Ethereum state transition function
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- Summary of Economic Analysis of EIP-1559
- Why am I sharing my travel stories?
- End-to-End Formal Verification of Ethereum 2.0 Deposit Smart Contract
- Ethereum Whitepaper | ethereum.org
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- Transaction Execution - Ethereum Yellow Paper Walkthrough (4/7)
- Code For Ethereum’s Proof-of-Stake Blockchain to Be Finalized Next Month
- Stateless Clients: The Concept Behind
Summary of Economic Analysis of EIP-1559
The intent of ETHEREUM is to create an alternative protocol for building decentralized applications, providing a different set of tradeoffs that we believe will be very useful for a large class of decentralized applications, with particular emphasis on situations where rapid development time, security for small and rarely used applications, and the ability of different applications to very efficiently interact, are important.
ETHEREUM does this by building what is essentially the ultimate abstract foundational layer: a blockchain with a built-in Turing-complete programming language, allowing anyone to write smart contracts and decentralized applications where they can create their own arbitrary rules for ownership, transaction formats and state transition functions. A bare-bones version of Namecoin can be written in two lines of code, and other protocols like currencies and reputation systems can be built in under twenty.
Smart contracts, cryptographic "boxes" that contain value and only unlock it if certain conditions are met, can also be built on top of the platform, with vastly more power than that offered by Bitcoin scripting because of the added powers of Turing-completeness, value-awareness, blockchain-awareness and state. Satoshi Nakamoto's development of Bitcoin in has often been hailed as a radical development in money and currency, being the first example of a digital asset which simultaneously has no backing or "intrinsic value" and no centralized issuer or controller.
However, another, arguably more important, part of the Bitcoin experiment is the underlying blockchain technology as a tool of distributed consensus, and attention is rapidly starting to shift to this other aspect of Bitcoin. Commonly cited alternative applications of blockchain technology include using on-blockchain digital assets to represent custom currencies and financial instruments "colored coins" , the ownership of an underlying physical device "smart property" , non-fungible assets such as domain names "Namecoin" , as well as more complex applications involving having digital assets being directly controlled by a piece of code implementing arbitrary rules "smart contracts" or even blockchain-based "decentralized autonomous organizations" DAOs.
What ETHEREUM intends to provide is a blockchain with a built-in fully fledged Turing-complete programming language that can be used to create "contracts" that can be used to encode arbitrary state transition functions, allowing users to create any of the systems described above, as well as many others that we have not yet imagined, simply by writing up the logic in a few lines of code.
The concept of decentralized digital currency, as well as alternative applications like property registries, has been around for decades. The anonymous e-cash protocols of the s and the s were mostly reliant on a cryptographic primitive known as Chaumian Blinding.
Chaumian Blinding provided these new currencies with high degrees of privacy, but their underlying protocols largely failed to gain traction because of their reliance on a centralized intermediary. In , Wei Dai's b-money became the first proposal to introduce the idea of creating money through solving computational puzzles as well as decentralized consensus, but the proposal was scant on details as to how decentralized consensus could actually be implemented.
In , Hal Finney introduced a concept of "reusable proofs of work", a system which uses ideas from b-money together with Adam Back's computationally difficult Hashcash puzzles to create a concept for a cryptocurrency, but once again fell short of the ideal by relying on trusted computing as a backend. In , a decentralized currency was for the first time implemented in practice by Satoshi Nakamoto, combining established primitives for managing ownership through public key cryptography with a consensus algorithm for keeping track of who owns coins, known as "proof of work.
The mechanism behind proof of work was a breakthrough because it simultaneously solved two problems. First, it provided a simple and moderately effective consensus algorithm, allowing nodes in the network to collectively agree on a set of updates to the state of the Bitcoin ledger. Second, it provided a mechanism for allowing free entry into the consensus process, solving the political problem of deciding who gets to influence the consensus, while simultaneously preventing Sybil attacks.
It does this by substituting a formal barrier to participation, such as the requirement to be registered as a unique entity on a particular list, with an economic barrier - the weight of a single node in the consensus voting process is directly proportional to the computing power that the node brings. Since then, an alternative approach has been proposed called proof of stake, calculating the weight of a node as being proportional to its currency holdings and not its computational resources.
The discussion concerning the relative merits of the two approaches is beyond the scope of this paper but it should be noted that both approaches can be used to serve as the backbone of a cryptocurrency. From a technical standpoint, the ledger of a cryptocurrency such as Bitcoin can be thought of as a state transition system, where there is a "state" consisting of the ownership status of all existing bitcoins and a "state transition function" that takes a state and a transaction and outputs a new state which is the result.
The "state" in Bitcoin is the collection of all coins technically, "unspent transaction outputs" or UTXO that have been minted and not yet spent, with each UTXO having a denomination and an owner defined by a byte address which is essentially a cryptographic public key. A transaction contains one or more inputs, with each input containing a reference to an existing UTXO and a cryptographic signature produced by the private key associated with the owner's address, and one or more outputs, with each output containing a new UTXO for addition to the state.
If the provided signature does not match the owner of the UTXO, return an error. The first half of the first step prevents transaction senders from spending coins that do not exist, the second half of the first step prevents transaction senders from spending other people's coins, and the second step enforces conservation of value.
In order to use this for payment, the protocol is as follows. Suppose Alice wants to send Realistically, Alice will not be able to get exactly She then creates a transaction with those three inputs and two outputs. The first output will be If Alice does not claim this change by sending it to an address owned by herself, the miner will be able to claim it. If we had access to a trustworthy centralized service, this system would be trivial to implement; it could be coded exactly as described, using a centralized server's hard drive to keep track of the state.
However, with Bitcoin we are trying to build a decentralized currency system, so we will need to combine the state transition system with a consensus system in order to ensure that everyone agrees on the order of transactions. Bitcoin's decentralized consensus process requires nodes in the network to continuously attempt to produce packages of transactions called "blocks".
The network is intended to create one block approximately every ten minutes, with each block containing a timestamp, a nonce, a reference to i. Over time, this creates a persistent, ever-growing, "blockchain" that continually updates to represent the latest state of the Bitcoin ledger.
The algorithm for checking if a block is valid, expressed in this paradigm, is as follows:. Check if the previous block referenced by the block exists and is valid. Check that the timestamp of the block is greater than that of the previous block and less than 2 hours into the future. Suppose TX is the block's transaction list with n transactions. For all i in Return true, and register S[n] as the state at the end of this block.
Essentially, each transaction in the block must provide a valid state transition from what was the canonical state before the transaction was executed to some new state. Note that the state is not encoded in the block in any way; it is purely an abstraction to be remembered by the validating node and can only be securely computed for any block by starting from the genesis state and sequentially applying every transaction in every block.
Additionally, note that the order in which the miner includes transactions into the block matters; if there are two transactions A and B in a block such that B spends a UTXO created by A, then the block will be valid if A comes before B but not otherwise.
The one validity condition present in the above list that is not found in other systems is the requirement for "proof of work". The purpose of this is to make block creation computationally "hard", thereby preventing Sybil attackers from remaking the entire blockchain in their favor.
Because SHA is designed to be a completely unpredictable pseudorandom function, the only way to create a valid block is simply trial and error, repeatedly incrementing the nonce and seeing if the new hash matches.
In order to compensate miners for this computational work, the miner of every block is entitled to include a transaction giving themselves 25 BTC out of nowhere.
Additionally, if any transaction has a higher total denomination in its inputs than in its outputs, the difference also goes to the miner as a "transaction fee". Incidentally, this is also the only mechanism by which BTC are issued; the genesis state contained no coins at all. In order to better understand the purpose of mining, let us examine what happens in the event of a malicious attacker.
Since Bitcoin's underlying cryptography is known to be secure, the attacker will target the one part of the Bitcoin system that is not protected by cryptography directly: the order of transactions.
The attacker's strategy is simple:. Send BTC to a merchant in exchange for some product preferably a rapid-delivery digital good. Produce another transaction sending the same BTC to himself. Try to convince the network that his transaction to himself was the one that came first. Once step 1 has taken place, after a few minutes some miner will include the transaction in a block, say block number After about one hour, five more blocks will have been added to the chain after that block, with each of those blocks indirectly pointing to the transaction and thus "confirming" it.
At this point, the merchant will accept the payment as finalized and deliver the product; since we are assuming this is a digital good, delivery is instant. Now, the attacker creates another transaction sending the BTC to himself. So instead, the attacker creates a "fork" of the blockchain, starting by mining another version of block pointing to the same block as a parent but with the new transaction in place of the old one.
Because the block data is different, this requires redoing the proof of work. Furthermore, the attacker's new version of block has a different hash, so the original blocks to do not "point" to it; thus, the original chain and the attacker's new chain are completely separate. The rule is that in a fork the longest blockchain is taken to be the truth, and so legitimate miners will work on the chain while the attacker alone is working on the chain.
An important scalability feature of Bitcoin is that the block is stored in a multi-level data structure. The "hash" of a block is actually only the hash of the block header, a roughly byte piece of data that contains the timestamp, nonce, previous block hash and the root hash of a data structure called the Merkle tree storing all transactions in the block.
A Merkle tree is a type of binary tree, composed of a set of nodes with a large number of leaf nodes at the bottom of the tree containing the underlying data, a set of intermediate nodes where each node is the hash of its two children, and finally a single root node, also formed from the hash of its two children, representing the "top" of the tree.
The purpose of the Merkle tree is to allow the data in a block to be delivered piecemeal: a node can download only the header of a block from one source, the small part of the tree relevant to them from another source, and still be assured that all of the data is correct. The reason why this works is that hashes propagate upward: if a malicious user attempts to swap in a fake transaction into the bottom of a Merkle tree, this change will cause a change in the node above, and then a change in the node above that, finally changing the root of the tree and therefore the hash of the block, causing the protocol to register it as a completely different block almost certainly with an invalid proof of work.
The Merkle tree protocol is arguably essential to long-term sustainability. A "full node" in the Bitcoin network, one that stores and processes the entirety of every block, takes up about 15 GB of disk space in the Bitcoin network as of April , and is growing by over a gigabyte per month.
Currently, this is viable for some desktop computers and not phones, and later on in the future only businesses and hobbyists will be able to participate.
A protocol known as "simplified payment verification" SPV allows for another class of nodes to exist, called "light nodes", which download the block headers, verify the proof of work on the block headers, and then download only the "branches" associated with transactions that are relevant to them. This allows light nodes to determine with a strong guarantee of security what the status of any Bitcoin transaction, and their current balance, is while downloading only a very small portion of the entire blockchain.
The idea of taking the underlying blockchain idea and applying it to other concepts also has a long history. In , Nick Szabo came out with the concept of "secure property titles with owner authority", a document describing how "new advances in replicated database technology" will allow for a blockchain-based system for storing a registry of who owns what land, creating an elaborate framework including concepts such as homesteading, adverse possession and Georgian land tax.
However, there was unfortunately no effective replicated database system available at the time, and so the protocol was never implemented in practice. After , however, once Bitcoin's decentralized consensus was developed a number of alternative applications rapidly began to emerge.
Namecoin - created in , Namecoin is best described as a decentralized name registration database. Ideally, one would like to be able to have an account with a name like "george". However, the problem is that if one person can create an account named "george" then someone else can use the same process to register "george" for themselves as well and impersonate them. The only solution is a first-to-file paradigm, where the first registerer succeeds and the second fails - a problem perfectly suited for the Bitcoin consensus protocol.
Namecoin is the oldest, and most successful, implementation of a name registration system using such an idea. Colored coins - the purpose of colored coins is to serve as a protocol to allow people to create their own digital currencies - or, in the important trivial case of a currency with one unit, digital tokens, on the Bitcoin blockchain. In the colored coins protocol, one "issues" a new currency by publicly assigning a color to a specific Bitcoin UTXO, and the protocol recursively defines the color of other UTXO to be the same as the color of the inputs that the transaction creating them spent some special rules apply in the case of mixed-color inputs.
This allows users to maintain wallets containing only UTXO of a specific color and send them around much like regular bitcoins, backtracking through the blockchain to determine the color of any UTXO that they receive.
Metacoins - the idea behind a metacoin is to have a protocol that lives on top of Bitcoin, using Bitcoin transactions to store metacoin transactions but having a different state transition function, APPLY'. This provides an easy mechanism for creating an arbitrary cryptocurrency protocol, potentially with advanced features that cannot be implemented inside of Bitcoin itself, but with a very low development cost since the complexities of mining and networking are already handled by the Bitcoin protocol.
Metacoins have been used to implement some classes of financial contracts, name registration and decentralized exchange. Thus, in general, there are two approaches toward building a consensus protocol: building an independent network, and building a protocol on top of Bitcoin.
The former approach, while reasonably successful in the case of applications like Namecoin, is difficult to implement; each individual implementation needs to bootstrap an independent blockchain, as well as building and testing all of the necessary state transition and networking code. Additionally, we predict that the set of applications for decentralized consensus technology will follow a power law distribution where the vast majority of applications would be too small to warrant their own blockchain, and we note that there exist large classes of decentralized applications, particularly decentralized autonomous organizations, that need to interact with each other.
The Bitcoin-based approach, on the other hand, has the flaw that it does not inherit the simplified payment verification features of Bitcoin. SPV works for Bitcoin because it can use blockchain depth as a proxy for validity; at some point, once the ancestors of a transaction go far enough back, it is safe to say that they were legitimately part of the state.
Blockchain-based meta-protocols, on the other hand, cannot force the blockchain not to include transactions that are not valid within the context of their own protocols. Hence, a fully secure SPV meta-protocol implementation would need to backward scan all the way to the beginning of the Bitcoin blockchain to determine whether or not certain transactions are valid. Currently, all "light" implementations of Bitcoin-based meta-protocols rely on a trusted server to provide the data, arguably a highly suboptimal result especially when one of the primary purposes of a cryptocurrency is to eliminate the need for trust.
Even without any extensions, the Bitcoin protocol actually does facilitate a weak version of a concept of "smart contracts".
Why am I sharing my travel stories?
Web developer who believes in power of communities and is passionate about community building. Developer evangelist QuickNode. We'll send you the latest tech and tutorials via our weekly Web3 Vibes newsletter. Ethereum is a very lovely blockchain to work with, but recently, heavy traffic and many people building on it have resulted in the chain being a bit congested. Layer 2 solutions solve this issue by extending Ethereum's scalability.
End-to-End Formal Verification of Ethereum 2.0 Deposit Smart Contract
In this post, we start looking into how the Ethereum platform executes transactions. We will learn transaction validity rules and why they exist. After that, we will deep-dive into transaction execution and understand the steps taken by nodes while processing a transaction. This post is the fourth in the series Ethereum Yellow Paper Walkthrough. The goal of this series is to demystify the concepts in the paper, making it accessible to a broader audience. If you missed the previous posts, here they are! Along with the series, we talked about how Ethereum works as a distributed computer. We also talked about how a user interacts with this machine sending transactions to the system and paying the associated cost of these transactions.
Ethereum Whitepaper | ethereum.org
Try out PMC Labs and tell us what you think. Learn More. We report our experience in the formal verification of the deposit smart contract, whose correctness is critical for the security of Ethereum 2. The deposit contract implements an incremental Merkle tree algorithm whose correctness is highly nontrivial, and had not been proved before.
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However, different smart contract platforms gaining popularity are discussed below as well. Their function intricately relate to every part of the Web 3. Smart contracts can be defined as a set of promises specified in digital form and trustlessly executed without the need of an intermediary difficulties of this realization are discussed below. The rise of smart contracts, allowed for two critical innovations in the blockchain space. First, through token standards especially ERC20 they allowed for the relatively easy creation and distribution of tokens. Consequently, this created the environment necessary for many projects to spur demand for their easily minted tokens mainly through adding claiming to add many unique functions and capabilities to their projects.
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Stateless Clients: The Concept Behind
You can exchange Bitcoin or Ethereum for cash through an independent third-party exchange platform and make a payment through ACH debit transfer. In this section, we will show how easy it is to create a completely blind auction contract on Ethereum. Blocks are added to the chain in rather regular intervals - for Ethereum this is roughly every 17 seconds. Masterworks will only accept cash in the form of ACH debit transfer as payment in instances where investors choose to exchange Bitcoin or Ethereum for cash to pay for their shares. Creating the signature Alice does not need to interact with the Ethereum network to sign the transaction, the process is completely offline. Open Split View Share.
The intent of ETHEREUM is to create an alternative protocol for building decentralized applications, providing a different set of tradeoffs that we believe will be very useful for a large class of decentralized applications, with particular emphasis on situations where rapid development time, security for small and rarely used applications, and the ability of different applications to very efficiently interact, are important. ETHEREUM does this by building what is essentially the ultimate abstract foundational layer: a blockchain with a built-in Turing-complete programming language, allowing anyone to write smart contracts and decentralized applications where they can create their own arbitrary rules for ownership, transaction formats and state transition functions. A bare-bones version of Namecoin can be written in two lines of code, and other protocols like currencies and reputation systems can be built in under twenty. Smart contracts, cryptographic "boxes" that contain value and only unlock it if certain conditions are met, can also be built on top of the platform, with vastly more power than that offered by Bitcoin scripting because of the added powers of Turing-completeness, value-awareness, blockchain-awareness and state. Satoshi Nakamoto's development of Bitcoin in has often been hailed as a radical development in money and currency, being the first example of a digital asset which simultaneously has no backing or "intrinsic value" and no centralized issuer or controller. However, another, arguably more important, part of the Bitcoin experiment is the underlying blockchain technology as a tool of distributed consensus, and attention is rapidly starting to shift to this other aspect of Bitcoin. Commonly cited alternative applications of blockchain technology include using on-blockchain digital assets to represent custom currencies and financial instruments "colored coins" , the ownership of an underlying physical device "smart property" , non-fungible assets such as domain names "Namecoin" , as well as more complex applications involving having digital assets being directly controlled by a piece of code implementing arbitrary rules "smart contracts" or even blockchain-based "decentralized autonomous organizations" DAOs.
Bitcoin took the world by surprise in the year and popularized the idea of decentralized secure monetary transactions. The concepts behind it, however, can be extended to much more than just digital currencies. Ethereum attempts to do that, marrying the power of decentralized transactions with a Turing-complete contract system. In this post we will take a closer look at how Ethereum works and what makes it different from Bitcoin and other blockchains.