introduction to bitcoin

An introduction.

Itay Damti ([email protected])

mailto:[email protected]

Think about it for a second:

The internet is killing the world’s most powerful mediators, slowly but surely.

Yet it has barely touched finance.

Things we’ll squeeze into this talk.


• What is money?


• What is money?

• What makes Bitcoin a different kind of money?


• What is money?


•How does Bitcoin work? (micro + macro)


• What is money?


•How does Bitcoin work? (micro + macro)• Fresh numbers from the Bitcoin economy.


• What is money?


•How does Bitcoin work? (micro + macro)• Fresh numbers from the Bitcoin economy.• Why Bitcoin is so good, that it simply can’t fail.


• What is money?


•How does Bitcoin work? (micro + macro)• Fresh numbers from the Bitcoin economy.• Why Bitcoin is so good, that it simply can’t fail.• Why Bitcoin can fail.

Let’s talk about money first.


• Money is a medium to store and exchange economic value• Was invented to replace barter (inefficient)• Money can be exchanged for goods and services (including other money)• Historic examples: shells, boards, gold



• 7 things that a good currency must be:• Acceptable, Divisible, Durable, in limited supply, Portable, Uniform, Stable




• Value of a currency: balance between supply and demand




• Value of a currency: balance between supply and demand• Does money come with guarantee of value?





• Strong guarantee: intrinsic (Gold)





• Strong guarantee: intrinsic (Gold)• Medium guarantee: convertible into a resource with intrinsic value (old USD -> Gold)





• Strong guarantee: intrinsic (Gold)• Medium guarantee: convertible into a resource with intrinsic value (old USD -> Gold)• Low guarantee (“Fiat money”): USD, ILS, HKD, Bitcoin

Bitcoin is money.

Bitcoin is money.

• From the Washington Post:

Bitcoin is: an electronic cash system that allows online payments to be sent directly from one person to another without going through a financial institution (like a bank) or a third party (like PayPal).

• It has (almost) all the properties of a good currency.

But it’s a different kind of money.

http://youtu.be/Um63OQz3bjo


• Bitcoin has all the properties of a good currency, remember?



• Bitcoin has all the properties of a good currency, remember?• What makes it different?



• Bitcoin has all the properties of a good currency, remember?• What makes it different?• It’s completely digital (owning Bitcoin is cryptographic digital information).



• Bitcoin has all the properties of a good currency, remember?• What makes it different?• It’s completely digital (owning Bitcoin is cryptographic digital information).• It’s completely decentralized and not owned by anyone (company, country).



• Bitcoin has all the properties of a good currency, remember?• What makes it different?• It’s completely digital (owning Bitcoin is cryptographic digital information).• It’s completely decentralized and not owned by anyone (company, country).• It’s based on open sourced software and an open network.



• Bitcoin has all the properties of a good currency, remember?• What makes it different?• It’s completely digital (owning Bitcoin is cryptographic digital information).• It’s completely decentralized and not owned by anyone (company, country).• It’s based on open sourced software and an open network.• It was started by an anonymous entity (Satoshi Nakamoto, 2008)


Micro: how do you use Bitcoin?


• Install an open source wallet software (or choose an online wallet)


• Install an open source wallet software (or choose an online wallet)• The wallet will create:

• Your address: 13v8NB9ScRa21JDi86GmnZ5d8Z4CjhZMEd (31, base 58)

• Your private key: 5KJvsngHeMpm884wtkJNzQGaCErckhHJBGFsvd3VyK5qMZXj3hS (51, base 58)





• Receiving Bitcoin is like receiving email: just give your address to someone else.





• Receiving Bitcoin is like receiving email: just give your address to someone else.• Sending Bitcoin is like sending email: just put the recipient’s address,

choose amount and press “send”.





• Receiving Bitcoin is like receiving email: just give your address to someone else.• Sending Bitcoin is like sending email: just put the recipient’s address,

choose amount and press “send”.• How to buy Bitcoin in the first place?

Macro: Bitcoin in numbers.

http://www.reddit.com/r/Bitcoin/comments/1rqkqi/all_bitcoin_adresses_ever/


• BTCUSD rate: 557 USD



• BTCUSD rate: 557 USD• Total Bitcoins today: ~12.4M



• BTCUSD rate: 557 USD• Total Bitcoins today: ~12.4M• Market cap today: ~6.9 bn USD



• BTCUSD rate: 557 USD• Total Bitcoins today: ~12.4M• Market cap today: ~6.9 bn USD• Total active Bitcoins wallets (accounts): 2.5M~ (source: reddit)




• Bitcoin transactions daily: 50-70k (100-200k BTC, 50-100M USD)





• Businesses accepting Bitcoins globally: ~36k





• Businesses accepting Bitcoins globally: ~36k• You can divide 1 Bitcoin down to the level of 0.00000001 BTC





• Businesses accepting Bitcoins globally: ~36k• You can divide 1 Bitcoin down to the level of 0.00000001 BTC• $100M are expected to be invested in Bitcoin startups in 2014





• Businesses accepting Bitcoins globally: ~36k• You can divide 1 Bitcoin down to the level of 0.00000001 BTC• $100M are expected to be invested in Bitcoin startups in 2014• Biggest Bitcoin wallet (account) contains 144,000 BTC.

And it belongs to…


Macro: Digital & Decentralized explained.

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This is the global Bitcoin network.It’s distributed:


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This is the global Bitcoin network.It’s distributed:• There’s no Bitcoin inc.


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This is the global Bitcoin network.It’s distributed:• There’s no Bitcoin inc.• There are no servers that

approve transactions.


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approve transactions.• In fact, there are no servers at

all. All nodes are equal.


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all. All nodes are equal.• Every node holds the complete

state of the Bitcoin economy.

Let’s see it in action.

Address Balance (BTC)

1 100

2 200

3 300


1

2

3







1 100

2 200

3 300


1

2

3

Sender Receiver Amount Signature






1 2 10 1


1 100

2 200

3 300


1

2

3







1 2 10 1


1 100

2 200

3 300


1

2

3


1 100 90

2 200 210

3 300







1 2 10 1


1 100

2 200

3 300

2 3 10 2


1

2

3


1 100 90

2 200 210

3 300







1 2 10 1


1 100

2 200

3 300

2 3 10 2


1

2

3


1 100 90

2 200 210

3 300



1 90

2 210 200

3 300 310






1 2 10 1


1 100

2 200

3 300

2 3 10 2

3 2 30 3


1

2

3


1 100 90

2 200 210

3 300



1 90

2 210 200

3 300 310






1 2 10 1


1 100

2 200

3 300

2 3 10 2

3 2 30 3


1

2

3


1 100 90

2 200 210

3 300



1 90

2 210 200

3 300 310


1 90

2 200 230

3 310 280






1 2 10 1


1 100

2 200

3 300

2 3 10 2

3 2 30 3


1

2

3


1 100 90

2 200 210

3 300



1 90

2 210 200

3 300 310


1 90

2 200 230

3 310 280

10 MINS: CLEARING! 2







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3



1 90

2 255 (25 BONUS!)

3 280







1

2

3



1 90

2 255 (25 BONUS!)

3 280

WTF?What was that “clearing” message?


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2

3



1 90

2 255 (25 BONUS!)

3 280

WTF?What was that “clearing” message?• It happens every ~10 minutes.


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3



1 90

2 255 (25 BONUS!)

3 280

WTF?What was that “clearing” message?• It happens every ~10 minutes.• It’s called mining.


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2

3



1 90

2 255 (25 BONUS!)

3 280

WTF?What was that “clearing” message?• It happens every ~10 minutes.• It’s called mining.• It levels the network: it makes

everyone agree on one current picture.


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1 90

2 255 (25 BONUS!)

3 280



• The winner is random (proportional to your CPU power)


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1 90

2 255 (25 BONUS!)

3 280




• Expected production


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1 90

2 255 (25 BONUS!)

3 280




• Expected production• The state of mining [2] [3]

Bitcoin just can’t fail #1

“The big 5” trillion-dollar economies that don’t like Bitcoin:



1. Credit cards: Bitcoin has very low (close to zero) transaction fees (CC: min $0.2 + 2-3%)




2. Micropayments: Bitcoin is micropayments-ready.




2. Micropayments: Bitcoin is micropayments-ready.3. Banking & Financial Inclusion: half of the world

doesn’t have a bank account.





doesn’t have a bank account.4. Money remittance





doesn’t have a bank account.4. Money remittance5. Gold


• It’s anonymous (sort of). So you can do illegal shit with it.


• It’s anonymous (sort of). So you can do illegal shit with it.• It’s inflation free (21M BTC in circulation by 2140- that’s it).


• It’s anonymous (sort of). So you can do illegal shit with it.• It’s inflation free (21M BTC in circulation by 2140- that’s it).• It has no single point of failure (banking system, countries).


• It’s anonymous (sort of). So you can do illegal shit with it.• It’s inflation free (21M BTC in circulation by 2140- that’s it).• It has no single point of failure (banking system, countries).• It’s international (globalization-ready).


• It’s anonymous (sort of). So you can do illegal shit with it.• It’s inflation free (21M BTC in circulation by 2140- that’s it).• It has no single point of failure (banking system, countries).• It’s international (globalization-ready).• Chargebacks will be more rare (transactions are irreversible).


• It’s anonymous (sort of). So you can do illegal shit with it.• It’s inflation free (21M BTC in circulation by 2140- that’s it).• It has no single point of failure (banking system, countries).• It’s international (globalization-ready).• Chargebacks will be more rare (transactions are irreversible).• It publishes its entire history (easier to track/tax?)


• It’s anonymous (sort of). So you can do illegal shit with it.• It’s inflation free (21M BTC in circulation by 2140- that’s it).• It has no single point of failure (banking system, countries).• It’s international (globalization-ready).• Chargebacks will be more rare (transactions are irreversible).• It publishes its entire history (easier to track/tax?)• It’s innovation-ready (transparency & protocol)

Well, actually Bitcoin can fail.


• PKI cryptography could get hacked (very unlikely).


• PKI cryptography could get hacked (very unlikely).• Private keys could get hacked (quite likely).


• PKI cryptography could get hacked (very unlikely).• Private keys could get hacked (quite likely).• Countries and regulators.

• Can be used for illegal activity.• Affects taxing, consumer protection, AML laws.• Bitcoin is considered barter.




• Consumers & merchants.• Software is clumsy and hard to use.• Considered too risky, unstable or “just a Ponzi scheme”




• Consumers & merchants.• Software is clumsy and hard to use.• Considered too risky, unstable or “just a Ponzi scheme”

• Crazy volatility (BTCUSD rate) and high sensitivity.• Mt. Gox halts withdrawals• Apple takes blockchain.info wallet off the AppStore• Regulation talks

• We don’t know what we don’t know.

However:

The internet is killing the world’s most powerful mediators, slowly but surely.

I believe that cryptocurrencies will transform our economy in radical ways.

If it’s not Bitcoin, and not today, it will be another “cut the middleman” currency with the same properties, sometime in the future.*

* Yes. It’s part rational and part ideological.

Questions?

A (somewhat) decentralized discussion.

More info?

• BTC IL• Bitcoin.org• https://blockchain.info/

https://blockchain.info/

https://blockchain.info/

introduction to bitcoin

Technology

inefficient money

different kind of money

money historic examples

guarantee of value

good currency

bitcoin work

bitcoin economy

stable value