What is blockchain?

What is a block?

• Persistent, immutable and append-only data structure
• Block used as currency tracks
  • User transactions
  • Timestamp
  • Reference
• A block (besides the genesis block) is tied to it’s previous block in a cryptographic way
• Each block contains
  • Header
  • One or more user’s transactions ![Simplified Bitcoin Blockchain]

3 Building block of blockchain

1. Decentralized Network

• P2P Architecture
• Nodes can join and leave freely
• Information are sent between nodes to maintain the ledger

  2. Distributed Consensus

• Used to add block to the blockchain
• Diferent type of consensus protocol (E.g. PoW, PoS, PoET)

  3. Cryptographic

• Hash Function
• DIgital signature

Consensus protocol

:abcd: Consensus Protocol Components

• Message Passing Rule
  • How component broadcast and relay messages
  • E.g. Fully connected network
• Processing Rule
  • How a component changes its internal state in response of received message
• Goal -> All component agree on the same subject

:loudspeaker: Type of Conensus Protocols

Proof of Work (PoW)

• Used in Bitcoin
• A node’s proof of it’s computation effort by solving a cryptographic puzzle
• A node with a higher computation power usually yields a higher probability of solving the puzzle

  Proof of Stake (PoS)

• Maintain a set of validators
• Validators participate by depositing an amount of currency
• Bigger stake holder have a higher chance of winning
• E.g. Chain-based Pos, BFT-style PoS

  Proof of Elapsed Time (PoET)

• Validator is selected by random
• Each validator is trusted and verified by all others
• Validator is verified by hardware

Cryptographic Hash Function

• Used in process of creating digital signature (Authenticity, Integrity)
• Used to create cryptographic puzzles in PoW (Consensus)
• Create a address for users
• A mathematic transformation that convert message -> Digest
• The output is fixed length but the input can be a variable length
• Requirement, for $H(X) = Y$
  • Computationally Efficient to find $Y$ for a given $X$ and $H$ function
  • Collision Resistant - Hard to find $X_1$ and $X_2$ such that $H(X_1) = H(X_2) = Y$
  • Same input always yields same result
  • Computationally hard to find $X$ for a given $Y$

Digital Signature

Bitcoin

Nakamoto Consensus Protocol (Bitcoin)

• Finality - For every block added to the blockchain, the drop of probability asymptotically decreases to zero
• Agreement - Block is either accepted or drop off by all honest nodes.
• Validity - If all nodes received the same valid block, this block should be accepted into the blockchain
• Hash-chain integrity - The hash value of the of block $B\prime$ with block number $t+1$ has the hash value $pf$ previous block $B$ with block number $t$

:100: Validation of a block

1. Validation of all the transaction in the block
2. Verification of the hash value

:cop: Four rules for a single node

1. Message passing rule Generated or received block should be broadcast to peers in a timely manner
2. Validation rule Blocks and transaction need to be validated before being broadcast to peers or append to blockchain
3. Longest-chain rule Longest chain is always the desired chain
4. Proof of Work (PoW) Generating block include inserting a nonce into the header. The higher the PoW difficulty, the more hashing operation needed. PoW difficulty is automatically adjusted so that the average block generation interval of the network remains a constant value

:currency_exchange: How does Bitcoin actually work?

Digital signatures

• Hash function: SHA-256
• Signature Algorithm: Elliptic Curve Digital Signature Algorithm (ECDSA)
• Used to sign transations

  Transaction records

  

• Transactions consist of one or more inputs and two outputs(Out and change)
• Out -> To the payee
• Change -> Back to the payer

  Transaction records and Merkle Tree

  

• A single block store multiple transaction in a form of Merkle Tree
• Each node is a hash of it’s children
• The root hash node ensure node of the transaction on the leaf node could be modify

  Proof of Work

  

• Find $X$ in $H(X) < Y$ with brute force for $H$ is SHA-256
• $Y$ is a string with a pre-determined number of leading zero bits
• To keep the block generate at a constant speed(every 10 minutes), the proof-of-work difficulty is adjusted based on the average speed of block.
• The increase in number of leading zeros in $Y$ will increase by the diffificulty exponentially.

Example of proof-of-work
- PoW require nodes to solve for a hash with brute force
- Hash for block #775,771 is 00000000000000000003aa2696b1b7248db53a5a7f72d1fd98916c761e954354
- The noice was 2,881,347,934
- The block reward for that successful hash was 6.25 BTC and 0.1360 BTC in fees

Transaction block chain

Lifecycle of a Bitcoin Transaction

Bob send 3 bitcoin to Alice

Bob->Network: How many bitcoin do I have?
Note right of Network: Verify Bob's previous transactions
Network->Bob: You have 5 bitcoin
Note left of Bob: Set Alice as payee
Note left of Bob: Set 3 bitcoin output amount 
Note left of Bob: Set  2 bitcoin change amount
Note left of Bob: Sign with Bob's private key
Bob->Network: Send transaction
Note right of Network: Check transaction with Bob's pubkey
Note right of Network: Attached transaction to block
Note right of Network: Miner found nonce
Note right of Network: Verify nonce
Note right of Network: Block added to block chain

Alice->Network: Transaction from Bob?
Network->Alice: Exist

Question

• In the last page of the slides, it stated that digital coins have a unique ID. Do Bitcoin have a unique ID?
• In Bitcoin, when finding $X$, does nonce always start with zero and work it’s way up?
• When validatating transaction in a block, are we checking the transactions with the sender’s public key?
• How does the network check the previous transactions of Bob?
• The bitcoin paper only mention how to store the header but not the transaction of a block. Full node and lite node

References

• https://www.ledger.com/academy/blockchain/what-is-proof-of-work
• https://en.wikipedia.org/wiki/Elliptic_Curve_Digital_Signature_Algorithm

Next week

• Unspend transaction output
• Read the two papers sent by prof