1 bitcoin a digital currency. functions of money
TRANSCRIPT
1
BitcoinA Digital Currency
Functions of Money
Bank’s role● A financial institution
● Accepts deposits and lends money● Centralized system
● Offers financial services● Processes payments from two or more
commercial parties● Today deals with a lot of Electronic Payments
What is Bitcoin? ● A digital currency (or aka cryptocurrency)● Software-based payment system● The payment process acts between
(potentially) anonymous users● Based on peer-to-peer network● A lot of cryptography but nothing is
encrypted :-) ● Without………..
Who?
Satoshi Nakamotohttp://www.newsweek.com/2014/03/14/face-behind-bitcoin-247957.html
Let’s make a payment
• Alice:• retrieves the Bob’s address• generates own Public/Private key• builds a message with:
• Transaction of 1 BTC to Bob’s address• Transaction’s signature• Announces her public key for signature
verification• broadcasts the message to the Bitcoin network
Alice wants to give 1 BTC
to Bob
Why Public/Private key?
● Bob has the Alice’s public key● Only Alice knows the private key● Bob verifies the transaction signature using
the Alice’s public key
● Only Bob is authorized because has the private key
● Double-Spending problem?
Solve Double-Spending Problem
● Transaction details are sent and forwarded to all Bitcoin nodes
● A Block-Chain contains all transaction done● Each blocks into chains must be valid and
must include a proof-of-work
Network
Transaction x Bob
Bitcoin Address● A Bitcoin-balance is associated to the Bitcoin address● A Bitcoin Address is derived by a ECDSA Public Key by using
hash functions
512 bit ECDSA Public Key with
prefix
SHA-256 of Public Key with
prefix
RIPEM160 of SHA-256
output
Base58 Encoding (HASH
+ Checksu
m)
1422cPZaPRiqeWL8njn87NjLwgZxxmZmKp
Bitcoin Address
Bitcoin transaction● Composed by one/more Input and Output● Input(s) is a reference to an output(s) in a
different transaction● Uses Scripting system (Forth-like - stack
based) to verify signatures and addresses● Transaction can include fees
Bitcoin transaction
Bitcoin transaction is Signed
● The Transaction from B to C is signed with B’s private key
● The B’s public key is included in the transaction
Block Chain● A transaction databases shared by
all nodes (like a ledger)● Each block must contain a Proof-of-
Work● Contains a reference (hash) to the
previous block● Block chain avoids the double
spending
Transactions into block
Merkle Tree
Proof-of-Work
● To add a block to a Block Chain● Corresponds at time of computation● The time is spent computing hash function● The Proof-of-Work is builded when the hash’s
output has a specific property● A block with a Proof-of-Work each 10 minutes
about● The difficulty is established by a target
Miners
● The miners spends time to find a Proof-of-Work in order to receive a Bitcoin fee (now is 25 BTC)
● The reward reduces 50% every 4 years● The mining process will end when 21 million
bitcoins will be reached● After that time the miners will earns imposing
a transaction fee
Wallet software● Wallet software is used to generate address
and make transaction
ATM in the world