CPSC 5910�BLOCKCHAIN SECURITY��Welcome!

Dr. Christian Seifert

cseifert@seattleu.edu

Twitter: @cseifert

Telegram: christian_forta

Discord: � Christian | Forta#0582

Outline for Session 1

• CPSC 5011: Object-Oriented Concepts

• Syllabus
• Lecture 1
• Motivation of Blockchain

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ABOUT THE AUTHOR

• CPSC 5011: Object-Oriented Concepts

• Graduate of Seattle University (Masters in Software Engineering with focus in Security)
• PhD from Victoria University of Wellington in Computer Science
• 14 Years at Microsoft as Security Researcher
• 6 Months at the Forta Foundation as Researcher-in-Residence
• My Blockchain/Crypto Story
• Experience teaching a course; this class is an education team
• Not an economist
• Some content with permission from “Michael Lewellen, Blockchain Education Course, Tarski Technologies, LLC”

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Course Goals

• Learn about blockchain technology with a focus on security.
• No prior knowledge in blockchain is required as we will cover the basics and theoretical concepts.
• The course will be applied and hands on interacting with the blockchain in a programmatic fashion (primarily utilizing Python, but JavaScript is also an option) and deploying smart contracts in Solidity.
• In the second half of the course, focus on security concepts in blockchain with a general overview followed by a focus on on-chain monitoring and incident response.
• Throughout the course, we'll also discuss on how to get involved in the Crypto/Blockchain ecosystem.
• Syllabus

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Reading Material

• CPSC 5011: Object-Oriented Concepts

• Textbook 2 - Blockchain Foundation: ��Blockchain And Distributed Ledgers: Mathematics, Technology, And Economics by Alexander Lipton and Adrien Treccani | Sep 9, 2021

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• Textbook 1 - Ethereum & Security��Mastering Ethereum: Building Smart Contracts and DApps by Andreas M. Antonopoulos and Gavin Wood Ph. D.

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Evaluation

• Assignments (6 of them)
• Midterm (20%)
• Final (30%)

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Assignments and Labs

• Assignment 1-3 – setup; not graded
• Assignment 4 – Dune/Luabase Query and Dashboard (10pts)
• Assignment 5 – Deploy, test, and interact with your second smart contract using Brownie and Web3 API (10pts)
• Assignment 6 – Ethernaut Challenge Part I (15pts)
• Assignment 7 – Threat Model (15pts)
• Assignment 8 – Ethernaut Challenge DoubleEntryPoint (15pts)
• Assignment 9 – Ethernaut Challenge Part II (20pts)

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40% of your grade

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Student Research Topics

Each student should pick a research topic they will present in class. The format of the presentation is up to you to suite your style of presenting. It can be a slide deck to present, a document you distribute and students will read, or a free form presentation. It should be about 10min (time TBD dependent on enrollment numbers) and allow for 1-2 questions. 

Topics:

• Proof of Stake (PoS) consensus mechanism; pros/cons of PoS vs PoW (9/29/22)
• Zero Knowlege Proof applications (10/6/22)
• Blockchain Explorer example deep dives (10/13/22)
• Dune Dashboard (10/20/22)
• Web3 API demos (10/25/22)
• Smart Contract demos (11/3/22)
• Attack Analysis and detection ideas (11/15/22)
• Forta Detection Bot Ideas (11/22/22)
• Self guided topics (11/22/22)

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Pick your research topic by 9/27/22. If you haven't picked a topic, I will randomly assign.

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CPSC 5910�Session 01:�MOTIVATION OF BLOCKCHAIN

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OUTLINE

• Financial Crisis 2008 / Monetary Policy 2020-now
• Impact of poor monetary policy (Turkey/ Argentina)
• Bitcoin Whitepaper and History
• What is Money

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Financial Crisis 2008

• Predatory Lending to low income home buyers (works when prices go up)
• Package risky loans into mortgage backed securities and sell to offload risk
• Ratings agencies failed to properly declare risk
• When economy slowed down, the house of cards folded
• Multiple govt bail outs were necessary due to the ‘too big to fail’ category
• Negative ripple effects throughout the economy

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Monetary Policy

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Monetary Supply

Interest Rates

Inflation

IMPACT OF MONETARY POLICY

• Inflation! In the US, we have about ~8% inflation.
• A house that costs 1M today will cost ~1.08M a year from now. Cash loses value over time.
• Hyper-inflation may kick in, like in Turkey and Argentina:

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• What impact does hyper-inflation will have?

BITCOIN WHITE PAPER

On 31 October 2008, a paper authored by Satoshi Nakamoto was posted to a cryptography mailing list titled: “Bitcoin: A Peer-to-Peer Electronic Cash System” �Satoshi cited both Hashcash and B-Money in the paper.

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In short, the Whitepaper proposed a digital cash solution with:

• Peer-to-peer payments with no financial institutions involved.
• A way to solve to double-spending in a P2P network
• A chain of transactions or “blocks” secured with Proof of Work.

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Slide Credit: “Michael Lewellen, Blockchain Education Course, Tarski Technologies, LLC”

“The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.” – Satoshi Nakamoto, Genesis Block 0, 1/3/2009

WHAT IS MONEY?

Money is how we measure value

Money typically has four functions:

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1. Medium of exchange – can exchange money for other things

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• Unit of account - a "standard" of relative worth in markets

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• Standard of deferred payment – is an accepted way to settle a debt

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• Store of value – its value remains stable over time

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Slide Credit: “Michael Lewellen, Blockchain Education Course, Tarski Technologies, LLC”

What makes the USD different from the EUR?

WHAT IS MONEY?

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Slide Credit: “Michael Lewellen, Blockchain Education Course, Tarski Technologies, LLC”

Barter & Favors

Trading before Money

• Communities without money relied on recurring favors
• Barter typically occurred between different communities
• Trade was very limited and time-consuming

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Commodity Money

Using valuable commodities as money

• People started using valuable goods as units of account, the first step to money
• Precious metals became popular due to their rarity, divisibility and durability
• Gold and silver coins soon became the standard money for trade in the ancient Western world

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Representative Money

Paper receipts for commodities

• Merchants and banks started issuing bill of exchange for commodity money
• The paper bills soon became accepted as money
• Paper money was first issued in 7th century China and later spread to Europe

RESERVE CURRENCIES

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Slide Credit: “Michael Lewellen, Blockchain Education Course, Tarski Technologies, LLC”

Reserve Currency Timeline

Over the last 500 years

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The most powerful nation or empire during a given time period would typically have the most valuable money. This Reserve Currency would be used by foreign traders and other nations as the standard for world trade.

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Reserve currencies would change place over time as weaker powers lost influence. ��In many cases, declining powers would begin to debase or devalue their currencies in order to pay expenditures, resulting in inflation and eroding trust.

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CENTRAL BANKS

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Slide Credit: “Michael Lewellen, Blockchain Education Course, Tarski Technologies, LLC”

Starting with the Bank of Amsterdam and Bank of England, countries began to create Central Banks that would issue paper money backed by gold and silver. This arrangement gave countries the ability to control the second layer of money rather than independent banks with a gold standard for national currencies.

RISE OF THE DOLLAR

• Over the course of the early 20^th century, the United States dollar transitioned to become the world’s reserve currency.
• 1913 – The US Federal Reserve is created to issue banknotes and provide a lender of last resort
• 1914 – World War I breaks out. The US becomes the lender of choice for the Allies
• 1919 – The UK abandons the gold standard and the US Dollar effectively replaces the Pound
• 1929 – The Great Depression hits and most other countries abandon the Gold standard
• 1933 – FDR seizes private gold and devalues the Dollar relative to Gold from $20 to $35 per oz.
• 1939 – World War II begins. The US sells arms to the Allies for Gold, eventually holding most of the world supply.
• 1944 – At Bretton Woods, the Dollar becomes the official reserve currency for the Western world in lieu of gold

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MOVE TOWARDS FIAT MONEY

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President Nixon’s televised New Economic Policy address to the nation

• During the 60’s, the US issued more paper money to fund public expenditures which exceeded the gold reserves. Other countries became concerned about the imbalance and began converting their dollars to gold.

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• In 1971, Nixon suspended the dollar’s convertibility into gold. This turned the dollar into fiat money, money that is backed solely by a government and not a valuable commodity.

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• To this day, all national currencies are fiat and trade against each other in open markets. Their value is primarily based on government borrowing and central bank policies.

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Slide Credit: “Michael Lewellen, Blockchain Education Course, Tarski Technologies, LLC”

DOLLAR PROBLEMS

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Slide Credit: “Michael Lewellen, Blockchain Education Course, Tarski Technologies, LLC”

With no gold reserves, Federal Reserve hold massive sway over the purchasing power of the Dollar. ��In 2008, the collapse of investment banks like Lehman Brothers caused a crisis of confidence as the third rung of the layered money pyramid had become overextended.

The Federal Reserve was forced to flood the banking system with reserves in order to contain the crisis with a policy called QE (Quantitative Easing), greatly expanding the second layer of money.

In 2020, the Coronavirus pandemic pressured the Fed to resume QE in order to stabilize the financial system and fund government stimulus.

The value of the Dollar is now linked to the Fed and government spending, with a massive impact on world trade as a result. This leaves the entire monetary system in a precarious position.

Lehman Brothers declared bankruptcy on Sept. 15, 2008

FURTHER READING

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