Ethereum and Smart Contracts

Seminar 4: Blockchain Technology Basics II - Ethereum and Smart Contracts

• Readings include Mastering Ethereum Ch 1, 2 & 7
• Agenda:
  • Quick Introduction to Ethereum
  • Ethereum vs. Bitcoin
  • Important concepts
  • Smart Contract

Ethereum History

• Ethereum is an open-source, globally decentralized computing infrastructure.
• This executes programs called smart contracts.
• It uses a blockchain to synchronize and store the system's state changes.
• A crypto-currency called ether meters and constrains execution resource costs.

Smart Contract

• A smart contract constitutes a set of promises, specified in digital form, including protocols within which the parties perform these promises.
• Nick Szabo defined smart contracts in 1996.
• Wallets can be created by using metamask.

Ethereum vs Bitcoin

• Performance bottleneck of Bitcoin: 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. Overcome solutions by 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 Boolean output, e.g., either true or false
• Script language: a non-Turing Complete language
• Designed without complex constructs such as loops and conditions which limits its ability to create general purpose programs.
• Turing Completeness: a mathematical concept that measures the computability of a programming language.
• This is by design as it avoids the risks of bad programming such as infinite loop from bringing down the entire network

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, stopping 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.
• The proof of stake 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
• An issue with this approach is that those with the most ethereum will be able to get even more
• This leads to centralization eventually
• Reduces the chance of a 51% attack, allowing for near-instant transaction approvals

Important concepts

• Ethereum Blockchain - Ether Denominations:
  • Wei - lowest denomination
  • Named after Wei Dai - author of b-money paper (1998), many core concepts used in BTC implementation
  • 1/1,000,000,000,000,000,000 (quintillion)
  • Szabo - next denomination
  • Named after Nick Szabo author of Bit-Gold
  • Finney – 2nd highest denomination
  • Named after Hal Finney
  • received first Tx from Nakamoto

Ethereum Blockchain – Accounts and Wallets

• Accounts:
  • Two Kinds:
  • External Owned Accounts - (EOA, most common account)
  • Contract Accounts
  • Consist of a public/private keypair
  • 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: root hash of Merkle-Patricia trie of associated account data
• Contract Account Ethereum accounts can store and execute code Has an associated nonce and balance codeHash - hash of associated account code storageRoot contains Merkle tree of associated storage data

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:
  • Send value from one account to another account
  • Create smart contract
  • Execute smart contract code A 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-creations 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
• Gas limit
  • The maximum amount of gas the originator is willing to buy for this transaction Recipient
  • The destination Ethereum address
• Value
  • The amount of ether to send to the destination
• Data
  • The variable-length binary data payload
• v,r,s
  • The three components of an ECDSA digital signature of the originating EOA

Ethereum Blockchain – Gas

• Halting problem (infinite loop) – reason for Gas
  • Problem: 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 must 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: the current market price of a unit of Gas (in Wei) Check gas price here: https://ethgasstation.info/; https://etherscan.io/gastracker Is always set before a transaction by user
• Gas Limit: the 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.

Fascinating fact on the transaction

• Transactions are signed messages originated by an externally owned account, transmitted by the Ethereum network, and recorded on the Ethereum blockchain.
  • Another way to look at transactions is that they are the only things that can trigger a change of state, or cause a contract to execute in the EVM.
  • Ethereum functions as a global singleton state machine, and what makes it tick" is transactions, they change its state.
• Contracts don't run on their own.
• Ethereum doesn't run alone, everything begins with a transaction.
• Transactions are viewed as atomic. Transactions execute in entirety, global states only record any all execution terminates successfully.

Smart contract code

• 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. Serpent: a language similar to Python which can be used to develop contracts and compile to EVM bytecode. It is intended to be maximally clean and simple, combining many of the efficiency benefits of a low-level language with ease-of-use in programming style, and at the same time adding special domain-specific features for contract programming. Serpent is compiled using LLL.
• Website to use if you'd like to learn more: https://cryptozombies.io/en/lesson/1/chapter/1