The document provides an overview of Bitcoin, detailing its history, functionality, and how it operates through blockchain technology. It discusses the process of acquiring bitcoins, how transactions work, and the role of mining in maintaining the Bitcoin network. Additionally, it highlights the potential impact of virtual currencies on traditional banking systems.

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2. Article from 15 January

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Content
History of the bitcoin
What can I do with a bitcoin
How can I get bitcoins
How does the bitcoin infrastructure ( blockchain) look like
How can this effect our future

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History of money in NL
End of paper money being
100% covered by gold
1914 1936
Introduction of coins
not made of precious metal
1918
End of paper money being
40% covered by gold
1971
No more connection
between gold and money
2009
Bitcoin
Litecoin
DarkcoinPeercoin
Dogecoin Primecoin
2011 2012 2013 2014
People are prepared to
exchange items for paper
that can be exchanged for
gold
People are prepared to
exchange items for
paper
People are prepared to
exchange items for a
combination of zero’s and
one’s
2002
Euro

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Bitcoin at a glance
• Virtual currency invented / go live in 2009 by Satoshi Nakamoto
• 22 May 2010 first real world transaction: 2 pizza’s were ordered for BTC 10,000
• Number of transactions: 220,000 per day
• Number of bitcoins available December 2015: 15m
• Maximum number of bitcoins: 21m (expected to be reached in 2140)
• Based on “blockchain” technology
• Current value of 1 bitcoin = +/- EUR 330
Bitcoin Units Abbreviation Decimal
Bitcoin BTC or XBT 1
Milli Bitcoin mBTC 0.001
Micro Bitcoin uBTC 0.000001
Satoshi Sat 0.00000001

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What can you do with a bitcoin
Transfer value around the world:
• To pay for things you buy
• To donate/give present
Speculate on the exchange rate
Earn money (mining)

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Transfer value around the world
Bitcoin Currency
Speed <5 seconds Between 2 and 5 days
Cost +/- 5 cents Around EUR 45 for businesses,
around EUR 11 for private
individuals
Exchange rate risk Low if converted to currency
same day
Low
Visibility to regulator None Yes
Currency conversion required Yes if converted to local
currency
Yes
Example of sending value of EUR 500 from NL to India

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Pay for things you buy

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Speculate – historical bitcoin rate in USD

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Speculate – December 2015 rates

12. Speculate – Jan 2016 rates

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How do I get bitcoins
Bitcoin miner
Bitcoin exchange
Bitcoin wallet
Bitcoin user

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Step 1: get a (free) wallet
For Iphone, very easy user
interface, but has less
flexibility on transaction fees
For computer, slightly more difficult interface,
but has more flexibility on transaction fees
Your account number in a string: 19vzwXeRRcACKHMHDhNQYMncuvySdQQeCw
Your account number as a picture:

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Step 2: go to a bitcoin exchange
3.2% margin (buy vs sell)

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Step 3: buy bitcoins
Your account string:
19vzwXeRRcACKHMHDhNQYMncuvySdQQeCw

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How does your wallet work in terms of value?
0.2
0.3
0.1
0.4
Balance is BTC 1
However the transactions are not merged into 1 amount
Incoming 3
transactions:
receiving BTC 1
in 4 inputs
Outgoing
transactions:
paying BTC 0.7
in 2 outputs

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How does your wallet work in terms of size/age?
0.2
0.3
0.1
0.4
Every output has
in principle the
same size: 180
bytes
The size of all the
inputs of this
wallet is 720 bytes
Every output is linked to a
block in which it was
mined. This is called the
“age”
Block 389,121
Block 250,263

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How much you pay for a BTC transaction?
You only have to pay for outgoing transactions and the fee depends
on value, age and size:
Value fee: charged only for outputs<BTC 0.01, the fee is BTC 0.0001. In
general, for smaller outputs you pay more.
Age fee: might be charged, based on the average age of the outputs. In
general the older the inputs, the less you pay
Size fee: is charged for outputs>10,000 bytes (5 outputs or more). In
general, the more outputs, the more you pay
Fees are multiples of BTC 0.0001 which is a matter of cents with the current
exchange rate.
You have the possibility to increase the fee manually to get the transaction
confirmed faster.

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How does the infrastructure work?
Block
chain
Node
Block
chain
Node
Block
chain
Node
Block
chain
Node
Block
chain
Node
Block
chain
Node
Block
chain
Node
Block
chain
Node
• Same data in decentralised
structure, i.e. Blockchain structure
made up of identical Blockchain
nodes
• +/- 6,000 Blockchain nodes around
the world, mostly in US
• Majority rules, i.e. 51% of nodes
need to confirm the transaction
• Each Blockchain node is 35GB and
is growing with 1-2GB a year

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Block
chain
Node
Block Block Block Block
• Blockchain nodes are made up of
blocks
• A block contains bitcoin transactions;
reward for creating the block; proof of
work by the bitcoin miner
• Blockchain nodes currently contain
393,000 blocks, with 1 added in every
10 minutes by bitcoin miners
• A block will only be added if more then
51% of the nodes accept the block as
valid
• By linking every block to its predecessor
via a hash you cannot temper with
previous blocks
How does the infrastructure work?

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Blockchain.info

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How bitcoin mining works?
• Bitcoin miners ensure that the bitcoin network is up and running and stays
up-to-date. They collect the transactions in blocks and add them to the
Blockchain. A block is added to the Blockchain in every 10 minutes
• At his moment there are between 5,000 and 100,000 miners
• The miner who solves the Proof of Work mathematical problem first, is able
to put his block in the Blockchain and gets rewarded (BTC 25 and all the
fees of the transactions in the block)
• ‘The winner takes it all’, so the other miners get nothing. But there is a race
every 10 minutes and each time you start from scratch
• Costs: entrance is free however to race you need fast computers and
electricity. So racing costs real money!
• Revenues: close to EUR 10,000 in 10 minutes. But then you need to be the
fastest and smartest!

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How can you successfully mine?
• Ensure you have more computer power (hash rate) then other
miners, which increases the chance that you solve the Proof of
Work first
• Pool together with other miners and agree that you share the reward
if one person in the pool wins
• Check www.blockchain.info to see who won the latest block
BUT:
• The more miners there are – i.e. the more computer power
becomes available – the faster the mining of a block. To avoid too
fast mining, the Proof of Work is made increasingly difficult
(difficulty)

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How will this impact us?
• Not a given that Bitcoin will have a future but virtual currencies are here to
stay
• Virtual currencies are a new form of competition to banks
• Banks and other financial institutions are actively looking at the technology
behind virtual currencies to improve their own technology and lower their
costs
• Most Banks are actively looking at Blockchain, not at Bitcoin

28. Source: Computerweekly.com – October 2015
RBS and Blockchain

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Questions?

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Sources for this presentation
– https://99bitcoins.com/bitcoin-mining-profitable-beginners-explanation/
– https://blockchain.info/
– https://en.bitcoin.it/wiki/Comparison_of_mining_pools
– https://bitcoin.org/en/
– http://organofcorti.blogspot.mx/
– https://www.khanacademy.org/economics-finance-domain/core-finance/money-and-
banking/bitcoin/v/bitcoin-proof-of-work
– https://www.khanacademy.org/economics-finance-domain/core-finance/money-and-
banking/bitcoin/v/bitcoin-transaction-block-chains
– https://bitnodes.21.co/
– http://bitcoinfees.com/
– Andreas M. Antonopoulos: "Consensus Algorithms, Blockchain Technology and Bitcoin" [UCL]
(https://www.youtube.com/watch?v=sE7998qfjgk)