5. Blockchain Basics & Transactions, UTXO and Script Code

The following content is provided under a Creative Commons license. Your support will help MIT OpenCourseWare continue to offer high-quality educational resources for free. To make a donation or view additional materials from hundreds of MIT courses, visit MIT opencourseware at ocw.mit.edu. Thank you. forever, everyone comes back and I should tell you when I start the session with that little Shh. I learned it from a congressman in Baltimore. Some of you know that I have spent a lot of time in politics and it is one of my roles in politics was that I was the treasurer of the Maryland Democratic Party, and if someone ever asked you to be the treasurer of a state party, come , I could give you some advice on, you know what it is, but when you're in the home state.

The senator asked him to do it, so I had to silence the annual Jefferson Jackson Day dinners. I would host these big dinners and there are four or five 600 people with these dinners. I could not do it. I couldn't get his attention and the congressman. Elijah Cummings walks up and just leans into the microphone Shh, silence, the whole place, I said congressman, what is this? It's something you've learned in politics, something you learned, you know it from your cigar, your minister, your priest, how he said it works. every time it works, so Elijah Cummings gave me that little block chaining money.

We are here. I know it's a little like eating broccoli in these last few classes because we go over cryptography and then move on a little bit to grant consensus protocols. and today we're going to pick up on that and try to finish up the Bitcoin design parts that I wanted to present through a tour. We'll have drop-ins from time to time in this class, but Patrick Murk was hiding here. With the cap and hoodie he has the look of a lawyer who has spent his time with Bitcoin for seven years. He's currently affiliated with Berkman Klein at Harvard and I didn't know Patrick was going to be here, so I'm calling him.

He is also special counsel for the Cooley law firm and has a lot of clients who try to do the right thing under the law, but sometimes they find themselves dealing with the Securities and Exchange Commission or other blind government institutions, but Patrick was also general counsel for the Cooley Law Firm. Bitcoin Foundation and for a short time you ran it, right, before it went like a poof, yeah, yeah, yeah. Patrick is a hoodie and baseball cap type of lawyer, so he's a Bitcoin lawyer, so I thought you hurt him. Did I ever need Patrick for one of his business endeavors?

I am sure that the Cooley Law Firm will help and advise you: what is that? What is it? I have Patrick, sir. In fact, I have never bought a Bitcoin. 100% Bitcoin is fine, so Patrick, when? A client pays you one hundred percent in Bitcoin, how long do you keep him as a miner, except you are a lawyer? He forgets about Bitcoin. Today's study questions were that we were going to move on to the last piece on

transactions

and something called an unspent transaction. output

code

and

script

which is computer

code

used within Bitcoin, we're going to talk a little bit about the design features that tie it all together and particularly about reading, which was the academic pedigree of Bitcoin, which is also a reading that patrick He also assigns when he does his study group at Harvard Law and then yes, all of you will be able to participate.

We will conduct a survey among all of you to find out who Satoshi Nakamoto is. Yeah, where would you prefer to do more on the transaction

script

? well, we'll do a little bit of both readings, of course, the academic pedigree of Bitcoin, which we'll talk about in the last part and I'll do some cold calling and get some feedback on what you thought. from reading or if you're still skimming through it and then there was a coin table article that just makes sense of it all and like I said, we'll go through the

transactions

and do a little bit to tie it all together. and the academic pedigree we will have a little fun with you all you will have the opportunity to tell us who is or was Satoshi Nakamoto or the committee, so the transactions you have seen this graph before, but the transactions are formatted in a transaction ledger, No. only in Bitcoin, but actually everything is someone on one side of a transaction and someone on the other side of a transaction, so in Bitcoin there is one input and the input on the Bitcoin side is an id of a previous output, so Bitcoin is not only a series of blocks of information, each block has between one thousand and two thousand individual transactions, but in a sense there is a separate chain.

Sometimes I think of a

blockchain

, yes there is a chain of large chunks of data, but there is also a chain of individual transactions. shamone is that a raised hand or just scratching your head no, okay shamone is a faculty member of the finance department here is a burden and some of you could take his finance course. I guess someone here probably is, so the input is just really, the id of wherever the output is, you can think of a chain of a transaction, can someone tell me where all the transactions come from, where it is, where it is the type of genesis of value, if it follows a chain of transactions to its origin, doesn't it work? at the base, then anyone wants to say what is a currency base, the generation of a newly minted Bitcoin, not the way Patrick Merck got it when he was selling his services for the law, but how a miner gets it, they get your transactions, remember that initially they were 50 coins.

What happened initially in 2009, now it's 12 and a half coins on a short pair, maybe it's around 18 or 20 months, it gets to six and a quarter coins and keeps splitting half and half, eventually no coin base, but in each transaction. essentially I had to go back to the coinbase, about 50 or 25 or twelve and a half coins were issued and then the output, so the transaction format is quite simple in a sense, the input is a previous output and a digital signature. and then who do you want to send it to? Sent to Bitcoin addresses. That's why we took a moment to gloss over what a Bitcoin address is.

It is a kind of translation of a public key, but it is not identical to a public key. and of course you need a value measured in bitcoins or Satoshi or if we are on the etherium network it would be ether and gas etc. on 1,600 different platforms it could be a different native currency many times right? I don't think lock time was in any of the readings, but someone wants to tell me what a lock time is so it's relevant to some aspects of the technology. Anyone's guess, while a lien is not a PhD lien, but a digital currency initiative lien no, you are hiding, you don't want to say how long is it some kind of objection or I thought it was some kind of protection mechanism or it is a protection mechanism, but not so much about double spending.

Tom, did I see your hand raised? This is when it is time for the transaction to take place, so it is now 2:45 on September 20. If you put a block time at 250 or 255, it couldn't happen until 255, so you actually can. condition the transaction being locked on this, but you can say it can't happen until you can put the date for tomorrow. It's a little different than the date on a check because one of the things that is validated in Bitcoin is that it won't validate an early transaction and if you put October 6th on a handwritten check, the bank might still accept it even though it probably shouldn't. do it, so it's like the date on a check, except it's verified and validated, so I take Emily and then Shimon these blocks in the chain because what is the right kind of chain of events that you are recognizing if you choose to set a large amount of time in the future?

I guess the broader question would be why would you set a long time? Time function: Did you answer that or aren't you yet? It's not really Turing complete language, so you're not really trying to create conditions here, but it is a condition because at any time you might want to condition a payment. you may want to condition a payment on time and in some slides we will talk about the programming language, the computer language that allows transactions to be made, Shamone said it was not complete from the readings, does anyone want to tell us. What is a complete tour in computer language?

Does anyone know who a tour is? Imitation games anyone? Does anyone know what the Touring Award is? kind of like a Nobel Prize, but for computer scientists, the whole tour allows them to loop within computer programs and the scripting language doesn't allow that to happen. Every function needs to have some language. I know Elena is watching me to see. Don't go into depth, but to answer Emily's question is that there are many different ways to condition a transaction and Satoshi Nakamoto thought well, let's introduce here the transaction format that you can condition on time and then two parties could do that with your question about whether could inadvertently generate double spending.

It's a very good question. Can I hold it until we do validation for a second? So this is a unique identifier for the input, but it actually uniquely identifies from a previous output what the block is. knowing if it's from block 250,000 or block three hundred thousand, so you literally need a block ID and then within that block which of your 1,500 transactions it might be so you can find any transaction in a complete

blockchain

by knowing the block and then inside the block whose transaction is just a data mechanism on how to store data and through this mechanism there is a chain of transactions as well as a chain of blocks and then the value that we talk about, I think it exists if I do right my numbers 10 to the eighth satoshis in each Bitcoin is a little difficult because I think there are ten to the ninth gas and each ether, and that's a coin, that's what a coin is when Satoshi Nakamoto did this, it wasn't actually a coin because it was a question if anyone would give a valuation until about 18 months later when those two pizzas sold for 10,000 Bitcoin, what was it? or until someone started the first exchange, a crypto exchange to trade that, so that you can also have multiple inputs and multiple outputs, and I'm going to use an example that I just created: I want to send some bitcoins to two different people and I need some bitcoins, so I could take three entries above and these are just transaction ID six, index three, of course it wouldn't be ID six. it could be ID 300,000 but the point is to take ten Bitcoin so I want to find three entries and I need them to send six bitcoins let's tell Amanda you like that and just because you're sitting in the front James will just send three but I'm not using the name Mandus and the name James.

I'm using your Bitcoin address, Amanda's Bitcoin address, and James' Bitcoin address, so instead of it being a counting basis, like if you have an account at Bank of America and you say I have I want to send $ 10. I just checked to make sure I have more than $10 worth of Bitcoin. I actually have to find individual transaction results that add up in this case. I want to send nine Bitcoin six domes na3 to James, not really to Amanda, but like that. What is 10 minus 9? Thank you, that was very difficult. We're at MIT, but you might not send me one.

I'm going to send me point 9. This is my change, so a Bitcoin transaction can be equal to the inputs. Regardless of the results, I could have returned one, but I have decided to incentivize the miners and leave a little more than 0.1 Bitcoin, which would be a great fee, actually it would be around six hundred and forty dollars or something like that, probably. If I didn't do that, I would probably leave him for a fee of 10, 20 or a hundred Satoshi, maybe not. I don't know what the current market is, but this is a multi-in, multi-out transaction, but you always have to send it to yourself.

What happens with these entries? If this transaction actually occurs, they disappear. The actual inputs disappear once they go through this, so the inputs always have to equal the outputs when a transaction is validated. One of the validation methods is to ensure that the lock time has actually arrived. It happened that the lock time has passed, another validation point is that the inputs are greater than or equal to the outputs, if the outputs are greater than the inputs, the transaction will not be validated, the digital signatures must be validated to return to the previous slide . that digital signature also needs to be validated and that this index of past ideas actually exists and this gets to your question, Emily, it still exists, but these entries, once you've used them, no longer exist in the database, kindly . from the past, so those are the transactions, that's the core.

I know it's like eating broccoli, but it's an important part of all blockchain technology, the coinbase transaction we've already talked about, so I'll go over it quickly, but it's a reward for solving the puzzle in the case of Bitcoin is solving the question ofthe proof of work drums is the economics of the miners of course they get their twelve and a half Bitcoin and they might get some transaction fees Tom's questions the other side why Is it any different than paying some middleman central? Anyone wants to try doing this. You could cold call this. Anyone wants.

I mean, this is an economic question about markets. I would say that the person sending the transaction has the ability to choose. How much will they pay for that transaction at the bank? It's regulated and you pay, maybe that's one of the differences. So the difference is that the bank sets a generally fixed fee schedule and this is a decentralized market mechanism for setting fees. Shawn's second point is that currently this may not be true in the future, but currently central intermediaries can charge higher fees than in this decentralized system, the functions are the same, the amount with a different concept.

Basically, LAN says: well, maybe it's not that different. I mean, although it might be floating instead of fixed, it might actually be lower instead of higher, but you're saying that fundamentally it's the same one-minute Shabo and let me say that because you're like a professor, you're actually going to tell us. Tell the answer. Good question, it's not mandatory, they are not mandatory fees nor are they market based and at times like last December they were very high and now they are quite low, partly because of the Bitcoin network. It's not running at full capacity, I mean, it can easily accommodate between a thousand and two thousand transactions per block and it's not like there's a lock on getting ten or twenty thousand transactions in a block like there was last December.

Sorry, fit anything. very different in the sense that you know you're basically inflating well, so even if we're not friends with Zack, that's a clever mechanism of how she figures out how structurally these changes will change over time in the network, since in a way he has hope for the future. Well, one more here, Alexis, we don't connect as if they keep the money and the liquid uses for that right or wherever, so that they make money with a spread, whereas here, in the case of Bitcoin, the money will remain in the system. and it will flow into his leg, another miner who will use it for another transaction, they told him to stay within the same network.

I would say instead of just going. I hear you, but I could really leave the Met to lawyers like Patrick, couldn't I? or could leave. the network, if you use it, is Starbucks if Starbucks ever accepted it, so I'm just challenging your thinking, but you can challenge mine. Do you know why we don't close that with Eric and then just the person or, for example, he made you? the transaction is basically the same, but if you think about a system, there is no single entity that collects all the money from the sections, you have a network at least with the network of those who get that, plus once we exceed 20 million 31 million. bitcoins at each generation limit, then all systems must be simple but somehow fashionable, so Eric makes that two points than all the other points, but I want to repeat one: this is possibly more decentralized today than the current, you know, commercial. banking system, for example, for transaction processing or transaction processing, that visa and the first day to do it, which we will study when we will get to payments, so possibly it will be more decentralized.

I think you said it was more decentralized, but I'm putting the word possibly in there and it's even that at least in the case of bitcoins there are two sources of income to provide the services that miners do for coinbase transactions twelve and a half Bitcoin per block approximately $80,000. dollars per block currently, but there's also this little incentive of fees that over time will have to grow as you go down, if you're only going to meet one Bitcoin port transaction and ultimately a near-zero Bitcoin port transaction , they will have to be more satoshis on the fee side and some altcoins that are not Bitcoin or are more modeled on fees and some coins are more modeled on mining rewards, they are not, they are not all economies Satoshi Nakamoto, whoever out or out if it's a group I had to think about a lot of economics that they've survived for ten years, that doesn't mean that's the best set of microeconomics for a blockchain system.

Tom, you look very skeptical, that's true, so you're ready to rabbit dive in, maybe so. the coinbase transaction we have talked a lot about it the reward of at least one Bitcoin is halved every two hundred and ten thousand blocks one very important thing that Nakamoto put is that you cannot use your coinbase reward for a hundred blocks, so than a set of 400 obsolete or frozen blocks. I can think of two reasons, but maybe everyone can think of another reason why someone would want to try it, Jeff Winn, maybe you care about the block and are trying to do it. pull out a plug that shouldn't be, spend the money right away to get it.

This is the main reason talked about not only in the literature but also in the initial blog post: how many blocks does the chain have to go through before? everyone really thinks it's a consensus, I mean I could have said 5 10 20 Satoshi picked a hundred blocks saying that's it, hopefully it's pretty settled or about a thousand minutes. James asks: could you just game the system and keep mining and spending? mining and spending somehow, that's what miners do, but they have to wait a hundred blocks and that was what Satoshi was trying to get at. If you have to wait a hundred blocks, it's probably now the consensus chain, it's probably been so validated unless We got into trouble, Patrick, you weren't here, but some of the students raised this question.

Well, what would happen if a country as large as China isolated its entire network and only China followed one path and the rest of the world the other, the theory of the case is that within a hundred blocks or a thousand minutes somehow that would be discovered In this case, it always registers as the first transaction in Merkel's tray. A very technical point, but it has to build up to that damn thing we were talking about about data compression in Merkel's tray and here's a fun little fact: you can add a hundred bytes of arbitrary data. data in the base of the coin, you could say why it lifts this well because it's just a fun little place where some people express their creative ingenuity, artistic things send secret messages to each other buried in the transactions of the base of the coin, There is a whole forensic analysis of funny little things that miners sometimes put in the base of the coin for those of you who are artistic, the first Genesis block had this phrase The Times of January 3, 2009: possibility that they are on the verge of a second bailout for the banks, that was a Financial Times headline that says Toshi Nakamoto, laid the foundation of the first block currency, it's just a fun little place, there's a joy that goes among the miners, to Sometimes they talk to each other.

Have you ever sent a message to someone, not that I know of? Not that you are aware of what you are talking about, there is a miner who likes to put Catholic cataclysms that has put the entire catechism in each block. There is a small catechism vehicle. Sam just mines, there you go and they pay you in Bitcoin. Alright. then everything goes into a database called unspent transaction output, these are the unspent transactions, if they were spent they are burned and the Bitcoin transactions that were not spent fall into this and you can use them, it is created because it speeds up the Everything the system instead of going back and looking for all this stuff, there is actually a database that has all the unspent transactions that I included here, what I find is this kind of interesting revelation or irony when Satoshi built Bitcoin and for the 16 versions that have appeared since then.

Over the ten years, all the developers, the core developers of Bitcoin, have maintained the result of unspent transactions, not specifically in a blockchain, but in a database called a DB level database, so those of you who are closer to computing than me could tell you all the pros and cons. of a DB level database, but I'm observing that even within the first most used central database for blockchain called Bitcoin, they chose to use not a blockchain but essentially a more standard database to hold the result of Unspent transactions now, in a sense, are all part of this blockchain solution.

I'm not, I'm just saying it's a database within the blockchain world that's not actually a blockchain millene, right? Yes, it's kind of an interesting irony, but it also says something economic and technological. Satoshi was trying to create a monetary system, he wasn't trying to use blockchain for every bit of data, so this is the actual size of the unspent transaction output, if you can't see I think it's between fifty and sixty million , they were hires. or there were around 60 million unspent, it's not 60 million Bitcoin because there are around 17 million Bitcoin, so you could average it out, you could say that each transaction has less than one Bitcoin;

In reality, there have been surveys and studies that show that approximately half of these 54 million. The transactions are so small that they go by the term of they are called dust that there are so few Satoshi that it is not even worth the fees to try to redeem them. They only add up to less than half a percent of the entire outstanding Bitcoin balance, but they are just dust, so maybe of these 54 million unspent transactions, half of them are never used because they are not worth it financially, it's like the pennies in the dresser drawer that they may not spend.

Something similar here you have, like our pennies could be worth a lot of money and then Hugo is making the case that, just like the pennies in your dresser drawer, they could be worth something one day, which I refer to as Bitcoin dust, roughly half of these. unspent transaction outputs Satoshi here strain Satoshi there might one day be worth something good, it's like the pennies in your dresser drawer, although you've lost them in the meantime like they might be worth something, but in the meantime, have you lost the key private? For those little satoshis I put three moments of time here just to give you an idea of ​​the real number of transactions that have occurred.

There have been three hundred and forty-two million transactions on the Bitcoin network today or a day or two ago when I put the slides together so that of the 340 million transactions only about fifty-four million are still pending, the other two hundred and ninety million have been spent , if you want, yes, where are these pending transactions? that are still available, all 54 million reside in a database within the Bitcoin software called unspent transaction output, you TXO and you TXO, these are not letters, I'm making them up, they are a database, 54 million transactions Separately, they are actually on the blockchain itself, so the 340 million transactions that have ever occurred are on the blockchain, but to make it easier for the software, the 54 million that have never been spent or reside on us in a software, does that answer the question or does it work for me? all ten thousand nodes can the 340 million and the entire blockchain, so essentially they are there in multiple places because they are on the entire 110 thousand node blockchain and they are also on UT EXO, not just on the ten thousand nodes, but occasionally in other places. words transaction spent which is a bit misleading because the transaction can be spent and unspent, for example if we have two outputs one output is spent on a future transaction and the other output is not spent so it is a bit misleading to say transaction spent because that only happens when the transaction has only one output well I'm using it lightly I say that of the two 340 million transactions that have happened 290 I say there are 340 million if I did my day to search correctly and I'm fallible so I may not have done it, but if I did my data source correctly, there were 340 million previous results, 290 million of them disappeared, yes, except it was easier to put TXS, but yes, clarification of liens is that I think that is exactly what I want to say.

There are currently 54 million transaction results in UT EXO, which also says that there were results in the past, another 290 million results that have already been spent together, so there is a scripting language, there is a bit of computer code and there is no need, I said. There was no prerequisite to take scienceof computing before you were here and my own computer programming is very old because when I was programming I was in Fortran and APL and you can look up that's kind of like cuneiform and you know the rosette. stone, but satoshi nakamoto decided to put a little bit of computer programming in there and I'm not going to get the count right, but there are several hundred, but not several thousand, little operations and codes that you can use in the Bitcoin script, it's not complete. which means you can't do a lot of the things you can do in the rest of computing, but at its core it's more secure, it has fewer attack vectors, it's harder to take down a little bit, it's programming code, like I said . for those interested, it's called stack based, where you move the code one at a time as it's done and it provides some flexibility and again to Emily's question about why there was time blocking or sequence code Shim commands allow for some conditionality.

It seems like Nakamoto was trying to give some ability to condition a transaction on events, but not so much conditionality, so much flexibility that you would need an incomplete tour, so I would say he chose a Halfway, you could have created I I think you could have created Bitcoin and saying there was no scripting language, it was just going to be a direct instruction, moving this output or this input to another output created a little bit of computer code, but not much, that's what I think about economics and the market for this and next Tuesday and when we talk about smart contracts and I promise you that there is a reason for the madness of my talk about incomplete code and scripting is because next Tuesday we will be talking. on smart contracts where they are much more flexible, so this is a fundamental thing and you don't need to know anything more about computing than you want unless you go down that rabbit hole with Tom and spend more time reading.

There are four different types of script types. I got it, they're not actual script words, but you'll read about them from time to time and I just wanted to cover them for you. TXO remembers about 54 million transactions and there has been a good academic paper that I didn't assign that was written earlier this year that looked into the full 54 million or all of the unspent transactions and this is how it broke down the eighty-one percent of transactions that are sent to a hash of a Bitcoin address eight Nine years ago, when Satoshi created this, that was not the most popular instruction, but basically it sends an output to the hash, compression, commitment of a Bitcoin address , now we are up to eighteen percent, this did not exist, this did not exist. and four years ago actually, but eighteen percent was going to a conditional script, it's a hash of a conditional script, so someone was saying Emily, it wasn't even time, it's like you can only get it when all these other instructions that are in the programming language they happened and I'm going to hide the conditions in a hash and then only 0.7% or not, only 0.1% goes the way I first imagined nine years ago directly to an address of Bitcoin, so it's to a hash of a Bitcoin address or a conditional write hash and a little less than 1% are now going to multi-signature, which means you need two out of three or three out of five or believe it or not , this academic article shows that some say 0 out of 1 now it's hard to believe that Someone missed the thank you and we scheduled something to have 2-0 signatures but apparently someone did it.

I just wanted to give you the feeling that there is some flexibility in computer code, not a lot of flexibility, but enough so that you can do things that are really useful. and they're going to solve a lot of challenges for Bitcoin Hugo mentioned layer two, we'll talk about layer two later in the semester, where there's a whole way to put the technology on top of Bitcoin and it's because the scripting language is there that you can do that, any questions about the script. I know I'm trying to cover an important topic in, you know, one hundred and twenty seconds or less, so let's get back to the whole thing, which is just a review of what we've talked about. that little graph again, you know it's just a bunch of blocks, that's what a blockchain is, although today we realize that underneath the blocks we have another chain.

I find that I often think about two chains, blockchains, and in Bitcoin there are about half of them. a million blocks, but below are all the transactions that are in fact chained, fifty-four million of those results have not yet been spent and two hundred and ninety million have already been spent, but below about half a million blocks there have been 340 millions, you know, results, so to speak, creates a database. Bitcoin is a transaction database Next Tuesday we will talk about an account-based database in aetherium, but it could be a ledger that is transactions or a ledger that is balances, Satoshi Nakamoto decided.

To trade here somehow, I think it's because there were fewer attack vectors, probably a little more secure, but I'm not entirely sure and until you solve the Hoonah Satoshi Nakamoto riddle, we won't know the answer, of course. hash functions that we talked about and digital signatures and a consensus protocol, so I like to think of it in three groups, whether it's for a conversation at a dinner or to delve into three conferences, it's the cryptography itself that we did on Thursday last and if you have to remember something it's just two cryptographic primitives, hash functions and digital signatures, how many people think they have approximately what hash function is okay, so I lost half of you, is there anything I can do for the table Lauren?

I didn't see a single hand. come up then and Lauren, who are you reading your Facebook page or do you like to listen to the class? You have your computer open, what is your name? Matthew, well, maybe you weren't listening to the class. Thanks, how can I? help on what a hash function is my promise is to appeal to everyone no one at your table said you even roughly understood what a hash function is. I'm probably not trying to embarrass anyone. I'm trying to work. this to get Nicholas, so give me a baseline. Did you read any of the readings?

Maybe it's not right. Hash functions appeared decades ago to help make database administration easier. Sometimes called registration. It takes a large amount of data and reduces it, compressing it. boiling it down to maybe a series of numbers, I sometimes think of it as a zip code for information in Baltimore, Maryland. I'm in - one - oh well, I grew up in - what 208 my parents' subcode was, I won't say my In the current one we're being videotaped, so I think of it a little like that, so a hash function has nothing to do with it. See with Bitcoin, it came about to take a bunch of data and create a record, but through that it also became a way to do it. a commitment, yes, your name, yes, Dana, so what comes in is any data set today that could be an entire movie, could be a picture of everyone in this room initially it was primarily numerical data Alpha Mu Alpha, but because Because in computer technology all data can be divided into a series of registers of zeros or ones, I mean the computer literally started with the first ones that started with registers that were on or off if they were on guard, that a one if it was off, call it zero I I I'm not sure which way it goes, but I'm still looking at a lien, but all the data can be reduced to a series of zeros and ones and if you put four zeros and ones in front of each other two times two times two times two, two to the power of four is 16, suddenly you see that if you continue with two, you can get a lot of data, so let's go back to the data from your yes question when we talked last week about the New York Times crossword puzzle .

The York Times can, if you want, take your crossword solution and mix it up, and then Stephanie Stephanie likes doing the New York Times crossword puzzle and wants to know if you completed the New York Times crossword puzzle correctly, the New York Times you could say to your cell phone we're not really going to give you the answer, but we're going to give you the hash of the answer and then when you're done and press a button, your app could say if your answer correctly matches theirs, please, please . We are trying to learn here together, so in Bitcoin and blockchain, so they use hash functions in several important ways, everything you said was correct, but except for one thing when you said that it is only because they actually use hash functions in between of proof of work because the hash pointer points block three points to block, and there is hash, they use the hash function to compress a bunch of data, what I call the Merkel tree, but it takes 1500 or 2000 transactions and compress them in a hash, so they're mixing all these things together, it uses hash functions in the middle of the Bitcoin address, so the hash function is like electricity in the middle of everything, it's probably used in six or eight places and in some it's not used.

I do in none. way to know myself we need to understand Nikolas how we do it then we will get a little closer Lauren, shall we get a little closer? Yes, Matt, yes, email me. mit.edu is getting confused. I'm here like four days a week, okay? website again Ben, it's a bullet Brainwallet IL, the Google Brain Willis recommendation works and you can type text and you see in real time that it turns it into a point that addresses in the form of a letter like a capital letter or many other things. it changes in real time and it's just equipping any text on you with the possibility of existing and it turns it into a blockchain address and that's all I see as it translates the text into a.

We talked about network consensus, how to really agree on the state of information. no centralized authority, yes you don't have a central bank or a commercial bank or a Facebook or a parent unit, if you want us all to be on the playground solving it together somehow then you have to wait 10 minutes for the transaction to happen complete or is it like, for example, when we do vamo it is instantaneous. I can't, you need to look at everything. Anton's question is: does it mean I have to wait 10 minutes for Venmo and so many other internship payments?

They can work quickly. the answer for you is yes and that is one of the business challenges of blockchain as we know it in Bitcoin, there are certain approaches to that layer of technology on top of it called layer 2 or lightning network, we are not going to dive into the lightning. Network, but everyone should stick with Anton's question, it's the right question, if you all bring your critical thinking to this class about markets and business realities, a little bit about the law and a little bit about technology, that's what What we're trying to do is like oh well this really matters will it work?

Hugo's restraint is a bit not very good. Like, so if you do, if you know the person you're acting with, you can accept the transaction without confirmations as long as as it enters the men's pool and has a reasonable fee associated with it, it will eventually be included in a block and that's probably good enough, so what Hugo was saying is that another approach is to take the counterparty risk for Anton to inspect Anton's question. it means you have to wait 10 minutes the real technical answer is no you don't have to wait 10 minutes unless you want final settlement if you want finality no counterparty risk no trading risk hugo says well yes i am willing to take some counter risk economic or business counterparty that is in finance, it takes it all the time, so maybe you can do more in less than 10 minutes and in fact, even Starbucks, when it accepts your credit card, is taking a little bit of counterparty risk from the first data from the payment processing company or I don't want to say that it might not also be from Visa and the banks, but I will just say that the payment system has some counterparty risk because the final settlement in our payment system does not happen. in seconds, so the real answer.

Thanks Hugo, he cleaned me up again. They should do this all the time. Everyone should clean me up. The thing is that a final agreement may occur, so other solutions must be found, whether it be a commercial agreement with the counterparty. risk or other technical business agreement, it's time to disassociate without Minnie and the box being attached, so the shaman's point is that even in ten minutes his probability of finality is not complete because the block might not be the block included in the longest chain and many people have said that maybe you should wait three or six blocks.

I think the longest I'll ever use the term slightly orphaned chain has been five blocks. Log in to Bitcoin. What is the longest orphan? Twenty or more blocks due to some crazy things the miners were doing. they did it accidentally, okay, but that's it, there's still some probabilistic risk from Eva and then we'll move on to the bracket, so I don't have the graph above, but if you remember, there was the slide that showed the longest block. It was in black and had little purple blocks which is afork, there are some forks that end up being that both chains continued for a long time, they are called hard forks and there is something called Bitcoin and Bitcoin Cash has emerged from that in the way most Lane Aleem was using it, they are ruled out.

I'm sorry. Remember the first. The most important things we know we should know about the differences between Bitcoin mining technology and just making transactions like on the blockchain because I'm not sure. If there are some important differences that we need, what are the main differences? Very good wandering question. Aaron's question about what I need to know about mining. What do I need to know about transactions? Is it one of the same? I apologize, they overlap, but they are not the same, so think of a Venn diagram where we are very good. The essence of mining is to create an incentive structure where there is no central authority to validate and put in a new set of transactions or data.

Generally speaking, the data in the ledger is in the accepted state of what is reality, so mining helps with that, that is the whole process in essence, who decides the next block of data transactions that are included in the data, but it is not identical, mining is really critical. but it's not the only component in terms of transactions, so you have to think about that, well, there's something else that's happening, well, there have been 340 million of these on the Bitcoin network so far and it's already been used, it's been spent , do you have it? an appropriate digital signature if there is a time lock is there a condition?

There might even be a little script code that sets other conditions like there needs to be multiple signatures, if it's been spent twice, so I'd like that to be a very good question, there's a lot of overlap. One thing you can remember is that mining is about there have been half a million block transactions, there have been 340 million, so there must be something else in all those transactions that helped Kelly a little bit. One of the questions was what part of blockchain is new to Satoshi. It is the novelty and it brings everything together or it is a specific thing because he knows the document.

I talked about like the ledger and creating the incentive and then solving the whole problem of the Byzantine generals, but I don't really understand it, so Kelly's question, which is part of the study questions, is what makes the whole novel in Satoshi's role is it simply bringing everything together or is there something more. I'll give you a clue. I think there is something else. I think genius can be just putting things together that that in itself can be pure genius and an incentive structure within others. or answer Kelly's question, okay. I'm going to hold your question, Derek, just for a second, who will help me because it's central to the study questions.

Okay, proof of work novel, although I didn't add them back. part in Hashcash, so their application was novel, so that's where I come out, where I think the genius is putting it all together and using proof of work of atomic backups in a way that really addresses double spending. Madame Back wasn't dealing with a double spending problem, she had different challenges, it was spam, frankly, it didn't even work with the email app, specifically double spending, so now I think about Patrick Murk, could you answer it and how would you do it? This is someone who ran the Bitcoin foundation. but he's a lawyer, you know, when someone says what's different from everything else, the answer is the Nakamoto consensus and the Nakamoto consensus is the incentive structure that brings everything together and aligns everyone to create reports of reliable signatures for this database that you couldn't without having trusted or correctly identified those parties and that's something that hasn't really existed before and that's really novel, it's kind of a breakthrough that I think can be attributed to that document in particular.

I also use this as a way. Giving a clear definition of a walking chain, which is a very overused term as I'm sure you'll discover in the rest of this class, tells me that a blockchain is something born from the Nakamoto consensus on the correct blockchains while arguing about it. Paper has been around for decades, so it's not even a novel data structure, but using that to form isn't going to condense the right thing, it always comes back to that, anyway, maybe it's a longer elaboration, there we have it , now you know that you are in a class that has guest speakers.

I want to say on the guest speaker point and Derek, I know you have a question, but we have 12 minutes, so it will be next Tuesday. Larry Lessig, who sometimes floats into this class, agreed to be a guest. give me a lecture and let's do smart contracts and let me tell you a little bit about Larry. I mean, you see him here, he bikes in from Harvard, he's a constitutional scholar, he's a notable constitutional scholar, and, you know, he didn't become a full professor at Harvard, he was stolen from Stanford, in fact, where he was a full professor with too easily, but he's written, he's written extensively to anyone here who is a fan of the West Wing, the West Wing television series, so he's the only one or Do you know that Larry Lessig was on the West Wing?

You do well. Larry was in Christopher Lloyd played Larry Lessig in one episode, but you'll go back and find the episode and Larry has a funny story about watching the footage of but Larry is a constitutional scholar at Harvard, he worked for Justice Scalia on the Supreme Court , worked for Posner, proposed nur in Chicago, knows a lot about contracts, so I asked him if he would help teach smart contracts next Tuesday, so Larry Let's have mutton, Jeff, here next Tuesday, watch out, Patrick, You may be here one day. This is not a class. We will have many guest lectures later this semester.

I hope we stole the commit on Jeff Sprecher. who is the CEO of IntercontinentalExchange runs the New York Stock Exchange Jeff will probably join us one evening I think it's November 15th but I really want to stick with the content and so on Derek what's your question okay keep up good and then I just traded today remember that hash functions the New York Times we're a little bit we're in a little bit better place with Lauren's table now okay okay okay my goal is not to embarrass anyone I want to ask these questions my goal is to we all participate in this journey, you know that in some way we have some basis because it relates to understanding business reality and economics, we talk about timestamp and blocks, Merkel trees, which is not a deep part of this and Of course, digital signatures part of the reason I repeat this every time is because in politics, of course, I learned that repetition is a really important thing, but I also think it's true in academic settings and then in addresses of Bitcoin and that is just a cleanup of what it is not. identical to a public and then proof of work.

Getting back to the questions, the Nakamoto consensus is yes, all this and an incentive structure, but it's this proof of work and to Aaron's question, proof of work is a little different than the transactions we talked about, but there is a lot of overlap and then the native currency is created and I have corrected the slide at 21:40, of course the network is really fundamental and there are all these different actors in a network of 10,000 nodes. and all these light nodes and the miners and the mining pool operators and they all have their separate economies, so if anyone wants to come and get office hours, talk about those economies, please each other if you don't remember anything about the reading I've Now I read this article probably six times so it slowly goes through my head, but every time I read Clarke's article I say, wow, that really helps me because it's not like Satoshi Nakamoto just moves his fingers and there It was, there it was on the back. of a lot of cryptography, a lot of technology before, but this is the graph I turned to and sometimes it helps me.

There are timestamps, there is digital cache, there is proof of work and what these things might look like ten years from now. They will look back. at Nakamoto things will just be built on that foundation, that's the central question, that's what some of our colleagues are doing in the digital currency initiative or in the computer science lab, they say, can you develop this and take it to another level right now? You'll see throughout the semester that there aren't many large-scale applications of this technology, but it could be in a whole line of this, yeah, and I don't remember your veep name, yeah, yeah, it's important among a hundred people. we can have this in Aviva, you know, we could even have Aviva zippers: what is that Priya Oh Priya oh sorry, thanks for the applications of the hash function, so does the hash function actually replace the data?

So now I'm thinking about that. Everyone knows how to save data in the cloud, so can you save a hash function instead of your actual data and then be able to compress it and then a very good question. My summary, although others would probably be more expert. My summer is that you have a choice. you could do either, so let's take it on the blockchain instead of the cloud. You can choose to save only hashes on the blockchain and have the full image somewhere else. Let's say you were going to make a complete database of what a library is and therefore there are a hundred thousand books in the library, you could encrypt the hundred thousand books and then store the hashes on the blockchain and not the books itself, and that would form a blockchain of the commits to those books, or actually, I guess you could put up the books themselves. on the blockchain now I saw some shaking heads in the middle of the digital currency initiative, the way there is no, no, actually, you can share, you can store the hash that doesn't replace the data that storing the hash gives you.

It allows. prove you have the date but you can't think that just because it stores the hash doesn't mean there is only a two part question, you will never be able to get rid of the book, you shouldn't get rid of the book because hashes are one way you can't take the hash and recreate the book, you can't take the hash and recreate the New York Times crossword, but you don't need to store them in the same place and I was asking and that's it. thanks because it's two ports, the question is that you could store the hashes in the cloud and store the book somewhere else, but you still need to store the book, maybe that's it, so who is Satoshi Nakamoto?

We only have a handful of minutes, but can all the tables? We will take each table, it may take four minutes and between you you will decide who Satoshi Nakamoto is, so how do we do it? Who is your answer to Satoshi Nakamoto? Okay, so the first one is from several people, probably led by Hal Finney, how appropriate is H at last n ey, so table number two. is a government actor for us or for us, but it may not matter how we do here, Dorian Nakamoto, so are you going to continue with the Newsweek story, Priya's story about the name that is in front of your desk, are you?

Who are we? Where is that group of cryptopunks? a group of crypto punks and economists and how do you spell crypto punk although the cycler pumps out cypherpunks actually cypherpunks where we hear the NSA okay oh so incentives and capacity you think it's NSA MIT Oh there's a word for that, but I can't say that on the tape Kelly is still on aleene, what do we have here? Jiggy Nick has a Szabo who wrote the first article on smart contracts, so Aviva Nick is in my hash table, okay, who are you going to? Okay, so at another table you can say that. another table for Nick Szabo, you put another vote next to him here Craig Wright the Australian oh my goodness Oh, Patrick Burke's tables will be the last here what is this Bill Belichick Alan Greenspan Alan Greenspan now I know Alan, he is very talented, but I don't think I don't think Andrea would let him do this here, who do we have?

What is this Kenta that came to save me? You're saying you made it up, yeah this table Nick is a bow so another one for Nick is a bow anyone want to say? us why is the NSA Oh Oh Patrick Merck Sorry, what is this table? Yes, really, in every job description possible, so I think he was the worst person you could have and is capable of this and they were done nothing but a disservice. his first Oh Shi, but if he knew, he'd say he doesn't know Derek, who made your table, go get Craig, right, oh my gosh, let me ask this because it's just for fun, wait a minute, then someone said it was the NSA.

Do you want to say why? Because you would create this and Hugo would say that if it was the NSA it didn't work very well for him and those of you who said Craig was right, I heard some others in the room who said no. So who said right to Craig? What two tables did Craig say right? Why did you choose Isabella and Ben? Who did that? Then he says he didn't pass the test. He did not spend the first coins of 2009. Three tables chose Nick Szabo white. Why did you choose Nick Szabo at any of the three tables?

Because we are going to talk about them. Not at the next lecture, okay, look, this was a bit of fun and I thought it would be worth it.because the only person in the room who really knows who Satoshi Nakamoto is isn't going to tell us, but you're welcome back. anytime thanks I'll see you next Tuesday remember Larry Lessig is here so please do the readings please you know let's have a good time.