BitcoinAn decentralized open source cryptographic currency.
Stephan FlorquinDavid Francoispaymium.com
Intro• Bitcoin is a decentralized, open source, digital currency• No central authority• First released anonymously in 2009 by “Satoshi Nakamoto”
• It received a lot of media attention during summer 2011, the exchange rate surged• Some websites got hacked, Bitcoin got a bad reputation• The exchange rate crashed to near zero and Bitcoin was dead according to most media
• A community still believed in Bitcoin and the exchange rate steadily went up during 2012• Major websites started accepting Bitcoin (Wordpress, Reddit)• Despite all criticism, Bitcoin is now stronger than ever
Bitcoin price over time
“I am very intrigued by Bitcoin. It has all the signs. Paradigm shift, hackers love it, yet its derided as a toy. Just like microcomputers.” Paul Graham “Bitcoin is still very much a fringe thing [...]But I like to pay attention to the jokes, the laughing stocks, because occasionally they get the last laugh.” Fred Wilson
How does Bitcoin work?
• 2 essential concepts, not new to Bitcoin• Pier to pier (P2P) technology• Digital signatures
• Each client is connected to nearby peers• A client can broadcast a message to its peers• The peers will forward the message to their own nearby peers until it reaches the entire network
• Anyone can download a Bitcoin client and add a node to the network• There are already tens of thousands of nodes
• In the Bitcoin network, we sign transactions• Ownership of Bicoins go from a Bitcoin address to another• A Bitcoin address is just a hash of the public key
• To create a transaction, I broadcast a signed message that says “transfer ownership of X Bitcoins from my Bitcoin address to this Bitcoin address”• I also send my public key
• Since my Bitcoin address is a hash of my public key, peers can verify that the public key corresponds to my Bitcoin address• Using the digital signature, peers can now verify that I indeed intend to send Bitcoins to the destination Bitcoin address
• By combining a P2P network and digital signatures, we have a secure, reliable way of broadcasting Bitcoin transactions• But have to we keep track of how many Bitcoins belong to an address?
• Every Bitcoin client has an up-to-date copy of the history of all Bitcoin transactions• All transactions are public and irreversible• This is what we call the “Blockchain”
• The blockchain is a list of blocks• Every block contains a list of transactions• Roughly every 10 minutes, a block containing recent transactions is appended to the blockchain
• “Miners” compete to ﬁnd the next block• It involves solving a cryptographic challenge, known as “Proof of work”• If blocks are mined too quickly, the difﬁculty is increased (and vice versa)
• What if multiple blockchains emerge?• This can happen naturally or if someone attempts to attack the network• The longest chain is considered valid
• To consider a transaction valid, we wait until several blocks have been appended afterwards• This is to ensure forked chains have been resolved• Two to six blocks are enough to consider a transaction valid (20 - 60 minutes)
• But how are Bitcoins created in the ﬁrst place?• When a miner ﬁnds the next block, he is rewarded Bitcoins• Every 210,000 blocks, the reward is divided by two (every four years)
• The bounty for mining one of the ﬁrst 210,000 blocks was 50 Bitcoins• Since the end of 2012, it is 25 Bitcoins• Currently, there are around 11,000,000 Bitcoins• By 2140, around 21,000,000 Bitcoins will have been discovered, which is the limit
Number of Bitcoins
• In addition, you can add a fee to a transaction• The miner who ﬁnd the block that includes your transaction is awarded the fee• The higher the fee, the most likely the transaction will be included in the next block
What we do at Paymium
• We believe Bitcoin has enormous potential• We work to promote Bitcoin• We build services on top of the Bitcoin network
• Unlike traditional currencies, the Bitcoin network is totally open• Any developer can hack a project• Bitcoin is both a currency and a transaction network
• As a currency, it is immune to inﬂation (ﬁxed number of coins) and not centrally regulated• As a transaction network, it allows fast, secured, cheap irreversible transactions• Credit cards, on the other hand, have high fees (3% or more) and charge backs (up to 6 months, why?? Fraud!)
• With traditional payment systems, you have to hand over your credit card info to third parties (and trust them!)• With Bitcoins, you give them nothing!• How would you pay an online merchant with Bitcoins?
• The merchant generate a new, unique Bitcoin address for your purchase• You send Bitcoins to the address• After the transaction is conﬁrmed by the Bitcoin network, the merchant can safely deliver your purchase• That’s it!
• This is the kind of stuff Paymium has been doing since 2011• To help Bitcoin go mainstream, we work with both Euros and Bitcoins• For instance, you can pay a Bitcoin address using Euros and vice-versa!
• We can do this because we have our own Bitcoin exchange and we can trade Euros automatically• In addition we provide easy-to-use wallets and an API for developers• Much more coming later this year, so much we can do!
• We made headlines last year because we became the ﬁrst Bitcoin startup to have a Payment Service Provider!• This means we can open a bank account for each of our customers instead of mixing their funds with ours• In addition we are going to be able to print debit cards and create IBAN numbers for our customers
• At Paymium, we hold a large number of Bitcoins for our customers• We keeps our servers as secure as possible, but we have to imagine worst case scenarios• What if someone gains access to our web servers?• By the way this never happened :)
• Remember, all you need to prove ownership of Bitcoins is a private key• A private key is just a string of character• It can easily be encrypted, then printed or stored on a USB key
• Because of this, you can store your private keys in secure locations such as a bank vault• Afterwards, you can erase all other traces of the private key• This is called “cold storage”
• You can still keep the Bitcoin address and receive payments• On the other hand, you have to get access to the physical location of the private key and know the encryption key to send Bitcoins
• On our servers, we keep the minimum amount of Bitcoins possible (< 7%)• We can do this because we can predict how many Bitcoins are needed during a normal day• In we need more coins, we have to go to our cold storage facilities
• In short, the damage that can be done is limited and we can survive an attack
• I hope you enjoyed this talk and that I made you want to try Bitcoins!• If you are interested in Bitcoins and are skilled in security, programming, ﬁnance, marketing, let’s get in touch!• Questions?
Stephan FlorquinDavid Francoispaymium.com@firstname.lastname@example.org