Crypto & Crpyocurrencies Intro

1. Crypto &
Digital Currencies
in a nutshell
Tal Shmueli
All rights reserved ©

2. Why Crypto?
● Information Security Paranoia

3. Why Crypto?
● IP theft protection (not just legally)

4. Why Crypto? Ransomware!

5. Why Crypto?
● Encryption can be done (almost) without any resources,
unlike breaking it (pre quantum computing era).
● Future Commerce (digital coins)

6. Plan
● Bitcoin (DigCurr)
○ History & Background
○ Characters (miners, coders, investors, etc.)
○ General mechanism & Blockchain
● Symmetric Crypto algorithms
● Asymmetric Crypto algorithms (Public Key Enc.)
○ RSA (/Diffie Helman), Digit. Sign., Keys exchange
● “Breaking crypto” difficulty
● Litecoin vs. Bitcoin (vs. Ether maybe ..)
● Practice -
○ Open&Secure wallets, Transfer money (Fees explained)
○ Wallet types - hosted to hardware
○ Leading exchanges
○ Tips to manage account & payments

7. Plan #2 (Bonus)
● Segwit & Lightning (MIT?)
● Zero Knowledge Proofs (ZKP) & Zerocoin
● Homomorphic encryption

8. Intro

9. Intro

10. (G)Mail is secure, isn’t it? NO!

11. (G)Mail is secure, isn’t it? NO!
● https://www.google.com/transparencyreport/saferemail/faq/

12. Some Crypto Fun

13. What is Bitcoin?
● A protocol that supports a decentralized, pseudo-anonymous,
peer-to-peer digital currency.
● A publicly disclosed linked ledger of transactions stored in a
blockchain
● A reward driven system for achieving consensus (mining)
based on “Proofs of Work” for helping to secure the network
● It’s the first example of a growing category of money known
as cryptocurrency.

14. What is Bitcoin?

15. Bitcoin - About
● A person called Satoshi Nakamoto proposed bitcoin,
which was an electronic payment system based on
mathematical proofs. The idea was to produce a currency
independent of any central authority, transferable
electronically, more or less instantly, with very low
transaction fees.

16. Bitcoin - History
● 18/08/08 - Domain name “bitcoin.org” registered.
● 31/10/08 - an individual or group writing under the name of Satoshi
Nakamoto published a paper entitled “Bitcoin: A Peer-To-Peer
Electronic Cash System”.
● 09/11/08 - Bitcoin project registered at SourceForge.net
● 12/01/09 - First Bitcoin transaction in block 170 (Satoshi -> Hal
Finney).
● 05/10/09 - xchng rates published by NLiberty Std. 1$ = 1309.03BTC
● 11/2013 - BTC price hits 1000$ (1USD=1mBTC) first in Mt. Gox

17. Bitcoin - History

18. Bitcoin - Characters
● Core developers
○ https://github.com/bitcoin/bitcoin
● Mining pools
○ https://en.bitcoin.it/wiki/Comparison_of_mining_pools
● Exchanges
○ https://bitcoin.org/en/exchanges
● Wallet hosts
○ https://bitcoin.org/en/choose-your-wallet

19. Bitcoin - Characters
● Bussineses
○ ‫עסקים‬‫תומכי‬‫ביטקוין‬‫בישרא‬‫ל‬
● Investors
● Criminals
○ Silk Road (drugs and more)
○ Ransomware
○ Automotive Cars?

20. Bitcoin - Features
● Supporting eight decimal places 0.00000001 (known as a
Satoshi or Noncent*)
● Nominal transaction fee’s paid to the network
○ Same cost to send $.01 as $1,000,000
● Consensus driven – no central authority
● Fake resilient
○ Cannot add coins arbitrarily
○ Cannot be double-spent
•Non-repudiation – aka “gone baby gone” – no recourse and no
one to appeal to return sent tokens

21. Bitcoin - Decentralized
● The “digital wallet” operates in a peer to peer mode
● When it starts it bootstraps to find other wallets
● The wallet will synchronize with the network by
downloading ALL of the transactions starting from the
GENESIS block if necessary
○ 472375 blocks at time of slide prep
○ >22 GB
● Wallet clients share all transaction information with their
peers.

22. Bitcoin - Pseudo Anonymous
● Using public key cryptography, specifically Elliptic Curve
Cryptography due to its key strength and shorter keys
(Quantum res.)
● Transactions are sent to public key “addresses” (not names!)
● Why pseudo then? (Mixers)
● Criminals appraoch

23. Bitcoin - General Mechanism

24. Hashing & Public key intro
● Hashing
○ A hash function is any function that can be used to map data of arbitrary
size to data of fixed size. The values returned by a hash function are called
hash values, hash codes, digests, or simply hashes
● Example

25. Hashing & Public key intro
● Public key Encryption (PKE)
○ Public key cryptography, or asymmetric cryptography, is any cryptographic
system that uses pairs of keys: public keys which may be disseminated
widely, and private keys which are known only to the owner.
● Private and Public keys generated together.
● Used for Authentication and Encryption
● How does it works?! (DH, RSA, Later ..)
● Example

26. Digital Sign. intro
● Simple!
● Uses both Hashing and Public key Encryption (PKE)
● BTC uses the improved Elliptic Curve Digital Signature Algorithm
or ECDSA
● Why hashing?

27. Blockchain
● Bitcoin uses cryptographic proof instead of the trust in the third
party (PayPal, Banks ..)
● Each transaction is protected through a digital signature.
● Each transaction is sent to the “public key” of the receiver signed
using the sender “private key”.
● The ownership is verified using the sender “public key”.
● Each transaction is broadcast to every node in the Bitcoin
network and is recorded to a public ledger after verification.

28. Blockchain
● Before a transaction is recorded to the public ledger, veryfing
node ensures -
○ Spender owns the cryptocurrency—digital signature
verification on the transaction.
○ Spender has sufficient cryptocurrency in his/her account:
checking every transaction against spender’s account
(“public key”) in the ledger to make sure that he/she has
sufficient balance in his/her account.

29. Blockchain
● The Bitcoin system orders transactions by placing them in groups
called blocks and then linking these blocks through what is called
Blockchain (SHA256 Hashes)
● How does the network decide which block should be next in the
blockchain? Who sets the order?
○ There can be multiple blocks created by different nodes at
the same time.

30. Blockchain - block order
● How to maintain the order of the transactions that are broadcast
to every node in the bitcoin p2p network ?
○ The system has to make sure that double-spending of the
cryptocurrency does not occur.

31. Blockchain - block order

32. Blockchain - block order
● ​Mathematical Puzzel (“Proof of work”)
○ Node generating a block needs to prove that it has put
enough computing resources to solve a mathematical puzzle

33. Blockchain - block order
● ​Mathematical Puzzel (“Proof of work”)
○ Small probability that more than one block will be generated
in the system at a given time.
○ Occasionally, however, more than one block will be solved at
the same time, leading to several possible branches.
○ The “Miner nodes” are financially awarded for their efforts.

34. Blockchain -target
● Although the accepted chain can be considered a list, the
block chain is best represented with a tree.
● The longest path represents the accepted chain.
● A participant choosing to extend an existing path in the
block chain indicates a vote towards consensus on that
path. The longer the path, the more computation was
expended building it.

35. Blockchain - block order
●

36. Blockchain -target
● Also nickamed as “Leading Zeros” target
● The target is a 256-bit number (extremely large) that all Bitcoin clients share​.
● The SHA-256 hash of a block's header must be lower than or equal to the
current target for the block to be accepted by the network.
● The lower the target, the more difficult it is to generate a block
(https://bitcoinwisdom.com/bitcoin/difficulty)
● Every 2016 blocks (~two weeks), every Bitcoin client compares the actual time
it took to generate these blocks with the two week goal and modifies the target
by the percentage difference.

37. Bitcoin Mining
● Example

38. Bitcoin - Overview

39. Bitcoin - Overview
EXAMPLE?

40. Bitcoin - Alone?

41. LiteCoin
● Created by Charlie Lee, a former Google employee
● While inspired by, and in most regards technically nearly
identical to Bitcoin (BTC)
● Litecoin has some technical improvements over Bitcoin

42. LiteCoin

43. LiteCoin - Segwit
● SegWit increases Litecoin block size limit and allows the
implementation of the second-layer solutions for further
improvement.
● blocks have a hard-coded limit of one megabyte.
● Not enough to account for the hundreds of transactions that
the users are trying to send every minute.
● In May 2017, Litecoin became the first of the top-5 (by
market cap) cryptocurrencies to adopt Segregated Witness

44. LiteCoin - Segwit- transaction malleability
● While transactions are signed, the signature does not
currently cover all the data in a transaction that is hashed to
create the transaction hash. Thus, while uncommon, it is
possible for a node on the network to change a transaction
you send in such a way that the hash is invalidated.
● It’s not safe to accept a chain of unconfirmed transactions
under any circumstance.

45. BITCOIN
QUESTIONS?

46. Background
● (Claude Elwood) Shannon cipher
○ K - set of all keys (Key space)
○ M - set of all messages (Message space)
○ C - set of all ciphertexts (Ciphertext space)
○ A Shannon cipher is a pair x = (E,D) of functions.
■ E : K x M ⇥ C, D : K x C ⇥ M
■ E(k,m) = c
■ D(k, E(k, m)) = m

47. Background
● One time pad (Fixed Length)
○ x = (E,D), where the keys, messages, and ciphers are bit strings of the same
length.
○ x is defined over (K, M, C) where :
■ K := M := C := {0, 1}^L
○ For fixed L, key k in K, message m in M, the encryption function is defined
as and for k in K, and cipher c in C, the decryption function
is defined as follows

48. Background
● One time pad (Variable Length)
● .
● .
● .
● One time pad satisfies the definition of perfect security
● Not practical (|key| >= |message|)

49. Background
● Perfect Security (Definition) :
○ Let x = (E,D) be a shannon cipher defined over (K, M,
C). Consider a probabilistic experiment in which the
random variable k is uniformly distributed over K. If for
all m0, m1 in M and all c in C we have :
Then we say that x is perfectly secure Shannon cipher

50. Background
● Perfect Security - Bad news!
● Shannons Theorem
○ Let x = (E, D) be a shannon cipher defined over (K, M,
C).
○ If x is perfectly secure, then |K| >= |M|
● Proof (easy..)

51. Symetric Encryption

52. Symetric Encryption - Stream Cipher
● We would like to use a key that is much shorter
● The ‘key’ is stretched using efficient, deterministic algorithm
G that maps l-bit strings to L-bit strings.
● Key space - {0,1}^l
● Message and Cipher spaces are - {0,1}^L
● Enc & Dec defined as follows -

53. Symetric Encryption - Stream Cipher
● PRG - pseudo-random generator
○ An efficient, deterministic algorithm G that, given as an
input a seed s (in Seed Space), computes an output r
(Output Space)
○ def. of security for PRG - no efficient adversary can
effectively tell the difference between G(s) and r, for
ransom chosen s and r from S, R respectively.

54. “Two Time Pad” - Insecure
● A stream cipher is well equipped to encrypt single message
from Alice to Bob.
● Alice, however may wish to send several messages to Bob.
● An adversary (intercepts c1, c2) can compute
● English text is redundant the adversary can recover both.

55. Symetric Encryption - Block Cipher
● Digital Encryption Standard (DES) − The popular block cipher of the 1990s. It is
now considered as a ‘broken’ block cipher, due primarily to its small key size.
● Triple DES − It is a variant scheme based on repeated DES applications. It is still
a respected block ciphers but inefficient compared to the new faster block ciphers
available.
● Advanced Encryption Standard (AES) − It is a relatively new block cipher based
on the encryption algorithm Rijndael that won the AES design competition.

56. Asymetric Encryption
● Public Key Cryptography involves -
○ a public key, which may be known by anybody, and can
be used to encrypt messages, and verify signatures.
○ a private key, known only to the recipient, used to
decrypt messages, and sign (create) signatures.

57. Asymetric Encryption

58. Asymetric Encryption
● Public Key Applications -
○ encryption/decryption (secrecy)
○ digital signature (authentication)
○ key exchange (session keys)
● Some algorithms are suitable for all uses, others are specific
to one.
● Given public key, it should be “impossible” to compute
priavte key.

59. RSA (Rivest, Shamir, Adelson) Algorithm

60. RSA (Rivest, Shamir, Adelson) Algorithm
1. Choose two large prime numbers p, q (e.g., 1024 bits each)
2. Compute n = p * q, z = (p-1)(q-1) (Euler function).
3. Choose e (e<n) that has no common factors with z (gcd(e,
z) = =1)
4. Choose d such that e*d-1 is exactly divisable by z (e*d mod
z = 1)
5. Public Key - (n,e). Private Key - (n, d).

61. RSA (Rivest, Shamir, Adelson) Algorithm
1. Encryption & Decryption
a. Given (n,e) and (n,d) as computed above
b. To encrypt bit pattern m
i. Compute c = m^e mod n
c. To decrypt received pattern c
i. Compute m = c^d mon n
m = (m^e mod n)^d mod n

62. RSA (Rivest, Shamir, Adelson) Algorithm

63. Digital Signature
● Cryptographic technique ananlogues to hand-written
signatures.
○ Sender (Bob) digitally signs document, establishing
he is document owner.
○ Verifiable, Nonforgeable: Reciepent (Alice) can
prove someone that Bob, and no one else, must have
signed the document.

64. Digital Signature

65. Key Distribution
● Symetric Key problem - How do two entities establish a
shared secret key over network?
○ Key Distribution Center (KDC)
● Public Key problem - When Alice obtains Bob’s public key,
how does she know that it’s authentic?
○ Certificate Authority (CA)

66. Key Ditribution - KDC

67. Key Ditribution - CA
● Certificate Authority binds public key to particular entity.
● Entity registers its public key with CA.