intro to bitcoin

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Bitcoin The world’s first decentralized digital currency Ron Gross [email protected] Adapted from slides by Meni Rosenfeld [email protected] 1

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Intro to Bitcoin on GDG March 2013 http://www.meetup.com/GDG-Tel-Aviv/events/107511362/

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2. Adoption (March 2013) Market capitalization: $500M Users: ~ 150-200K Bitcoin-accepting businesses: > 3000, including Wordpress.com Reddit.com Namecheap Donations: Wikileaks, Internet Archive, xkcd Academic research: WIS (Adi Shamir), Microsoft, Cornell, ETH Zurich Reports: FBI, European Central Bank 2 3. Bitcoin is a currency Facilitates the trade of one good for another Has all properties of a currency Does not need to have intrinsic value The value is determined by supply and demand3 4. Bitcoin is digital Ownership of bitcoins is digital information Typically used on the internet But not only (e.g. smartphones / physical bitcoins) Based on cryptography 4 5. Bitcoin is decentralized No company Bitcoin Ltd. No central issuer or controller Based on a public protocol A p2p network of nodes running open source software Multiple parties are each doing their own thing5 6. Bitcoin is the first! Plenty of physical currencies (commodities) Gold, silver, seashells, rocks Plenty of centralized digital currencies PayPal, WebMoney, e-gold, WoW gold, Second Life, Bitcoin is the first decentralized digital currency Invented in 2008 by Satoshi Nakamoto 6 7. How to use? Install one of the open-source clients Client generates addresses, which are like bank accountse.g. 1BBsbEq8Q29JpQr4jygjPof7F7uphqyUCQ To receive bitcoins, let the sender know your address To send bitcoins, specify receiving address and amount,and click send 7 8. Why? No need for 3rd party Easy to send and receive money Almost no fees No single point of failure 8 9. Why? Limited supply no arbitrary printing of money No chargebacks International Pseudonymous9 10. Numbers Max money supply = 21 million BTC Currently, 11 million Each bitcoin is currently worth roughly $45 Bitcoins can be specified with 8 decimal places 2.11015 atomic units (satoshis) 0.003 BTC per person alive today Monetary inflation rate is decaying exponent10 11. Inflation schedule 11 12. Historic price chartbitcoincharts.com12 13. How does Bitcoin work? 13 14. Public key cryptography Every user has a private key and a public key Public key is uniquely determined by the private key Virtually impossible to compute private key from public key Can be used for encryption and digital signatures14 15. Digital signatures User wants to send a message and prove that he wrote it Gets (message, private key) and computes a signature Recipient verifies the signature using the known public key Only the user who possesses the private key can sign Examples: RSA, ECDSA15 16. Hash functions Example: SHA-256 Transforms any data to a 256-bit number Any input change significantly alters the output Very hard to reverse The hash output behaves like a random function 16 17. Bitcoin system components A transaction structure for managing ownership A p2p network for propagating, verifying and storingtransaction data A proof-of-work system (hashing, mining) for: Synchronizing transactions Determining initial distribution of coins 17 18. Coins The fundamental building block of Bitcoin is a coin A coin is characterized by: Unique ID Quantity (denomination) arbitrary number with 8 decimal places Owner 6.3 2.418 19. Coins Coins can be split and merged If Alice wants to send bitcoins to Bob, she will merge someof her coins and split the result between her and Bob 6 22.58.51.5 719 20. Transactions The owner of a coin is identified by an address Each address is associated with a private key To send a coin, the owner signs a messagethis coin now belongs to address XYZ The process is is called a transaction20 21. Transaction structure Transaction Input #1Output ref.; signature Output #1 Receiving address; amount Input #2Output ref.; signature Output #2 Receiving address; amount Input #3Output ref.; signature 21 22. Transaction rules Inputs are unspent outputs of previous TX Total coins in $10,000-100,000 33 34. Questions? 34 35. Thank you Meni Rosenfeld [email protected] https://bitcoil.co.il 1DdrvajpK221W9dTzo5cLoxMnaxu859QN6 Ron Gross [email protected] http://ripper234.com/ 1dTGdZcckzX5cdjigZBzwFtuWmio2jtWa 35