Bitcoin - An Introduction


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Bitcoin - An Introduction

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Bitcoin - An Introduction

  1. 1. Dawie Poolman
  2. 2. " It is well enough that people of the nation do not understand our banking and money system, for if they did, I believe there would be a revolution before tomorrow morning." ~ Henry Ford
  3. 3.  The    current financial system How does it work? Current state around the world Future  Back to fundamentals: What is money?  Bitcoin    Basics Protocol design Future developments
  4. 4. "If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered...I believe that banking institutions are more dangerous to our liberties than standing armies... The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."
  5. 5.  The   current financial system How does it work? Search for: Mike Maloney ―Hidden Secrets Of Money‖
  6. 6.  China urges 'de-Americanized' new financial system  End of the Petrodollar?  Uncharted territory with unsustainable debt levels – EU, UK, Japan, USA etc..  Bail-In strategies like Cyprus
  7. 7. Rather than fixing the financial system, maybe it is time to rebuild a new financial system from the ground up.
  8. 8. 1. It must be durable, which is why we don’t use wheat or corn or rice. 2. It must be divisible, which is why we don’t use art work. 3. It must be convenient, which is why we don’t use lead or copper. 4. It must be consistent, which is why we don’t use real estate. 5. It must possess value in itself, which is why we don’t use paper. 6. It must be limited in the quantity that is available, which is why we don’t use aluminium or iron. 7. It should have a long history of acceptance, which is why we don’t use molybdenum or rhodium. Gold & Silver possesses these qualities
  9. 9. "At any rate, the spook spoke the truth: cryptology represents the future of privacy, and more. By implication cryptology also represents the future of money, and the future of banking and finance. (By "money" I mean the medium of exchange, the institutional mechanisms for making transactions, whether by cash, check, debit card or other electronic transfer.) Given the choice between intersecting with a monetary system that leaves a detailed electronic trail of all one's financial activities, and a parallel system that ensures anonymity and privacy, people will opt for the latter. Moreover, they will demand the latter, because the current monetary system is being turned into the principal instrument of surveillance and control by tyrannical elements in Western governments." - J. Orlin Grabbe (1947-2008)
  10. 10. Open Source cryptocurrency  Distributed cryptographically protected accounting ledger  No central authority -> does not depend on trust to single or couple of institutions.  Like cash, but for the internet  1 Bitcoin = 3,520 ZAR (as on 8th Nov 2013).  Created by pseudonym Satoshi Nakamoto in 2009  Based on a peer-to-peer network of computers running the Bitcoin software.  The transactions are verified by proof-of-work system of computers running mining software. 
  11. 11. No unpredictable inflation by ‖printing more money‖ by political decision  Transactions travel instantly  Send money in seconds to anyone with internet access – with practically zero transaction costs.  Highly anonymous, in certain conditions  Every transaction in the public ledger (blockchain) though  If you memorize your private key, the only way to steal your Bitcoins (even for the authorities) is to torture you (or spy or hack your computer)  Easy to use  You can choose how to store your Bitcoins (online / offline) 
  12. 12.  Every ‖account‖ consists of the public key (= bitcoin address) and the private key.  Anyone who knows your public key, can send you bitcoins.  To spend bitcoins, you have to know the private key.   The transaction is broadcasted to the Bitcoin network. The miners confirm the transactions
  13. 13.  People   But it proves it works! And people use plain cash for the same.  Early  adopters benefit too much Is it really a problem?  Bitcoin   buy guns and drugs with it! has actually no value Same applies to euros and dollars. They only have value because people believe they have value. Many more:
  14. 14.  An   example of a bitcoin address: 14nRKoXJAUpKYYbzw6Yrqh9gW2p26zerpW 2160 (about 1048)possible addresses  The    corresponding private key: 5HuEupX3DNFJ7UypjFtXDTm4BVuAwZtAgYf94sMA LPyakgafVnU 256 bits (SHA256 encryption) About 1077 possible private keys
  15. 15.  In the process called mining, all transactions are collected in a block. A new block is mined in about every 10 minutes.  For small payments or with payments with trusted peer, 0 confirmations is usually ok.  For large amounts, 6 confirmations is considered safe
  16. 16.  Because Bitcoin has no central authority, one of the main security problems is eliminating a double spend fraud (wherein the same money is spent twice)  The main innovation in Bitcoin is the blockchain. Each full node (a computer running the Bitcoin program) in the network has a copy of all mined blocks  Disrupting the system would need enormous computing power
  17. 17.  Understand   how bitcoin works Every transaction from address to address is public. How much and when = public, who owns the address = not public (can be analyzed, though).  Create a new address for every transaction  Use mixing services  The larger the transactions, the easier it is to carry out traffic analysis
  18. 18.  General ledger containing every Bitcoin transaction ever made  Processing power securing the ledger using mathematics (cryptography)  How are Bitcoins released:
  19. 19.       It is scarce (there will never be more than 21 million) It is secure: it can’t be counterfeited or multiplied at will, and it allows for as much privacy as the user desires It is extremely transportable: you send it virtually instantaneous, essentially for free, to anywhere in the world Flexible: every single Bitcoin can be subdivided into millions of smaller parts, and all Bitcoins are interchangeable Extremely durable: the Bitcoins in your wallet will disappear only after every single copy of the Blockchain on the planet has been erased—and remember, the QT client alone has been downloaded already over 3 million times And finally, unlike that of fiat currencies, the supply of Bitcoin is steady and predictable
  20. 20.  How    do I get a Bitcoin? Step 1 – Create a Wallet Step 2 – Buy Bitcoin on an Exchange Step 3 – Use it on your own terms!
  21. 21. System D (Informal Economy)  The unbanked (Africa)  Remittances (PayPal, Western Union)  Protocol extension with APIs  Robotics  Google Glasses  Decentralised Exchanges   Decentralised Securities Exchanges BitShares, Coloured Coins, Mastercoin  End of Wall Street?  Pension funds  Contracts, Wills, Charity.. 
  22. 22. Man is free at the moment he wishes to be. ~Voltaire
  23. 23. Bitcoin Economics & the current Financial system