Bitcoin 101

JayWSalon 05/16/2014 Tianfang Guo http://www.flickr.com/photos/31119160@N06/8007585111/

If you don’t know what is Bitcoin…

§  Like cash, but based on Internet § Pros & cons of cash?

§  ”Decentralized” § Bitcoin network

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Pros: Technical Superiority

§  No unpredictable inflation by ”printing more money” by political decision.

§  Transactions with Internet speed § Low delay, 0 cost

§  Highly anonymous, in certain conditions § Every transaction is public, though!

§  Unbreakable: guranteed by mathmatics §  Non-reversible §  Open source

§ Tools / Apps based on the infrastructure.

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Problem, IRS?

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Cons

§  Slowness: trusted transaction takes 10+min

§  High volatility. § Still in its early stage

§  Once stolen, no finding back § Double-edged sword

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Bitcoin 101: How it works

§  Wallet

§  Transaction

§  Bitcoin Network

§  Mining

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Wallet

§  Every ”account” consists of the public key (= bitcoin address) and the private key.

§  No real-identity needed. Register freely §  Anyone who knows your public key, can send

you bitcoins. §  To spend bitcoins, you have to know the private

key. § The transaction is broadcasted to the bitcoin

network. § The miners confirm the transactions

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Wallet (cont)

§  An example of a bitcoin address: § 1E7FaC7fX35P4n7cDmvzYLEb46KCAnmsir § 2160 (about 1048) possible addresses

§  The corresponding private key: § 5HuEupX3DNFJ7UypjFtXDTm4BVuAwZtAgYf9

4sMALPyakgafVnU § 256 bits (1077 key space)

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Transaction

§  Boardcast to entire network, randomly choose node

§  For small payments or with payments with trusted peer, 0 confirmations is usually ok.

§  For large amounts, 6 confirmations is considered safe.

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Bitcoin network

§  What’s transferring inside the network? § Bitcoin transaction records

§  Each full node (= computer running the bitcoin program) in the network has a copy of all transaction records (20GB as for today)

§  About 7000 nodes today (From 10000 in Mar)

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BTC network: Double spend elimination

§  Centrallized system vs Decentralized system: eliminating a double spend fraud is a key problem

§  The main innovation in bitcoin is the blockchain. §  “Byzantine problem”: Deal with liars

§  Disrupting the system would need enormous computing power.

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Mining

§  The incentive of generating blockchain

§  Collecte all transactions in a block. A new block is mined in about every 10 minutes.

§  10,500,000 will be mined in the first 4 years. Will be cut by half every 4 years

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Bitcoin Start-ups

JayWSalon 05/16/2014 Tianfang Guo http://www.flickr.com/photos/31119160@N06/8007585111/

§  Coinbase §  ”BTC Bank” § Directly connect to US bank account: Fast

purchase & withdraw § Slow on trading (4 business days)

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§  Bitstamp & BTC-E & Huobi § Fast Trading § Slow on withdraw & deposit (international bank) § Trading fees & withdraw fees

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§  Bitpay § Merchant Service for Bitcoin

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§  Ripple §  ”SWIFT 2.0” § Give all money an ”Internet speed”. Free

transaction cross account and currency

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§  XAPO § Cold Storage

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§  Coinify

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