Ethereum and Smart Contracts: Blockchain Basics

Seminar 4: Blockchain Technology Basics II – Ethereum and Smart Contract

• Readings: Mastering Ethereum Ch 1, 2 & 7

Agenda

• Quick introduction of Ethereum

Ethereum History

• An open-source and globally decentralized computing infrastructure which executes programs called smart contracts.
• It uses a blockchain to synchronize and store the system's state changes.
• Ether is a crypto-currency used to meter and constrain execution resource costs on the Ethereum network.

Smart Contract

• A set of promises, specified in digital form, including protocols within which the parties perform on these promises (Nick Szabo, 1996)

Creating a Wallet

• Creating a password is required for Metamask.

Ethereum vs. Bitcoin

• Next section in the slide deck compares Ethereum and Bitcoin.

Bitcoin Performance Bottleneck

• Consensus latency: 60 minutes.
• TPS: 7 transactions per second (TPS) based on a block size of 1MB.
• Visa: average 2,000TPS with a peak of 56,000 TPS.
• Solutions to performance bottlenecks include speeding up block generation, and increasing block size.

Turing-Complete

• Bitcoin blockchain's programming language: Script.
• Script expressions use reverse polish notation.
• Processed using stacks and postfix algorithm.
• Limited to only Boolean output (e.g., either true or false).
• Script language is also known as a non-Turing Complete language.
• The language is designed without complex constructs such as loops and conditions, which limits its ability to create general purpose programs.
• This is by design as it avoids the risks of bad programming such as infinite loop from bringing down the entire network.
• Turing completeness is a mathematical concept and is a measure of the computability of a programming language.

Ethereum Blockchain - Gas

• Halting Problem (infinite loop): cannot tell whether or not a program will run infinitely from compiled code.
• Solution: charge fee per computational step to limit infinite loops and stop flawed code from executing.

Proof-of-Stake vs. Proof-of-Work

• Increasing the chance of a node's success in minting new digital tokens in proportion with the number of digital tokens already owned by the node.

Proof of Stake

• This approach does not require large expenditures on computing and energy.
• Miners are now "validators" and post a deposit in an escrow account.
• The more escrow you post, the higher the probability you will be chosen to nominate the next block.
• If you nominate a block with invalid transactions, you lose your escrow.
• One issue with this approach is that those that have the most Ethereum will be able to get even more.
• This leads to centralization eventually.
• It reduces the chance of a 51% attack and allows for near instant transaction approvals.

Important Concepts

• Next section in the slide deck discusses important concepts.

Ethereum Blockchain - Ether Denominations

• Wei (lowest denomination) is named after Wei Dai, author of b-money paper (1998) and core concepts used in BTC implementation, it is 1/1,000,000,000,000,000,000 (quintillion).
• Szabo is the denomination after Wei, named after Nick Szabo, the author of Bit-Gold
• Finney is the 2nd highest denomination and is named after Hal Finney
• Hal Finney received the first Tx from Nakamoto.

Ethereum Blockchain – Accounts and Wallets

• Accounts: can be external or contract accounts, consist of a public/private keypair, and allow for interaction with the blockchain.
• Wallets: a set of one or more external accounts used to store/transfer ether

Ethereum Blockchain – Accounts and Wallets, External Account (EOA, Valid Ethereum Address)

• Has an associated nonce (amount of transactions sent from the account) and a balance
• codeHash - Hash of associated account code, i.e. a computer program for a smart contract (hash of an empty string for external accounts, EOAs)
• Storage Root is root hash of Merkle-Patricia trie of associated account data

Ethereum Blockchain – Accounts and Wallets, Contract Account

• Ethereum accounts can store and execute code

Example Account

• Private Key: 0x2dcef1bfb03d6a950f91c573616cdd778d9581690db1cc43141f7cca06fd08ee. Ethereum private keys are 66 character strings (with Ox appended). Case is irrelevant. Same derivation through ECDSA as BTC.
• Address: 0xA6fA5e50da698F6E4128994a4c1ED345E98Df50. Ethereum Private keys map to addresses directly. Simply the last 40 characters of the Keccak-256 hash of the public key. Address is 42 characters total (append Ox to front).

Ethereum Blockchain – Transactions

• A request to modify the state of the blockchain.
• Can run code (contracts) which change global state
• Contrasts only balance updates in BTC.
• Signed by originating account.
• Types of transactions: send value from one account to another, create a smart contract and execute smart contract code.

Ethereum Blockchain - Transactions

• Nonce is Scalar value equal to the number of transactions sent from this address or, in the case of accounts with associated code, the number of contract-creation made by this account, a sequence number, issued by the originating EOA, used to prevent message replay.
• Gas price: the price of gas (in wei) the originator is willing to pay
• The recipient is the destination Ethereum address
• Value: the amount of ether to send to the destination

Ethereum Blockchain - Gas

• Gas issues from the Halting problem (infinite loop) as it cannot tell whether or not a program will run infinitely from compiled code
• Solution: Charge fee per computational step to limit infinite loops and stop flawed code from executing.
• Every transaction needs to specify an estimate of the amount of gas it will spend.
• Essentially a measure of how much one is willing to spend on a transaction, even if buggy.
• Gas Price: current market price of a unit of Gas (in Wei)
• Check gas price:
  • https://ethgasstation.info/ (retired); https://etherscan.io/gastracker
  • Is always set before a transaction by user
• Gas Limit: maximum amount of Gas user is willing to spend
• For simple payments that transfer ether from one EOA to another EOA, it is fixed at 21,000 gas units. 21,000 * gasPrice = fee.
• If the destination address is a contract -> fuel tank in your car/ credit account for a gas station
• Gas Cost (used when sending transactions) is calculated by gasLimit*gasPrice.
• All blocks have a Gas Limit (maximum Gas each block can use)

Ethereum Blockchain - Transaction

• Transmitting Value to EOAs and Contracts
  • To EOAs: update state
  • To contract: EVM will execute the contract and will attempt to call the function named in the data payload of your transaction
• Transmitting a Data Payload to an EOA or Contract most likely addressed to a contract address - data will be interpreted by the EVM as a contract invocation
• Special Transaction: Contract Creation sent to a special destination address called the zero address 0x000000000000000000000000000000000000dEaD

Ethereum Blockchain- transaction signing

• To sign a transaction in Ethereum, the originator must:
• Create a transaction data structure, containing nine fields: nonce, gasPrice, gas Limit, to, value, data, chainID, 0, 0.
• Produce an RLP-encoded serialized message of the transaction data structure.
• Compute the Keccak-256 hash of this serialized message.
• Compute the ECDSA signature, signing the hash with the originating EOA's private key.
• Append the ECDSA signature's computed v, r, and s values to the transaction.

Transaction Facts

• Transactions are signed messages originated by an externally owned account, transmitted by the Ethereum network, and recorded on the Ethereum blockchain.
• Transactions are the only things that can trigger a change of state, or cause a contract to execute in the EVM.
• Ethereum is a global singleton state machine, and transactions are what make that state machine "tick," changing its state.
• Contracts do not run on their own. Everything starts with a transaction.
• Transactions are atomic, and execute in their entirety, with any changes in the global state recorded only if all execution terminates successfully.

Smart Contract Programming

• Solidity: a language similar to JavaScript which allows you to develop contracts and compile to EVM bytecode. It is currently the flagship language of Ethereum and the most popular.
• Solidity Documentation - Solidity is the flagship Ethereum high level language that is used to write contracts, as well as offer a Solidity online realtime compiler