Presentation on theme: "Moderator, Bitcoin Foundation Member Forums"— Presentation transcript:
1 Moderator, Bitcoin Foundation Member Forums Bitcoin: What is it?Brad WheelerModerator, Bitcoin Foundation Member ForumsFebruary 18, 2014
2 Bitcoin in a nutshell What is Bitcoin? A decentralized, peer to peer file sharing networkFirst widely distributed triple ledger accounting system, using a database known as the block chainIt’s a protocol - rules for validating transactions, commits to the block chainIt 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.
5 Development HistoryThe White Paper was published November, 2008 by Satoshi NakamotoAn Open Source Project, with developer mailing list and github repositoriesSatoshi remained a visible member of the community until December, 2010 before disappearingSatoshi handed over development to Gavin Andresen, current lead developerCore development team maintains the reference client Bitcoin-QT (GUI) / bitcoind“Bitcoin: A Peer- to-Peer Electronic Cash System” @ bitcoin.org/bitcoin.pdf
6 Network StatsThe network was “started” January 3, 2009 with the Genesis BlockBitcoin v0.1 was released January 9, 2009Currently at version (Bitcoin-QT)>286,000 – Ledger updates / Blocks Mined12.4 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 BitcoinPay the salary of Gavin Andresen (Lead Core Dev) to work full time on BitcoinGrants to development projectsInterface with regulatorsEducation and Regulatory Affairs CommitteesAnnual membership is $25; Lifetime Membership is $250 – payable in Bitcoin
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 streamKey pairs use Elliptic Curve Cryptography (ECDSA)Public key is encoded into a character address string that can be shared to receive paymentsPrivate key is used to spend coins by digitally signing transaction messages that reference specific deposits sent to itKeypairs managed inBitcoin Wallet Software2^160 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 networkPayment Instructions + Cryptographic Signature(Payment Instructions)Easily checked by anyoneTransaction becomes “permanent” when it’s acknowledged in the ledgerThe shared transaction ledger is known as the block chainConsists of units called blocksBlocks 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 checkTriple Entry Ledger:1. Receipt of Payment msg.2. Receipt of Entry into LedgerConsensus:Network settles on longest chain
11 Transaction Processing by Miners Transaction verification consists ofDigital 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 theblock chain by publishing blocks with verified transactionsThey compete in a process similar to BingoThe result is distributed bookkeepingMiners 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) transactionsspending same coins quicklysending 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 dataSHA256("The quick brown fox jumps over the lazy dog"):d7a8fbb307d ca9abcb0082e4f8d5651e46d3cdb762d02d0bf37c9e592SHA256("The quick brown fox jumps over the lazy dog."):ef537f25c895bfa a9b63d97aa631564d5d789c2b765448c8635fb6cThe 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 numberAwarded 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 )) < TargetTarget is a very small 256 bit number – i.e. many leading zeroesBlock Hashing Algorithm: https://en.bitcoin.it/wiki/Block_hashing_algorithm
13 Reward and Money Supply Network is Self-Regulating:Blocks are mined 10 min. apart, on averageMore hashing power quicker blocks difficulty increases next periodMoney Supply-Based on Block Count-21 Million Bitcoin Cap-Deflation in prices3.125 Bitcoins6.25 Bitcoins12.5 Bitcoins201625 Bitcoins201250 Bitcoins per block2009Halving 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
15 Interesting Phenomena… Pushing Boundaries Internet Gambling and Games of ChanceSatoshi Dice – provably fair internet dice gameInputs of “dice roll” come from Hash of (Bitcoin Tx ID + Nonce);Nonce published dailyOther casino games, including lotteries, poker, bettingChallenges Federal Unlawful Internet Gambling Enforcement Act of 2006Bitcoin Denominated Securities / EquitiesASICMiner is a Chinese manufacturer and operator of Bitcoin Mining equipment.Tradable directly or on stock exchange websitesIssues weekly dividends of mined bitcoins + hardware salesUnderground MarketplacesSilk Road – A TOR hidden service which listed illicit productsHosted bitcoin mixerFeatured escrow (funds released upon delivery), seller rating system, sellers had to purchase fidelity bond to gain entranceOthers (Atlantis, Black Flag, Sheep) closing in a “fly by night”, taking customer bitcoins
16 Potential PromisesRemittances and banking for the unbanked and “underbanked”Payments across borders between networks established partners for nearly instant settlementsDigital wallets for the underbanked – Kipochi WalletUsing the Block Chain as a General Purpose LedgerNotarization and time-stamped proof of existenceAsset title registry, voting, IOUs, and virtual currencies can be registered in the ledger (colored coins)Digital Contracts & Programmable Money Transfer beyond Simple PaymentsNotarized contracts with verifiable inputs = predictable outputsHumans do not need to hold the keys or send the payments.
17 Beyond Simple Payments: Examples Multisignature TransactionsEscrow-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 limitArbitrarily complex – additional verifiable conditions could be added as conditions for fundingDigital Contracts & Smart PropertyBind ownership/access of physical assets to provable paymentsLocks that verify that a mortgage was paid – oh my!Autonomous Agents / Decentralized Autonomous CorporationsWhen marketplaces for goods and services are denominated in BTC:Computer program buys inputs (space, advertising) as necessaryFirst examples may be wifi and cloud storage servicesBitcoin could become the TCP/IP of Value Transfer – atomic and stackable
18 Speedbumps How unpredictable is price? Regulatory uncertainty! Variability in legal treatment across jurisdictionsTrading Bitcoins for USD is considered money transmission by the US Treasury – requiring anti-money laundering processesMoney transmission has a complicated, state-based licensing frameworkBitcoin businesses predicted to move to “least onerous” homeTaxation!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 guidanceNo formal tax guidance from the IRS – yet.Banking systemTraditionally risk averse when dealing with money services businessesBusinesses with “bitcoin” in title have been denied bank accountsFloating 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 ChartBitcoin/USDMtGox ExchangeLog 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 patternsAll confirmed transactions are part of historyAny time bitcoins are transferred, old coins turn into new coins, linking addresses and relationshipsAnalysis possible with network graph toolsSatoshi 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: CryptsySelling Goods and Services for Bitcoinsr/bitcoinjobs (tech services)Writing good content for tipsReddit and Twitter tipping botsMine it yourselfPurchase an ASIC machineMine an altcoin, trade it for BitcoinPurchase a “cloud” mining contract
22 Places to Spend Bitcoin Social Media / DigitalGoods/ServicesVirgin GalacticCheapairNamecheapLocal BusinessesCharity/ Non-Profit
23 How to Accept BitcoinsIndividuals: Set up a wallet (stay tuned later today) Share your address with othersBusinesses:Use a merchant services company to accept paymentsNext Day Settlement in USDExchange Rate StabilityCan be cheaper than Credit Card payments!
24 Niche Coins and Metacoins Thanks to an open codebase, Bitcoin has younger sisters and cousinsCoinMarketCap currently tracks 112 independent coin projectsBuild (buy) your own at coingen.io !Which one of you made bullcitycoin ??
25 Thank YouGo to bitcoin.org to learn more Join the Triangle Bitcoin Meetup meetup.com Subscribe to podcasts from the “Let’s Talk Bitcoin Network”