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Course: e-Payment

Professor: Dr. Amirshekari

Author: M.Babaie
Welcome!

Blockchain Group
Designer

Hi Everyone, we are Blockchain Group.

We are Masters student in Information Technology, this article


prepare for e-payment course, represent to
Professor Dr. N.Amirshekari.
We hope this article can help you to know Bitcoin networks and
Blockchain technology.
Introduction
Blockchain Group

The blockchain is an incorruptible digital ledger of


economic transactions that can be programmed to
record not just financial transactions but virtually
everything of value.
Don & Alex Tapscott, authors Blockchain Revolution (2016)
Agenda
Blockchain Topics

Non-Technical Review
Philosophy of e-money
What is V-Currency
What is Crypto-Currency

Introduction
What is Bitcoin
What is Blockchain
Next generation Bitcoin 2.0
Bitcoin
History of Bitcoin
Bitcoin Basics
How it Works
Bitcoin Mining

Statistics

Blockchain
What is Block?
Different type of Blockchain

Different Type of Blockchain

Blockchain Ledger
Privacy
Privacy
Economics
Blockchain Regulation

Proof of Work
Block Order

How the Bitcoin Protocol actually Works

Algorithms

Hash
Block Hash

Mining Algorithms
Simple Miner codes
How Transactions Work

Closing
Meet our Team
Philosophy of e-money
Brief History





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Philosophy of e-money
Brief History

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What is V-Currency

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What is Crypto-Currency
Your great subtitle in this line

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PayPal . .


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Transactions Observations

Now
CASH Online banking transaction growth
SMEs/Retail acceptance of electronic transaction
No middleman required Online purchases/commerce
DIY Fraud detection In-App purchases
Sufficient trust for the value of the Virtual currencies in games
transaction International transaction growth
Anonymous/Private Value Storage cards (loyalty cards, ERP, gift cards)
Distributed

Future
Internet of things
Autonomous Objects
Electronic Middleman Programmable money/finance automation
Require 3rd party trust
The more complex the flow the more
middleman required
Specialized equipment needed (POS, In General..
connection to Txn networks)
The easier it is to conduct transactions,
Fraud detection by 3rd parties
The more people transact
Every step adds cost
What is Bitcoin General

Bitcoin is a Peer-to-Peer network that maintains a public decentralized ledger of digital math-
based assets known as bitcoins. The integrity of this ledger is backed and secured by a
subnetwork of computers (miners) who audit and archive its transactions for a reward.

Digital Math-
The Supply of bitcoins is fixed at 21million and each bitcoin can be divided into a hundred million
pieces.
Based Asset

Their ownership cannot be changed within ledger without instructions from their current owner
that have been cryptographically authenticated (Digital signatures) by a majority of nodes on the
Bitcoin network.

Internet of
These attributes makes the Bitcoin network a financial network, or the Internet of Money Money

Decentralized
What is needed is an electronic payment system based on cryptographic proof instead of trust, Peer-to-Peer
allowing any two willing parties to transact directly with each other without the need for a Ledger
Network
trusted third party.
-Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System | October 31, 2008
What is Blockchain
Is blockchain technology the new internet?
What is Blockchain
Is blockchain technology the new internet?

The blockchain is an incorruptible digital ledger of economic transactions


that can be programmed to record not just financial transactions but
virtually everything of value.
Don & Alex Tapscott, authors Blockchain Revolution (2016)

About
The Blockchain is basically a public ledger where all network participants are
registering all transactions in the Bitcoin network.The blockchain is an undeniably
ingenious invention the brainchild of a person or group of people known by the
pseudonym, Satoshi Nakamoto. But since then, it has evolved into something
greater and the main question every single person is asking is: What is
Blockchain?

About functions
By allowing digital information to be distributed but not copied, blockchain
technology created the backbone of a new type of internet. Originally devised for
the digital currency, Bitcoin, the tech community is now finding other potential
uses for the technology.
What you need to know
about bitcoin 2.0
Bitcoin 2.0
All You Need To Know

Bitcoin 2.0 Explained


Bitcoin has grown immensely since the release of Satoshi Nakamoto White Paper back in 2009
It was designed to be a decentralized peer-to-peer digital currency and electronic payment system with no central authority to regulate it
Bitcoin is a zero trust consensus network that enables a new payment system and completely digital currency. It was introduced as open-source software that uses
cryptography to control the creation and transfer of money.
This decentralized Network uses its own protocol based on a new technology called the Blockchain.
The Blockchain is a transaction record base which is shared by all nodes in the Bitcoin system. All transactions since the creation of Bitcoin are documented on the
Blockchain. The Blockchain behaves almost like a database; its a place where the network participants store data semi-publicly in a linear container space called the
Block.
The Blockchain is a new organizing concept
a new class of Internet with its own protocol with tiered technical levels and multiple classes of applications for any form of asset registry, inventory, and exchange,
including every area of finance, economics, and money; hard assets, such as physical property; and intangible assets such as votes, ideas, reputation, intention, health
data, information, etc In fact the Blockchain can be applied to practically everything.
While the mining work done to secure and validate internal Bitcoin-to-Bitcoin transactions is valuable, recent enhancements to the core Bitcoin source code now allow
for the mining network to secure and validate external non-Bitcoin transactions
This relatively new concept involves the development of programs that can be entrusted with money. With this new level of application for the Bitcoin Protocol the
Blockchain 2.0 concept is born
In other words, this enables the application of decentralized public ledgers for purposes other than digital currencies.These applications are referred to as Bitcoin 2.0 or
sometimes more generally "crypto 2.0. In other instances, they are referred to as decentralized apps or dApps
History of Bitcoin
The world's first decentralized currency
Glitch
Mar 2013
Silk Road halt in Transactions
FinCEN
2011 Market cap
marketplace $1 billion
for drug Coindesk.com
Jan 2011 Coinlab lawsuit
25% of total
WeUseCoins.
against MtGox
First Bitcoin ATM
START com
Satoshi Nakamoto... Develop
Bitpay E-
2007 2010 Exploit Bitcoin
wallet Major
Began Encryption
Aug 2010 Magazine Bankruptcy
August 2008 patent is
Generate 184 2012 FBI report 2014
Bitcoin.org published
billion Fake on Bitcoin Full History line
October 2008 July Version 0.3
Bitcoins leaked
The white paper
Bitcoin
Foundation
begins
Wordpress
accept bitcoins

Who Created Bitcoins?


2008 Satoshi Nakamoto publishes white paper.
2009 Satoshi releases Bitcoin source code and software client to the world.
2009-2010 Satoshi Updates the source code and write hundreds of posts totaling 80,000 words.
APRIL 23, 2011 Satoshi vanishes from the internet after emailing a developer saying he has moved onto other things.
Bitcoin Basics
Creation of coins: New coins are slowly mined into existence by following a mutually agreed-upon set of rules, A user mining bitcoins is
running a software program that searches for a solution to a very difficult math problem the difficulty of which is precisely known. This
difficulty is automatically adjusted on a predictable schedule so that the number of solutions found globally for a given unit of time is constant:
the global system aims for 6 per hour (2016 two weeks). There can only be a fixed 21 million bitcoins [to prevent inflation], out of which 15.5
million are currently in circulation, which leaves 5.5 million bitcoins to be discovered.

Sending payments Anonymity


To guarantee that a third-party, let's call her Eve, cannot When it comes to the Bitcoin network itself, there are no
spend other people's bitcoins by creating transactions in "accounts" to set up, and no e-mail addresses, user-names
their names, Bitcoin uses public key cryptography to make or passwords are required to hold or spend bitcoins. Each
and verify digital signatures. Only the user with the private balance is simply associated with an address and its public-
key can sign a transaction to give some of their bitcoins to private key pair. The money "belongs" to anyone who has
somebody else the private key and can sign transactions with it.

Preventing double-spending Capitalization / Nomenclature


The following process prevent Alice from Since Bitcoin is both a currency and a protocol,
using the same bitcoins in more than one capitalization can be confusing. Accepted practice is to
use Bitcoin (singular with an upper case letter B) to label
transaction; this is the primary innovation
the protocol, software, and community, and bitcoins (with
behind Bitcoin. a lower case b) to label units of the currency.
How it works
No new technology

Distributed Systems Public Private key cryptography


A distributed system is a model in which asymmetric cryptography, is any cryptographic
components located on networked computers system that uses pairs of keys:
communicate and coordinate their actions by public keys which may be disseminated widely
passing messages. The components interact with private keys which are known only to the owner
each other in order to achieve a common goal. This accomplishes two functions:
Authentication and Encryption

Peer-to-peer networks
distributed application architecture that partitions
Cryptographic signatures
tasks or workloads between peers. Peers are A digital signature is a mathematical scheme for
equally privileged, equipotent participants in the demonstrating the authenticity of a digital
application. They are said to form a peer-to-peer message or documents
network of nodes.

Hashing functions Users Elliptic curve cryptography


A hash function is any function that can be used approach to public-key cryptography based on
to map data of arbitrary size to data of fixed size. the algebraic structure of elliptic curves over finite
fields.
Learn More
How bitcoin mining works Earn some money

In traditional fiat money systems, governments simply print more money


when they need to. But in bitcoin, money isnt printed at all it is
discovered. Computers around the world mine for coins by competing
with each other
The bitcoin network deals with this by collecting all of the transactions
made during a set period into a list, called a block. Its the miners job to
confirm those transactions, and write them into a general ledger.

But a general ledger has to be trusted, and all of this is held digitally.
How can we be sure that the blockchain stays intact, and is never
tampered with? This is where the miners come in.

When a block of transactions is created, miners put it through a process.


They take the information in the block, and apply a mathematical formula
to it, turning it into something else.. This hash is stored along with the
block, at the end of the blockchain at that point in time

Competing for coins:


The problem is that its very easy to produce a hash from a collection of data. Computers are really good at this. The bitcoin network has to make it more
difficult, otherwise everyone would be hashing hundreds of transaction blocks each second, and all of the bitcoins would be mined in minutes. The bitcoin
protocol deliberately makes it more difficult, by introducing something called proof of work.
Miners arent supposed to meddle with the transaction data in a block, but they must change the data theyre using to create a different hash. They do this
using another, random piece of data called a nonce. This is used with the transaction data to create a hash. If the hash doesnt fit the required format, the
nonce is changed, and the whole thing is hashed again.
Statistics & Reports
Blockchain
Powered payment networks

Solved Ignored Challenges


Return to Peer-to-Peer Policing bad-actors Technical Complexity

Speed KYC/AML Regulatory Uncertainty

Trustless trust Insurance Getting the currency in the first place

No special equipment needed Onboarding process

Fraud Customer service

No chargebacks Commercial Relationships

No monthly fees

Transparency
Problem
How to reach consensus in a decentralized system

First Step Third Step


A group of generals, each The problem is complicated by the
commanding a portion of the presence of traitorous generals
Byzantine army, encircle a city. who may not only cast a vote for a
These generals wish to formulate suboptimal strategy, they may do Fifth Step
Second Step Fourth Step However, if they dont all attack
a plan for attacking the city so selectively. For instance
In its simplest form, the generals The problem is complicated simultaneously, theres a very real
must only decide whether to further by the generals being risk that the attackers will be
attack or retreat. Some generals physically separated and having to outnumbered, the attack will be
may prefer to attack, while others send their votes via messengers repelled and theyll go on to lose
prefer to retreat who may fail to deliver votes or the battle
may forge false votes
Bitcoin and the blockchain
Can solve the Problem?

What happened before Bitcoin (and the blockchain)?


General 1 decides to attack at 9pm. He sends his rider out with the message (9pm
attack) to deliver it to General 2. Upon arrival, General 2 reads the message, notes
the time of the attack and signs the message to also say 9pm attack. He sends
the rider on to share the message with General 3.

But theres a problem. General 3 is a traitor. He wants to the attack to fail. So


when he gets the message, he rips it up and replaces it with a new message that
says 8pm attack.

The rider continues unaware. General 4 now receives a message saying 8pm
attack. He notes the time, signs the message to say 8pm attack and sends this
on to General 5.

Now the message has gone around everyone. But we have a problem. The
dishonest General has disrupted the result. We now we have two generals (4 and 5)
with 200 men attacking the Castle at 8pm. Expecting the others to join them, they
instead get outnumbered and overpowered by the 300 defenders. The victorious
baddies now stream out of the Castle and join forces with the treacherous General
3. Suddenly the two remaining Generals (1 and 2) have only 200 men and find
themselves fighting 400 men.
Bitcoin and the blockchain
Can solve the Problem?
What happened after Bitcoin (and the blockchain)?

General 1 wants to send the same message (attack at 9pm). But this time, there are two new rules he must abide by:-

He must spend 10 minutes preparing any new message for it to be valid; and
He must include the history of every previous message in every new message.
So lets see what happens this time. As before, General 1 sends the message (9pm attack) with the rider on horseback. This time, however, its different for
General 2 because he knows two things for certain:

The message must have taken 10 minutes to prepare; and


There are no previous messages so it must be the truth*
(*or, more accurately, even if General 1 is a traitor and put in the wrong time, it doesnt matter if the majority of Generals followed this suggestion and went with a
9pm attack time, theyll still be outnumber those in the Castle and win the battle)

Ok, so now its time for General 2 to send a message. As required, he spends 10 minutes preparing the new message and he embeds General 1s message into his
own. The rider then sets off with this message (now in fact, its two messages chained together as the second has the first embedded within it).

Now it gets to General 3. Remember, hes the traitor. What does he do? Last time, he changed the message to 8pm attack so that Generals 4 and 5 would attack
early and get overpowered. But all of sudden, now he cant. Why? Because under the new rules, he has only 10 minutes to prepare a message for General 4. He has
two options:

Cheat by changing the message to 8pm attack but to do this, he needs to (a) spend 10 minutes creating his message, and then (b) spend an EXTRA 2 x 10
minutes working to create replacement 8pm attack messages from Generals 1 and 2 to embed these into his message and, whats more, (c) carry out that 30
minutes of work within the next 10 minutes to avoid the other Generals knowing that hes a traitor; or
Admit defeat and prepare the 9pm attack message during that 10 minutes.
What is Block?

Transaction data is permanently recorded in files called blocks.

They can be thought of as the individual pages of a city recorder's record book
(where changes to title to real estate are recorded) or a stock transaction
ledger

Each block contains, among other things, a record of some or all recent
transactions, and a reference to the block that came immediately before it.

It also contains an answer to a difficult-to-solve mathematical puzzle - the


answer to which is unique to each block. New blocks cannot be submitted to the
network without the correct answer - the process of "mining" is essentially the
process of competing to be the next to find the answer that "solves" the current
block.

The mathematical problem in each block is extremely difficult to solve, but


once a valid solution is found, it is very easy for the rest of the network to
confirm that the solution is correct. There are multiple valid solutions for any
given block - only one of the solutions needs to be found for the block to be
solved.
Different Type of Blockchain
3 Different Type
Blockchain is a distributed database that maintains a continuously growing list of data records secured from tampering and revision. Blockchain is the main technology
behind bitcoin, where it serves as the public ledger for bitcoin transactions. Many altcoins emerged after the rise of bitcoin. Blockchain technology is the backbone of all of
them. After people started to understand how a blockchain works, they started using it for other purposes, like to store value, identities, agreements, property rights etc.
Ethereum is the biggest innovation after bitcoin. It provides a way to create online markets and programmable transactions known as smart contracts. Three main types of
blockchains exist:

# Public blockchains # Consortium blockchains # Private blockchains


Anyone in the world can Consensus process is Write permissions are kept
read, anyone in the world controlled by a pre-selected centralized to one
can send transactions to set of nodes; for example, organization. Read
and expect to see them one might imagine a permissions may be public
included if they are valid, consortium of 15 financial or restricted to an arbitrary
and anyone in the world institutions, each of which extent. Likely applications
can participate in the operates a node and of include database
consensus process which 10 must sign every management, auditing,
Public blockchains are block in order for the block to and more that are internal
open-source and everyone be valid. The right to read to a single company
can be part of them. the blockchain may be Examples: ndustries,
Examples: public, or restricted to the MultichaEris Iin
Bitcoin, participants.
Ethereum Example: R3
All Bitcoin transactions are public,
traceable, and permanently stored in the
Bitcoin network. ... Anyone can see the
balance and all transactions of any
address. Since users usually have to
reveal their identity in order to receive
services or goods,
Bitcoin addresses cannot remain fully
anonymous.
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