Cryptocurrencies to Cryptokitties and�Beyond

MICHAEL BIRCH

CANCON 2019

Cryptocurrencies

Litecoin

Ether

Ripple

Bitcoin

So Many Cryptocurrencies…

Cryptocurrencies

Moving money between people

Alice

Bob

Carol

$

$

“Moving” money between people

Alice

Bob

Carol

• Alice pays Bob $10
• Bob pays Carol $5
• Bob pays Alice $100
• Alice pays Carol $30

…

​

​

“Moving” “money” between people

Alice

Bob

Carol

• Alice pays Bob 10 BTC
• Bob pays Carol 5 BTC
• Bob pays Alice 100 BTC
• Alice pays Carol 30 BTC

…

​

​

“Moving” “money” between people

Alice

Bob

Carol

• Alice pays Bob 10 BTC
• Bob pays Carol 5 BTC
• Bob pays Alice 100 BTC
• Alice pays Carol 30 BTC

…

​

​

• Alice pays Bob 10 BTC
• Bob pays Carol 5 BTC
• Bob pays Alice 100 BTC
• Alice pays Carol 30 BTC

…

​

​

• Alice pays Bob 10 BTC
• Bob pays Carol 5 BTC
• Bob pays Alice 100 BTC
• Alice pays Carol 30 BTC

…

​

​

Technical Requirements

• Cannot erase lines in the ledger
• Cannot forge lines in the ledger
• Cannot copy lines in the ledger
• Eventually everyone agrees on the same ledger

​

Technical Solutions

• Cryptographic hash functions
• Cryptographic signatures
• Proof of work consensus

Cryptographic Hash Functions

Hash Function

Fixed-length output

Cryptographic Hash Functions

The quick brown fox jumps over the lazy dog

0x01718CEC35CD3D796DD00020E0BFECB473AD23457D063B75EFF29C0FFA2E58A9

Blake2b256

Hash

Cryptographic Hash Functions

The quick brown fox jumps over the lazy doge

0x0A545439DFC88BB3F3A6F45D2ABC13405680466E71BB3FBEDE041211ACEDA5BD

Blake2b256

Hash

WOW

Such jump

Cryptographic Hash Functions

• Similar input, completely different output

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​

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• Hashes are like a “fingerprint” of the input data

0x01718CEC35CD3D796DD00020E0BFECB473AD23457D063B75EFF29C0FFA2E58A9

0x0A545439DFC88BB3F3A6F45D2ABC13405680466E71BB3FBEDE041211ACEDA5BD

Building our Cryptocurrency:�The Blockchain

• Each block identified by the hash of the data it contains
• Blocks referrer to previous block by their hash

Building our Cryptocurrency:�The Blockchain

• Immutable data structure
• Change any data, changes hash, breaks chain

Technical Requirements

• Cannot erase lines in the ledger
• Cannot forge lines in the ledger
• Cannot copy lines in the ledger
• Eventually everyone agrees on the same ledger

​

✓

Cryptographic Signatures

Private Key

Signing Algorithm

Signature

Cryptographic Signatures

Signature

Public Key

Signature Verification Algorithm

True or False

Cryptographic Signatures

• Data + signature = verified data
• Cannot be produced by anyone except those with private key
• Can be check by anyone (public key is public)
• Better than traditional signatures
• Each signature is different for different data
• Signing the hash of data is as good as signing data itself
• (But more efficient)

Building our cryptocurrency:�Signing transactions

• Identities are public keys
• Spending tokens requires valid signature
• Each transaction is unique and not repeatable
• “Unspent transaction output” (UTXO)

Technical Requirements

• Cannot erase lines in the ledger
• Cannot forge lines in the ledger
• Cannot copy lines in the ledger
• Eventually everyone agrees on the same ledger

​

✓

✓

✓

Proof of Work Consensus

• Alter hash by including random number in the block
• Goal to have many zeros at the start
• Obtain goal with guess and check
• Choose parent block with most “work” behind it (longest / heaviest chain)
• Number of required zeros determined by “difficulty”
• Difficulty scaled to produce blocks at a consistent time, based on “hashing power”

Proof of Work Consensus

(The quick brown fox jumps over the lazy dog, 122829)

0x000018DCE19B2318E7C5BAC4D4925399865242ACA82CC0A7734D3E1EAAF77A94

Blake2b256

Hash

Proof of Work Consensus

(The quick brown fox jumps over the lazy dog, 3500073)

0x0000007EDE604250E4700B2C9439CCBF5DB91DDD7830F0DA464B3C7C5F31CF3B

Blake2b256

Hash

Proof of Work Consensus

Technical Requirements

• Cannot erase lines in the ledger
• Cannot forge lines in the ledger
• Cannot copy lines in the ledger
• Eventually everyone agrees on the same ledger

​

✓

✓

✓

✓

Applications of Cryptocurrencies

• Criminal activity
• Volatile stock market replacement
• “Digital gold”
• “Hodl”

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• Anti-application: currency replacement
• Venezuela Petro (failure)

What now?

• Blocks could contain any data, not just money…

CryptoKitties

Ethereum

• Blockchain platform replicating virtual machine, not just ledger
• Underlying technology the same
• Hash-linked list of blocks
• Signed transactions
• Proof-of-work consensus
• Programs called “smart contracts”

Smart Contract Applications�(Speculative)

• Verified computation between mutually distrustful parties

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• Supply chain
• Escrow
• Gambling
• Insurance / Compliance
• Internet of Things
• Patents

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Beyond:�Problems with blockchain today

• Scale
• “The ‘Ethereum computer’ has about the same power as one of the rare 90’s smartphones; so it can’t really do much more than some very trivial things.”

Beyond:�Problems with blockchain today

• Cost
• Price volatility

Beyond:�Problems with blockchain today

• Energy usage and electronic waste
• “bitcoin currently consumes [an amount of energy] comparable to the total energy consumption of the Czech Republic, a country of 10.6 million people.”
• “The [application-specific integrated circuits (ASICs)] quickly go obsolete, often in just under two years, and they can’t really be repurposed for anything other than mining.”

Beyond:�New innovations

• Scale
• Sharding
• Blockdag (directed acyclic graph)
• WebAssembly (wasm)
• Energy usage and waste
• Proof-of-stake, other consensus algorithms

Beyond:�Blockchain Governance

• Challenges with immutability
• Ethereum vs Ethereum Classic
• “Code is law”
• Child abuse on Bitcoin Satoshi Vision (BSV)

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• How do “smart contracts” relate to legal contracts?
• What jurisdiction does a “world computer” belong to?

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Summary

• Blockchain uses cryptography and consensus protocols to securely replicate a changing data structure over a decentralized collection of computers
• Main use cases:
• Transparent, secure, verifiable computation
• E.g. financial transaction
• Still many technical and governance challenges before mass adoption

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