Cryptography Concepts

Blockchain

• Blockchain denotes a distributed, replicated peer-to-peer network of databases.
• It facilitates transactions between multiple non-trusting parties without needing a trusted third party.
• Blockchain maintains a tamper-resistant, append-only list of time-sequenced records.
• Blockchain is a type of distributed ledger on the internet for recording transactions and maintaining a permanent, verifiable record of information.

History of Blockchain

• Satoshi Nakamoto first published the technology in 2008 in a white paper titled "A Peer-to-peer Electronic Cash System".
• The design aimed to create a decentralized digital currency free from government regulation using peer-to-peer transactions.
• In 2009, Satoshi Nakamoto implemented Bitcoin, the first application of Blockchain.

Bitcoin and Blockchain

• Bitcoin and Blockchain are often referred to interchangeably, but are distinct concepts.
• Blockchain is the foundational technology behind Bitcoin.
• Around 15,000 mainstream cryptocurrencies exist in the market.

Evolution of Blockchain

• The 1950s saw the development and adoption of the first computers.
• Arpanet, the early Internet on a peer-to-peer network, was created in 1969.
• In 1973, Public-key cryptography was implemented by Clifford Cocks.
• RSA, a public-key cryptosystem widely used for secure data transmissions was released in in 1977.
• Ralph Merkle patented hash trees, now called Merkle trees, in 1979.
• The IBM Personal Computer launched with DOS operating system in 1982.
• In 1991, Stuart Haber and W Scott Stornetta worked on cryptographically secure chains.
• Proof-of-work with Hashcash was created in 1997.
• Nick Szabo introduced bit gold as for decentralized digital currency and smart contracts in 1996.
• Stefan Knost introduced a general cryptographic theory for secured chains in 2000.
• Satoshi Nakamoto released the Bitcoin white paper on October 31, 2008, presenting the concept of a peer-to-peer payment system.
• Bitcoin.org was registered in August 2008.
• The Bitcoin Genesis block was mined on January 3, 2009.
• Hal Finney received the first Bitcoin transaction on January 12, 2009, launching Bitcoin's application as a public blockchain.
• Bitcoin was registered as open source code on October 12, 2009.
• Bitcoin Market was recognized as a digital currency by October 31, 2009.
• The first Bitcoin purchase occurred on May 22, 2010 involving 10,000 BTC for a $25 pizza.
• The Bitcoin marketplace surpassed $1 million on November 6, 2010.
• Namecoin, the first Bitcoin fork, and Litecoin were released as alternatives to Bitcoin with different mining algorithms and faster transaction speeds in 2011.
• Bitcoin reached parity with the US dollar (1BTC = 1USD) in 2011.
• Diaspora, a decentralized social network, and Ripple, a permissioned blockchain, launched in 2012.
• A payment protocol focusing on integration with banking systems launched in 2012.
• The Bitcoin Foundation was launched in September 2012.
• The Bitcoin marketplace surpassed $1 billion on March 28, 2013.
• The first bitcoin ATM was unveiled on May 2, 2013.
• The University of Nicosia in Cyprus accepted Bitcoin in 2013.
• Mastercoin (the first Altcoin) emerged as one of the earliest in 2013
• Vitalik Buterin released the Ethereum white paper in 2013.
• In 2014, R3 was established as a consortium of over 40 financial institutions dedicated to implementing blockchain technology.
• Ethereum Blockchain was funded by crowdsale in 2014.
• PayPal announced Bitcoin integration and Microsoft accepted Bitcoin in 2014.
• The Genesis block was created in Ethereum in 2015.
• Linux Foundation unveiled Hyperledger in 2015 to boost blockchain development.
• Visa, Citi, Nasdaq, Capital One, and Fiserv invested $30 million in Blockchain startup Chain.com in 2015.
• A Bug in Ethereum DAO code was exploited, causing a $50M theft in ether in 2016.
• EOS was unveiled by Block.one in 2017 as a new Blockchain protocol for industry-scale decentralized applications.
• The Bitcoin marketplace is valued above $2T in 2018.
• TRON, a blockchain platform for the entertainment industry, first launched in 2018.
• Other innovations that began around 2018 include business-oriented hybrid blockchain projects and integration with IoT, AI, and Big Data.

Blockchain Architecture

• Key components include node, ledge, wallet, nonce, hash, mining, and consensus protocol.

Node

• An electronic device connected to the internet.
• Any computer or hardware device connected to the blockchain is a node.
• All nodes hold a copy of the blockchain ledger and are interconnected.
• Types of nodes can be a full node or a partial node.

Ledger

• In blockchain, a database of immutable information.
• Traditional databases operate on the CURD (Create, Read, Update, Delete) principle.
• Ledgers operate on the principle of Append-Only.

Wallet

• A digital wallet that allows users to manage cryptocurrency.
• Blockchain wallets allow users to send and receive cryptocurrency.

Mining

• A mechanism where nodes validate transactions and add them to the blockchain ledger.

Consensus Protocol

• A set of rules allowing nodes to agree on the data value or network state, benefiting the network as a whole, instead of individual interests.
• It is used in blockchain to ensure all transactions are validated before being added.

Encryption

• A part of human history, used to create secure communications. Its been explored since the era of Roman emperor Gaius Julius Cesar (100–44 BC).
• Frank Miller (1842–1925) developed one-time pads to enhance Vigenere encryption.
• The German Army used Enigma during World War II.
• Enigma is a machine that encrypts and decrypts by identifying the positions of three rotors and a few patches.
• German U-boats used these codes on paper sheets for months.
• Enigma was less secure than the perfect Vigenere cipher, and was breached during WWII.

Vigenere Cipher

• Described in 1553 by Giovan Battista Bellaso.
• It resisted decryption attempts until 1863.
• It has the following features: Plaintext: ATTACKATDAWN, Key: LEMONLEMONLE and Ciphertext: LXFOPVEFRNHR

Types of Encryption

• Symmetric Encryption
• Asymmetric Encryption

Symmetric Encryption

• Systems allowing encryption and decryption with knowledge of the algorithm and key.
• It is easy and does not require complex math.
• Key exchange and management is critical.
• The key must be exchanged and done so securely before transmission can begin.
• Key management problem where both parties know the same secret, its also known as shared secret.
• In communications with multiple people, n(n-1)/2 keys are needed.
• A group of 20 people typically needs 190 keys
• Types of symmetric encryption include Stream cipher (ex, RC4) such as WEP, WPA, SSL, TSL and Block cipher such as (AES, DES, 3DES).

ASymmetric Encryption

• There are two keys: a public key to encrypt and a private key to decrypt. This system is also known as public key encryption.
• It simplifies key exchange and management.
• Only a pair of keys (private/public) is needed for each person.
• 20 people require only 20 pairs of keys to communicate.
• It allows users to sign messages encrypting them with their private key.
• This helps any recipient with the user´s public key to verify the sender and content and thus granting non-repudiation.
• Types of asymmetric encryption are Diffie-Hellman (IPSec), RSA Algorithm and Elliptic Curve Cryptography.

Symmetric vs. Asymmetric Encryption

• Symmetric encryption grants confidentiality; Asymmetric encryption offers Integrity, Authentication, and Non-repudiation
• Symmetric requires a single shared key; Asymmetric uses a public and a private key.
• Symmetric key exchange is complex, while it it´s simple using asymmetric encryption.
• Symmetric is not scalable while asymmetric is.
• Symmetric employs a small key size, asymmetric a big one.
• Symmetric implementation is fast, while asymmetric is slow.
• Symmetric is best for Bulk Data and asymmetric encryption for small amounts of data, key exchange, digital envelopes, digital signatures and digital certificates.

Hashing

• Hashing concerns integrity and authentication, while encryption pertains to confidentiality.
• Hashing algorithms reduce any data amount to a fixed-length value, better known as the hash value.
• A hash value behaves like a fingerprint of the initial data.
• Small data changes result in huge changes in the hash value.
• It´s harder to guess the original data with a trial-and-error approach.
• Hashing is a one-way algorithm.
• The possibility exists that different initial data will have the same hash value since the output is of fixed length.
• This is known as collision.
• A well-designed algorithm should prevent collision
• Create an algorithm without possibility of collision would need a hash value longer than the text.
• It is not possible to extract the original data by knowing the hash value.
• Some hashing algorithms like MD5 have a huge amount of collisions.
• It's possible to find a short string that matches that hash value by just googling it.
• But said short string may not be the real original message.
• Hashing can verify if a received file is identical to the sent one.
• It authenticate users by storing passwords as hashes and comparing the hash of the password provided by the user with the data stored instead of the password itself.

MD5

• Message Digest 5 is the most famous MD hashing algorithm and is one of the best-known of all hashing algorithms.
• 128-bit output (32 characters), processing initial data in 512-bit blocks
• It is deprecated because of its high number of collisions.

SHA (Secure Hash Algorithm)

• Another series of algorithms similar to MD5.
• The various algorithms that constitute the SHA series are listed below.
• SHAO: first version of SHA that due to its significant flaw identified was withdrawn shortly after publication
• SHA1: produces 160-bit output and is considered at risk of breaking given there isn´t much security.
• SHA2: set of algorithms that can create outputs of 224-bit, 256-bit, 384 bits and 512 bit. Considered save because it provides 112 to 256 bits of security.
• SHA3: a set of algorithms like the SHA2 that is based on the Keccak algorithm instead.

Centralization vs Decentralization

• Decentralization an important concept that is not unique to Bitcoin.
• The notion of a competing pattern of centralization versus decentralization arises in a variety of different digital technologies
• It is useful to understand the central conflict between these two to understand how it plays out in blockchain.
• The Internet is famously decentralized having dominated walled-garden alternatives
• Email is at its core a decentralized system that´s based on the Simple Mail Transfer Protocol (SMTP), an open standard that faces competition from Facebook or LinkedIn mail, though stays as main solution for person-to-person communication.
• On instant messaging and text messaging we have instead a hybrid model.
• Social networking: centralized systems like Facebook and LinkedIn continue to dominate.
• This conflict predates the digital era
• Similar struggle is visible in the history of telephony, radio, television, and film.
• Decentralization is not all or nothing.
• Most system are purely decentralized or purely Centralized.
• For example, email is fundamentally a decentralized system
• It is based on a standardized protocol (SMTP) anyone can operate an email server of their own.
• Nonetheless a reduced number of centralized webmail providers have become dominant.
• The Bitcoin protocol is decentralized
• Services like Bitcoin exchanges and wallet software may be centralized or decentralized to varying degrees.
• It breaks down into the question of how the Bitcoin protocol achieves decentralization into five specific questions

Centralization vs Decentralization key questions to solve

• Who maintains the ledger of transactions?
• Who has authority over which transactions are valid?
• Who creates new bitcoins?
• Who determines how the rules of the system change?
• How do bitcoins acquire exchange value?
• Different aspects of Bitcoin fall in different areas of the centralization/decentralization spectrum
• The peer-to-peer network is close to purely decentralized: anyone can run a Bitcoin node as there´s a fairly low barrier to entry.
• Clients can be easily downloaded and a node can be run in a notebook.
• There are several thousand nodes.
• Bitcoin mining is technically also open to anyone, but it requires a high capital cost.
• A high degree of centralization is visible in the Bitcoin mining ecosystem
• The Bitcoin community considers this undesirable and as a concentration of power.
• Thirdly, the updates to the bitcoin nodes´ software also has a significant effect in when and how to change the very rules that keep the system alive.
• One can imagine that are numerous interoperable implementations of the protocol
• In practice, most nodes run the reference implementation and its developers are trusted by the community thus earning lots of power

Distributed Consensus

consensus has various applications, studied for decades in computer science.

• Common motivation: reliability of distributed systems
• It can be used to build a massive, distributed key-value store.
• A distributed key-value store can enable build a public key directory or a distributive domain name system.
• Distributed consensus protocols have two properties.
• They must to terminate with all honest nodes agreeing on the value.
• The value must have been generated by an honest node.
• Cryptocurrencies a peer-to-peer system.
• If Alice wants to pay Bob, she broadcasts a transaction to all of Bitcoin nodes that comprise the peer-to-peer network.
• It's not necessary for Bob to participate in the peer network or running a node.
• He will get the funds no regardless of his participation on the node network.
• All nodes must agree on exactly which transactions were broadcast and the order these transactions occurred.
• It results in a single, global ledger for the system.
• So at any given point, all the nodes in the peer-to-peer network have a ledger consisting of a sequence of blocks each including a list of transactions that they've reached consensus on.
• Each node has also a pool of outstanding transactions heard about not yet being added to the block chain.
• For these transactions, consensus has not yet occurred.
• Each node might have a slightly different version of the outstanding transaction pool.
• At regular intervals, every ten minutes for example, every node in the system propose its next block
• The nodes execute some consensus protocol where each node's input is its block.
• Some nodes may be trying to get a fake transaction accepted.
• We can assume that all honest nodes should agree.
• If the protocols succeeds, a valid block will be selected as output
• Now there may be valid pending transaction to be included in the selected blocked If some transaction did not make it in this time, it just awaits the next block´s validation.

Game Theory

• Study of strategies involved in complex games.
• Art of making the best move with optimal strategy for a given situation.
• Method of modeling real world situations in a game form.
• And analyzing what the best move of a player could be in a given situation for a desired outcome.
• Examples are Nash Equilibrium, Prisoner's Dilemma, Byzantine General's Problem and Zero-Sum Games

Two General Problem

• States a scenario where two generals are attacking a common enemy.
• Both generals must attack at the same time to reach a common goal or they will loose the battle
• So, the communication is crucial to their success.
• General 1 must send a messenger to share a time of attack, that may be captured by enemy.
• When messenger´s altered message won´t pass the correct details of the attack, their fate is sealed.
• A new messenger is sent.
• Once the information is received the same exchange of acknowledgement follows.
• As messenger can be compromised in any moment, the battle becomes unsolved.

Byzantine Generals Problem

• An advanced version of the "Two General Problem", where one or more generals can be traitors.
• Consensus is reached when 2/3 of the actors are honest
• Otherwise, armies do not coordinate their attack and the enemy wins.
• When Lieutenant´s 3 command doesn´t match others, the command must go with the majority.
• If commander sends conflicting info, Lieutenants may retreat.
• Those problems can´t be avoided.

Computer Science Engineering

• It unites different concepts from multiple sources to make blockchain possible.
• This sources are computer science, cryptography, and game theory
• Hash Pointers and Merkle Tree are main concepts.

Hash-pointers

• A pointer to a location with its cryptographic hash
• Verify that info hasn't changed.
• To build every kind of data structures.
• We can utilize hash pointers to take a familiar data structure that uses pointers, such as a binary search tree.

Blockchain with hash pointers

• Provides a tamper-evident property for blockchain.
• Altered data is easy to discover.
• Consider what occurs if an adversary attempts to alter data in the middle of the chain.

Merkle Tree

• Useful data structure using hash pointer in a binary tree.
• A binary tree with hash pointers is known as Merkle Tree
• Ralph Merkle is its inventor.

Proof Of Membership

• Allows a precise block chain´s membership
• Validates a chain by showing a data block
• Rest ignores as long as hashes verify through block´s path/root.

Proof Of Non-Membership

• Also available using Merkle Tree.
• Shows tree by path to just-before place of missing item .
• Items being a proof when in consecutive placement.

Blockchain Transaction Process

• Network broadcasts new transactions to all nodes
• Nodes validate transactions to accept or reject its authencity.
• Nodes may then group validate transactions into blocks
• Consensus is needed amongst nodes for new Block creation.
• The global system knows no timestamps
• Adding new blocks done linear regardless.

Block Timestamp

• All blocks time stamped by arriving order in the chain.
• The network must unanimously accept block addition in the chain

Proof of Work vs Proof of Stake

• This consensus is algorithm is widely used and thoroughly tested through blockchain

Proof of Work

• Originated in 1993
• Cynthia Dwork and Moni Naor were its creators
• Adopted in 2009 to discourage DDoS over trustless distibuted consensus
• First miner to solve the Block problem gets rewarded

How Proof of Works works

• A block is what is known when transactions are bundled
• To find if so or not A: miners should verify
• And, if the above test goes all right . To keep block and system legit miners should solve a mathematical puzzle
• The first block to do gets benefits: The Reward The block rewards the mining system, and transactions are properly stored

Mining Understanding

• Finding "has-valued" operations by a single miner Determine number of NoNce(Numerical sample test ) Criptographic Hash Algorithms over block data, result in smaller outcomes

Breaking Ponts in Prook of Work

• As computation needs rise . Electricity needs too
• Bitcoin farms, the result of the rise, have a strong demand -5 Million for US homes, and a whole country of similar electricity needs, and has a high reward for those involved Miners make blocks in bigger pools -Centraling is a result: The miner's create pools, or use it from thers, this rises hashpower for those inside

Why Proof of Work a Concern

• Over the recent years, most of the new coins over the net, have been mined centralized via pools as those listed as follows:.
• The chart overpools, or use it from thers, shows the major miners as centralized.
• The chart overpools, or use it from thers, shows the major miners as centralized

Proof of Stake

• Quantum Mechanic created in 2011
• Created in 2011 (bitcointalk.org)
• Competition is bad so should not be allowed
• Stake now defined in a determinated by wealth creation
• Transacting can create rewards unlike block creatiot, can instead create

Key Points to know in Proof of Stake

• Blocks are bundled and made by a group(same idea as before, just with a validator)
• Validators stake a security deposit(a wealth based number for a security deposit)
• Randoms now are selected via wealth distribution. Validators mint/forge a new block/are selected to be next:
• Validators take fees inside block
• Validators lose coins when found verifying the wrong actions
• Chains will properly reward those who verify good data

Variations of those Block's Selection

• Cryptocurrencies using Proof of Stake often start by: "Selling Pre-Mines, Or the Proof of Work Algorithm, then move on to Proof Of Stakes when possible.
• While others create rewards.
• Proof of work is usually a reward(creating new coins) and the Proof of Stake is a fee.

Variations over selection

• Users want more coins so staking to be apart of the process, or required by staking . Stake Sizing now rewards larger nodes by a chance to block more:
• Those who are willing to put more in, can and it grows the selection.
• For those that need it: more rewards are given back.
• -To work: unequals are added intod that the selection process.
• Common selection used Methods use block age etc.

Block Selction Variation continued

• Randomzations now, the method shows the valdidators where blocks will be and:
• Size shows how nodes may change their sizes, based on the stake for public, or private and thus "next forger is created.

Variance Block

• Selection in Age Selection chooses nodes based on how long: Their tokens have been staked
• Times the tokens days coins stake them for more staking in return. Coin Ages must reset after forged" A reset after forged is common and a while for next block

Key Points of Note

• The bigger miners do dominate the blockchain .
• The price comes down in Proof of Works as equipment is easier to acquire, and more efficient .
• Stake versus Chance relation and also linear: Validators lose is true, but long running blocks make this correct
• Nodes come and go. As long as they verify and do their parts, they and others profit Plus, a better "for node", that is to mean validators' stake will give even further rewards