Introduction to Bitcoin

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Introduction to Bitcoin, prepared by Bitcoin Manchester to initially be presented at the Manchester Free Software Festival in February 2014.

Contents:

* What is money?
* What is good money?
* How does fiat money work?
* What is Bitcoin?
* How does Bitcoin work?
* Why is Bitcoin important?

Published in: Economy & Finance, Business
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Introduction to Bitcoin

  1. 1. manchester http://www.bitcoinmanchester.org.uk/ Introduction to Bitcoin Why is cryptocurrency so important? Ash Moran ash@ashleymoran.net
  2. 2. Overview 1. What is money? 2. What is good money? 3. How does fiat money work? 4. What is Bitcoin? 5. How does Bitcoin work? 6. Why is Bitcoin important?
  3. 3. 1. What is money?
  4. 4. Question What makes you consider something as money?
  5. 5. One definition of money “Money is the general medium of exchange, the thing that all other goods and services are traded for, the final payment for such goods on the market” Murray Rothbard (referring to Ludwig von Mises)
  6. 6. 2. What is good money?
  7. 7. Question What makes something good as a form of money for you?
  8. 8. Qualities of good money ‣ Generally accepted ‣ Recognisable ‣ Uniform ‣ Divisible ‣ Scarce ‣ Durable ‣ Portable
  9. 9. 3. How does fiat money work?
  10. 10. Notes and coins Who likes pound coins and notes?
  11. 11. Bank debt Who likes bank debt?
  12. 12. Who remembers when beer cost this much?
  13. 13. Who has noticed the price of beer is now this?
  14. 14. Why has this happened?
  15. 15. UK money supply (billion GBP) Source: Wikipedia
  16. 16. When will this happen?
  17. 17. The bankers are stealing your beer + =
  18. 18. 4. What is Bitcoin?
  19. 19. Not this
  20. 20. Browsing Blockchain.info
  21. 21. Addresses Example: 1kqHKEYYC8CQPxyV53nCju4Lk2ufpQqA2 Donation address for http://bitcoincharts.com/
  22. 22. Transactions public record
  23. 23. Blocks and the blockchain T8 Block 1 T1 T2 Block 2 T3 T5 Block 3 T6 T7 T9 public record
  24. 24. Aside: centralised banking private record (central, trusted authority)
  25. 25. Distributed peer-to-peer-network Internet public record (no central authority, no trust)
  26. 26. 5. How does Bitcoin work?
  27. 27. Three difficult problems to solve 1. Defining the sequence of events (transactions) 2. Ensuring only address owners can spend coins 3. Ensuring address owners can only spend coins once
  28. 28. One easy problem to solve 1. Issuing bitcoins
  29. 29. Defining a sequence of events a “timestamp server” using cryptographic hashes
  30. 30. Ensuring only address owners can spend coins Elliptic Curve Digital Signature Algorithm
  31. 31. Ensuring address owners can only spend coins once Longest chain (“true history”) Genesis block Dead forks We need to make this hard to generate
 to prevent double-spending
  32. 32. Ensuring address owners can only spend coins once Cryptographically hard to calculate
  33. 33. Bitcoin mining hardware a Butterfly Labs ASIC miner
  34. 34. Issuing bitcoins
  35. 35. Issuing bitcoins Feb 2014:
 12.4MBTC ~2033: 21MBTC Creation halves every 210k blocks / ~4 years
  36. 36. 6. Why is Bitcoin important?
  37. 37. Reason 1 “Give me control of a nation's money supply, and I care not who make its laws” – Mayer Amschel Rothschild
  38. 38. Reason 2 “It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” – Henry Ford
  39. 39. Qualities of good money revisited ‣ Generally accepted ‣ Recognisable ‣ Uniform ‣ Divisible ‣ Scarce ‣ Durable ‣ Portable
  40. 40. Scarcity vs Which policy do you prefer?
  41. 41. No hyperinflation
  42. 42. Sadly no money forts either
  43. 43. Scarcity “Economic growth is good for you”
  44. 44. Scarcity ? consumption capital
  45. 45. Durability private keys
  46. 46. Portability “At WordPress.com, our mission is making publishing democratic — accessible and easy for anyone, anywhere. And while anyone can start a free blog here, not everyone can access upgrades (like going ad-free or enabling custom design) because of limits on traditional payment networks. Today, that changes: you can now buy WordPress.com upgrades with bitcoins. PayPal alone blocks access from over 60 countries, and many credit card companies have similar restrictions. Some are blocked for political reasons, some because of higher fraud rates, and some for other financial reasons. Whatever the reason, we don’t think an individual blogger from Haiti, Ethiopia, or Kenya should have diminished access to the blogosphere because of payment issues they can’t control. Our goal is to enable people, not block them.” – Andy Skelton, WordPress.com
  47. 47. Portability Transactions are easy to broadcast
  48. 48. Portability ‣ Bitcoins are free or cheap to move around
 (free as in beer) ‣ Bitcoin is free software
 (free as in beer and speech) ‣ Bitcoin is free money
 (free as in speech)
  49. 49. Related Info Bitcoin: A Peer-to-Peer Electronic Cash System ‣ ‣ Original paper - surprisingly accessible if you’re a bit technical ‣ https://bitcoin.org/bitcoin.pdf Money as Debt (video by Paul Grignon) ‣ ‣ Explains the history of our monetary system ‣ Highly recommended ‣ http://www.youtube.com/watch?v=jqvKjsIxT_8
  50. 50. Finish Questions?

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