Bitcoin uses a decentralized, distributed peer-to-peer network to maintain a public ledger of transactions without the need for a central authority. Miners on the network verify transactions and group them into blocks, competing to be the first to solve complex cryptographic puzzles. Whichever miner solves the puzzle first broadcasts the verified block of transactions to the network, receiving a reward of newly created bitcoins. This process of proof-of-work prevents fraud by making the blockchain history difficult to modify. The network difficulty adjusts to keep block generation at around 10 minutes, and the longest blockchain is accepted as the valid history by consensus.

1. BITCOIN
Jas Chhabra
James Wood

2. What is Money?

3. Should be hard to counterfeit

4. Maybe Good store of Value
??

5. But, today we mostly deal with money
electronically

6. For all electronic transactions, we need
somebody to maintain the records/Ledger

7. Typically it is a Bank or Financial
institution

8. Banks can be thought of as maintaining a
trusted ledger for accounts and transfers
TRUST

9. Today’s Electronic money
+ Lot of protections against theft
+ Easy to use
- Not Anonymous
- Requires Trust

10. Cash
+Anonymous
+ Hard to Counterfeit
- Gone if stolen

11. Imagine an electronic cash system
E$: Just bits

12. Cash
+Anonymous
+ Hard to Counterfeit
- Gone if stolen

13. Background: Digital signatures

14. Electronic Cash
Double Spending ?
Transaction Amount Reference Signed
Joe->John 2E$ Previous
Transaction
Transaction
Signed by Joe
Joe->Jane 2E$ Previous
Transaction
Transaction
Signed by Joe
Previous
transaction
sending E$
to Joe

15. Ledger to prevent double spending
Transaction Amount Balance Status
Joe->John X$ 0 Accepted
Joe->Jane X$ -X Rejected

16. Who maintains this ledger?
Who do we trust?

17. Bitcoin network maintains a
Decentralized, distributed, p2p
payment ledger

18. First let us understand what is a
Ledger entry in Bitcoin network or
a transaction

19. What is a Bitcoin transaction
: One example transaction
From: Joe’s Anonymous Address (pub key hash)
Which contains: 50 BTC
Hash: Previous transaction
To: Bob’s Anonymous address (pub key hash)
Send: 10 BTC
To: Joe’s new Anonymous address (pub key hash)
Send: Change of 40 BTC
Signature: Proof that Joe is allowed to spend the 50
BTC
Bob will spend
using the private
key

20. Next transaction by Bob
From: Bob’s Anonymous Address (pub key hash)
Which contains: 10 BTC
Hash: Previous transaction
To : John’s Anonymous address (pub key hash)
Send: 10 BTC
Signature: Proof that Bob is allowed to spend the 50
BTC

21. How does everybody agree on
the same version of ledger?
Brilliant solution by Satoshi
Nakamoto

22. Background: Hash based proof of work
Ideal Hash Function
Arbitrary length
input
Fixed length
output
• Random mapping
• Same output for same input
What is a Hash ?

23. Background: Hash based proof of work
E.g. For 128 bit hash
Given
X
Find
Y
<Hash (X||Y) 00 00 00 00 FF FF FF FF FF FF FF FF FF FF FF FF

24. Blocks and Proofs
Previous Block’s hash
Nonce
Transaction 1
Trasnsaction 2
Transaction N
Previous Block’s hash
Nonce
Transaction 1
Trasnsaction 2
Transaction N

25. Block in progress / mining
Previous Block’s hash
Transaction 1
Trasnsaction 2
Miner’s transaction
Nonce+
Hash < Network difficulty decided target
Broadcast Proof to
the network

26. Miner’s transaction
Special transaction that transfers 25 BTC
(current) to an address provided by the
miner(reward going down)
Makes every miner’s proof of search
different
Incentive for miner

27. Network Difficulty
Adjusts to ensure blocks are
generated every 10 minutes
Ensures that probability of you finding
a block is proportional to your
computing power

28. Multiple miners are
working
This causes forks
Longest chain is hardest to
reverse
So it Wins

29. How does this prevent
fraud?
Lot of computing power needed to
reverse a Tx few blocks ago.
Network is moving ahead
Nearly impossible to catch up.

30. Summary
Only one history(longest) is accepted
by the network
Computing power == Vote
Miner’s transactions provide incentive
for mining

31. Bitcoin as a platform for new types of
transaction
Standard Transaction
To Spend: OP_CHECKSIG
Operation in a stack
based language
Lots of other possible operations:
For example: OP_CHECKMULTSIG, OP_ADD,
OP_IF,…
Combine operations to create new transactions

32. History and Color : James Wood
http://prezi.com/4dsf-gkdyw55/bitcoins/

33. Bitcoin: Future

34. GPU Mining Rig picture

35. Using Bitcoins: Demo
• Resources: https://www.weusecoins.com/en/getting-
started

36. Questions?