1. Bitcoin Tech Talk Zehady Abdullah Khan (Andy) Graduate Assistant, Computer Science Department, Purdue University.

2. Bitcoin Bitcoin 2 Bitcoin Digital Currency Public Key Cryptograph y Internet Security Cryptography Financial Transaction E-Cash Complex Network Intro

3. What is Bitcoin? A digital currency o Unit: BTC (1 BTC = 110 USD). o Buy or sell goods. o Exchange with Yen, USD etc. Differences o Decentralized and Distributed. o Very low fee. o Very Fast Transaction. o Non-reversible: Requires less trust. o Pseudo - anonymous : Address Address. o Value increase (Only 21,000,000 Bitcoin) How do you get and use bitcoin? o Bitcoin exchanges to buy and sell bitcoin. o Bitcoin wallets to use bitcoin to purchase or send bitcoin. 3

4. Bitcoin Network protocols Steps to run the bitcoin network. o New transactions are broadcast to all nodes. o Each node collects new transactions into a block. o Each node works to find a difficult proof-of-work for its block. These nodes are called Bitcoin Miners. o When a node finds a proof-of-work, it broadcasts the block to all nodes. o Other nodes accept the block only if all transactions in it are valid and not already spent. o Nodes express their acceptance of the block by introducing the next block, using the hash of the accepted block. Bitcoin uses SHA256 cryptographic hash function. 4

5. How Bitcoin looks like? Not a physical object like gold or paper-money. A chain of digital signatures in a block-chain. o Block header o Transactions https://www.youtube.com/watch?v=3ujUIz9hQ7c 5

6. Block: Human Readable format 6 http://blockexplorer.com/block/00000000000000001588d80f3cb1d593cb198f485aef33ca926b58a62bcceda8 https://blockchain.info/tree/15296863

7. Validation of a Block Condition for a hash to validate a block o Hash of block header Target Block Reward ( B ) o 50(25) bitcoin per valid block o Halves every 4 year Target(T) is a 32 byte(256 bit) number o Current target( Tcur ): “Bits” field of the block header in compact format. o Maximum target( Tmax ): 0x1d00ffff = 0x00000000FFFF0000000000000000000000000000000000000000000000000000 Which hash will validate the block ? A given hash validating a block is a Random Event o Independent of the validity of any other calculated hash 7 Nonce Time Stamp Change A completely different hash of the block header

8. Block Header 8 Change of NonceResulting Hash 3590836561000000000000004b6cca89a20a6287dd423bbec 48d901755dfe888bc9fa948d4 097278390400000000000000497fc8294f1f1ba9c24c5edf016 e2e066772f7794e33b372cf (3590836561) d =(100001011100010011100010110100101010) 2 (0972783904) d =(000000111001111110111000000100100000) 2 There are 2^32 different Nonces to try.

9. Block Difficulty Difficulty( D ): A measure of how difficult it is to find a new block compared to the easiest. Maximum Difficulty is set when = 1, T max is defined as 0x1d00ffff Exp: If = 0x1b0404cb,then o Desired rate of finding a block: 1 block / 10 minutes. o Difficulty is adjusted after every 6*24 * 14 = 2016 blocks to maintain the rate. 9 if T cur = 0, D = infinity

10. Network Hash Rate Calculation To find a block, the hash must be less than the target. The hash is effectively a random number between 0 and 2^256 – 1. 0x00000000FFFF0000000000000000000000000000000000000000000000000000 The offset for difficulty 1 is (2^16-1) * 2^208 and for difficulty D is ((2^16-1)* 2^208) / D The expected number of hashes we need to calculate to find a block with difficulty D is D * 2^256 / ((2^16-1) * 2^208)=D * 2^48 / (2^16 – 1) = D*2^32 Difficulty is set such that previous 2016 blocks would have been found at the rate of 1 every 10 minutes. So, the network hash rate, H = D * 2^48/(2^16-1)/(60* 10) = D*2^32/600 10 208 bits 16bits T max

11. Difficulty Graph

12. Network Hash Rate Graph

13. Bitcoin Mining War https://en.bitcoin.it/wiki/Mining_hardware_comparison https://bitcoinwisdom.com/bitcoin/calculator

14. Bitcoin's Development Visualized https://www.youtube.com/watch?v=cVGEbtIBxIE