Lecture 19: Blockchain w/ Case Study

MIS 3305 (Prof. Cody Smith)

“Double-spending problem”

common problem with early blockchains - when the same digital money is used more than once

Why did early forms of blockchain fail? (4)

centralization, lack of trust, regulatory issues, technology limitations

Public key cryptography (RSA, ECC) - asymmetric encryption

you have: private key - no one knows about, public key - everyone can know

Cryptographic hashing (SHA-256) - one-way functions that scramble data

hashes scramble data consistently without being reversible

Digital signatures - authentication and non-repudiation

you authorize a transaction, other people can verify it

Merkle trees

efficient data verification

Satoshi Nakamoto

defined how bitcoin should be set up (a pseudonym name)

Distributed ledger technology (DLT) - not centrally controlled

database copied by everyone and everyone receives transactions

Consensus mechanism

agreement without central authority

Decentralized architecture

no single point of failure

Steps to Adding a Block

Consensus - Byzantine Fault Tolerance

helps blockchains reach agreement even if some nodes act maliciously

Consensus - Proof of Work

Solve puzzle = create block

Consensus - Proof of Stake

validators "stake" cryptocurrency as collateral to earn right to create blocks

Fixed supply cap

21M bitcoins (scarcity by design)

Smart contracts

self-executing code on blockchain

DeFi - Decentralized Finance

without traditional intermediaries (no bank, brokers, exchanges)

Decentralized exchanges (DEXs)

automated market makers enable peer-to-peer trading

NFTs (Non-Fungible Tokens)

unique digital assets with provable ownership built on Ethereum