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LECTURE OUTLINE 1

Intro and Terminology

2

Bitcoin and Consensus

3

Bitcoin Concepts

4

Mining Sketch

5

Bonus Content: Merkle Trees and Consensus Updates

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1

INTRODUCTION

4

TERMINOLOGY

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5

2

BITCOIN AND CONSENSUS

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SATOSHI NAKAMOTO'S INNOVATION

● ○ ● ○ ○ Dorian Satoshi Nakamoto (not actually Satoshi Nakamoto)

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v1 Alice writes and signs a message describing her transaction

A

“I, Alice, am giving Bob one bitcoin.”

G

A

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C

v1

E

Alice sends her message to the world

F A J

B H

G

A

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C

v1

E

Alice sends five identical messages

F A J

B

? H

G

A

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C

v2

E

Introducing uniquely identifiable serial numbers

F A J

8732

B H

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v2 Where do serial numbers come from?

8732

?

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v2 A central bank manages transactions and balances

E D

G

B

A

H

C

I

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v2 Centralization

E D B

A

G H

01

01

01

C

01

I

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v3 Making everyone the bank. Everyone has a complete record of transactions

E D B

A

G C

I

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v3 Alice sends her transaction to Bob

E D B

A

G C

I

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v3 Bob announces the transaction to the world

E D B

A

G C

I

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v3 Alice double spends on Bob and Charlie

E D B

A

G C

I

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v4 Everyone verifies transactions

E D B

A

G C

I

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v4 Alice is prevented from double spending

E D B

A

G C

I

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v4 Alice sets up multiple identities

A A B

A

A C

A

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v4 Alice double spends with her multiple identities Sybil Attack: Creating many fake identities to subvert a system

A A B

A

A C

A

G

A

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v5

CProof-of-work F A J

E

B H

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v5 Other users add to list of pending transactions

1.

I, Tom, am giving Sue one bitcoin, with serial number 3920.

2.

I, Sydney, am giving Cynthia one bitcoin, with serial number 1325.

3.

I, Alice, am giving Bob one bitcoin, with serial number 1234.

Slide by Viget

v5 Verifying transactions

1 Check blockchain

2 Solve puzzle

3 Announce block

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v5 Why the math?

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v4 Alice double spends with her multiple identities

A A B

A

A C

A

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v5 Proof-of-work as a competition

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Summary Version

Major feature

Value added

1

Signed messages announced to the network

Basis of entire system

2

Serial numbers

Uniquely identifiable transactions

3

The block chain

Shared record of transactions

4

Everyone verifies transactions

Increased security

5

Proof-of-work

Prevents double spending

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BASIC CONCEPTS - IDENTITY IN BITCOIN ● ○ ● ○ ■ ○ ● ○ ○ ○ ○ ○

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TRANSACTION - A BASIC VERSION

● ○ ○ ● ○ ●

Coinbase interface

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BASIC CONCEPTS - TRANSACTIONS ● ● ●

Source: Bitcoin Developer Guide

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BLOCKS AND BLOCKCHAIN

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● Source: Bitcoin Developer Guide

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BLOCKS AND BLOCKCHAIN

Source: blockchain.info

Basic Concepts - UTXO analogy UTXOs stands for "Unspent Transaction Outputs" ● ●

Global set of unspent bitcoins "I'm spending THIS bitcoin," not "I'm spending A bitcoin."

Analogous to Rai Stones of the Yap Islands ● ●

Rai Stones never moved Instead: Agreed on change of ownership

Source: Wikipedia

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MINING SKETCH

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MINING SKETCH - FINDING BLOCKS ● ○ ■ ○ ○ ● ○ ■ ○ ■ ● ○ ○ ○ ○

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MINING SKETCH - FINDING BLOCKS ● ○ ● ● ○ ● ● ○ ○ ■

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A TRANSACTION FLOW ● ○ ○ ● ○ ○ ● ○ ●

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51% ATTACKS

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BONUS: FORKING + CONSENSUS UPDATES Source: Bitcoin.org Developer Guide

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BONUS: MERKLE TREE

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Makes transaction history immutable PoW to add chains Source: Nakamoto 2009

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NEXT TIME: CRYPTOGRAPHY AND WALLETS

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