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Core Education

Blockchain Applications

MetaX

Review

Overview

Goal

Decentralization

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Technology

Blockchain

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Implementation

Bitcoin

What is a Blockchain?

• A list of transactions that everyone agrees happened, and everyone has an identical copy of
• A “chain” of transactions
• This list is broken up into blocks
• A “chain” of “blocks”
• New transactions can be verified through a process called mining, and get added to the chain

What’s Special About A Blockchain?

• Public
• Every transaction is seen by everyone else
• Anyone can independently verify
• Distributed
• Stored on computers all over the world
• Each computer holds a copy of the record
• Unchangeable
• Changes to the blockchain protected by cryptographic hashes

What’s Special About A Blockchain?

• Normally a tradeoff between transparency and privacy
• Blockchain can provide public verifiability of its overall state without leaking information about the state of each individual participant

Why is this transformative?

Why Does This Matter?

Why does A need to go through B to talk to C?

A

B

C

Why Does This Matter?

If we can avoid going through one person, and just go directly to each other, why wouldn’t you?

A

B

C

Why Does This Matter?

• Many centralized systems that can be made more efficient
• Market makers: match supply with demand
• Why do we trust them?
• Because they've done it for a long time?
• Intermediaries that generate their value solely based on their users

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Bank

Bank

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• What does a bank do in this case?
• What value is it adding to the process of money changing hands?

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Bank

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• Cutting out middleman
• As time has moved on, things have gotten more efficient
• A natural progression of trust
• First: humans had to form common stores of value to trade in person
• Trust each other that certain things have value
• Second: we had to trust certain people to hold/disperse our money
• Trust banks
• Third: can trust technology (blockchain) to hold/disperse our money

Sharing Economy - Uber

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“I have an empty car, and I’m going to Santa Monica”

“I need to get to Santa Monica!”

Sharing Economy - Uber

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“I have an empty car, and I’m going to Santa Monica”

“I need to get to Santa Monica!”

Sharing Economy - Uber

Supply Chain

• Supply chain is expensive logistically for companies

Company A

We are almost out of paper

Create PO, write check, log transaction

Paper Company

Receive, process, log

Send paper

• Each step requires a person (who is paid) to do it

Supply Chain

• Many human steps automated, transaction forever logged on Ethereum network

Company A

Smart Contract automatically executes, Ethereum sent to paper company

Paper Company

Send paper

Smart Property

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• Internet of Things: Physical objects connected to the Internet

Smart Property

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• Ownership rights
• Access and Communications rights
• Legal and regulatory requirements

History of Bitcoin

Libertarian Dreams

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“Privacy is necessary for an open society in the electronic age.

Privacy is not secrecy. A private matter is something one doesn’t want

the whole world to know, but a secret matter is something one

doesn’t want anybody to know. Privacy is the power

to selectively reveal oneself to the world”

(A Cypherpunk’s Manifesto).

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Libertarian Dreams

• Cypherpunks and Crypto-anarchists:�libertarian groups concerned with privacy,�and advocated cryptography as an�important tool
• “Privacy is the power to selectively reveal�oneself to the world.”
• “Privacy in an open society requires�anonymous transaction systems”

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Early Attempts at Cryptocurrencies

• DigiCash: “Blind signatures” public�key cryptography
• Founded by David Chaum in 1989
• Allowed users to sign off on�transactions without revealing�anything about their identity
• Failed due to centralization

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Early Attempts at Cryptocurrencies

• HashCash: Coins are minted by �expending resources instead of by�a central bank
• Proposed Adam Back in 1997
• Solve puzzle using a cryptographic�Hash function
• Originally designed as a mechanism�to limit spam

Early Attempts at Cryptocurrencies

• B-Money: Introduced two protocols
• Practical way to enforce�contractual agreements�between anonymous actors
• Protocol in which every�participant maintains an�individual database of how�much money belongs to each�user

Satoshi Nakamoto

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• Satoshi Nakamoto: anonymous creator of Bitcoin,�wrote the white paper
• Do we need trust? “electronic payment system�based on cryptographic proof instead of trust”
• Solution to distributed consensus: Proof-of-Work,�“one-CPU-one-vote”

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“I’ve been working on a new electronic cash system that is fully peer to peer, with no trusted third party” - Sathoshi Nakamoto

Bitcoin: The First Cryptocurrency

• Coinbase of the genesis block�references a story in Times of�London involving the�Chancellor bailing out banks -�Bitcoin’s libertarian roots
• First bitcoin transaction on Jan�12, 2009 with Hal Finney

Bitcoin Gains Value

Bitcoin Gains Value

• May 22, 2010, Laszlo Hanyecz purchased $25 worth of pizza for 10,000 BTC
• Fun fact: 10,000 BTC is now equivalent to ~$87,000,000
• World’s first ever Bitcoin transaction for a tangible asset

Early Bitcoin:

Hacks, Scandals, Illegal Activity

Bitcoin Theft

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● 2010: Jed McCaleb creates Mt. Gox, the�biggest online bitcoin exchange�● 2011: Mt. Gox suffers a significant breach of�security that resulted in fraudulent trading�● 2014: Mt. Gox is handling 70% of transactions�● 2014: Mt. Gox loses 744,408 bitcoins in a�theft that went unnoticed for years; Mt. Gox�declares bankruptcy

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Bitcoin Drug Scandal

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• Feb 2011: Silk Road opens as the�anonymous “eBay of Drugs”,�using Tor and Bitcoin
• Drugs and black market goods�become the use case for Bitcoin
• Oct 2013: the FBI shut down Silk�Road, seizing $3.5m in bitcoin
• Ross Ulbricht “Dread Pirate�Roberts” is serving a life sentence

Explosion of Altcoins

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Litecoin

DASH

Dogecoin

Stellar

Zcash

Monero

Ripple

Peercoin

Bitcoin Timeline/Headlines

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2014 Headlines

• February 2014: Mt. Gox Allegedly Loses $350 Million in Bitcoin (744,400 BTC)
• March 2014: Bitcoin Inventor Satoshi Nakamoto 'Found' in California
• Sep 2014 Tim Draper: Bitcoin's Price Still Headed to $10k

Merchant Acceptance

• 2014 Jan. Porn.com accepts Bitcoin
• 2014 Jan. Overstock.com Becomes First Major Retailer to Accept Bitcoins
• 2014 Apr. New Colorado Marijuana Vending Machines Will Accept Bitcoin
• 2014 Sep. PayPal partners with and Coinbase, BitPay
• (2014 Oct.) "Whoever said that bitcoin couldn't buy you things? ... Shitexpress is a�service that mails a tupperware container of horse manure with a personalised�message on your behalf." - CoinDesk

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Bitcoin Startups

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Current Landscape

2017-Present: Regulatory Environment

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Banks & Blockchain

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• Rise of interest in "private blockchains" or�"permissioned ledgers."
• Not open
• Not trustless
• No economic incentives like in Bitcoin
• Separate "blockchain" from "Bitcoin"
• Con:
• Glorified public key cryptography
• Benefit:
• More compliant

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Community & Politics

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Extra Readings for this Week

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• Recommended Readings:�1. A Cypherpunk’s Manifesto by Eric Hughes
• https://www.activism.net/cypherpunk/manifesto.html
• 2. Coindesk: A Bot Named Willy: Did Mt. Gox's Automated�Trading Pump Bitcoin's Price?
• https://www.coindesk.com/bot-named-willy-did-mt-goxs-automated-trading-pump-bitcoin-price
• 3. The DAO, The Hack, The Soft Fork and The Hard Fork
• https://www.cryptocompare.com/coins/guides/the-�dao-the-hack-the-soft-fork-and-the-hard-fork/

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