick Rustie 0.5 Nadir 4.2 Nick Nadir AUTHOR: NADIR AKHTAR Sender Recipient Amount (BTC) Derrick Rustie 0.5 Nadir 4.2 Sender Recipient Amount (BTC) Derrick Rustie 0.5 Nadir 4.2
36 36 RECORD-KEEPING THE BLOCKCHAIN Sender Recipient Amount (BTC) Derrick Rustie 0.5 Nadir 4.2 Nick 23 Rustie Derrick 3.2 Nadir Rustie 0.3 Nick 17 AUTHOR: NADIR AKHTAR Batching Sender Recipient Amount (BTC) Sender Recipient Amount (BTC) Sender Recipient Amount (BTC) Derrick Rustie 0.5 Nick 23 Nadir Rustie 0.3 Nadir 4.2 Rustie Derrick 3.2 Nick 17
37 37 5 CONSENSUS (PROOF-OF-WORK)
38 38 CONSENSUS STAYING ON THE SAME PAGE Rustie Derrick Nick Nadir AUTHOR: NADIR AKHTAR Everyone accepts valid transactions as they come around without discussion How do we ensure no one s cheating if we make decisions alone?
39 39 CONSENSUS DOUBLE SPEND ATTACK Rustie Derrick Nick Nadir AUTHOR: NADIR AKHTAR promises 10 BTC to Rustie in one transaction, and she promises 10 BTC to Nadir in another -- but she only has 10 BTC total! is performing a double spend attack
40 40 CONSENSUS DOUBLE SPEND ATTACK Rustie Derrick MALICIOUS ACTIVITY Nick Nadir AUTHOR: NADIR AKHTAR promises 10 BTC to Rustie in one transaction, and she promises 10 BTC to Nadir in another -- but she only has 10 BTC total! is performing a double spend attack
41 41 CONSENSUS PEER VALIDATION Rustie Derrick Nick Nadir AUTHOR: NADIR AKHTAR Instead of siloed decisions, let s have proposers and voters The proposer submits a transaction to everyone else Peers cast votes Only save after receiving a certain number of votes
42 42 CONSENSUS REJECTING THE DOUBLE SPEND Rustie Now, when attempts to double spend, she will be rejected by observing peers. Derrick Nick Nadir AUTHOR: NADIR AKHTAR
43 43 CONSENSUS VICTORY (OR IS IT?) Rustie Derrick ~no malicious activity~ Nick Nadir AUTHOR: NADIR AKHTAR Peers vote no on s proposal, as they notice multiple transactions trying to spend the same funds.
44 44 CONSENSUS A STRANGER AMONG US Rustie Derrick Nick Nadir AUTHOR: NADIR AKHTAR Keep in mind, Bitcoin is an anonymous service with no central registry Inexpensive to create multiple identities Multiple identities multiple opportunities to cast votes
45 45 CONSENSUS A STRANGER AMONG US Rustie Derrick Nick Nadir AUTHOR: NADIR AKHTAR Keep in mind, Bitcoin is an anonymous service with no central registry Inexpensive to create multiple identities Multiple identities multiple opportunities to cast votes
46 46 CONSENSUS SYBIL ATTACK Rustie Derrick MALICIOUS ACTIVITY Nadir AUTHOR: NADIR AKHTAR Nick Keep in mind, Bitcoin is an anonymous service with no central registry Inexpensive to create multiple identities Multiple identities multiple opportunities to cast votes can perform a Sybil attack, which will allow her to double spend
47 47 CONSENSUS PAY TO PLAY Rustie Derrick Instead of casting votes with identities, we cast votes with resources Nick Nadir AUTHOR: NADIR AKHTAR
48 48 CONSENSUS PROOF-OF-WORK Proof-of-Work Evidence AUTHOR: NADIR AKHTAR Spent resources
49 49 CONSENSUS PROOF-OF-WORK WORKS Rustie Derrick Nick Nadir AUTHOR: NADIR AKHTAR Need to solve a problem via brute forcing Like brute forcing a password -- trial and error
50 50 CONSENSUS PROOF-OF-WORK WORKS Rustie Derrick ~no malicious activity~ Nadir AUTHOR: NADIR AKHTAR Nick Need to solve a problem via brute forcing Like brute forcing a password -- trial and error
51 51 6 REVIEW & CONCLUSION
52 52 COMPONENTS OF BITCOIN NETWORK FOUR COMPONENTS OF BITCOIN A decentralized P2P network A public, distributed, and immutable ledger A mechanism for reaching global consensus on the history of the ledger A set of rules for currency issuance and software update AUTHOR: MENGYI WANG
53 53 KEY TAKEAWAY - IDENTITY YOUR KEYS ARE YOUR IDENTITIES Identity: nodes use public keys to make transactions and use private keys to spend bitcoins Private keys generate public keys and addresses using cryptographic primitives Nodes can arbitrarily generate numerous private/public key pairs The large number of total possible addresses make it close to impossible for two nodes to generate the same addresses AUTHOR: MENGYI WANG
54 54 KEY TAKEAWAY - TRANSACTIONS BREAKING THE PIGGY BANKS Transactions: nodes transfer ownership of UTXOs Unique identifiers help keep record of the entire lineage of the transactions Can send change back to a new address A user can make several payments in parallel AUTHOR: MENGYI WANG
55 55 KEY TAKEAWAY - RECORD-KEEPING EVERYONE S THE BANK Record-keeping: mining nodes keep record of transactions by updating their own blockchain (ledger) and broadcast their version of ledger to the network A block is an ordered bunch of transactions. Each block references a previous block Everyone maintains their own copy of the ledger based on what they hear from the network Updates on blockchain are irreversible AUTHOR: MENGYI WANG
56 56 KEY TAKEAWAY - CONSENSUS UPDATING THE SHARED, IMMUTABLE LEDGER Consensus: the network agrees on a single version of history (or transaction record/blockchain) through proof-of-work. Proof-of-work makes participation in the consensus process expensive, preventing malicious entities from tampering with transaction history Allows the network to reach consensus without relying on a central authority AUTHOR: MENGYI WANG
57 57 UNIQUE PROPERTIES OF BITCOIN DEMYSTIFYING THE BUZZWORDS Pseudonymous: users use pseudonyms, not real world identities to make transactions Decentralized: every user possesses the same copy of transaction history Immutable: it is close to impossible for any users to change the network transaction history in their favor Trustless: users don t need to trust anyone they are transacting with to be sure that their transactions will be accurately recorded by the rest of the network AUTHOR: MENGYI WANG
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