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Intro to Bitcoin or Distributed Cryptocurrencies for Fun and Profit     Presented by Bennett HoffmanAt the Rainbow Mansion...
What is Bitcoin?Bitcoin is an experimental new digital currency thatenables instant payments to anyone, anywhere in thewor...
What is Bitcoin?Bitcoin is an experimental new digital currency thatenables instant payments to anyone, anywhere in thewor...
What is Bitcoin?Bitcoin is an experimental new digital currency thatenables instant payments to anyone, anywhere in thewor...
What is Bitcoin?Bitcoin is an experimental new digital currency thatenables instant payments to anyone, anywhere in thewor...
What is Bitcoin?Bitcoin is an experimental new digital currency thatenables instant payments to anyone, anywhere in thewor...
What is Bitcoin?Bitcoin is an experimental new digital currency thatenables instant payments to anyone, anywhere in thewor...
Why should I care?●   Investment    –   In theory, bitcoin should act as a hedge against        inflation, much like gold....
Why shouldnt I care?                       (officially)●   Wikileaks●   Drugs●   Gambling●   Money laundering    If any of...
So how do I get some?●   Exchanges    –   MtGox    –   AurumXchange    –   CoinBase●   OTC    –   Feels like being a spy● ...
Where does it go?●   Bitcoins addresses are cryptographic strings    which look something like this    31uEbMgunupShBVTewX...
Mining 101●   How can you “mine” a digital currency?●   Transactions depend on the network solving    computationally diff...
Mining 102: Pools●   Mining hardware is progressing rapidly    –   CPU -> GPU -> FPGA -> ASIC●   Its very unlikely for an ...
Can I actually spend this stuff?                 (without feeling like a criminal)●   Bitmit.net●   Reddit gold●   Tech se...
Staying Anonymous    If you want to help Iranian protesters without    the risk of being watched by the CIA:●   Buy OTC wi...
Threats                          (civilized)●   Policy    –   Money laundering, drug dealing, and terrorism are        alr...
Threats                          (Economic)●   Limited supply●   Irrevocably lost Bitcoins●   Deflationary spiral    –   B...
Threats                            (technical)●   The infamous 51% attack    –   Increasingly difficult to pull off    –  ...
Getting TechnicalFoundations●   Public key cryptography (ECDSA)    –   A transaction is signing a message and attaching   ...
Transactions
Transaction Limitations●   Cant prevent double spending●   Avoiding a centralized “Mint”●   We need some way to verify ord...
Proof-of-Work●   Uses a Hashcash like algorithm●   Must find a hash for the new block which    “beats” a target value●   T...
Network Operation●   New transactions are broadcast to all nodes.●   Each node collects new transactions into a block.●   ...
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Bitcoin Talk at Rainbow

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Bitcoin Talk at Rainbow

  1. 1. Intro to Bitcoin or Distributed Cryptocurrencies for Fun and Profit Presented by Bennett HoffmanAt the Rainbow Mansion, Cupertino, CA On this 10th of March, 2013
  2. 2. What is Bitcoin?Bitcoin is an experimental new digital currency thatenables instant payments to anyone, anywhere in theworld. Bitcoin uses peer-to-peer technology to operatewith no central authority: managing transactions andissuing money are carried out collectively by thenetwork. Bitcoin is also the name of the open sourcesoftware which enables the use of this currency. Bitcoin.org
  3. 3. What is Bitcoin?Bitcoin is an experimental new digital currency thatenables instant payments to anyone, anywhere in theworld. Bitcoin uses peer-to-peer technology to operatewith no central authority: managing transactions andissuing money are carried out collectively by thenetwork. Bitcoin is also the name of the open sourcesoftware which enables the use of this currency.
  4. 4. What is Bitcoin?Bitcoin is an experimental new digital currency thatenables instant payments to anyone, anywhere in theworld. Bitcoin uses peer-to-peer technology to operatewith no central authority: managing transactions andissuing money are carried out collectively by thenetwork. Bitcoin is also the name of the open sourcesoftware which enables the use of this currency.
  5. 5. What is Bitcoin?Bitcoin is an experimental new digital currency thatenables instant payments to anyone, anywhere in theworld. Bitcoin uses peer-to-peer technology to operatewith no central authority: managing transactions andissuing money are carried out collectively by thenetwork. Bitcoin is also the name of the open sourcesoftware which enables the use of this currency.
  6. 6. What is Bitcoin?Bitcoin is an experimental new digital currency thatenables instant payments to anyone, anywhere in theworld. Bitcoin uses peer-to-peer technology to operatewith no central authority: managing transactions andissuing money are carried out collectively by thenetwork. Bitcoin is also the name of the open sourcesoftware which enables the use of this currency.
  7. 7. What is Bitcoin?Bitcoin is an experimental new digital currency thatenables instant payments to anyone, anywhere in theworld. Bitcoin uses peer-to-peer technology to operatewith no central authority: managing transactions andissuing money are carried out collectively by thenetwork. Bitcoin is also the name of the open sourcesoftware which enables the use of this currency.
  8. 8. Why should I care?● Investment – In theory, bitcoin should act as a hedge against inflation, much like gold. In practice, still volatile. – Futures, options, etc.● Entrepreneurship – Bitcoin has large disruptive potential – Still a very new technology● Politics – Competes with central banks
  9. 9. Why shouldnt I care? (officially)● Wikileaks● Drugs● Gambling● Money laundering If any of these sound like you, then take a look at TOR. You didnt hear it from me.
  10. 10. So how do I get some?● Exchanges – MtGox – AurumXchange – CoinBase● OTC – Feels like being a spy● Mining● Nice friends
  11. 11. Where does it go?● Bitcoins addresses are cryptographic strings which look something like this 31uEbMgunupShBVTewXjtqbBv5MndwfXhb● Managed by a Bitcoin client● Stored in a “wallet” on your computer● Make backups!
  12. 12. Mining 101● How can you “mine” a digital currency?● Transactions depend on the network solving computationally difficult problems● Each time a solution is found, the machine that found it gets a reward (currently 25 BTC)● If you control X% of the total Bitcoin network, then you have an X% chance of solving the next problem
  13. 13. Mining 102: Pools● Mining hardware is progressing rapidly – CPU -> GPU -> FPGA -> ASIC● Its very unlikely for an individual with a home computer to complete a bitcoin block● Mining pools offer a way to participate● Revenue split among pool members proportional to contributed processing● Some fees (~3%)
  14. 14. Can I actually spend this stuff? (without feeling like a criminal)● Bitmit.net● Reddit gold● Tech services● Locally – Cups and Cakes Bakery – 20Mission● Gift/prepaid cards Huge list at: http://bitcoin.it/wiki/Trade
  15. 15. Staying Anonymous If you want to help Iranian protesters without the risk of being watched by the CIA:● Buy OTC with cash (never use PayPal etc.)● Never reuse a wallet address● Alway use TOR when working discretely● Use a tumbler/eWallet service● Make sure numbers dont line up● Encrypt all communications (GPG, etc.)
  16. 16. Threats (civilized)● Policy – Money laundering, drug dealing, and terrorism are already illegal – See gun control – Outlawing the currency wont work, but a great firewall might● Propaganda – FUD – Market manipulation
  17. 17. Threats (Economic)● Limited supply● Irrevocably lost Bitcoins● Deflationary spiral – Bitcoins arent a debt instrument – Currently not used as reserves against other instruments● Alternative cryptocurrencies – Litecoin
  18. 18. Threats (technical)● The infamous 51% attack – Increasingly difficult to pull off – Limited effectiveness – Costly to sustain – Network recovers normal operation afterwards● Quantum computing● Flaws in the Bitcoin protocol
  19. 19. Getting TechnicalFoundations● Public key cryptography (ECDSA) – A transaction is signing a message and attaching the new owners public key● One-way hashing with SHA-256● Hashcash proof-of-work function – Must produce a “small enough” hash value – Underlies time and difficulty elements of Bitcoin
  20. 20. Transactions
  21. 21. Transaction Limitations● Cant prevent double spending● Avoiding a centralized “Mint”● We need some way to verify order● Now we have a centralized “Timeserver”
  22. 22. Proof-of-Work● Uses a Hashcash like algorithm● Must find a hash for the new block which “beats” a target value● The target value, or difficulty, changes every 2016 blocks● Difficulty targets 1 block solved every 10 minutes
  23. 23. Network Operation● New transactions are broadcast to all nodes.● Each node collects new transactions into a block.● Each node works on finding a difficult proof-of-work for its block.● When a node finds a proof-of-work, it broadcasts the block to all nodes.● Nodes accept the block only if all transactions in it are valid and not already spent.● Nodes express their acceptance of the block by working on creating the next block in the chain, using the hash of the accepted block as the previous hash.

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