Bitcoin : A fierce Decentralized internet currency

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Presentation on how the bitcoin protocol works.

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Bitcoin : A fierce Decentralized internet currency

  1. 1. Bitcoin A Decentralized, P2P, Crypto Currency
  2. 2. Bitcoin protocol 1. 2. 3. 4. Transactions Block (Chains) Bitcoin Mining (Pools) Wallet
  3. 3. Bitcoin Beginning 1. 2008 2. “Satoshi Nakamoto” 3. Anonymous Underground Genius
  4. 4. Bit What ? “Bitcoin is an innovative payment method & a new kind of money” --bitcoin.org
  5. 5. Bit What ? “Bitcoin is an innovative payment method & a new kind of money” PEER TO PEER FUND TRANSFER GLOBAL ACCEPTANCE LOW or NO PROCESSING FEE
  6. 6. Bit What ? NO BANKS OR REGULATING AGENCIES PEER TO PEER FUND TRANSFER GLOBAL ACCEPTANCE LOW or NO PROCESSING FEE
  7. 7. Bit What ? ANONYMOUS TRANSFERS NO TRANSFER LIMITS YOUR ACCOUNT CANNOT BE SEIZED NO BANKS OR REGULATING AGENCIES PEER TO PEER FUND TRANSFER GLOBAL ACCEPTANCE LOW or NO PROCESSING FEE
  8. 8. Bitcoin Protocol is Complex And requires knowledge of : 1. Hashing 2. Digital Signatures 3. JSONRPC 4. Digital Architecture (general) 5. Finance 6. Sociology (explicitly built into system)
  9. 9. Digital Signatures Alice SK VK
  10. 10. Digital Signatures Alice SK VK Message SK ECDSA Signature
  11. 11. Digital Signatures Alice SK VK Message SK Message Sign VK ECDSA ECDSA-1 Signature bool
  12. 12. Bitcoin transactions Are like a ledger entry to a global(open) ledger called the block chain You own bitcoins if there is a record of some bitcoins being credited to you in the ledger
  13. 13. Naming Conventions Transactions (ledger entry) Blocks (ledger page) Block Chains (ledger)
  14. 14. Transaction Records Alice VKa SKa ฿ 50 Bob VKb SKb
  15. 15. Transaction Records ฿ 50 Alice VKa SKa Bob VKb 30 VKc 40 VKd 10 VKe Record of bitcoins being transferred to Alice earlier SKb
  16. 16. Transaction Records ฿ 50 Alice VKa SKa Bob VKb 30 VKc Dc 40 VKd Dd 10 VKe De SKb
  17. 17. Transaction Records ฿ 50 Alice VKa SKa Bob INPUT OUTPUT 30 VKc Dc VKb, ฿ 50 40 VKd Dd VKa, ฿ 28 10 VKe De VKb SKb ฿ 2 transaction fee that’s charged by the miner against Proof Of Work
  18. 18. Transaction Records ฿ 50 Alice VKa Bob SKa VKb 30 VKc Dc VKb, ฿ 50 40 VKd Dd VKa, ฿ 28 10 VKe De SKa SKb
  19. 19. Transaction Records Dc VKb, ฿ 50 Dd VKa, ฿ 28 De SKa
  20. 20. Proof of Work Protocol A proof of work is a piece of data which is difficult to produce so as to satisfy certain requirements. Producing a proof of work can be a random process with low probability.
  21. 21. Bitcoin’s Proof of Work Bitcoin needs a miner to solve for a proof which, the hash of, when concatenated with hash string should have a certain (predefined) number of preceding zeros.
  22. 22. Bitcoin’s Proof of Work Example (Let challenge = C, proof i = Pi) Hash(P1C) = fj8wru38wrajfhjafhjka… Hash(P2C) = fuwu893r98wefjlioas… … Hash(PnC) = 000fhf8iaedihuhfuias...
  23. 23. Transaction Blocks Alice ฿ 50 Bob Single transaction
  24. 24. Transaction Blocks
  25. 25. Transaction Blocks MINER MINER MINER MINER MINER
  26. 26. Transaction Blocks MINER MINER MINER MINER MINER
  27. 27. Transaction Blocks MINER MINER MINER MINER MINER
  28. 28. Transaction Blocks MINER HASH HASH FINAL HASH
  29. 29. Transaction Blocks MINER HASH HASH FINAL HASH CHALLENGE (256 bit hash)
  30. 30. Transaction Blocks MINER HASH HASH FINAL HASH CHALLENGE (256 bit hash) PROOF HASH 00000000006872hkhaks67y7q2kjnjzxc8zx9mq3w8703q09chjchajhcjhajc3rnqw
  31. 31. MINER 25 + Transaction Fee
  32. 32. MINER 25 + The miner is allowed to add a coinbase transaction to every block she mines as a reward. This is how new coins are generated. Transaction Fee
  33. 33. Time taken per block As per the specification, the network should come up with a new block every 10 minutes. This also means that a transaction should generally take 10 minutes to be completed.
  34. 34. Difficulty Calibration To ensure 10 minute transaction time, the difficulty of mining is calibrated every 2016 blocks(or two weeks)
  35. 35. Reducing Difficulty Happens when the network more than 10 minutes per block The difficulty is reduced by reducing the number of preceding 0s required in the proof string
  36. 36. Increasing Difficulty Happens when the network less than 10 minutes per block The difficulty is increased by increasing the number of preceding 0s required in the proof string
  37. 37. Jinter Video Demo I was able to mine 0.000005 BTC
  38. 38. SHIVEK KHURANA Cluster Innovation Centre University Of Delhi

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