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¶ What you will learn
- Internet of Information
- Centralized Networks
- Issues with Centralized Networks
- Blockchain Networks
- Bitcoin - The Most Popular Blockchain
- Cryptography & Public/Private Keys
- Reaching Consensus
- Why is Blockchain Important?
- Blockchain is Antidisciplinary
¶ Internet of Information
The Internet is natively good for posting information like texts, pictures, videos, websites, etc. It is not very good, however, for keeping track of assets like money, stocks, points, copyright, licenses, etc.
This is because of the double-spend problem. If I send a cat photo to someone, I can send the same cat photo to someone else no problem. But, if I send a dollar to someone, I shouldn't be able to send a dollar to anyone else.
¶ Centralized Networks
The solution until now has been centralized networks. In a traditional centralized network, a server stores the data and keeps track of who owns what. For example, if I want to send $1 to someone through a bank, then the bank would increase that person's balance by $1 and then decrease my balance by $1, ensuring that I cannot send that same $1 to anyone else. The server makes sure no one double-spends.
¶ Issues with Centralized Network
There are many issues with this model. Servers create a central point of failure. They are frequently a target for hacks. Get access to a server and you can modify everyone's balances like a spreadsheet.
Hacks aren't even necessary. Servers are usually maintained by companies, and companies can have corrupt executives or employees committing fraud.
Even without any wrongdoings, the companies who control these servers could decide to lock you out, freeze our assets, or increase service fees at any time.
¶ Blockchain Networks
A blockchain is a list of records stored in "blocks" of data. Each block also contains a header. Each block points to the previous block, forming a chain of blocks. It is very difficult to modify any block without breaking the whole chain.
Each node in the network has a copy of the blockchain.
¶ Bitcoin - The Most Popular Blockchain
Bitcoin is a blockchain network that keeps track of a cryptocurrency a called bitcoin. Bitcoin transactions are clumped together into blocks and then broadcast to the network.
No one knows who made Bitcoin. An author known only by the alias of “Satoshi Nakamato” published the original Bitcoin whitepaper in 2008, Bitcoin: A Peer to Peer Electronic Cash System. Satoshi could be a man, a woman, or even a group of people.
¶ Cryptography & Public/Private Keys
Blockchain uses asymmetric cryptography. A private key (known only to the owner) can generate a public key. The public key (how everyone identifies the owner) cannot reveal the private key.
In Bitcoin, there are 2^160 possible addresses
- 1,461,501,637,330,902,918,203,684,832,716,283,019,655,932,542,97 addresses
It is practically impossible for anyone to overlap when randomly generating public keys.
- Every person in the world (7.4 billion) could have 196,385,600,286,334,710,857,791,565,804,391,698,421 addresses.
¶ Reaching Consensus
Each round, nodes listen for transacations on the network and compile them together into blocks. They compete in some way (solving a puzzle, random selection, etc). The "winner" adds their block to the blockchain and usually received a reward. Then, the next round begins.
Blockchain does not restrict who can mine a block. Instead, blockchain makes it costly for nodes to lie by requiring them to present a proof.
In Bitcoin, this is a "proof of work". A proof of work is the solution to a cryptographic puzzle that is difficult to produce but easy to check for correctness once you have it. If you find the correct "proof" for a mining, round, it can be reasonably assumed that you had to do work (i.e. expending electricity) to find it.
Proofs protect the blockchain against bad actors. For someone to rewrite the chain, they would have to re-mine every block that comes after their transaction. However, everyone else is already working on the next block. The bad actors would have to work faster than the good actors (51% of the entire network's processing output). The bad blocks end up as dead ends and die out.
¶ Why is Blockchain Important?
Data Integrity. How can you mimic a central source of truth in a peer-to-peer network? You de-incentivize lying by making it costly to add data.
Distributed Power. The users participating in the networks have control over the network. No person or organization has outsized control over the whole.
Aligned Incentive. People are drivent by different incentives. In blockchain, you can work for your own selfish interests, but that will also benefit the whole. By giving rewards for providing proof of work, people will have a vested interest in maintaining the network.
Security. Hacking, fraud, identity theft, etc. Because there is no central database, hackers would have to hack one account at a time. Reckless behavior by one person only damages that person.”
Privacy. People get to be in complete control of their data. By eliminating the need to trust others and you eliminate the need to know the true identities of those others in order to interact with them.
Preserving Rights Companies can change terms of service / how their use your data. By putting rights and freedoms in code, they are clear and enforceable and difficult to change without a majority vote.
Inclusion Everyone in the world should have the ability to participate. When half of the world does not own a bank account. on Bitcoin, there are no needs for bank accounts, credit scores, or age requirements to transact or mine on Bitcoin.
¶ Blockchain is Antidisciplinary
- Blockchain combines elements from economics, math, computer science, and philosophy
- Computer Science – cryptography, SHA-256 mining algorithm
- Math – probability, elliptic curve cryptography
- Economics – monetary policy, inflation rate, game theory
- Law - regulations, foreign policy
- Philosophy – Cypherpunk Movement, privacy, freedom
Everyone can be part of the conversation.