RESEARCH AND GROUNDWORK NOTES FOR CRYPTO:
He who is disciplined shall find success through consistency.
-VisionPioneer
What is Bitcoin?
Bitcoin is a decentralized digital currency.
In what year was Bitcoin first introduced?
Created in January 2009
Who created Bitcoin?
Supposedly Created by Satoshi Nakamoto. Thought to be a pseudonym for either a person or group of individuals behind the creation of Bitcoin. Theories.
In 2008, Satoshi Nakamoto, published a whitepaper introducing the concept of Bitcoin and blockchain.
Nakamoto defined an electronic coin as a chain of digital signatures. Picture a scenario where each owner transfers the coin to the next owner. Accomplished through digitally signing a hash of the previous transaction and the public key of the next owner.
What is a blockchain protocol?
A combination of blockchain technology with governance, a network, and a consensus mechanism. Think of different layers. Similar to the TCP/IP protocol used on the internet.
TCP/IP
First used for bilateral messaging through email
A communications protocol that enables the exchange of information
Value captured in application layer
- Blockchain protocol
- used for bilateral transfer of value (financial transactions)
- enables the exchange of value
- value captured in protocol layer
What is meant by a decentralized currency?
Also known as peer-to-peer refers to a bank free method of transferring assets or ownership of any other commodity without needing a third party.
- Why cryptocurrencies?
- Offer anonymity through protocols
- Lower transaction fees
- Decentralized authority
- Easier and faster payments
What is cryptography?
The art of writing or solving codes.
- Blockchain Facts
- No physical coins
- Balances kept on ledgers that are encrypted.
- Transactions are verified through a process called mining.
- Bitcoins popularity has caused the launch of hundreds of different cryptocurrencies known as altcoins. Bitcoin is the worlds largest cryptocurrency by market capitalization.
- There are only 21 million bitcoins in existence.
- More than 18 million bitcoins have been mined.
- All bitcoins should be mined by 2140.
- What is a blockchain?
- A decentralized ledger system, a database.
- Supports secure peer to peer transactions.
- No need for third parties to verify.
- It is made up of a collection of blocks on a computer network.
- Each block houses a collection of transactions.
- Cryptocurrency systems are made up of a collection of computers.
- These collection of computers are referred to as nodes or miners.
Blockchain, as a database, stores information electronically in digital format.
.
A System that can verify and secure records of data without the need of1 a third party.
Think of a blockchain as a literally a chain of blocks being filled with transactions until they are filled. At which point they are set in stone and becomes a part of the chain while new blocks are introduced.
Each block in the chain is given an exact time stamp when it is mined.
How does Blockchain work?
Transaction – party A would like to transfer ownership of an asset to part B.
Block – all pending transactions are grouped into a block.
Verification – miners on the chain in the network must come to a computational consensus, in which a majority of the miners agree that the code is accurate and verified.
Hash – a unique cryptographic mark that is assigned to a completed block that becomes time-stamped. Each new block has a hash created based off of the prior block. This creates a chain and removes any chance of manipulation.
Execution – finally, the asset from Party A is moved to party B.
Alright, so that was a good bit of information. Let’s take a quick break and complete this crossword puzzle.
{Timeline}
The history of Blockchain
(1979-2007)
Who is Ralph Merkle?
The Merkle Tree
Is a data structure that is used in computer applications. In reference to cryptocurrencies, the Merkle Tree encodes blockchain data more efficiently and securely. Named after computer scientist Ralph Merkle.
What is tree authentication?
Merkle described an approach to public key distribution and digital signatures called tree authentication. This idea was first introduced in Merkle’s 1979 Ph.D. thesis for Stanford University and then later patented this idea as a way for providing digital signatures.
The Merkle Tree provides a data structure for verifying individual records.
Who is David Chaum?
David Chaum described a vault system for establishing maintaining and trusting computer systems by mutually suspicious groups in his 1982 Ph.D. dissertation for the University of California, Berkeley.
Chaum is credited with inventing digital cash and in 1989 he founded the digiCash corporation.
Who is Stuart Haber and W. Scott Stornetta?
In 1991, they published an article about timestamping digital documents. An article highlighting a possible solution for preventing users from backdating or forward-dating electronic documents.
The idea was to maintain complete privacy of the document itself, without requiring record-keeping by a service providing time stamps.
In 1992, Haber and Stornetta updated the design to incorporate Merkle’s approach merkle trees to enable multiple document certificates to live on a single block.
Who is Nick Szabo?
In 1998, computer scientist Nick Szabo, began work on a decentralized currency called Bit Gold. A whitepaper, outlined a time-stamped hash chain that can solve the problem of double-spending using hashcash.
Interesting difference between Bit Gold and Bitcoin.
Bit Gold had a correlation between value and cost of computation. Whereas, in Bitcoin these two factors are separated, and the value is determined by the open market.
In 2000, Stefan Konst introduced in his research paper “Secure Log Files Based on Cryptographically Concatenated Entries,” an idea where entries in a chain can be traced back from the genesis to prove the authenticity.
What is hashcash?
A PoW algorithm that provides denial-of-service counter measures. Introduced by Adam Back in 1997 to limit email spam.
In 2004, by Hal Finney, the introduction of reusable PoW which allowed for the receiving of a non-exchangeable or non-fungible hashcash token in return for an RSA-signed token.
Distributed Ledger technology
Distributed ledger technology (dlt) – also referred to as blockchain technology, a technological infrastructure and protocols that allows simultaneous access, validation, and record updating, in a irreversible manner on a network across multiple entities or locations.
DLT is a protocol enabling a decentralized digital database to function securely.
Eliminating the need for a central authority.
The storage of information in a secure and accurate manner using cryptography.
The use of keys and cryptographic signatures can access the stored info.
- Benefits of DLT:
- Help eliminate cyber crime
- Faster processing
- More effective and cheaper than traditional banking
{Definitions}
Nodes – main purpose is to verify each batch of network transactions.
Block – a batch of network transactions.
Genesis block – the first block on a chain
Blocks are assigned an alphanumeric string called a hash. Based on a timestamp.
Consensus – a computational process in which the majority of nodes on a chain must agree that the new blocks hash has been accurately calculated.
Miners – people responsible for verifying transactions on the blockchain.
What do miners on the blockchain do?
Verify transactions and blocks of code.
Miners are incentivized through the release of new coins and transaction fees.
- What are transaction fees?
- transaction fees are also known as gas prices on the blockchain.
- Transaction fees are used to incentivize miners.
- Normally miners receive two rewards when block is verified.
From ecosystem
Transaction fees come from users.
Transaction fees = gas limit * gas price
What is gas limit?
Amount if gas a person is ready to pay for completing a transaction.
A sufficient level of gas is considered at 21,000.
Lower levels used are more likely to fail and result in loss of costs.
What is gas price?
It is the cost of a single gas unit.
Cryptocurrencies are intended to maintain price stability. A set number of coins mined and released according to an algorithm.
How are cryptocurrencies created?
Through a mathematical encryption algorithm.
Bitcoin is never stored in a wallet but rather distributed on a blockchain.
What about if a bitcoin is moved into a private wallet and taken offline?
Generally, mining requires solving computationally difficult puzzles.
What is forking?
A process in which miners change the protocol of the network itself.
Example. Bitcoin
Now we have bitcoin cash in Aug 2017, bitcoin gold in oct 2017, and bitcoin SV in Nov 2018.
Hard fork vs soft fork
Hard fork – a new coin shares transaction history with parent coin until a decisive split point, to which a new token is created.
Soft fork – is a change to the protocol that is still compatible with the previous system rules.
Think added functionalities such as segwit (segregetedpwitness).
Mining was first done on desktop computers with central processing units (CPUs).
Mining pools are joint groups of miners who combine their computational resources to fins and successfully mine blocks.
- Proof of work (PoW)
- Introduced to verify computational effort and rival cyber attacks.
- Concept adapted to securing digital money by Hal Finney in 2004. The idea of reusable proof of work using the SHA-256 hashing algorithm.
- Proof of work is a decentralized consensus mechanism that requires members of a network to expend effort solving an arbitrary mathematical puzzle to prevent anybody from gaming the system.
- PoW costs energy which increases as miners join the network.
Interested in crypto? Learn how and places where you can safely purchase crypto.
Sources:
Investopedia.com
Techtarget.com
Blockgeeks.com
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