Notes on Cryptocurrency Engineering and Design Lecture
Introduction
Topic: Cryptocurrency engineering and design.
Origin of cryptocurrency: Coined by a pseudonymous individual who introduced Bitcoin through a paper and code shared ten years ago.
Bitcoin as electronic cash: Concept introduced to facilitate peer-to-peer transactions without intermediaries.
Importance of the technology: Cryptocurrencies have inspired innovations beyond payments, such as banking the unbanked and enhancing auditability.
What is Cryptocurrency?
Definition: A digital or virtual currency that uses cryptography for security.
Evolution of terms: Terms like cryptocurrency, blockchain, and consensus are still being refined and defined in the academic and technical communities.
Difference from traditional currencies:
Cryptocurrencies are decentralized and not tied to a specific government or institution.
Created through protocols rather than issued by a central authority.
Key Points of the Course
Focus: The course emphasizes the technological aspects of cryptocurrencies, not their applications (e.g., digital identity or healthcare records).
No trading advice: Students should not expect guidance on buying or selling cryptocurrencies.
Open permissionless systems: This course will concentrate on systems without a governing authority.
Understanding Money
Why are tokens valuable?
Value is derived from collective agreement and perceived rarity.
Tokens represent digital value and can be used for various transactions, similar to traditional money.
Theories of money development:
Coincidence of wants (barter system).
Evolution from receipts and credit systems.
Payment Systems and Their Limitations
Traditional Payment Systems
Role of banks in transactions between individuals (e.g., Alice and Bob).
Pros:
Facilitates transactions regardless of physical location.
Cons:
Dependence on banks increases the risk of failure, fraud, and privacy issues.
E-cash Concept
E-cash: A digital representation of money that allows for transactions without the bank acting as a middleman.
Concept of double spending: Ensuring that digital tokens cannot be duplicated or used in multiple transactions.
Chow's E-Cash System
Description: A more advanced form of e-cash that allows users to generate their own unique secret numbers.
Benefits: Improved privacy and reduced reliance on banks for transaction verification.
Cryptographic Foundations
Hash Functions
Definition: A tool to transform input data into a fixed-size output, ensuring data integrity.
Properties:
Pre-image resistance: Infeasible to revert the hash output back to its original input.
Collision resistance: Difficult to find two different inputs that produce the same hash output.
Avalanche effect: A small change in input results in a significant change in output.
Digital Signatures
Functionality: Allows for verifying the authenticity of messages using a pair of public and private keys.
Three core functions:
Key generation: Creating a public/private key pair.
Signing: Using the private key to create a signature for a message.
Verification: Using the public key to confirm the signature’s validity.
Lamport Signatures
A method for creating signatures using hash functions.
Key generation process involves creating numerous random values and hashing them to form a public key.
Signing process: Revealing parts of the private key based on the hash of the message, ensuring that only the holder of the private key can generate valid signatures.
Conclusion
The course will delve deeper into the construction and properties of cryptocurrencies, focusing on the underlying technology, cryptography, and digital signatures.