Intro to bitcoin march 2013

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An introduction to Bitcoin, by Meni Rosenfeld

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  • Bitcoins are valuable objects that can be owned and sent. As such they can act as a medium of exchange – one can work or offer goods and services and get bitcoins in return, and then use those bitcoins to pay for the goods and services he needs.
  • Data on ownership is stored by every computer on the network. For an individual to claim ownership of his coins (and send them to another party) he needs a piece of information called a “private key”. Private keys are typically stored on a computer and handled by a client software, but they can be stored anywhere – e.g., paper wallets and physical bitcoins.
  • Satoshi Nakamoto published the Bitcoin whitepaper (http://bitcoin.org/bitcoin.pdf) in 2008, and probably started working on it in 2007. The first version of the client software started running in January 2009.
  • Bitcoins can be stored and sent without needing a bank or services like PayPal or a credit card, allowing a more autonomous existence and protecting from deficiencies in the quality of such services.Sending an receiving can be done with the click of a button – no need to fill out forms or apply for merchant accounts.Fees are currently up to half a cent per transaction, and in the future shouldn’t be much higher than the marginal resource cost.There is no single entity which could create a loss of service by failing.Unlike traditional payment solutions, payment is based on digital signatures rather than passwords (which need to be shared). Additional security can obtained with wallet backups, multi-signature transactions and so on.Total number of bitcoins is capped at 21 million rather than being inflatable arbitrarily. This makes them a viable long-term store of value.Bitcoin payments cannot be reversed by fraudulent buyers; merchants no longer need to worry about fraud, allowing them to lower their prices.Not being beholden to any country, they can be used internationally – adding stability, and obviating the trouble and significant costs of currency conversion.Consequently, they can be used as a stable medium of exchange for countries with a weak economy and start-up countries.Users on the Bitcoin network are identified by addresses, which needn’t be linked to their identities. This allows maintaining privacy and resisting oppressive regimes.All transactions are recorded in the public pseudonymous blockchain, thus there can be no conflict whether a payment was sent or not.Bitcoin can be used in various advanced applications – smart property, assurance contracts, escrow, off-chain transactions, colored coins and so on. The technology can be used for other decentralized applications, such as the alternative DNS system Namecoin.
  • Half of the total 21 million bitcoins (10.5 million) are to be created within the first (roughly) 4 years, at a constant rate (roughly 7200 per day); then the creation rate is halved, so that half of the remaining coins (5.25 million) are to be created within the next 4 years (at a rate of 3600 per day); and so on.The smallest denomination of Bitcoin with the current protocol is a “satoshi”, equal to 10^(-8)bitcoins. Each bitcoin can be divided to 100 million satoshis. Unlike the association of “coins” may suggest, satoshis aren’t accounted for individually – a transaction specifies how many satoshis are to be sent as an integer variable.When people first hear about Bitcoin, a common reaction is “21 million bitcoins aren’t enough”. But since bitcoins are divisible essentially infinitely, this is not an issue at all and the number 21 million is completely arbitrary.Illustration of inflation rate and price history are on the next slides.
  • The exchange rate was about half a cent per BTC in May 2010. Mtgox trading started at July 2010 at a rate of $0.05. By March 2011 it was around $1, and from April quickly climbed up to the all-time high of $32 on June 8, 2011. Then it declined to $2 in November 2011, stayed around $5 from March to June 2012, and as of November 2012 is around $12.The exchange rate is very volatile – a change of 20% within a day is considered normal.
  • There are many software clients available following the Bitcoin protocol, all of them free open-source software (though nothing in principle prevents a proprietary software adhering to the protocol). The standard software is available at http://bitcoin.org/.There are also web wallets and hybrid wallets.When the software is run it generates (using the machine’s pseudo-random number generator) ECDSA private-public key pairs and stores them locally. The private keys are used to claim coins sent to the associated addresses.
  • There are many software clients available following the Bitcoin protocol, all of them free open-source software (though nothing in principle prevents a proprietary software adhering to the protocol). The standard software is available at http://bitcoin.org/.There are also web wallets and hybrid wallets.When the software is run it generates (using the machine’s pseudo-random number generator) ECDSA private-public key pairs and stores them locally. The private keys are used to claim coins sent to the associated addresses.
  • Intro to bitcoin march 2013

    1. 1. The world’s first decentralized digital currency Meni Rosenfeld Bitcoil21/3/2013 Written by Meni Rosenfeld 1
    2. 2. Bitcoin is a currency  “Money can be exchanged for goods and services”  Currency facilitates the trade of one good for another  A good currency must be:  Scarce, portable, durable, fungible, divisible, current  Value = equilibrium between supply and demand  Total value of a currency is proportional to total trade using it  Value per unit = Total value / Number of units21/3/2013 Written by Meni Rosenfeld 2
    3. 3. Bitcoin is digital  Ownership of bitcoins is digital information  Typically used with a computer and the internet  Based on cryptography21/3/2013 Written by Meni Rosenfeld 3
    4. 4. Bitcoin is decentralized  There is no company “Bitcoin Ltd.”  There is no central issuer or controller  Based on a public protocol and free software  Run by a peer-to-peer network of computers  Multiple parties are each “doing their own thing”21/3/2013 Written by Meni Rosenfeld 4
    5. 5. Bitcoin is the first!  Plenty of physical currencies  Gold, silver, seashells, rocks…  Plenty of centralized digital currencies  PayPal, WebMoney, e-gold, DigiCash, LR, WoW gold, SLL, EVE isk…  Bitcoin is the world’s first decentralized digital currency  Invented in 2008 by “Satoshi Nakamoto” (pseudonym)21/3/2013 Written by Meni Rosenfeld 5
    6. 6. Why?  No need for 3rd party  Easy to send and receive money  Almost no fees  No single point of failure  Secure  Limited supply – no built-in long-term monetary and price inflation  No chargebacks  International  Usable by weak/small countries  Pseudonymous  Public ledger  Advanced applications21/3/2013 Written by Meni Rosenfeld 6
    7. 7. Inflation schedule21/3/2013 Written by Meni Rosenfeld 7
    8. 8. Bitcoin adoption (Mar 2013)  Bitcoin “Market capitalization”: $750M  Users: ~300K  Bitcoin-accepting businesses: ~3000, including  Wordpress, Reddit, Mega, Namecheap, OkCupid  BitcoinStore  Freelancers, server hosting, software, books, clothing, video games, electronics, groceries, car accessories, ad networks, restaurants…  Accepting donations: FSF, Wikileaks, Internet Archive, xkcd…  Academic research: WIS, Microsoft, Cornell, ETH Zurich…  Reports: FBI, ECB…21/3/2013 Written by Meni Rosenfeld 8
    9. 9. Historic price chart (log scale)21/3/2013 Written by Meni Rosenfeld 9
    10. 10. Bitcoin software  Full software  Bitcoin-qt - http://bitcoin.org/  Hybrid web wallet  My Wallet - https://blockchain.info/wallet/  Android App  BitcoinSpinner21/3/2013 Written by Meni Rosenfeld 10
    11. 11. How to use?  Install open-source client software  Software generates “addresses”, which are like bank account numbers (e.g. 1BBsbEq8Q29JpQr4jygjPof7F7uphqyUCQ)  To receive bitcoins, let the sender know your address  To send bitcoins, specify receiving address and amount, and click “send”21/3/2013 Written by Meni Rosenfeld 11
    12. 12. Bitcoin exchanges  Mtgox  Launched July 2010  Highest volume by far: $75M monthly (75%)  Partnered with CoinLab for US customers  Bitcoin-central  Launched December 2010  Known for PSP partnership  Bitstamp  Tradehill (Prime)21/3/2013 Written by Meni Rosenfeld 12
    13. 13. Bitcoin in Israel  Community site: http://www.bitcoin.org.il/  Facebook: bitcoin.il,  IRC: #bitcoin-il at Freenode  Meetup: http://meetup.bitcoin.org.il/  Google Group - Bitcoin Israel  Hebrew forum section  20-fold growth in 3 months21/3/2013 Written by Meni Rosenfeld 13
    14. 14. Exchange services in Israel  https://bitcoil.co.il/  Bitk  bitcoinisrael.co.il  bitcoin-il.info  Bit2c  Bits of Gold  … And others21/3/2013 Written by Meni Rosenfeld 14
    15. 15. Questions?21/3/2013 Written by Meni Rosenfeld 15
    16. 16. Thank you  Meni Rosenfeld  meni@bitcoil.co.il  https://bitcoil.co.il  1DdrvajpK221W9dTzo5cLoxMnaxu859QN621/3/2013 Written by Meni Rosenfeld 16

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