Untitled Quiz

Blockchain Overview

• Blockchain technology emerged in 2008 as the underlying framework for Bitcoin, the world's first cryptocurrency.
• It has since evolved to support a broader range of applications, including but not limited to smart contracts and supply chain management.
• Ongoing developments aim to create more scalable, secure, and interoperable blockchain systems across various industries.
• Bitcoin's total transaction volume has surpassed 15 trillion dollars, though the exact value is subject to ongoing growth in adoption.

What is a Blockchain?

• A blockchain is a distributed ledger technology (DLT).
• Data is sequentially stored in blocks, each building on the preceding block, with a piece of information linking each block.
• This allows verification of each block's creation after its predecessor, ultimately leading back to the genesis block.
• The system is always online, secure, and (partially) transparent.

Public and Private Blockchains

• Public blockchains, as exemplified by Bitcoin, allow anyone to view transactions with only an internet connection and necessary software. They are permissionless.
• Private blockchains, on the other hand, impose rules on who can view and interact with the blockchain, and thus are permissioned environments.

Decentralization

• Decentralized blockchains are not controlled by any single entity.
• Use of standalone systems results in them being useful only in niche applications.
• Combining blockchains with other technologies generates a distributed ledger that is not controlled by a specific person.

Nodes

• Nodes are the devices connected to the blockchain network.
• Nodes store copies of the blockchain and share information with each other.
• Users do not need to manage these processes independently, as they operate autonomously.

Maintaining Decentralization in Blockchains

• Blockchain security relies on low probability of a single node consistently validating blocks, many nodes, incentives for new nodes to participate in validation and consensus algorithms.

Security

• Blockchain's security is fundamentally rooted in consensus algorithms and immutability.
• Consensus algorithms ensure consistent adherence to system rules among all parties, and ensure agreement on the network state.
• Immutability ensures that data and transaction records remain intact after a block's validation; making it extremely difficult to modify records.
• Security is directly proportional to decentralization and the number of participants in the network.

How Transactions Work

• Transactions are verified before being recorded. (e.g. Alice paying Bob)
• Users broadcast instructions to update the blockchain status.
• All nodes record and update their blockchain copy once a transaction is processed and recorded.

The Life of a Transaction

• A transaction involves generating the transaction, signing it with a private key, and sending the transaction to the blockchain where it is validated.

UTXO Model

• UTXO (Unspent Transaction Output) represents a Bitcoin amount associated with an address still not spent.
• The UTXO model allows Bitcoin nodes to verify transactions on the blockchain; nodes will check if the consumed UTXOs are valid and unspent.
• UTXO model solves double-spending without needing trusted intermediaries.

Transparency

• Tracing all transactions back to their origin (mining) is possible through blockchain exploration tools.
• Coinbase transactions create new Bitcoins and transfer them to the first recipient.
• Spent transactions are no longer usable, while unspent ones are still spendable.

Encryption of Bitcoin Transactions

• Bitcoin transactions use public and private keys for secure data encryption. Each transaction involves a process of verification and signing.

How Bitcoin Works

• Transactions are queued and then grouped into blocks on the blockchain.
• Once a block is validated, it becomes immutable and is propagated to all nodes.
• Nodes update the blockchain copy to reflect changes upon consensus.

Byzantine Fault Tolerance (BFT)

• BFT relates to the issue of reaching a consensus without a single point of control, vital for blockchain systems.
• Each participant independently decides whether to act or refrain until agreement is reached through coordination.
• This ensures that malicious behaviour by some members does not affect the system.

Distributed Consensus

• Reaching agreement among all nodes on a single blockchain version is a key operation, fundamental to the functioning of a blockchain.
• Decision making includes dispute resolution, correct version identification, participation enablement, and preventing malicious influence.
• Different consensus algorithms exist with distinct strengths and trade-offs (e.g., Proof of Work, Proof of Stake)

Proof of Work

• Miners group transactions into blocks and validate transactions by solving complex computational puzzles.
• The longest chain is considered the valid one and is added to the blockchain.

Hashing Functions

• Algorithms that generate a fixed-length sequence (hash or digest) from data (e.g., block of data)
• Hashing makes it extremely difficult to find another data block with the same hash; it is computationally intensive.
• A hash function always generates the same output for the same input, regardless of the input size.

Block

• A block contains data and transactions, timestamp, and the hash of the prior block.

Mining (Proof of Work)

• Mining verifies and adds crypto transactions to the blockchain's ledger.
• Mining is responsible for issuing new coins, relative to the existing circulation supply.
• All transaction records are recorded on a peer-to-peer (P2P) network, eliminating the need for a central authority.

Mining Pool

• Mining pools combine computational resources of multiple miners to enhance the likelihood of retrieving a block.
• Rewards are distributed proportionally amongst members based on their contribution to the pooled work.

51% Attack

• An attack in which a single entity or organization controls over half of the network's hash rate.
• Allows the attacker to reverse transactions, leading to double-spending risks and mining monopolies.

Proof of Work - Pros and Cons

• Pros: Proven, tested solution that has secured a large amount of value; permissionless (any user can participate); and decentralized.
• Cons: High energy consumption, increasing barriers to entry because of hardware costs; and the risk of a 51% attack.

Blockchain - Pros and Cons

• Pros: Distributed; highly resilient to failures and malicious activity. Stable; making modifications after recording difficult; and Trustless: Decentralized, trust isn't needed.
• Cons: 51% Attacks can still occur (though less of a risk). Data Modification is still difficult, but not impossible; Private Keys loss resulting in loss of funds. Inefficiency; and Storage can grow significantly over time.

Blockchain Use Cases

• Supply chain management, gaming, healthcare, digital identity, IoT, governance, crowdfunding, and distributed file systems. (More detailed descriptions included in next sections).

Ethereum and Smart Contracts

• Ethereum is a decentralized platform that extends Bitcoin's capabilities to accommodate more than just financial transactions.
• It allows for code execution and interactions with applications.
• This high level of freedom allows creation of dApps (Decentralised Applications).

Some DApps

• Finance and banking applications, including streamlining payments, generating loans, securities trading, and ensuring compliance/transparency.
• Insurance applications that automate claim processing and payouts based on verifiable events.
• Real estate applications that simplify property transactions by automating deeds transfer, payments and verification processes.
• Supply chain management applications, improving transparency and efficiency by automating tracking, verification and payment processes across supply chains.
• Healthcare applications that improve data sharing, automate healthcare services, and ensure compliance with regulations.
• Voting systems; enabling secure and transparent electoral processes.
• Management of intellectual property and royalties, automating distribution to ensure compensation of creators.
• Identity verification services that streamline identity verification process to reduce fraud.
• Government and public data, automating methods of managing and storing public records.

Ethereum vs Ether

• The units in Ethereum are called Ether (ETH), and not Ethereum or Ethereums.
• Ether is the currency that powers the Ethereum network.
• Transaction fees in Ethereum are paid in Ether (ETH).

Ether and Gas

• The average price of gas (a measure of computational power required for transactions) fluctuates.
• Every transaction requires a specific amount of gas.
• Ether can be used and reduced through gas.

Gas and Gas limits

• Gas limits help users protect themselves from unexpectedly high gas costs.
• These limits ensure transactions will stop once a set limit of gas is used and will terminate contracts short of exceeding the gas limit, potentially limiting an attack to only what it is predicted.

Tokens

• Tokens represent on-chain assets that can be stored and transferred like ether.
• The rules governing tokens (e.g. rules governing the currency's issuances, divisibility, fungibility, mode of issues, and many more) are defined within smart contracts.

Scalability

• Scalability is a measure of a system's ability to adapt to increases in demand or transactions.
• In blockchain, scalability is crucial for accommodating more users and transactions without compromising the system; this can be measured in terms of energy required for processing and confirming transactions.
• Scalability challenges and solutions directly affect different types of blockchain.

Why Ethereum Needs to Scale

• The surge in the popularity of applications like CryptoKitties led to extreme network congestion and extremely high gas fees.
• This demonstrated the limitations that the blockchain has when trying to deal with high demand.

Blockchain's Trilemma

• Decentralization, Security, and Scalability are mutually interdependent
• All three are not easily achievable simultaneously and compromises are necessary.

Ethereum 2.0

• Ethereum 2.0 (ETH 2.0) attempts to address Ethereum's limitations through updates and upgrades, which include a transition from Proof-of-Work to Proof-of-Stake; implementation of Sharding, Beacon Chain and Block Times.

Proof of Stake

• Proof-of-stake replaces the need for specialized hardware by securing the network through validators who explicitly stake ether in a smart contract.
• Stakes act as collateral and can be slashed if the validator behaves poorly or dishonestly.

Advantages of PoS

• Improved energy efficiency, reduced hardware requirements, mitigating 51% attacks, and enhanced network security.

Validator

• To operate as a validator, a user must deposit 32 ETH into an Ethereum contract.
• New blocks from other nodes are delivered and their transactions are re-executed to establish authenticity.
• Validators vote on the validity of new blocks (using attributions).
• Validators operate in allocated slots, managing the decision-making process and maintaining the blockchain integrity.

51% Attack (PoS)

• Threat of a 51% still exists though the stakes required are substantially high.

Governance

• Governance systems are in place to handle decision-making processes; decisions are made without a single controlling entity.
• Processes exist for proposing and implementing changes to the protocol.
• Governance operates on a tiered structure; on-chain decisions made by stake holders; while off-chain decisions created through discussions with stakeholders.

Who is Involved

• Ether Holders - Stakeholders who hold ETH.
• Application users (or consumers) - Users interact with applications on the Ethereum Blockchain.
• Application/Tool Developers- Developers who create applications for the Ethereum Blockchain.
• Validators- Propose, execute new blocks and manage transactions on the network.
• EIP Authors- Propose changes to the Ethereum protocol.
• Miners- Miners validate transaction blocks, adding them to the blockchain.
• Protocol Developers- Maintain implementations of the Ethereum system.

Formal Process (EIP)

• Master EIPs formally propose changes to the Ethereum protocol, outlining necessary details.
• Developers assess and consider EIPs within a specific framework within the network.
• EIPs that are approved and implemented during a network upgrade are bundled into a multi-purpose upgrade.
• Test networks are deployed before implementing changes to the main network, to mitigate the risk of implementing code with errors.

Conflicts

• Disputes are resolved through discussions in public forums, leading to satisfactory agreements.
• However, forced changes run the risk of a blockchain split.

DAO Branch

• A solution proposed by the Ethereum community related to the 2016 DAO attack (theft of funds).
• The branching of the protocol was the decided action to resolve this particular issue.

DeFi

• Decentralized Finance (DeFi) is a movement focused on decentralising financial applications using smart contracts and peer-to-peer networks.
• DeFi platforms help deliver financial services with no single point of failure, providing a global service to billions without need for centralized services.
• Various applications exist in the DeFi sphere, including but not limited to Stablecoins, Peer-to-Peer services, decentralized marketplaces and prediction markets.

DeFi Applications

• Stablecoins, peer-to-peer services, decentralized peer-to-peer marketplaces, and prediction markets are some examples of functionalities that operate through DeFi.

Cryptocurrencies and Tokens

• Cryptocurrencies and Tokens are different, with the latter reliant on an established blockchain network.
• Tokens involve smart contracts that specify parameters including the number of tokens, who is authorized for transfers, and the rules governing usage of tokens.

Stablecoin

• Decentralized cryptocurrency that is designed to maintain a stable value; pegged to a reference asset.
• Types of stablecoins include: fiat-backed, crypto-backed and algorithmic stablecoins.

Case Study - Luna (1/4)

• TerraUSD (UST) was a stable coin with a 1:1 peg to the US dollar, but it was not backed by fiat reserves or tangible assets.
• LUNA was the native token of the Terra project and worked as a key component of the UST structure to control the peg..

Case Study - Luna (2/4)

• In May 2022, UST lost its peg to the US dollar resulting in panic selling of LUNA to maintain the peg of UST.
• This led to a collapse in the value of both in LUNA and UST.

Case Study - Luna (3/4)

• LUNA lost its value dramatically, going from roughly $85 to practically zero in days
• UST price dropped from 1 dollar to a negligible fraction of a dollar.
• Large scale investment losses followed, leading to negative impacts across the entire cryptocurrency market.

Case Study - Luna (4/4)

• The fall of Luna had significant global impact.
• The issue generated concerns about algorithmic stability and increased calls for regulations.

DeFi - Incomplete Blobs Map

• This is a visual representation of the decentralized finance ecosystem.
• Shows a range of DeFi applications like Decentralized Exchanges, wallet management, lending, and prediction markets.

Decentralized Exchange (DEX)

• A peer-to-peer cryptocurrency marketplace where users trade directly, without intermediaries.
• Examples include Uniswap, enabling secure, efficient, and transparent transactions without involving centralized entities.

CEX vs DEX

• CEXs: Centralized Exchanges reliant on centralized servers for speed and liquidity. Require user verification (KYC).
• DEXs: Decentralized Exchanges reliant solely on blockchain transactions and peer-to-peer matching; generally more open, but potentially with lower liquidity and transaction times.

The Scandal Sam Bankman-Fried (SBF)

• FTX, a major cryptocurrency exchange, collapsed in November 2022.
• Investigation revealed customer fund misuse to cover losses and risky transactions.

Principal Aspects of the Scandal

• Misuse of client funds.
• FTX bankruptcy; and accompanying resignation of CEO, Sam Bankman-Fried.
• Liquidity issues.
• Arrest and charges related to fraud, money laundering, and conspiracy.

The Metaverse

• The Metaverse is a collective virtual space combining physical and digital realities, offering persistent interactions, where users can socialize, conduct business, and engage in a variety of activities.
• The Metaverse is characterized by several key principles; virtual spaces, including virtual meeting rooms; user engagement through avatars and interactions; and interoperability that ensures seamless experiences.

Historical Background

• Concept of the Metaverse emerged from science fiction (e.g., Neal Stephenson's 1992 novel Snow Crash).
• Early virtual spaces like Second Life helped to demonstrate the feasibility of persistent and shared digital environments.
• Advancements in VR, AR and other related technologies are making the dream of persistent virtual spaces a reality.

Core Technologies

• The metaverse is reliant on core technologies, including virtual reality (VR) for immersive environments.
• Augmented Reality (AR) blurs digital content with the physical world.
• Blockchain supports decentralized ownership of digital assets.
• Artificial intelligence (AI) supports adaptable and engaging experiences.
• Cloud computing ensures scalability and 5G networks facilitate seamless experiences.

Key Components

• Metaverse is built on virtual spaces (e.g., gaming worlds, meeting rooms), user involvement through avatars, and interoperability between platforms.

Applications in Gaming

• Metaverse revolution has led to immersive and social networking gaming platforms; examples include Fortnite and Roblox.
• Gaming can evolve into extensive virtual economies where users generate content and interact within a dynamic virtual environment.

Lamborghini: a New Player in the Game

• Lamborghini partners with Animoca Brands to introduce a metaverse gaming experience encompassing automobiles.
• Collaboration seeks to integrate automotive design excellence.

Applications in Education

• Metaverse offers immersive learning by providing virtual classes, interactive simulations, and 3D environments, revolutionizing the education industry.
• This will bring education to locations that would not normally receive the education and will make the subject matter more engaging.

Meta's Digital 'Metaversities;

• Meta has created digital twins of physical campuses in Europe, for immersive learning environments.
• Examples include University of Leeds, UK and the University of Basque Country, Spain.

Applications in Business

• Metaverse is used by businesses to set up interactive storefronts, virtual meetings, team collaboration, and immersive customer experiences.
• It has shown the ability to reshape business environments, from virtual meetings to the creation of entirely new and innovative business models.

Applications in Social Networking

• Social platforms (e.g. Horizon Worlds) allow users to connect with others in virtual spaces; it fosters a sense of presence and community beyond conventional locations.

Applications in Healthcare

• The Metaverse enhances healthcare by providing virtual consultations, immersive therapy, and realistic training simulations.

The Role of Blockchain in the Metaverse

• Blockchain supports the metaverse economy; empowering a robust digital economy through decentralized ownership and secure transactions.
• Non-Fungible Tokens (NFTs) help with the ownership of virtual assets (e.g., virtual art, avatars, and property), while cryptocurrencies aid in in-world transactions.

Digital Identity in the Metaverse

• Avatars serve as digital identities in the metaverse.
• Personalization of avatars reflect individual preferences and are used across platforms.
• Digital identity management fosters privacy, security and authenticity in virtual interactions.

Economy and Monetization in the Metaverse

• The metaverse can be a thriving digital economy where transactions can take place for virtual goods and services.
• Brands are involved in creating virtual storefronts, while creators monetize their work through NFTs and microtransactions, establishing avenues for the monetization of virtual assets.

Challenges and Risks in the Metaverse

• Metaverse faces challenges like data security, privacy, and the possibility of digital addiction.
• Lack of standardization across platforms, hinders interoperability, alongside concerns about the digital divide and the potential exclusion of underprivileged groups.

Interoperability and Open Standards

• For the metaverse to flourish, platforms and services must be interoperable; Open Standards and decentralised systems will ensure that users experience a seamless experience between virtually connected environments.

Future of Work

• Metaverse is revolutionizing workspaces by creating virtual offices and immersive environments for collaboration.
• Employees can work from anywhere, through holographic meetings or VR tools.

Metaverse and AI

• AI plays a key role in the Metaverse, particularly in powering intelligent Non-Player Characters (NPCs) and personalized experiences.

Environmental Impacts in the Metaverse

• Metaverse relies on data centers and blockchain, raising concerns regarding energy consumption.
• Sustainable practices, including energy-efficient servers and renewable energy sources, are required.

Ethics in the Metaverse

• Metaverse poses ethical issues related to user privacy, digital rights, and behaviour regulation.
• Establishing appropriate ethical guidelines and protecting user data is crucial.

Conclusion and Outlook

• The metaverse presents a transformative force reshaping how we live, work and interact.
• The development and prosperity of the Metaverse depend on mitigation and remediation of risks associated with Accessibility, Security, and Sustainability.

Blockchain History

• In 2008, Satoshi Nakamoto published the first Bitcoin Whitepaper, introducing the concept of Cryptocurrency and the Blockchain.
• Notable associations with Satoshi Nakamoto include Hal Finney, Gavin Andresen, and Nick Szabo (though there is no definitive confirmation about the identity of Satoshi Nakamoto).
• Creation of the blockchain known as the Genesis Blockchain in the period 2009-2010.,

Ethereum and Vitalik Buterin

• Vitalik Buterin is a prominent figure in Ethereum's development.
• Buterin's pioneering work involves creating the original Ethereum white paper in 2014; at the age of 19.
• Vitalik Buterin played a significant role in the evolution of Ethereum and the idea of smart contracts.

Bitcoin's Rise and Fall

• The price of Bitcoin has shown periods of significant increase, but also substantial decreases during specific time periods. This includes instances where its price was over $69,000 (2021) and under $5,500 (2018). The factors that encouraged and hampered its value at these times, are varied; and are addressed in detail in subsequent portions of these notes.

Cryptocurrency Bubbles of 2011 and 2017

• Bitcoin price fluctuations in 2011 and 2017, including the acceptance of Bitcoin by illicit marketplace sellers.
• Major news reporting on the rise in popularity of cryptocurrencies and related services, that further fueled the increase in Bitcoin price.

Cryptocurrency Crash of 2018

• A significant drop in the price of Bitcoin and other crypto-currencies during this timeframe which was considered worse than the dot-com crash of 2000/2001.
• Factors contributing to the crash include compromised Binance API keys, Facebook, Google and Twitter banning ads for ICOs and token sales, and Bitcoin's market capitalization falling below $100 billion.

Cryptocurrency Bubble of 2020/2021

• Bitcoin and Dogecoin price increase; the price of Bitcoin rising from $13,200 (in November 2020) to $64,000 (in April 2021).
• Coinbase going public on the NASDAQ (in April 2021).

Bitcoin vs Dot-Com Bubble

• This graph displays a comparison of the prices of Bitcoin against NASDAQ Tech Bubble.

Elon Musk's Influence on Bitcoin

• Musk's social media influence on the price of Bitcoin, specifically praising and recommending Bitcoin and other cryptocurrencies through his social media presence. This positively and negatively affected cryptocurrency prices, even resulting in a drop in prices due to concern about environmental impacts.

Bitcoin ETFs

• Exchange Traded Funds (ETFs) give investors exposure to Bitcoin price fluctuations, through traditional methods and markets.

ETF Bitcoin - Approval by SEC

• The approval of spot Bitcoin ETFs by the SEC in 2024 is a significant event in the cryptocurrency market.
• It will influence Increased market legitimacy and adoption of Bitcoin; attract significant institutional and traditional investors and likely contribute towards a more stable Bitcoin market; pave the way for similar approvals for other crypto-currencies; etc.

Blockchain for Businesses (Permissioned and Private)

• Permissioned blockchains, like Consortium Blockchain and Private Blockchain have a central authority that controls access, roles, and data visibility.
• Benefits of Permissioned/Private Blockchains include easier changes to the rules; mitigation of 51% attacks and reduced costs/execution time.
• Companies can use permissioned blockchains in situations where trusted cooperation and data security are paramount; e.g. supply chains, digital identity, record keeping, and the financial sector.

Private Blockchains (Overview)

• Private blockchains share many features with permissioned chains; in essence, the critical difference is the central control.
• Their primary benefits include lower costs, greater execution speed, and greater control over transactions and data visibility.

Opportunities at Company Level

• The opportunities for businesses to adopt Blockchain include improved security and data tracing along supply chain processes; greater efficiency and cost reduction; better information security and fraud protection; and innovation for brand growth and new business models, as a result of the successful deployment and adoption of blockchain.

Risks at Company Level

• Risk may arise associated with scalability and performance issues; regulatory and compliance issues; adoption and interoperability issues; and security risks and vulnerabilities. Companies must recognize these risks and implement security measures to secure their assets.

Examples of Use Cases

• Supply chain management, digital identity management, data recording and sharing, financial sector, tokenization of assets, and energy and sustainability.

Supply Chain Management

• Blockchain streamlines products' traceability and verifies the authenticity of products in a supply chain, in real-time, improving consumer confidence and lowering cost.
  • IBM and Maersk's TradeLens is one example in the maritime industry.
• VeChain is also a notable blockchain platform offering supply chain solutions.
  • Its VeChain Thor Blockchain enables customized traceability solutions for companies.

Digital Identity and Access Management

• Blockchain-based solutions are created to secure and decentralize digital identity, allowing businesses to protect and validate identity, e.g. Microsoft and ConsenSys' uPort.

Recording and Sharing Data

• Secure distributed ledgers based on blockchain can be used to record data of varied types, including patents, property titles, and legal documents.
• An example is ChromaWay's partnership with the Swedish Government to create a blockchain-based property registration system.

Financial Sector

• Blockchain improves financial transaction efficiency by reducing costs, increasing security and improving payment processing through solutions like Ripple; increasing speed and offering a low-cost cross-border exchange medium.

Tokenization of Assets

• Blockchain facilitates tokenization that represents physical and digital assets as cryptographic tokens.
• Tokenization expands business models and investment opportunities, such as allowing the trading of fractions of real estate, works of art, or shares among companies.

Energy and Sustainability

• Blockchain can create decentralized platforms for the generation, distribution, and trade of renewable energy and to track and verify carbon emissions; in effect, these solutions can promote sustainable energy practises.
  • The Brooklyn Microgrid Project is an important example.

Blockchain and Artificial Intelligence (AI)

• Blockchain and AI are emerging technologies providing opportunities for improving various sectors.
• The key advantages identified include improved data security, data sharing, management of AI resources, and making AI-based decisions more transparent and accountable.

What's next?

• Future considerations for regulation in the Cryptocurrency marketplace and a proposed model for the introduction of a Digital Euro (a digital currency) by the European Central Bank (ECB) by adopting, integrating or modifying existing digital technologies.