A basic introduction to the bitcoin's architecture and the blockchain that supports the bitcoin network. Intended audience = college students who had no idea about bitcoin, blockchain or the cryptography involved. This is a good place to start with bitcoin if you are just curious about what all the buzz is about.

1. Cryptocurrency
Bitcoin and the Blockchain
8th March, 2016
Monik Pamecha
monik@etiole.com

2. Going back

3. Barter System

4. Physical Objects
WORKS

5. WHAT ABOUT HIM?!
FAILS

8. FIAT CURRENCIES

9. MONEY

10. HAVE FAITH AND HOPE
OTHERS WILL HAVE
FAITH

11. SO WHAT ABOUT
BITCOIN?

12. ?

14. NAME BALANCE
ROHIT 5.00
JOHN 7.32
VINNY 230.22
AWAIZ 93.32
LIST OF RECORDS - LEDGER
6.00
229.22
Transaction

15. But banks do that any
way
So what is different?

16. BANKS LEDGER

17. YOU NEED TO
TRUST
The banks/authorities

18. EVERYBODY MAINTAINS A COPY
Image: http://www.imponderablethings.com/2013/07/how-bitcoin-works-under-hood.html

19. Image: http://www.imponderablethings.com/2013/07/how-bitcoin-works-under-hood.html

20. NETWORK OF
RANDOM
STRANGERS
BUT EVERYBODY
KNOWS EVERYTHING!!!!

21. 600.00 for a date with Alisha
240.00 for a date with Akansha
20.00
Vada Pav
with himself
JOEY’s Pizza
Dosa guy
outside
6 and 3/4 Hills
OUR INSANELY DELICIOUS FOOD SERVING CANTEEN
HARSH’s TRANSACTIONS

22. So Harsh can’t remain
the player he is
But luckily with bitcoin he can

23. 600.00 for a date with Alisha
240.00 for a date with Akansha
20.00
Vada Pav
with himself
JOEY’s Pizza
Dosa guy
outside
6 and 3/4 Hills
OUR INSANELY DELICIOUS FOOD SERVING CANTEEN
1HB5XML
mzFVj8ALj
6mfBsbifRo
D4miY36v
1K9C8kGB
hb6e5i2VY
N6NXEqBb
sd635Lt9y
1PjoMgwH
Z9LoBR14i
bgSpcBLs
WciMjjitq
185X18qsBYt
WMKvBMK1d
tN2EZEZWzw
n2tW
158H1mtB4iDNkZyVxtK82rZoF6S2xMH69S
?
?
?

24. COMPLETE
ANONYMITY
NO Links between real identity
and public address on bitcoin
network

25. So what is a bitcoin
transaction like?

26. Marco Polo 4.00 BTC
1HB5XMLmzFVj8ALj6
mfBsbifRoD4miY36v
Marco’s Public Address

27. Every node* on
network is updated
*node = user

28. That’s easy
I can spend everyone
else’s money!
Not so easy

29. AMIT’s
Address
YUKTI’s
Address
5000.0
Signature : ????

30. 1EdL1yeBQCLXaFw97VH3Zuq2dCgDt9Ag9u
L38gXdAApcQd3z8W9zLtZKKzpM9MkG82ttapu4HiVQJ1CbvzfP7n
PUBLIC KEY : SAFE TO SHOW TO THE WORLD
PRIVATE KEY : KEEP IT WITH YOURSELF
EVERY WALLET

31. AMIT’s
Address
YUKTI’s
Address
5000.0
Signature : ????

32. Signature comes from a function
Transaction Content :
Who to and how much?
Your Wallet’s Private Key
304502206e21798a
42fae0e854281abd
38bacd1aeed3ee37
38d9e1446618c457
1d1090db022100e2
ac980643b0b82c0e
88ffdfec6b64e3e6
ba35e7ba5fdd7d5d
6cc8d25c6b241501
Your Wallet’s Public Key!

33. Recap
Image: http://www.imponderablethings.com/2013/07/how-bitcoin-works-under-hood.html

34. AMIT’s
Address
YUKTI’s
Address
5000.0
304502206e21798a
42fae0e854281abd
38bacd1aeed3ee37
38d9e1446618c457
1d1090db022100e2
ac980643b0b82c0e
88ffdfec6b64e3e6
ba35e7ba5fdd7d5d
6cc8d25c6b241501
1EdL1yeBQCLXa
Fw97VH3Zuq2dC
gDt9Ag9u
EVERY NODE WILL CHECK
1HB5XMLmzFVj8A
Lj6mfBsbifRoD4mi
Y36v
DO THEY
MATCH?
This function gives
public key from
signature

35. AMIT’s
Address
YUKTI’s
Address
5000.0
304502206e21798a
42fae0e854281abd
38bacd1aeed3ee37
38d9e1446618c457
1d1090db022100e2
ac980643b0b82c0e
88ffdfec6b64e3e6
ba35e7ba5fdd7d5d
6cc8d25c6b241501
1EdL1yeBQCLXa
Fw97VH3Zuq2dC
gDt9Ag9u
AMIT’s
Address
PIYA’s
Address
4000.0 304402201df3f048
877aff61e4106641
5f4e446033bdb498
33a24d37102794a0
683c73d5022038d1
9ad1a71367c285e0
e4ff4408405a8b37
df4c8a9e36edc3e4
2fe2ac862f0201
185X18qsBYtWM
KvBMK1dtN2EZE
ZWzwn2tW
They are different! Each
transaction will have a
different sign!

36. What are f(x) and
g(x)?
Elliptic Curve Digital Signature Algorithm

37. AMIT’s
Address
YUKTI’s
Address
5000.0
Signature : ????
304402201df3f0
48877aff61e410
66415f4e446033
bdb49833a24d37
102794a0683c73
d5022038d19ad1
a71367c285e0e4
ff4408405a8b37
df4c8a9e36edc3
e42fe2ac862f02
01

38. Transaction Content :
Who to and how much?
Your Wallet’s Private Key
304502206e21798a
42fae0e854281abd
38bacd1aeed3ee37
38d9e1446618c457
1d1090db022100e2
ac980643b0b82c0e
88ffdfec6b64e3e6
ba35e7ba5fdd7d5d
6cc8d25c6b241501
5000 to Yukti

39. What do we know?
Each transaction = unique signature
Each transaction = Can be verified who signed it
Each transaction = Any attempt to manipulate
transaction invalidates the sign

40. Questions?

41. NAME BALANCE
ROHIT 5.00
JOHN 7.32
VINNY 230.22
AWAIZ 93.32
LIST OF RECORDS - LEDGER
6.00
229.22
Transaction

42. Transactions are stored
+
0.008

43. Transaction
Inputs Outputs
People giving me bitcoins Me giving people bitcoins
=
They must be equal!

44. What if
tx1
tx2
5 btc
7 btc
I want to
pay 9 only
What about
extra 3?
Send 3 back
to myself

45. All inputs in a
transaction must be
used up

46. Back to Transactions

47. Every single bitcoin can be traced to the start

48. Types of Transactions
Spent
Unspent
Solves the double spending problem partiall

49. Questions?

50. Double spending problem
1. Alice wants buy stuff from Bob
2. Alice sends Bob some bitcoins
3. Takes the items
4. Alice sends himself some bitcoins
referencing same inputs
5. Possibility that Alice’s transaction to himself
gets confirmed
6. All other users will reject Alice -> Bob
transaction
7. Alice get’s the stuff for free!

51. PROBLEM
ORDERING OF
TRANSACTIONS
Which transactions occurred first?

52. SOLUTION
THE BLOCKCHAIN
Image: http://www.imponderablethings.com/2013/07/how-bitcoin-works-under-hood.html

53. Block = Group of transactions
Image: http://www.imponderablethings.com/2013/07/how-bitcoin-works-under-hood.html

54. So can anybody add
their own block?
Yes, but with some effort

55. Image: http://www.imponderablethings.com/2013/07/how-bitcoin-works-under-hood.html

56. What is Hashing
Demo

57. Computers guess the
hash values using
computational power
A single computer = require years
Bitcoin network = Approx. 10 minutes

58. When will the problem get solved?

59. EUREKA! PROBLEM
SOLVED
WAIT, SOMEBODY ALREADY SOLVED IT BEFORE!
Switch to the longest chain

60. Multiple chains get orphaned

61. One more problem
Image: http://www.imponderablethings.com/2013/07/how-bitcoin-works-under-hood.html

62. How difficult is it to mine
consecutive blocks
successfully?

63. q=0.1
z=0 P=1.0000000
z=1 P=0.2045873
z=2 P=0.0509779
z=3 P=0.0131722
z=4 P=0.0034552
z=5 P=0.0009137
z=6 P=0.0002428
z=7 P=0.0000647
z=8 P=0.0000173
z=9 P=0.0000046
z=10 P=0.0000012
As number of blocks to catch up increase,
Probability to catch up decreases exponentially
Satoshi Whitepaper : http://bitcoin.org/bitcoin.pdf

64. Us Against The World
For a malicious node

65. Questions?

66. Final Part
Why should anybody invest money
and computational power to mine
blocks?

67. The bitcoin reward per
block
art way of introducing bitcoins into the econ
wards halve every year and will eventually s
Current Reward = 50 bitcoins

68. Transaction Fees

69. But bitcoins are
limited?
Deflationary Currency
Bitcoins are divisible upto
1 satoshi = 0.00000001 BTC

70. Blockchain as a
consensus mechanism

71. Thanks!
Monik Pamecha
monik@etiole.com
@monikkinom