Cryptocurrency technologies: Blockchain
Starting to learn about cryptocurrency
cryptocurrency history and technologies
History of cryptocurrencies
1998 - Wei dai published description about distributed electronic cash system
1999 - Nick Szabo created “Bit Gold” together with proof-of-work system
2008 - bitcoin.org was registered by Satoshi Nakamoto and public whitepaper „Bitcoin Peer to Peer electronic cash system“ was released
03.01.2009 - First Genesis block was generated into Bitcoin network
2011 - First BTC conference, 1 BTC = 1 USD
2013 - 1 BTC = 1200 USD, first bitcoin ATMs were produced
2014 - MtGox crashed. Many new startups, around 8 million wallets, 50% increase in transaction volumes, 1 BTC = 500 USD
2015 - first banks, 1 billion USD investments, some regulations (VAT free in EU), 1 BTC = 300 USD
2016 - Many new blockchain businesses, new regulations, many banks adopted blockchain technology, 1 BTC = 800 USD
2017 - New boom began, ICOs, BTC = 4 000 USD
Cryptocurrency technologies: Overview
Decentralised network
Adding transactions into the blocks and connecting them to the chain
Methodology to create new blocks into the chain - Proof-of-Work
All this is designed using old and proven basic technologies like cryptographic hashes and public-private keypairs.
Cryptocurrency technologies: Cryptographic hash
A cryptographic hash function is a mathematical function commonly used to verify the integrity of data, by transforming identical data to a unique, representative, fixed-size code (for instance, “John Smith” should always map to the same number, e.g. 10). Usually it’s a one-way function.
Any accidental or intentional modification to the data will change the hash code (e.g. if “John Smith” was changed to “Jon Smith”, “Jon Smith” would map to a different number, e.g. 15)
oogle challenge: How are our passwords stored in any other web environment? If we forget our password, why can we only reset it, not restore?
Cryptocurrency technologies: Cryptographic key pairs
In public key cryptography, two keys are used:
private key to be kept secret by the owner
public key to be visible by everyone
There is an asymmetric mathematical relation between the public and private keys: The public key can be easily derived from the private key. The private key is next to impossible to be derived from the public key.
Bitcoin transactions are not encrypted; all transaction information is publicly visible. However, they heavily rely on digital signatures, one of the main uses of public key cryptography.
Cryptocurrency technologies Cryptographic key pairs
The Public Key is used to produce a Bitcoin address (an address publicly known to all nodes of the Bitcoin network). In order to produce this address, SHA-256 and RIPEMD-160 cryptographic hash functions must be sequentially applied.
The Private Key of the current owner of bitcoins is used to digitally sign the transaction when the owner authorizes the transfer to the new owner. The digital signature confirms the ownership and verifies that the message is authentic.
Cryptocurrency technologies: Decentralised network
Idea comes mainly from Bittorrent. Bittorrent is a protocol of a P2P network for sharing files between users without a third party.
Network is managed by the full-nodes who will hold a full copy of the network information and synchronize it real-time.
Anyone can download a free open-source code and become a node.
Nodes are treated equally – no-one is trusted.
System is based on assumption that the 51% of computing power will come from honest nodes.
Transactions and ownership records are replicated on every node.
oogle challenge: How old is Bittorrent network? Why is it still working?
Cryptocurrency technologies: Blockchain
Blockchain is a public database, logbook, ledger or cryptographically connected blocks of data.
It’s a methodology to organize information of transactions by securely storing them into timeframed blocks of data
Blocks have timestamps and they are cryptographically and historically connected to each-other.
Immutability - if something is written into the confirmed blocks, then it can’t be changed anymore. Otherwise whole chain is corrupt.
8/14
Starting to learn about cryptocurrency
cryptocurrency history and technologies
History of cryptocurrencies
1998 - Wei dai published description about distributed electronic cash system
1999 - Nick Szabo created “Bit Gold” together with proof-of-work system
2008 - bitcoin.org was registered by Satoshi Nakamoto and public whitepaper „Bitcoin Peer to Peer electronic cash system“ was released
03.01.2009 - First Genesis block was generated into Bitcoin network
2011 - First BTC conference, 1 BTC = 1 USD
2013 - 1 BTC = 1200 USD, first bitcoin ATMs were produced
2014 - MtGox crashed. Many new startups, around 8 million wallets, 50% increase in transaction volumes, 1 BTC = 500 USD
2015 - first banks, 1 billion USD investments, some regulations (VAT free in EU), 1 BTC = 300 USD
2016 - Many new blockchain businesses, new regulations, many banks adopted blockchain technology, 1 BTC = 800 USD
2017 - New boom began, ICOs, BTC = 4 000 USD
Cryptocurrency technologies: Overview
Decentralised network
Adding transactions into the blocks and connecting them to the chain
Methodology to create new blocks into the chain - Proof-of-Work
All this is designed using old and proven basic technologies like cryptographic hashes and public-private keypairs.
Cryptocurrency technologies: Cryptographic hash
A cryptographic hash function is a mathematical function commonly used to verify the integrity of data, by transforming identical data to a unique, representative, fixed-size code (for instance, “John Smith” should always map to the same number, e.g. 10). Usually it’s a one-way function.
Any accidental or intentional modification to the data will change the hash code (e.g. if “John Smith” was changed to “Jon Smith”, “Jon Smith” would map to a different number, e.g. 15)
oogle challenge: How are our passwords stored in any other web environment? If we forget our password, why can we only reset it, not restore?
Cryptocurrency technologies: Cryptographic key pairs
In public key cryptography, two keys are used:
private key to be kept secret by the owner
public key to be visible by everyone
There is an asymmetric mathematical relation between the public and private keys: The public key can be easily derived from the private key. The private key is next to impossible to be derived from the public key.
Bitcoin transactions are not encrypted; all transaction information is publicly visible. However, they heavily rely on digital signatures, one of the main uses of public key cryptography.
Cryptocurrency technologies Cryptographic key pairs
The Public Key is used to produce a Bitcoin address (an address publicly known to all nodes of the Bitcoin network). In order to produce this address, SHA-256 and RIPEMD-160 cryptographic hash functions must be sequentially applied.
The Private Key of the current owner of bitcoins is used to digitally sign the transaction when the owner authorizes the transfer to the new owner. The digital signature confirms the ownership and verifies that the message is authentic.
Cryptocurrency technologies: Decentralised network
Idea comes mainly from Bittorrent. Bittorrent is a protocol of a P2P network for sharing files between users without a third party.
Network is managed by the full-nodes who will hold a full copy of the network information and synchronize it real-time.
Anyone can download a free open-source code and become a node.
Nodes are treated equally – no-one is trusted.
System is based on assumption that the 51% of computing power will come from honest nodes.
Transactions and ownership records are replicated on every node.
oogle challenge: How old is Bittorrent network? Why is it still working?
Cryptocurrency technologies: Blockchain
Blockchain is a public database, logbook, ledger or cryptographically connected blocks of data.
It’s a methodology to organize information of transactions by securely storing them into timeframed blocks of data
Blocks have timestamps and they are cryptographically and historically connected to each-other.
Immutability - if something is written into the confirmed blocks, then it can’t be changed anymore. Otherwise whole chain is corrupt.
Cryptocurrency technologies: Proof of work (PoW)
PoW (proof-of-work) assures the principle that it is economically cheaper to act honestly than try to attack or cheat the system.
Process of confirming the transactions involves a lot computational work and the confirmation from the network that this work is done.
Coin issuing logic is connected to PoW as a motivational mechanism to motivate miners to deal with the proof of work algorithm.
Every miner who has found a correct solution will get a prize for particular block, in bitcoin the prize is 12,5 BTC.
Networks follow democratic principle - will be assumed that 51% of the miners are trusted and act normally, so if majority of the miners have verified the next block then it will be confirmed and the prize is released.
Prize sum will halve after approximately every 4 years until the last satoshis (minimal unit) are mined out. Then there will be 21 000 000 bitcoins all together.
If the prize coins are over, the assumption is that usage of the network is big enough to motivate miners with transaction fees.
Another purpose of the fees is to avoid spam and attacks.
To keep the average network confirmation time constant, in Bitcoin it is 10 min, the mining difficulty is regulated automatically. If more miners join the network, the difficulty will go up to keep the confirmation time same. If miners leave, the difficulty will go down. 
***