1. Moderator, Bitcoin Foundation Member Forums
Bitcoin: What is it?
Brad Wheeler
Moderator, Bitcoin Foundation Member Forums
February 18, 2014

2. Bitcoin in a nutshell What is Bitcoin?
A decentralized, peer to peer file sharing network
First widely distributed triple ledger accounting system, using a database known as the block chain
It’s a protocol - rules for validating transactions, commits to the block chain
It also describes a unit of account of the Bitcoin cryptocurrency, like “internet cash”
Bitcoin is NOT a physical token! The key on the sticker is analogous to a spending PIN.

3. Bitcoin’s Origins

5. Development History
The White Paper was published November, 2008 by Satoshi Nakamoto
An Open Source Project, with developer mailing list and github repositories
Satoshi remained a visible member of the community until December, 2010 before disappearing
Satoshi handed over development to Gavin Andresen, current lead developer
Core development team maintains the reference client Bitcoin-QT (GUI) / bitcoind
“Bitcoin: A Peer- to-Peer Electronic Cash System” @ bitcoin.org/bitcoin.pdf

6. Network Stats
The network was “started” January 3, 2009 with the Genesis Block
Bitcoin v0.1 was released January 9, 2009
Currently at version (Bitcoin-QT)
>286,000 – Ledger updates / Blocks Mined
12.4 million Bitcoins – 60% of total BTC that will ever be produced
“Bitcoin: 285 Bytes that Changed the james.lab6.com

7. Registered 501(c)6 organization (Trade Group)
Committed to standardizing, protecting, and promoting Bitcoin
Pay the salary of Gavin Andresen (Lead Core Dev) to work full time on Bitcoin
Grants to development projects
Interface with regulators
Education and Regulatory Affairs Committees
Annual membership is $25; Lifetime Membership is $250 – payable in Bitcoin

8. How Bitcoin Works
Slightly Technical

9. How it Works, Briefly Users connect to the Bitcoin Network
Client “wallet” (key management module) generates public/private key pairs based off of random number stream
Key pairs use Elliptic Curve Cryptography (ECDSA)
Public key is encoded into a character address string that can be shared to receive payments
Private key is used to spend coins by digitally signing transaction messages that reference specific deposits sent to it
Keypairs managed in
Bitcoin Wallet Software
2^160 possible addresses!
Cheap, expendable, easy to produce
“Bank Account Number”
“Signing Key”

10. Transaction Verification / “Mining”
Wallets send payments from one address to another by broadcasting a signed transaction to the network
Payment Instructions + Cryptographic Signature(Payment Instructions)
Easily checked by anyone
Transaction becomes “permanent” when it’s acknowledged in the ledger
The shared transaction ledger is known as the block chain
Consists of units called blocks
Blocks reference one or more transactions, including new bitcoins awarded to the miner (this is how the money supply is increased) – 1 block / 10 minutes, on average.
Each block contains a proof of work - difficult to produce; easy to check
Triple Entry Ledger:
1. Receipt of Payment msg.
2. Receipt of Entry into Ledger
Consensus:
Network settles on longest chain

11. Transaction Processing by Miners
Transaction verification consists of
Digital signature verification (no forgeries allowed)
Consult local copy of block chain to ensure inputs have sufficient balance (no overdrafts)
“Miners” perform this verification and build out the
block chain by publishing blocks with verified transactions
They compete in a process similar to Bingo
The result is distributed bookkeeping
Miners are rewarded with a coin payout and any transaction fees (built-in incentive)
Most transactions do not require a transaction fee!
Transaction fees suggested for:
large (size in kb) transactions
spending same coins quickly
sending small, precise amounts }
Handled automatically by most wallet software

12. The Heartbeat: Cryptographic Hashing
Block creation is algorithmic, based on SHA-256 hashing of input data
SHA256("The quick brown fox jumps over the lazy dog"):
d7a8fbb307d ca9abcb0082e4f8d5651e46d3cdb762d02d0bf37c9e592
SHA256("The quick brown fox jumps over the lazy dog."):
ef537f25c895bfa a9b63d97aa631564d5d789c2b765448c8635fb6c
The first miner to provide a valid 80-byte block hash (header) containing:
Hash of Previous Block Header (256 bits)
“Root hash” of tree of hashed transactions (256 bits)
Software Version (32 bits), Timestamp (32 bits), Target (32 bits)
Nonce (32 bits) – a random number
Awarded a set of Bitcoins (itself a transaction created by the Miner that gets hashed into the “root hash”)
To win: SHA256(SHA256(Ver+PrevBlock+MerkleRoot+Time+Target+ Nonce )) < Target
Target is a very small 256 bit number – i.e. many leading zeroes
Block Hashing Algorithm:

13. Reward and Money Supply
Network is Self-Regulating:
Blocks are mined 10 min. apart, on average
More hashing power  quicker blocks 
difficulty increases next period
Money Supply
-Based on Block Count
-21 Million Bitcoin Cap
-Deflation in prices
3.125 Bitcoins
6.25 Bitcoins
12.5 Bitcoins
2016
25 Bitcoins
2012
50 Bitcoins per block
2009
Halving Events
- Award halves every 210,000 Blocks ( ~4 Years at 10 min. / block)
-33 Projected “Halving Events”
-First Halving event was November 28, 2012
-“50 Bitcoin era” lasted 3 Years, 10 Months, 24 Days

14. How Bitcoin Is Used

15. Interesting Phenomena… Pushing Boundaries
Internet Gambling and Games of Chance
Satoshi Dice – provably fair internet dice game
Inputs of “dice roll” come from Hash of (Bitcoin Tx ID + Nonce);
Nonce published daily
Other casino games, including lotteries, poker, betting
Challenges Federal Unlawful Internet Gambling Enforcement Act of 2006
Bitcoin Denominated Securities / Equities
ASICMiner is a Chinese manufacturer and operator of Bitcoin Mining equipment.
Tradable directly or on stock exchange websites
Issues weekly dividends of mined bitcoins + hardware sales
Underground Marketplaces
Silk Road – A TOR hidden service which listed illicit products
Hosted bitcoin mixer
Featured escrow (funds released upon delivery), seller rating system, sellers had to purchase fidelity bond to gain entrance
Others (Atlantis, Black Flag, Sheep) closing in a “fly by night”, taking customer bitcoins

16. Potential Promises
Remittances and banking for the unbanked and “underbanked”
Payments across borders between networks established partners for nearly instant settlements
Digital wallets for the underbanked – Kipochi Wallet
Using the Block Chain as a General Purpose Ledger
Notarization and time-stamped proof of existence
Asset title registry, voting, IOUs, and virtual currencies can be registered in the ledger (colored coins)
Digital Contracts & Programmable Money Transfer beyond Simple Payments
Notarized contracts with verifiable inputs = predictable outputs
Humans do not need to hold the keys or send the payments.

17. Beyond Simple Payments: Examples
Multisignature Transactions
Escrow-like arrangements (bitrated.com)
Digital Wills (disbursement valid upon m-of-n combination of keys)
Bank-like security is acheivable!
Assurance Contracts (i.e. Kickstarter – conditional funding)
Pay funds upon sum of bitcoin inputs reaching a pre-set limit
Arbitrarily complex – additional verifiable conditions could be added as conditions for funding
Digital Contracts & Smart Property
Bind ownership/access of physical assets to provable payments
Locks that verify that a mortgage was paid – oh my!
Autonomous Agents / Decentralized Autonomous Corporations
When marketplaces for goods and services are denominated in BTC:
Computer program buys inputs (space, advertising) as necessary
First examples may be wifi and cloud storage services
Bitcoin could become the TCP/IP of Value Transfer – atomic and stackable

18. Speedbumps How unpredictable is price? Regulatory uncertainty!
Variability in legal treatment across jurisdictions
Trading Bitcoins for USD is considered money transmission by the US Treasury – requiring anti-money laundering processes
Money transmission has a complicated, state-based licensing framework
Bitcoin businesses predicted to move to “least onerous” home
Taxation!
Bitcoin gains would be difficult to tax in a world where the internet has traditionally been “tax free” zone.
May 2013 GAO report recommended newb-friendly tax guidance
No formal tax guidance from the IRS – yet.
Banking system
Traditionally risk averse when dealing with money services businesses
Businesses with “bitcoin” in title have been denied bank accounts
Floating exchange value is unpredictable over time, with critics questioning how it can be considered a currency at all!
How unpredictable is price?

19. Linear Scale Chart
Bitcoin/USD
MtGox Exchange
Log Scale Chart

20. Anonymity, Psuedonymity, Identity Management?
Frequently cited as “anonymous,” - however this is misleading!
It can be easy to self-identify or generate trackable patterns
All confirmed transactions are part of history
Any time bitcoins are transferred, old coins turn into new coins, linking addresses and relationships
Analysis possible with network graph tools
Satoshi Nakamoto (psuedonymous creator of Bitcoin) was an expert in identity management. He (she/they) would likely out himself today if any of the bitcoin associated with him were spent. Many speculate his keys were deliberately sacrificed/lost to limit exposure.

21. How to Acquire Bitcoin Buying from an exchange
Bank Transfer: Coinbase (ACH), Bitstamp (wire)
In person: LocalBitcoins (cash)
In/out of altcoins: Cryptsy
Selling Goods and Services for Bitcoins
r/bitcoinjobs (tech services)
Writing good content for tips
Reddit and Twitter tipping bots
Mine it yourself
Purchase an ASIC machine
Mine an altcoin, trade it for Bitcoin
Purchase a “cloud” mining contract

22. Places to Spend Bitcoin
Social Media / Digital
Goods/Services
Virgin Galactic
Cheapair
Namecheap
Local Businesses
Charity/ Non-Profit

23. How to Accept Bitcoins
Individuals: Set up a wallet (stay tuned later today) Share your address with others
Businesses:
Use a merchant services company to accept payments
Next Day Settlement in USD
Exchange Rate Stability
Can be cheaper than Credit Card payments!

24. Niche Coins and Metacoins
Thanks to an open codebase, Bitcoin has younger sisters and cousins
CoinMarketCap currently tracks 112 independent coin projects
Build (buy) your own at coingen.io !
Which one of you made bullcitycoin ??

25. Thank You
Go to bitcoin.org to learn more Join the Triangle Bitcoin Meetup meetup.com Subscribe to podcasts from the “Let’s Talk Bitcoin Network”