Batch 2 - Class 304 - Crypto Currency - Ethereum and beyond

• (Dudeney - 76) A man bought an odd lot of wine in barrels and one barrel containing beer. These are shown in the illustration, marked with the number of gallons that each barrel contained. He sold a quantity of the wine to one man and twice the quantity to another, but kept the beer to himself. Which barrel contained the beer?

• Answer: 20 gallons. This can be solve by trial and error. Or by noticing that the quantity of wine sold is a multiple of three, where as the digital root of sum of all barrels is 2. Hence the beer barrel must have a digital root of 2 + 0,3,6 i.e. 2, 5, or 8. That is only true of 20 gallon barrel.

• Salability - across target goods, across time, across space
• Permanence - what happens it its not? Then people want to spend quickly rather than saving. The medium of exchange should be able to hold value
• Stock to flow ratio - For value to be permanent, someone should not be able to product a lot of it easily (otherwise value drops) 
• Liquidity (not scarcity!)
• Uniformity - to ascribe value to each piece uniformly. 
• Granularity - ability to break into subparts, so that smaller transactions can take place
• Easy to carry and transport

• Chain of blocks; each block has transactions of who paid whom. Each transaction is signed by payer
• Miners take a bunch of transactions and code them into a block, which involves calculating hash functions. The miners are rewarded for that.
• In case of conflict, trust the longest (in terms of proof of work) chain
• Duplication of transactions is avoided by including a transaction id
• Each node can keep its copy of blockchain and keep adding to it as more validated blocks arrive
• See the actual blockchain here https://www.blockchain.com/btc/unconfirmed-transactions

• Ethereum is also a blockchain protocol that allows us to build any application on a distributed ledger. So not just currency, but anything. In order to do so, it defines a programming language that runs on Ethereum Virtual machine (just like java runs on JVM)
• Why? because now code can run in a trustless manner - no one can alter the code once it is defined, everyone can verify that the code is being run as per rules, its distributes and hence safe from failures, no one can hack it.
• Example: 

• How?
• The blocks in bitcoin store transactions (who paid whom how much). Similarly, transactions in Ethereum store messages that are sent from an account to another account. There accounts could be
• User accounts - normal bitcoin-style accounts controlled by private keys and balance
• Code accounts - have code, data, balance, but no private key (that is why no one can change them)
• So code blocks know what to do when a message is sent to them. If we store the message and then the end state (all memory associated with the code), then anyone can validate the execution of the transaction.
• The code itself can send money or message to another account, and that transaction will get recorded in the blockchain as well.
• Note that the entire code doesn't need to travel, the entire state data also doesn't need to travel - the "hash" of code and data are enough to validate.
• Whenever someone send a message, they also include a fee (called gas fee) for miners to execute and mine the transaction. There are interesting solutions based on economics to prevent infinite loops (halting problem) in code, which can potentially stall the entire system.
• State of all accounts sum totals to the state of the network
• Given that Ethereum is executing code, you want the "sync frequency" to be much higher - so blocks are committed about once in 12 seconds, unlike 10 minutes for bitcoin.
• Ethereum is also moving from proof of work to proof of stake to make it more efficient

• Ask students to come up with ideas on where they would prefer decentralized code - remember the basic properties of trustless and immutability.
• Domain naming system - Namecoin - hacking free
• Decentralized file system
• Crop insurance - weather data can be used as input - need credibility of data
• Decentralized Autonomous Organizations (DAO)
• Voting
•  Prediction markets - use of SchellingCoin

• NFT are non-fungible - as against bitcoin which is fungible. Fungible means mutually interchangeable. So NFTs are unique
• It is a signed digital artifact. That's it. The signature makes it unique. Just like you had art - even though people could make replicas, that original held its value
• What are the things that students would attach value to because it is non-fungible? Non-fungible things can have much more value than fungible ones.
• Since we need properties like trustlessness and immutability to such unique ownership (especially when physical possession is broad) we can use blockchains to implement this. NFTs are also provably scarce and indivisible.
• Additionally, NFTs are designed to pay royalty - the original creator can continue to get paid on each exchange of NFT - this creates an incentive for creators to use NFTs
• Applications of NFT
• Collectibles
• "Play to earn" Gaming - in-game assets can be fungible (like gold) or non-fungible (swords, shields, armor etc) - NFTs would allow you to use these assets across games
• If you are not good at playing games, but have money to buy these NFTs, you can buy these and "rent" them out to good player for a share of profit
• Domain names

• A clown was juggling five equal triangular pieces of cardboard, each a right-angled triangle with 1 inch base and 2 inch height. He then proceeded to cut one of them, and claimed that he could make a perfect square by reassembling the 6 pieces. Can you do the same?
• Answer: