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Seoul, December 9, 2015
The Blockchain
A technical introduction for non-technical people
Leonhard A. Weese
President, Bitcoin Association of Hong Kong
leo@bitcoinhk.org
Seoul, December 9, 2015
The Blockchain
Potential to democratize and decentralize
● Currency
● Identity
● Assets
● Smart Contracts
● Autonomous Organizations
Seoul, December 9, 2015
Core Functionalities
● Authentication: Keys and Addresses
● Transactions: Receiving and Sending
● Mining: Ordering Transactions
Seoul, December 9, 2015
Asymmetric Encryption
An algorithm creates a key and a lock
that are mathematically linked
(usually called public and private key).
The private key never leaves the
computer
The public lock can be uploaded and
given to anybody
Seoul, December 9, 2015
Bitcoin Keys
A Bitcoin private key is a random number of the size 2^256
96 249 65 252 210 5 46 154
195 178 74 103 81 155 119 81
68 120 6 134 89 4 22 43
63 49 109 161 111 219 70 184
60 f9 41 f2 d2 5 2e 9a
c3 b2 4a 67 51 9b 77 51
44 78 6 86 59 4 16 2b
3f 31 6d a1 6f db 46 b8
153 186 18 34 219 170 96 172
29 39 69 47 31 140 183 67
128 244 111 165 241 67 253 94
1 100 108 14 67 83 190 150
4 220 165 87 97 107 198 179
148 1 49 36 155 168 96 32
104 72 83 144 234 0 32 249
177 184 142 210 110 89 67 122
B7 5c 95 73 c2 3d aa 3c
7f 75 67 6c 45 c7 d5 33
29 0f 83 4b 26 7b c0 2e
cc 98 b1 d2 ed a9 0a f2
94 ca 67 73 47 80 b8 60
54 c8 2f ee 2a bd 0b 06
7d ef 80 87 51 25 dc c3
db 3d 18 a1 b5 22 1e a6
A Bitcoin public key is of the size 2^512, derived from the private key
19yebqamwdYPYrpchu4RXeefkeT4SnEQsR
Seoul, December 9, 2015
Just a Random Number
● There are 1,461,501,637,330,902,918,203,684,832,716,283,019,655,932,542,976 possible
Bitcoin addresses.
 If one can guess 1 billion addresses per second
 and 1 billion friends help you guessing
 you will need 2^45 years to guess an address.
 The universe is only 2^34 years old.
Seoul, December 9, 2015
Bitcoin Transaction
“I hereby proof I am the owner of address
19yebqamwdYPYrpchu4RXeefkeT4SnEQsR, I would like to send my funds to
the following addresses:
– 1.2 Bitcoin to 16Ro36UsNgQLY2AttxShpNB91gvmFGs8ay
– 0.8 Bitcoin to 12CJg4sxZHgPLrVHxk7p7o4s5f286G9iim
The owner of those addresses can redeem the
funds immediately.
Public key:
93 7c a0 90 d3 d4 a5 8d 8c 18 88 0e 09 d1 66 b8 73 b7 c7 5b 5b 90 16 14 5c 46 0f 28 18 46 3f 3e
8b c5 cd fb b8 d9 20 68 88 61 c0 d9 9d f0 7e ab f2 e3 93 92 ca 85 5c fb 7d c4 57 68 3d cf e9 91
Signature: IPxVvOkY2NkNhmXWVOYkEeDYMO8URXp1fBltKtLcFxIbk5qt7fomYbM7g/xRPkQbbHGrXo9HDSDzyHoGf0OvuvA=”
Seoul, December 9, 2015
The Blockchain
An open and public ledger of all transactions that ever occurred.
Anybody can connect to it and read, to write you must own Bitcoins.
Name Email Password Amount
John john@gmail.com yq4HRadgd1 14.50
Eve eve@mail.ru Kr391108Dy 68.90
Rob rob@mail.com 32ERb9BJfc 16.80
Mary mary@yahoo.com Ffv60Tl7Gx 10.00
Tricia tricia@gmx.com B8gjKSQ8WJ 0.00
Jenny jenny@gmail.com 9cz9a6lF6E 3.14
Lisa lisa@168.com 9rbj4awx5c 76.00
Mike mike@mail.com JEDamykJR2 72.12
Linda linda@mail.ru UeHk5K0Cti 82.11
Bill bill@yahoo.com FoY1QqK19M 66.60
Barbara barbara@mail.com A15bgLRcYf 99.99
David david@aol.com K07nPtY6WQ 43.10
Rich rich@hotmail.com 3JL1d8w8z0 0.11
Charles charles@mail.com 0L28FkU0s6 76.89
Susan susan@168.com 8cZ078KhYe 78.11
Chris chris@gmx.com FRiHp9Dyw1 99.34
Sarah sarah@gmail.com U1cTk3M759 82.00
Thomas thomas@gmx.com t58ZGcyfm1 23.50
Bitcoin Address Amount
1N1SHh6xaHJdip5RurTa4LFTGmYXUUXD1 1.000001
132bVSVq1FFUpE3kKbzWEefC4SBfWNhExP 12.000000
1LBC2T2TDbQaYhJMaARYQ8yRiKzDYAxkBL 0.001020
16fxvZvKuqWVc4S6Dv5xF9AzxB74gWoPEn 56.000000
16qd5N4o1wVtEpZnemyZGQ5uUqoVkFZhrj 76.999999
1KjNjQicZ9WqicwJsFFg3FbY4kxEE9Xkk7 3.141592
1JUy3ykdCEifUEGYFVybFyMtMhPtSS2rCw 67.154123
1MBgjx3PJMWYFc3FNR2ZvZ6pmkbguqRBkc 7.689000
1Ew4PUxcSvcZ2kaDTbF37B8wYEbDdv7WSo 12.342211
1FWKtbZA9Qf6gqoXzMCyLZHnjhngz7dYcR 86.124500
1BPdV2VU7gtQoThXTLb81maF2PusQ3cjih 34.233233
1GSS44GudHHE72jk5kQAjWziS2bnyBfua 123.235311
18bAdKMvJRq6wYENThHa5oP4mcQjgpbtRt 63.000000
196R1YruHX5GZh4bPRJXAiKQ7h55TdR8Ku 0.000001
15vpZ7RUuzgEknfdsoRY1uHgvVBCZFyGnR 11.113456
16J9F5wzDg8ZgcRq1abPKwaRV8YdDzni2a 89.666111
1Eo88wpghmqvUDNfvbckf7C9wAdn2FW8P7 11.438811
1EpYRLWsVXpVcTF8aEeNdLN74F5tjRGh1 666.893234
Secret Public
Seoul, December 9, 2015
Nodes
● Nodes make up the Bitcoin network
● Anybody can connect to other nodes and
download the blockchain
● Nodes listen to transactions and check if they
are valid
● Valid transactions are forwarded and stored,
invalid ones rejected
Seoul, December 9, 2015
Mining
Which node gets to build the next block?
– Pick any node?
– Pick the richest node?
– Pick the node that is working the most!
Work is Force times Distance
– Take the hash of the previous block and all transactions
– Guess a random number
– Hash it
– Does it have enough leading zeroes?
Seoul, December 9, 2015
Mining
● The random number is the solution
● Published with the block to other nodes
● The miner is allowed to send themselves 25
Bitcoins 'from nowhere'
– > Bitcoins are slowly distributed to miners
● Miners mine at the margin and need to pay
electricity, creating a liquid market for Bitcoins
Seoul, December 9, 2015
Why are Bitcoins valuable?
● It's complicated. Why is money valuable?
● It helps that:
– Only 21 million will ever be created
– Divisible into 100 million satoshis
– Cannot easily be seized or censored
– Ignorant to borders or location
– Transaction clears within 10-60 minutes
– Programmable and permissionless
Seoul, December 9, 2015
There are Problems
● Bitcoin can only handle ~7 transactions per
second
● Fungibility cannot be guaranteed
● Unexpected behavior of bitcoin software
● Information security in a horrible state
● Mining consumes vast amounts of energy
● Attractive for criminalscriminals
●
Strong fluctuations inStrong fluctuations in valuevalue
Seoul, December 9, 2015
Bitcoin as a Store of Value
● Theory:
– Easily accessible worldwide
– Incredibly difficult to seize or steal
(keys can for example be solely stored in a person's
memory)
● Reality:
– Volatility
– Difficult to exchange or spend
– Hacks and security problems in third-party applications
Seoul, December 9, 2015
Bitcoin as a Store of Value
2010 2011 2012 2013 2014 2015
0.01
0.1
1
10
100
1000
10000
0%
50%
100%
150%
200%
250%
300%
350%
Price Volatility
Seoul, December 9, 2015
Bitcoin as a Transfer of Value
● Enables near fee-free transfers.
● Transfers are irreversible and peer-to-peer.
● Accepted by
– Microsoft (December 2014)
– Dell (July 2014)
– Expedia (June 2014)
– Dish Network (May 2014)
– Wordpress (November 2012)
● Usually bitcoins are immediately exchanged into fiat currency
using a payment processor to mitigate volatility risk.
Seoul, December 9, 2015
Bitcoin Ecosystem
● Wallets
● Exchanges
● Payment providers
● Other financial products like derivatives and loans
Seoul, December 9, 2015
On the Blockchain
● Currency (Bitcoin, Dollars, Airmiles)
● Assets (Stock, Art)
● Identity (URLs, User Names)
● Rights (Music, Land)
● Contracts (Loans, Derivatives)
● Programs (Voting, Quality Control)
Seoul, December 9, 2015
How
● Separate blockchains (Etherium)
● Colored coins (Counterparty)
● Sidechains (Liquid)
● Database with version control on Bitcoin
(Nasdaq Private Market)
Seoul, December 9, 2015
Land Registry
● Often not even centralized database over who
owns which land. Risk of corruption
● Proof of ownership becomes trivial
● Transfer requires little trust
● Database and transactions can be hashed into
the Bitcoin Blockchain and published
separately
Seoul, December 9, 2015
Art
● Value comes from originality (eg old masters)
● Value comes from scarcity (eg limited prints)
● Traded on second market through trust
● Bitcoin Blockchain can prove originality,
scarcity and ownership through Colored Coins
Seoul, December 9, 2015
Identity
● URLs highly valuable
● Transfer of ownership expensive and difficult
● DNS records easy to manipulate and censor
● In Namecoin anybody can register a .bit
domain, update its DNS records, transfer it
Seoul, December 9, 2015
Stock
● Expensive and complicated to hold stock
yourself
● Transfering stock between markets is difficult
● Proving ownership and voting requires trust
● Payouts make anonymous ownership
impossible
● Cryptostock
Seoul, December 9, 2015
Leonhard A. Weese
President, Bitcoin Association of Hong Kong
leo@bitcoinhk.org
@LeoAW
https://www.bitcoinhk.org
PGP: A087 7877 C0CF E886 1B35 118D 832E 6328 4080 D73A
icons from iconfinder.com

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Blockchain Technology: A Technical Introduction to Non-Technical People

  • 1. Seoul, December 9, 2015 The Blockchain A technical introduction for non-technical people Leonhard A. Weese President, Bitcoin Association of Hong Kong leo@bitcoinhk.org
  • 2. Seoul, December 9, 2015 The Blockchain Potential to democratize and decentralize ● Currency ● Identity ● Assets ● Smart Contracts ● Autonomous Organizations
  • 3. Seoul, December 9, 2015 Core Functionalities ● Authentication: Keys and Addresses ● Transactions: Receiving and Sending ● Mining: Ordering Transactions
  • 4. Seoul, December 9, 2015 Asymmetric Encryption An algorithm creates a key and a lock that are mathematically linked (usually called public and private key). The private key never leaves the computer The public lock can be uploaded and given to anybody
  • 5. Seoul, December 9, 2015 Bitcoin Keys A Bitcoin private key is a random number of the size 2^256 96 249 65 252 210 5 46 154 195 178 74 103 81 155 119 81 68 120 6 134 89 4 22 43 63 49 109 161 111 219 70 184 60 f9 41 f2 d2 5 2e 9a c3 b2 4a 67 51 9b 77 51 44 78 6 86 59 4 16 2b 3f 31 6d a1 6f db 46 b8 153 186 18 34 219 170 96 172 29 39 69 47 31 140 183 67 128 244 111 165 241 67 253 94 1 100 108 14 67 83 190 150 4 220 165 87 97 107 198 179 148 1 49 36 155 168 96 32 104 72 83 144 234 0 32 249 177 184 142 210 110 89 67 122 B7 5c 95 73 c2 3d aa 3c 7f 75 67 6c 45 c7 d5 33 29 0f 83 4b 26 7b c0 2e cc 98 b1 d2 ed a9 0a f2 94 ca 67 73 47 80 b8 60 54 c8 2f ee 2a bd 0b 06 7d ef 80 87 51 25 dc c3 db 3d 18 a1 b5 22 1e a6 A Bitcoin public key is of the size 2^512, derived from the private key 19yebqamwdYPYrpchu4RXeefkeT4SnEQsR
  • 6. Seoul, December 9, 2015 Just a Random Number ● There are 1,461,501,637,330,902,918,203,684,832,716,283,019,655,932,542,976 possible Bitcoin addresses.  If one can guess 1 billion addresses per second  and 1 billion friends help you guessing  you will need 2^45 years to guess an address.  The universe is only 2^34 years old.
  • 7. Seoul, December 9, 2015 Bitcoin Transaction “I hereby proof I am the owner of address 19yebqamwdYPYrpchu4RXeefkeT4SnEQsR, I would like to send my funds to the following addresses: – 1.2 Bitcoin to 16Ro36UsNgQLY2AttxShpNB91gvmFGs8ay – 0.8 Bitcoin to 12CJg4sxZHgPLrVHxk7p7o4s5f286G9iim The owner of those addresses can redeem the funds immediately. Public key: 93 7c a0 90 d3 d4 a5 8d 8c 18 88 0e 09 d1 66 b8 73 b7 c7 5b 5b 90 16 14 5c 46 0f 28 18 46 3f 3e 8b c5 cd fb b8 d9 20 68 88 61 c0 d9 9d f0 7e ab f2 e3 93 92 ca 85 5c fb 7d c4 57 68 3d cf e9 91 Signature: IPxVvOkY2NkNhmXWVOYkEeDYMO8URXp1fBltKtLcFxIbk5qt7fomYbM7g/xRPkQbbHGrXo9HDSDzyHoGf0OvuvA=”
  • 8. Seoul, December 9, 2015 The Blockchain An open and public ledger of all transactions that ever occurred. Anybody can connect to it and read, to write you must own Bitcoins. Name Email Password Amount John john@gmail.com yq4HRadgd1 14.50 Eve eve@mail.ru Kr391108Dy 68.90 Rob rob@mail.com 32ERb9BJfc 16.80 Mary mary@yahoo.com Ffv60Tl7Gx 10.00 Tricia tricia@gmx.com B8gjKSQ8WJ 0.00 Jenny jenny@gmail.com 9cz9a6lF6E 3.14 Lisa lisa@168.com 9rbj4awx5c 76.00 Mike mike@mail.com JEDamykJR2 72.12 Linda linda@mail.ru UeHk5K0Cti 82.11 Bill bill@yahoo.com FoY1QqK19M 66.60 Barbara barbara@mail.com A15bgLRcYf 99.99 David david@aol.com K07nPtY6WQ 43.10 Rich rich@hotmail.com 3JL1d8w8z0 0.11 Charles charles@mail.com 0L28FkU0s6 76.89 Susan susan@168.com 8cZ078KhYe 78.11 Chris chris@gmx.com FRiHp9Dyw1 99.34 Sarah sarah@gmail.com U1cTk3M759 82.00 Thomas thomas@gmx.com t58ZGcyfm1 23.50 Bitcoin Address Amount 1N1SHh6xaHJdip5RurTa4LFTGmYXUUXD1 1.000001 132bVSVq1FFUpE3kKbzWEefC4SBfWNhExP 12.000000 1LBC2T2TDbQaYhJMaARYQ8yRiKzDYAxkBL 0.001020 16fxvZvKuqWVc4S6Dv5xF9AzxB74gWoPEn 56.000000 16qd5N4o1wVtEpZnemyZGQ5uUqoVkFZhrj 76.999999 1KjNjQicZ9WqicwJsFFg3FbY4kxEE9Xkk7 3.141592 1JUy3ykdCEifUEGYFVybFyMtMhPtSS2rCw 67.154123 1MBgjx3PJMWYFc3FNR2ZvZ6pmkbguqRBkc 7.689000 1Ew4PUxcSvcZ2kaDTbF37B8wYEbDdv7WSo 12.342211 1FWKtbZA9Qf6gqoXzMCyLZHnjhngz7dYcR 86.124500 1BPdV2VU7gtQoThXTLb81maF2PusQ3cjih 34.233233 1GSS44GudHHE72jk5kQAjWziS2bnyBfua 123.235311 18bAdKMvJRq6wYENThHa5oP4mcQjgpbtRt 63.000000 196R1YruHX5GZh4bPRJXAiKQ7h55TdR8Ku 0.000001 15vpZ7RUuzgEknfdsoRY1uHgvVBCZFyGnR 11.113456 16J9F5wzDg8ZgcRq1abPKwaRV8YdDzni2a 89.666111 1Eo88wpghmqvUDNfvbckf7C9wAdn2FW8P7 11.438811 1EpYRLWsVXpVcTF8aEeNdLN74F5tjRGh1 666.893234 Secret Public
  • 9. Seoul, December 9, 2015 Nodes ● Nodes make up the Bitcoin network ● Anybody can connect to other nodes and download the blockchain ● Nodes listen to transactions and check if they are valid ● Valid transactions are forwarded and stored, invalid ones rejected
  • 10. Seoul, December 9, 2015 Mining Which node gets to build the next block? – Pick any node? – Pick the richest node? – Pick the node that is working the most! Work is Force times Distance – Take the hash of the previous block and all transactions – Guess a random number – Hash it – Does it have enough leading zeroes?
  • 11. Seoul, December 9, 2015 Mining ● The random number is the solution ● Published with the block to other nodes ● The miner is allowed to send themselves 25 Bitcoins 'from nowhere' – > Bitcoins are slowly distributed to miners ● Miners mine at the margin and need to pay electricity, creating a liquid market for Bitcoins
  • 12. Seoul, December 9, 2015 Why are Bitcoins valuable? ● It's complicated. Why is money valuable? ● It helps that: – Only 21 million will ever be created – Divisible into 100 million satoshis – Cannot easily be seized or censored – Ignorant to borders or location – Transaction clears within 10-60 minutes – Programmable and permissionless
  • 13. Seoul, December 9, 2015 There are Problems ● Bitcoin can only handle ~7 transactions per second ● Fungibility cannot be guaranteed ● Unexpected behavior of bitcoin software ● Information security in a horrible state ● Mining consumes vast amounts of energy ● Attractive for criminalscriminals ● Strong fluctuations inStrong fluctuations in valuevalue
  • 14. Seoul, December 9, 2015 Bitcoin as a Store of Value ● Theory: – Easily accessible worldwide – Incredibly difficult to seize or steal (keys can for example be solely stored in a person's memory) ● Reality: – Volatility – Difficult to exchange or spend – Hacks and security problems in third-party applications
  • 15. Seoul, December 9, 2015 Bitcoin as a Store of Value 2010 2011 2012 2013 2014 2015 0.01 0.1 1 10 100 1000 10000 0% 50% 100% 150% 200% 250% 300% 350% Price Volatility
  • 16. Seoul, December 9, 2015 Bitcoin as a Transfer of Value ● Enables near fee-free transfers. ● Transfers are irreversible and peer-to-peer. ● Accepted by – Microsoft (December 2014) – Dell (July 2014) – Expedia (June 2014) – Dish Network (May 2014) – Wordpress (November 2012) ● Usually bitcoins are immediately exchanged into fiat currency using a payment processor to mitigate volatility risk.
  • 17. Seoul, December 9, 2015 Bitcoin Ecosystem ● Wallets ● Exchanges ● Payment providers ● Other financial products like derivatives and loans
  • 18. Seoul, December 9, 2015 On the Blockchain ● Currency (Bitcoin, Dollars, Airmiles) ● Assets (Stock, Art) ● Identity (URLs, User Names) ● Rights (Music, Land) ● Contracts (Loans, Derivatives) ● Programs (Voting, Quality Control)
  • 19. Seoul, December 9, 2015 How ● Separate blockchains (Etherium) ● Colored coins (Counterparty) ● Sidechains (Liquid) ● Database with version control on Bitcoin (Nasdaq Private Market)
  • 20. Seoul, December 9, 2015 Land Registry ● Often not even centralized database over who owns which land. Risk of corruption ● Proof of ownership becomes trivial ● Transfer requires little trust ● Database and transactions can be hashed into the Bitcoin Blockchain and published separately
  • 21. Seoul, December 9, 2015 Art ● Value comes from originality (eg old masters) ● Value comes from scarcity (eg limited prints) ● Traded on second market through trust ● Bitcoin Blockchain can prove originality, scarcity and ownership through Colored Coins
  • 22. Seoul, December 9, 2015 Identity ● URLs highly valuable ● Transfer of ownership expensive and difficult ● DNS records easy to manipulate and censor ● In Namecoin anybody can register a .bit domain, update its DNS records, transfer it
  • 23. Seoul, December 9, 2015 Stock ● Expensive and complicated to hold stock yourself ● Transfering stock between markets is difficult ● Proving ownership and voting requires trust ● Payouts make anonymous ownership impossible ● Cryptostock
  • 24. Seoul, December 9, 2015 Leonhard A. Weese President, Bitcoin Association of Hong Kong leo@bitcoinhk.org @LeoAW https://www.bitcoinhk.org PGP: A087 7877 C0CF E886 1B35 118D 832E 6328 4080 D73A icons from iconfinder.com