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Introduction to bitcoin

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Introduction to bitcoin

  1. 1. Introduction to Bitcoin Robert McNally
  2. 2. What Is Money?
  3. 3. Money Is:A Medium of Exchange
  4. 4. Money Is:A Medium of Exchange• Stands in for an arbitrarily long chain of barter.
  5. 5. Money Is:A Medium of Exchange• Stands in for an arbitrarily long chain of barter.• Widely accepted.
  6. 6. Money Is:A Unit of Account
  7. 7. Money Is: A Unit of Account• Recognizable
  8. 8. Money Is: A Unit of Account• Recognizable• Fungible
  9. 9. Money Is: A Unit of Account• Recognizable• Fungible• Divisible
  10. 10. Money Is: A Unit of Account• Recognizable• Fungible• Divisible• Transportable
  11. 11. Money Is: A Unit of Account• Recognizable• Fungible• Divisible• Transportable• Transferable
  12. 12. Money Is: A Unit of Account• Recognizable• Fungible• Divisible• Transportable• Transferable• Hard to counterfeit
  13. 13. Money Is:A Store of Value
  14. 14. Money Is: A Store of Value• Stable supply
  15. 15. Money Is: A Store of Value• Stable supply• Durable
  16. 16. Money Is: A Store of Value• Stable supply• Durable• Securable
  17. 17. Money Is: A Store of Value• Stable supply• Durable• Securable• Stable value
  18. 18. What Is Cryptocurrency?
  19. 19. Cryptocurrency Is: A Bearer Instrument
  20. 20. Cryptocurrency Is: A Bearer Instrument• Holder has ownership
  21. 21. Cryptocurrency Is: A Bearer Instrument• Holder has ownership• No other records kept as to identity of owner
  22. 22. Cryptocurrency Is: A Bearer Instrument• Holder has ownership• No other records kept as to identity of owner• Easy to keep anonymous
  23. 23. Cryptocurrency Is: A Bearer Instrument• Holder has ownership• No other records kept as to identity of owner• Easy to keep anonymous• Hard or impossible to replace if lost or stolen
  24. 24. Cryptocurrency Is: A Bearer Instrument......based on digital cryptography
  25. 25. Cryptocurrency Is: A Bearer Instrument... ...based on digital cryptography• Derives trust from mathematical properties
  26. 26. Cryptocurrency Is: A Bearer Instrument... ...based on digital cryptography• Derives trust from mathematical properties• Based on established, trusted cryptographic primitives
  27. 27. Cryptocurrency Is: A Bearer Instrument... ...based on digital cryptography• Derives trust from mathematical properties• Based on established, trusted cryptographic primitives• NOT from chemical/physical properties
  28. 28. Cryptocurrency Is: A Bearer Instrument... ...based on digital cryptography• Derives trust from mathematical properties• Based on established, trusted cryptographic primitives• NOT from chemical/physical properties• NOT from coercive Legal Tender statutes
  29. 29. Cryptocurrency Is: A Bearer Instrument......based on digital cryptography: “Downloadable Money”
  30. 30. What Makes Bitcoin Different?
  31. 31. Bitcoin Is:Decentralized, Distributed,Voluntary
  32. 32. Bitcoin Is: Decentralized, Distributed,Voluntary• No central issuing or verification authority, no “Bitcoin Corp.”
  33. 33. Bitcoin Is: Decentralized, Distributed,Voluntary• No central issuing or verification authority, no “Bitcoin Corp.” • Bitcoin Foundation (bitcoinfoundation.org)
  34. 34. Bitcoin Is: Decentralized, Distributed,Voluntary• No central issuing or verification authority, no “Bitcoin Corp.” • Bitcoin Foundation (bitcoinfoundation.org) • Growing numbers of of entrepreneurs accepting or basing new business concepts on Bitcoin
  35. 35. Bitcoin Is: Decentralized, Distributed,Voluntary• No central issuing or verification authority, no “Bitcoin Corp.” • Bitcoin Foundation (bitcoinfoundation.org) • Growing numbers of of entrepreneurs accepting or basing new business concepts on Bitcoin• Relative to other bearer instruments
  36. 36. Bitcoin Is: Decentralized, Distributed,Voluntary• No central issuing or verification authority, no “Bitcoin Corp.” • Bitcoin Foundation (bitcoinfoundation.org) • Growing numbers of of entrepreneurs accepting or basing new business concepts on Bitcoin• Relative to other bearer instruments • Easier to transport anywhere in the world
  37. 37. Bitcoin Is: Decentralized, Distributed,Voluntary• No central issuing or verification authority, no “Bitcoin Corp.” • Bitcoin Foundation (bitcoinfoundation.org) • Growing numbers of of entrepreneurs accepting or basing new business concepts on Bitcoin• Relative to other bearer instruments • Easier to transport anywhere in the world • Easier to secure
  38. 38. Bitcoin Is: Decentralized, Distributed,Voluntary• No central issuing or verification authority, no “Bitcoin Corp.” • Bitcoin Foundation (bitcoinfoundation.org) • Growing numbers of of entrepreneurs accepting or basing new business concepts on Bitcoin• Relative to other bearer instruments • Easier to transport anywhere in the world • Easier to secure• Relative to other electronic currencies
  39. 39. Bitcoin Is: Decentralized, Distributed,Voluntary• No central issuing or verification authority, no “Bitcoin Corp.” • Bitcoin Foundation (bitcoinfoundation.org) • Growing numbers of of entrepreneurs accepting or basing new business concepts on Bitcoin• Relative to other bearer instruments • Easier to transport anywhere in the world • Easier to secure• Relative to other electronic currencies • Immune to sovereign censorship, shutdown, or confiscation
  40. 40. Bitcoin Is: Decentralized, Distributed,Voluntary• No central issuing or verification authority, no “Bitcoin Corp.” • Bitcoin Foundation (bitcoinfoundation.org) • Growing numbers of of entrepreneurs accepting or basing new business concepts on Bitcoin• Relative to other bearer instruments • Easier to transport anywhere in the world • Easier to secure• Relative to other electronic currencies • Immune to sovereign censorship, shutdown, or confiscation • Immune to inflation and bank defaults
  41. 41. How Does Bitcoin Work?
  42. 42. Bitcoin Tech
  43. 43. Bitcoin Tech• Bitcoin is a protocol. The unit of account is "bitcoins."
  44. 44. Bitcoin Tech• Bitcoin is a protocol. The unit of account is "bitcoins."• Based on the block chain: a growing general public ledger of cryptographically-signed transactions.
  45. 45. Bitcoin Tech• Bitcoin is a protocol. The unit of account is "bitcoins."• Based on the block chain: a growing general public ledger of cryptographically-signed transactions.• All transactions are public, but are not by default tied to anyones real identity.
  46. 46. Bitcoin Tech• Bitcoin is a protocol. The unit of account is "bitcoins."• Based on the block chain: a growing general public ledger of cryptographically-signed transactions.• All transactions are public, but are not by default tied to anyones real identity.• Anonymity and traceability are “user defined”, i.e. the counter parties can be as anonymous as they take steps to be— even to each other.
  47. 47. Bitcoin Tech• Bitcoin is a protocol. The unit of account is "bitcoins."• Based on the block chain: a growing general public ledger of cryptographically-signed transactions.• All transactions are public, but are not by default tied to anyones real identity.• Anonymity and traceability are “user defined”, i.e. the counter parties can be as anonymous as they take steps to be— even to each other.• Transfer of bitcoins consists not of physically moving an object from A to B, but simply of adding a new, publicly accepted transaction to the block chain.
  48. 48. Bitcoin Tech• Bitcoin is a protocol. The unit of account is "bitcoins."• Based on the block chain: a growing general public ledger of cryptographically-signed transactions.• All transactions are public, but are not by default tied to anyones real identity.• Anonymity and traceability are “user defined”, i.e. the counter parties can be as anonymous as they take steps to be— even to each other.• Transfer of bitcoins consists not of physically moving an object from A to B, but simply of adding a new, publicly accepted transaction to the block chain.• Secured by collective compute power of miners. It is very difficult to create a new valid block, but very easy for every client, miner or not, to check the validity of a new block.
  49. 49. Bitcoin Tech• Bitcoin is a protocol. The unit of account is "bitcoins."• Based on the block chain: a growing general public ledger of cryptographically-signed transactions.• All transactions are public, but are not by default tied to anyones real identity.• Anonymity and traceability are “user defined”, i.e. the counter parties can be as anonymous as they take steps to be— even to each other.• Transfer of bitcoins consists not of physically moving an object from A to B, but simply of adding a new, publicly accepted transaction to the block chain.• Secured by collective compute power of miners. It is very difficult to create a new valid block, but very easy for every client, miner or not, to check the validity of a new block.• Miners are awarded newly-minted bitcoins or transaction fees for successfully finding blocks. The distributed algorithm ensures that bounty of new bitcoins will asymptotically approach 21M, and the reward for mining will then become transaction fees only.
  50. 50. Bitcoin Tech
  51. 51. Number of Bitcoins Over Time Minted as of 2012 November: 10.35M
  52. 52. Bitcoin Mining RigModMiner Quad by BTCFPGA.COM 839Mh/s @ 63W = ~BTC0.2/day
  53. 53. Bitcoin Mining RigModMiner Quad by BTCFPGA.COM 839Mh/s @ 63W = ~BTC0.2/day
  54. 54. Bitcoin Tech
  55. 55. Bitcoin Tech• The distributed algorithm dynamically adjusts how much computing power it takes to find a valid block, limiting block creation to around 1 block every 10 minutes.
  56. 56. Bitcoin Tech• The distributed algorithm dynamically adjusts how much computing power it takes to find a valid block, limiting block creation to around 1 block every 10 minutes.• The bounties or transaction fees miners earn are compensation for securing the block chain.
  57. 57. Network Compute PowerAs of 2012 November: 24.34Th/s (309.18PFLOPS)
  58. 58. What Do Bitcoins “Look” Like?
  59. 59. What Do Bitcoins “Look” Like?
  60. 60. What Do Bitcoins “Look” Like? 1454A2geTxaJwF8eqry7oLECdomgDSj6Zx Public Key (“Address”) 34 characters starting with 1 or 3 Represents a possible destination for payment
  61. 61. What Do Bitcoins “Look” Like? 1454A2geTxaJwF8eqry7oLECdomgDSj6Zx Public Key (“Address”) 34 characters starting with 1 or 3 Represents a possible destination for payment 5JHkYd4mYkTsCsF5axnFj573PG6tqpeJ39Rz2M33vwBka4S1hu6 Private Key 51 characters starting with 5 Required to transfer value from the address
  62. 62. What Do Bitcoins “Look” Like?
  63. 63. What Do Bitcoins “Look” Like? Hard Disk
  64. 64. What Do Bitcoins “Look” Like? Hard Disk Digital Diversion Safe
  65. 65. What Do Bitcoins “Look” Like? Hard Disk Digital Diversion Safe SD Card
  66. 66. What Do Bitcoins “Look” Like? Hard Disk Digital Diversion Safe SD Card Paper Bills
  67. 67. What Do Bitcoins “Look” Like? Hard Disk Digital Diversion Safe SD Card Paper Bills Casascius Physical Bitcoins
  68. 68. What Do Bitcoins “Look” Like? Hard Disk Digital Diversion Safe SD Card Paper Bills Memorized Passphrase Hashable to Private Key Casascius Physical Bitcoins “Brainwallet”
  69. 69. USD Exchange RateAs of 2012 November: BTC1.00 = $10.83
  70. 70. USD Exchange RateAs of 2012 November: BTC1.00 = $10.83
  71. 71. What is the LegalStatus of Bitcoin?
  72. 72. What is the LegalStatus of Bitcoin?
  73. 73. What is the Legal Status of Bitcoin?• Exchanging bitcoins for anything is basically barter, which is legal.
  74. 74. What is the Legal Status of Bitcoin?• Exchanging bitcoins for anything is basically barter, which is legal.• The enhanced anonymity of Bitcoin potentially affords the same benefits as cash or gold to people operating outside the law, but additionally, is relatively frictionless to transfer to anyone in the world.
  75. 75. What is the Legal Status of Bitcoin?• Exchanging bitcoins for anything is basically barter, which is legal.• The enhanced anonymity of Bitcoin potentially affords the same benefits as cash or gold to people operating outside the law, but additionally, is relatively frictionless to transfer to anyone in the world.• As with barter, exchanging in Bitcoin does not remove the requirement to pay taxes on income or sales.
  76. 76. What is the Legal Status of Bitcoin?• Exchanging bitcoins for anything is basically barter, which is legal.• The enhanced anonymity of Bitcoin potentially affords the same benefits as cash or gold to people operating outside the law, but additionally, is relatively frictionless to transfer to anyone in the world.• As with barter, exchanging in Bitcoin does not remove the requirement to pay taxes on income or sales.• Value entirely inside the bitcoin economy can be extremely difficult or impossible to trace.
  77. 77. What is the Legal Status of Bitcoin?• Exchanging bitcoins for anything is basically barter, which is legal.• The enhanced anonymity of Bitcoin potentially affords the same benefits as cash or gold to people operating outside the law, but additionally, is relatively frictionless to transfer to anyone in the world.• As with barter, exchanging in Bitcoin does not remove the requirement to pay taxes on income or sales.• Value entirely inside the bitcoin economy can be extremely difficult or impossible to trace.• Authorities are most likely to attempt to regulate the Bitcoin economys end-points: the exchanges.
  78. 78. What Can You Buy With Bitcoin? Before 2011
  79. 79. What Can You Buy With Bitcoin? Late 2011
  80. 80. What Can You Buy With Bitcoin? Late 2012
  81. 81. Bitcoin-Denominated Poker Chips by Robert McNally
  82. 82. Bitcoin-Denominated Poker Chips by Robert McNally
  83. 83. Robert McNallyironwolf@dangerousgames.com

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