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Bitcoin Protocols 1.0 and 2.0 Explained 
October 11, 2014 
Bitcoin Meetup 
Slides: http://slideshare.net/LaBlogga 
Blockchain: The Information 
Technology of the Future 
Melanie Swan 
melanie@BlockchainStudies.org 
www.BlockchainStudies.org
What is the Blockchain? 
October 11, 2014 
Blockchain Technology 
1 
We should think about the blockchain as another class of 
thing like the Internet – a comprehensive information 
technology with tiered technical levels and multiple 
classes of applications for any form of asset registry, 
inventory, and exchange, including every area of finance, 
economics, and money; hard assets (physical property); 
and intangible assets (votes, ideas, reputation, intention, 
health data, information, etc.). In fact the blockchain 
concept is even more, it is a new organizing paradigm. 
– Melanie Swan, Founder, Institute for Blockchain Studies
New VC investment cycle: Blockchain Tech 
October 11, 2014 
Blockchain Technology 
“The blockchain is the core innovation,” 
Marc Andreessen, CoinSummit (Mar 2014) 
“We want a whole sequence of companies: digital 
title, digital media assets, digital stocks and bonds, 
digital crowdfunding, digital insurance. If you have 
online trust like the blockchain provides, you can 
reinvent field after field after field.” 
2 
http://www.bloomberg.com/news/2014-03-28/bitcoin-2-0-shows-technology-evolving-beyond-use-as-money.html
About Melanie Swan 
Traditional Background 
October 11, 2014 
Blockchain Technology 
3 
New market startups: 
Grouppurchase 
Prediction Markets 
Quantitative Methods 
Virtual World Valuation Blockchain Futures 
http://www.slideshare.net/lablogga/singularity-university-live-prediction-markets-simulation-big-data-indicators 
http://www.slideshare.net/lablogga/virtual-worlds-economy
Agenda for Blockchain Futures 
 Blockchain Industry Status 
 Bitcoin Protocol 1.0 
 Bitcoin 2.0 Protocols 
 Bitcoin 2.0 Platform: Ethereum 
 Appendix: Bitcoin Basics 
October 11, 2014 
Blockchain Technology 
4 
Based on information synthesized from Internet resources including cryptocurrency expert Andreas 
M. Antonopoulos and Ethereum project members (Vitalik Buterin, Gavin Wood, Stephan Tual)
What is Bitcoin? Terminology confusion 
 The term Bitcoin is used to refer to 3 things: 
1. The underlying technology concept/platform 
2. The protocol for using this technology platform 
3. The currency for transactions using this protocol 
 It is as if Paypal called the Internet Paypal, upon which 
the Paypal protocol was run to transfer Paypal currency 
 Instead, more appropriate terminology is 
1. Blockchain technology: the underlying technology platform 
(decentralized digital transaction ledger; an information 
technology akin as a ‘class of thing’ to the Internet) 
2. Bitcoin protocol: transaction system to move value between 
parties without third party interaction 
3. Bitcoin currency (denoted as btc): the bitcoin coins 
October 11, 2014 
Blockchain Technology 
5
What is the Blockchain? 
October 11, 2014 
Blockchain Technology 
6 
 Decentralized transaction database shared by all 
network nodes, owned, updated, and monitored by 
everyone, controlled by no one 
 Like a giant interactive spreadsheet everyone has access to and 
updates to confirm that the digital transactions are unique 
 Solution to the double-spend problem 
 Previously, a centralized third party had to issue and reconcile 
digital cash transactions to prevent the electronic cash from 
being spent multiple times (easy to copy digital assets) 
 BitTorrent P2P file-sharing technology plus public key 
cryptography combined to make a new form of currency 
 Name blockchain: literally transactions grouped into 
blocks and posted sequentially in a chain to the ledger
Blockchain explorer allows viewing of latest 
transactions posting to the Ledger 
October 11, 2014 
Blockchain Technology 
7
Specific Transaction Detail 
October 11, 2014 
Blockchain Technology 
8
Proposed Blockchain Uses 
 Decentralized transaction ledger could be used to encode 
and confirm/transfer all property 
 Financial 
 Currency, Stock, Private Equity, Bonds, Derivatives, Crowdfunding 
 Public Records 
 Land Titles, Vehicle Registries, Business Licenses, Passports, 
Voter IDs, Death Certificates, Proof of Insurance 
 Private Records 
 Contracts, Signatures, Wills, Trusts, Escrows 
 Physical Asset Keys 
 Home, Hotel Rooms, Rental Cars, Car Keys 
 Intangibles: Patents, Trademarks, Reservations, Domain Names 
October 11, 2014 
Blockchain Technology 
9 
http://ledracapital.com/blog/2014/3/11/bitcoin-series-24-the-mega-master-blockchain- 
list
Blockchain Industry Status 
 Bitcoin protocol ossifying (like IPv4: victory by diffusion) 
 To be stabilized within 2 years for 30 years 
 Harder to make any changes: 6 constituencies for consensus 
1. Miners (independents, pools, ASICs) 
2. Merchant processing gateways 
3. Web wallet companies (Blockchain.info) 
4. Exchanges (Coinbase, Bitstamp) 
5. Users/consumers 
6. Hardware manufacturers (TREZOR) 
TREZOR 
hardware wallet 
 Impossible for new alt.coins to get network effect traction 
 Bitcoin developer focus 
 BIP0032 spec 
 Hierarchical deterministic wallet trees, sidechains (btc-pegged) 
October 11, 2014 
Blockchain Technology 
10
Bitcoin code on github 
October 11, 2014 
Blockchain Technology 
https://github.com/bitcoin/bitcoin/graphs/contributors 11
Bitcoin Protocol 1.0 and 2.0 
 Bitcoin 1.0: democratization of money, payments 
 Bitcoin 2.0: democratization of markets (‘web -> Amzn’) 
 Not just currency, contracts, property, savings accounts 
 Financial instruments: stock, bonds, derivatives 
 Decentralized exchanges 
 Decentralized applications (DAOs) 
 Decentralized companies (DACs) 
 1.0 protocol: various technical limitations 
 Multi-signature, blockchain bloat, processing 
 Irreversible transactions, one asset per token 
 Anonymity, fungibility, scalability, vulnerability (51% attacks) 
 Robust Turing-complete protocol system, scripting language 
October 11, 2014 
Blockchain Technology 
12
Bitcoin 2.0 Protocol Projects/Companies 
 Similar fungible functionality, application-specific foci 
 Bitcoin overlay (‘HTTP/HTML/SMTP to Bitcoin’s TCP/IP’) 
 Colored Coins: issue your own currency on the bitcoin network 
(by adding metadata to Bitcoin transaction) 
 Counterparty: a decentralized exchange between alt.currencies 
 Mastercoin: financial derivatives 
 ZeroCoin, NXT 
 Alt.chains: Separate blockchains (‘new TCP/IP’) 
 Namecoin: decentralized domain name registry 
 Ripple: gateway, payment, exchange, remittance network 
 BitShares: decentralized crypto-equity share exchange 
 Ethereum: decentralized Turing-complete platform 
October 11, 2014 
Blockchain Technology 
13
Bitcoin/Blockchain Sector Funding (as of Oct 2014) 
 $300 million venture capital 
 $30 million crowdfunding 
 https://bitcoinstarter.com/, http://coinfunder.com/ 
October 11, 2014 
Blockchain Technology 
14 
http://www.coindesk.com/will-bitcoin-venture-capital-investment-reach-300m-2014/ 
http://en.wikipedia.org/wiki/List_of_highest_funded_crowdfunding_projects
Bitcoin 2.0 Protocols: Difference Parameters 
 How plugs into Bitcoin ecosystem 
 Own blockchain or overlay to bitcoin 
 Functions of own currency (issue and retire assets) 
 Money supply 
 Fixed, growth-specified (inflationary, deflationary) 
 Mined, pre-mined 
 Currency/tokens: native, fiat, other cryptocurrency 
 How blocks are created (transactions fees and 
rewards) 
 Consensus, proof-of-work, proof-of-stake, hybrid, 
proof-of-burn; code feature bounties 
 Issuance (crowdfunding, venture capital) 
October 11, 2014 
Blockchain Technology 
Source: Piotr Piasecki 15
$18.4m USD Ethereum Fundraising 7/2014 
 Initial Sale 
 (Sliding) 2,000 ether to 1 bitcoin or $620 
 60m Ether (ETH) sold ($1 USD ~ 3.25 ETH) 
 Dev offices in Berlin (expanding to ~20) 
 Ongoing Macroeconomic Policy 
 Ether has build-in increase of overall money 
supply at fixed rate 
 40% of the amount raised in the fundraiser will 
be the annual increase in money supply 
 Ether subunits 
 Finney (10-3), szabo (10-6), shannon (10-9), 
babbage (10-12) 
October 11, 2014 
Blockchain Technology 
Vitalik Buterin, Creator 
Gavin Wood, Architect 
16 
Stephan Tual, CCO 
http://www.businessinsider.com/ethereum-launches-ether-2014-7
The Ethereum Project 
 Complete Step 3 of Satoshi Nakamoto’s original plan 
1. (The blockchain) Decentralized database, put assets into a 
transparent ledger, everyone has a copy 
2. (The bitcoin protocol) Transaction system to move value 
between parties without third party interaction 
3. Robust scripting system; instead of just sending currency, send 
contracts, smart property; requires Turing completeness 
 ‘General-purpose’ cryptocurrency network 
 A decentralized publishing platform featuring stateful 
user-created digital contracts and a Turing-complete 
contract programming language 
 Chain implementation & contracts with shared mining 
October 11, 2014 
Blockchain Technology 
17
Smart Contracts: Programmable Money 
 Multisignature (multiparty) escrows (~Bitrated 2.0) 
 Financial exchanges 
 Savings Accounts 
 Domain name registries 
 Self-enforcing contracts and agreements 
 Crowdfunding platforms, Prediction markets 
 Smart property 
 Intellectual property 
 Voting systems 
 Company governance 
 Nationstate constitution and bill of rights 
October 11, 2014 
Blockchain Technology 
18
Write your own Smart Contracts 
October 11, 2014 
Blockchain Technology 
19 http://forum.ethereum.org/discussion/1402/how-to-get-started-your-first-dapp-under-one-hour
Example: Smart Property 
 Instead of trading coin, shares, trade/buy-sell assets 
 Encode asset to the blockchain via unique key 
 Trade cars on the blockchain through a decentralized 
exchange 
 Entire used auto market trades via blockchain 
October 11, 2014 
Blockchain Technology 
20 
 Blockchain becomes 
an inventory, 
tracking, and 
exchange mechanism 
for all hard assets
Ethererum Browser ‘Mist’ Mock-up 
October 11, 2014 
Blockchain Technology 
21 http://forum.ethereum.org/discussion/1402/how-to-get-started-your-first-dapp-under-one-hour
The key benefit of Ethereum for the automated-economy is that 
it is a Turing-complete VM 
Ethereum Virtual Machine (EVM) 
October 11, 2014 
Blockchain Technology 
22 
 The Ethereum blockchain is… 
 A blockchain with a built-in programming language 
 The decentralized, massively replicated database in which the 
current state of all accounts is stored 
 A consensus-based globally executed virtual machine 
 The Ethereum Virtual Machine (EVM) handles internal 
state and computation 
 Large decentralized computer with millions of account objects 
 Each account object 
 Has its own internal code 
 Contains a 32-byte key/value database called storage 
 Can call or send messages to other objects 
https://github.com/ethereum/wiki/wiki/Ethereum-Development-Tutorial
Tech Specs 
Accounts stored in a Patricia tree (like a Merkle tree) 
 A root hash refers to the entire tree; 
tree contents cannot be modified 
without changing the root hash 
 A miner produces a new block each 
minute with the latest transactions and 
the root hash of the Patricia tree 
representing the new state 
 4-tuple stored per account 
 [account_nonce, ether_balance, code_hash, storage_root] 
 account_nonce: the number of transactions sent from the account 
(kept to prevent replay attacks) 
 ether_balance: the balance of the account 
 code_hash: the hash of the code if the account is a contract 
 storage_root: the root of another Patricia tree with the storage data 
October 11, 2014 
Blockchain Technology 
23 
https://github.com/ethereum/wiki/wiki/Ethereum-Development-Tutorial
Ethereum Contract Processing 
October 11, 2014 
Blockchain Technology 
24 
 Two account object types 
 Contract 
 EOA (externally owned account) 
 Contract receives a message and runs the code 
 Ability to read/write to its own internal storage 
 Read the storage of the received message 
 Send messages to other contracts, and to itself 
 The contract is the code that executes the contract 
 Contract can interact with the world outside the EVM 
 EOA (externally owned account) messages the contract 
 Transaction is sent signed by the EOA’s private key 
 Advanced: SchellingCoin Universal Data Feed for derivatives 
(minimal trust, two-step commitment protocol per round) 
https://github.com/ethereum/wiki/wiki/Ethereum-Development-Tutorial 
https://blog.ethereum.org/2014/03/28/schellingcoin-a-minimal-trust-universal-data-feed/
Ethereum Contract Example 
 GavCoin is stored as 
entries in the GavCoin 
contract's database 
 The bet contract sees the 
temperature and messages 
the GavCoin contract to 
payout (object autonomy) 
October 11, 2014 
Blockchain Technology 
25 
 GavCoin weather bet between Bob and Alice 
 Automated EVM communications 
 Heterogeneous user security preferences 
 A transaction is sent, triggering forwarding contract 
and EAO messaging 
EAO (externally owned account) 
https://github.com/ethereum/wiki/wiki/Ethereum-Development-Tutorial
EVM Operation / “Gas” Fees 
 Ethereum consensus model 
 Each operation executed in the EVM is simultaneously executed 
by every full node 
 Benefit: any contract on the EVM can call any other contract at 
almost zero cost 
 Cost: computational steps on the EVM are very expensive 
 Transaction fee and block operation limit 
 The Ethereum protocol charges a market-based fee in ether per 
computational step (prevent deliberate attacks and abuse) 
 Floating limit on the number of operations contained in a block 
 Even miners who can afford to include transactions at close to 
no cost are forced to charge a fee commensurate with the cost of 
the transaction to the entire network 
October 11, 2014 
Blockchain Technology 
26 
https://github.com/ethereum/wiki/wiki/Ethereum-Development-Tutorial
Smart Contract-DOA/DAC Progression 
 Smart Contract 
 Transaction protocol that executes the terms of a contract 
 Smart property: property whose ownership is controlled via the 
blockchain using contracts (examples: cars, phones, houses) 
 Đapp (Decentralized Application) 
 Contract plus graphical interface for contract execution 
 JavaScript API ‘eth object’ interacts with Ethereum blockchain 
 DAO (Decentralized Autonomous Organization) 
 Self-enforcing smart contract (group of contracts) on a 
cryptographic blockchain, multiparty complexity 
 (Like remittances) avoid local business jurisdictional costs 
 Own Ethereum address (key) and balance, send and receive 
transactions, EtherScript scripts can modify their own code 
October 11, 2014 
Blockchain Technology 
27 
http://www.slideshare.net/mids106/ethereum-decentralized-autonomous-organizations 
Egalitarian DAO contract explained: https://www.youtube.com/watch?v=Q_gxDytSvuY
Decentralized Autonomous Corporations 
 DACs, automated markets, and tradenets 
 Fully-autonomous business entity 
 Autonomous property, example: self-owned, self-driving car 
 Example: 
Vehicles use the tradenet to find 
customers and bid for road space 
 Storj.io (decentralized cloud storage) - Gregory Maxwell 
 MetaDisk: upload your data to the Storj network 
 DriveShare: earn money by being a part of the Storj network 
 Doesn’t work on bitcoin due to scripting language limitations 
October 11, 2014 
Blockchain Technology 
28 
http://www.slideshare.net/mikehearn/future-of-money-26663148, http://storj.io/ 
http://bitcoinmagazine.com/7050/bootstrapping-a-decentralized-autonomous-corporation-part-i/
Tech Specs 
State Machine, Languages, and Code 
 Current Release 
 Proof of concept build - PoC5, GitHub release on July 22, 2014 
with the launch of the Ether pre-sale 
 EVM computation via a stack-based bytecode language 
 Bitcoin Script, traditional assembly, and Lisp 
 A program in EVM is a sequence of opcodes 
 Contract programming with high-level languages 
 LLL, serpent, Mutan compiles into EVM 
 Create contracts by sending the transaction containing the EVM 
bytecode 
 One-click installation for everything (like mobile apps) 
 Ecosystem Plug-and-play: Wallet, Open Transactions, Ripple 
October 11, 2014 
Blockchain Technology 
29
Classes of Ethereum Applications 
October 11, 2014 
Blockchain Technology 
30 
 Finance and Economics 
 BitCloud (decentralized escrow), OpenLibernet (open comms) 
 Debt market, futures (derivatives), savings 
 Voting (Futarchy, Liquid Democracy) 
 Resource exchange: eBay, Amazon, Uber, AirBnB 
 Functions: authentication, validation, escrow, delivery 
 P2P Package Courier Service (notified as you leave location) 
 Real-time cost-based data center storage swapping 
 Loyalty, everyone’s own currency: JefCoin 
 Automated markets, tradenets 
 Economics: transactions/contracts pay-on-board network Ether 
 GBI (Guaranteed Basic Income) – Switzerland freicoin
One use for Ethereum 
Blockchain Genomics 
October 11, 2014 
Blockchain Technology 
31 
 Jurisdictional regulation prevents 
individuals from having access to 
their own genetic data 
http://genomesunzipped.org/2011/03/people-have-a-right-to-access-their-own-genetic- 
information.php
Alt.apps: Blockchain Health 
 Using blockchain tech for health-related applications 
1. Personal Health Record Storage 
 Personal health records stored and administered via blockchain 
 Users key-permission doctors and other parties into records 
2. Health Research Commons 
 Aggregated personal medical records, quantified self data 
commons (DNA.bits) 
3. Health Document Notary Services 
 Proof-of-insurance, test results, prescriptions, status, condition, 
treatment, physician referrals 
4. Doctor Vendor RFP Services 
 (Like Uber drivers) doctors and health practices bid to supply 
medical services; automated bidding via tradenets 
October 11, 2014 
Blockchain Technology 
32 
http://futurememes.blogspot.fr/2014/09/blockchain-health-remunerative-health.html
Demurrage Blockchain Health 
 Demurrage currency: built-in mechanism for 
spend/action-taking 
 Freicoin: Switzerland GBI (Guaranteed Basic Income) 
 GBHA (Guaranteed Basic Health Initiative): paid out and payable 
in HealthCoin; HSA (Health Savings Account) 2.0 
 Fitbit and smartwatch are demurrage health currencies 
 Health itself as a demurrage currency, a continually 
auto-redistributing commodity among synapses, cells, 
humans; body and brain as a DAO/DAC AI 
 Concept: demurrage resource-allocation + Đapp 
 Automatic redistribution of any commodity within a system (brain or mindfile 
(potentiation, optogenetic stimulation)), body (‘health’ (oxygen, waste removal 
nanobots, circulating lab-on-chips)), work team (ideas), society (liberty) 
October 11, 2014 
Blockchain Technology 
33 
Fitbit is a demurrage (action-inciting) health currency
Alt.apps: Blockchain Futures 
 Any venue for decentralized contracts (Đapp) 
 ‘Bitcoin MOOCs’ (‘Kickstarter for literacy’) 
 Like remittances, blockchain-improved aid, microcredit, 
development economics 2.0 
 Write Ethereum Literacy Contracts to emerging market peers 
 Reading, Technical, Agricultural, Vocational Literacy 
 New implementation of education in the blockchain 
 Blockchains as a public good 
 Wikileaks, ICANN, Wikipedia, Genomics 
 Uplifted to cloud from jurisdiction 
October 11, 2014 
Blockchain Technology 
34
Alt.apps: Blockchain Futures 
 Community supercomputing time 
 Blockchain tech as resource allocation for science efforts 
 Funding markets like crypto-equity and crowdfunding for any 
resource 
 Reputation systems (OpenBazaar), insurance 
(SchellingQuake), Key recovery (wallet key protection) 
 Blockchain GAAP: valuation, amortization, retirement 
 Intangible asset encoding, tracking, and trade 
 Attention, intention, reputation, health, ideas 
 Cryptoledger, financial cryptography, consensus-based 
ledger: revolutionizing concept for traditional institutions 
and startups in finance and beyond 
October 11, 2014 
Blockchain Technology 
35
Tech Specs 
Ethereum: Vitalik 9/14 Silicon Valley update 
 Key progress: proof of stake 
 Custody mining, hybrid proof-of-stake proof-of-work, 
Slasher, TenderMint, dbus 
 Decentralized application architecture 
 Ethereum: blockchain, account registry 
 Whisper: decentralized messaging (decentralized Twitter) 
 MadeSafe, Swarm: decentralized off-chain storage (images) 
 NameCoin, KeyID.info, Open Libernet: decentralized DNS, 
network messaging 
 Dev priorities: fully decentralized Internet Đapps 
 Proof of Concept 6 (?) – consensus algorithm SchellingCoin 
(POW-POS); UI; mobile client; DevTools 
 Ethereum 1.0 core, optimization, security, virtual machine 
October 11, 2014 
Blockchain Technology 
36
Tech Specs 
Ethereum JavaScript API: eth object 
 Ethereum contract execution interface is implemented as 
an HTML/CSS/JS webpage 
 JavaScript API, eth object interacts with the Ethereum 
blockchain, JavaScript API components: 
 eth.transact(from, ethervalue, to, data, gaslimit, gasprice) - sends a transaction to the desired 
address from the desired address (note: from must be a private key and to must be an 
address in hex form) with the desired parameters 
 (string).pad(n) - converts a number, encoded as a string, to binary form n bytes long 
 eth.gasPrice - returns the current gas price 
 eth.secretToAddress(key) - converts a private key into an address 
 eth.storageAt(acct, index) - returns the desired account's storage entry at the desired index 
 eth.key - the user's private key 
 eth.watch(acct, index, f) - calls f when the given storage entry of the given account changes 
 Required: Ethereum client (not regular web browser) 
 JavaScript API example: see source of link below 
October 11, 2014 
Blockchain Technology 
37 
https://github.com/ethereum/wiki/wiki/Ethereum-Development-Tutorial
Tech Specs 
Ethereum Code 
 PoC5 (Proof of Concept #5) (stable): 
 AlethZero (C++) 
 Ethereal (Go) 
 pyeth (Python) 
 PoC6 (experimental): 
 https://github.com/ethereum/cpp-ethereum/ 
 https://github.com/ethereum/go-ethereum 
 https://github.com/ethereum/pyethereum 
October 11, 2014 
Blockchain Technology 
https://github.com/ethereum/wiki/wiki 38
Resources 
 Coindesk (Bloomberg of Bitcoin) 
 http://www.coindesk.com 
 Let’s Talk Bitcoin podcast 
 http://letstalkbitcoin.com/ 
 Industry experts 
 ‘Crypto-guru’ Andreas Antonopoulos http://antonopoulos.com 
 Economist Susan Athey (Stanford, Microsoft, Ripple) 
http://www.coindesk.com/professor-susan-athey-people-use-bitcoin-intrinsic-value/ 
 Overview News Articles 
 SATOSHI'S REVOLUTION: How The Creator Of Bitcoin May Have 
Stumbled Onto Something Much, Much Bigger 
http://www.businessinsider.com/the-future-of-the-blockchain-2014-4 
 Future of Bitcoin & Math-Based Digital Currencies 
http://www.youtube.com/watch?v=Yg1JnbIS60g 
October 11, 2014 
Blockchain Technology 
39
Resources 
 Ethereum 
 http://www.reddit.com/r/ethereum/ 
 https://www.youtube.com/user/EtherCasts 
 https://github.com/ethereum/wiki/wiki 
 Ethereum Development Tutorial 
 White paper, Yellow Paper (http://gavwood.com/Paper.pdf) 
 Bitcoin Original White Paper 
 Satoshi Nakamoto’s design for the blockchain (2008) 
 https://bitcoin.org/bitcoin.pdf 
October 11, 2014 
Blockchain Technology 
40
Image credit: M. Ghezel 
October 11, 2014 
Bitcoin Meetup 
Slides: http://slideshare.net/LaBlogga 
Blockchain: The Information 
Technology of the Future 
Melanie Swan 
melanie@BlockchainStudies.org 
www.BlockchainStudies.org 
Thank You! Questions?
Appendix: Bitcoin/Blockchain Background 
 The New Economy… 
October 11, 2014 
Blockchain Technology 
42 
http://www.google.com/trends/explore#q=bitcoin
Cryptocurrency Market Cap Tracking 
October 11, 2014 
Blockchain Technology 
43 
https://coinmarketcap.com/
What is Bitcoin? 
 Digital currency, payments system, decentralized ledger 
 History: by combining BitTorrent technology (peer-to-peer 
file sharing) and public key cryptography a new 
form of currency was made possible 
 Arose as a solution to the double-spend problem 
 Prior to bitcoin and the blockchain concept, a centralized third 
party had to issue and reconcile digital cash transactions to 
prevent the digital cash from being spent multiple times (digital 
cash, like an image attached to an email, can be copied infinite 
times like any digital cash) 
 Implication: any transaction on the Web can be 
decentralized and stripped of a controlling authority 
October 11, 2014 
Blockchain Technology 
44 
http://codinginmysleep.com/bitcoin-mining-in-plain-english/, https://github.com/ethereum/wiki/wiki/White-Paper 
http://offtheblockchain.com/2014/02/22/read-the-original-satoshi-nakamoto-bitcoin-white-paper/
Economic Arguments for Bitcoin 
 Banking services market: 5 billion 
individuals worldwide without 
access to banking, financial, credit 
services 
 Remittances market: $4T global 
market 5-30% transaction fee, 
immediate funds transfer 
 Payments market: 1-3% merchant 
transaction fee 
 Successful examples indicate 
demand for digital payments: 
Starbucks mobile payment app 
October 11, 2014 
Blockchain Technology 
45
What is Bitcoin Mining? 
 The process of adding transaction records to Bitcoin’s public 
ledger of past transactions (the blockchain) 
 Confirms to the rest of the network that unique transactions 
have taken place 
 Bitcoin nodes use the block chain to distinguish legitimate 
Bitcoin transactions from attempts to re-spend coins that 
have already been spent elsewhere 
 Intentionally designed to be resource-intensive so that the 
number of blocks found each day by miners remains steady 
 Individual blocks must contain a proof of work to be 
considered valid. This proof of work is verified by other 
Bitcoin nodes each time they receive a block. Bitcoin uses 
the hashcash proof-of-work function 
October 11, 2014 
Blockchain Technology 
46 
http://codinginmysleep.com/bitcoin-mining-in-plain-english/

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Bitcoin Protocols 1.0 and 2.0 Explained in the Series: Blockchain: The Information Technology of the Future

  • 1. Bitcoin Protocols 1.0 and 2.0 Explained October 11, 2014 Bitcoin Meetup Slides: http://slideshare.net/LaBlogga Blockchain: The Information Technology of the Future Melanie Swan melanie@BlockchainStudies.org www.BlockchainStudies.org
  • 2. What is the Blockchain? October 11, 2014 Blockchain Technology 1 We should think about the blockchain as another class of thing like the Internet – a comprehensive information technology with tiered technical levels and multiple classes of applications for any form of asset registry, inventory, and exchange, including every area of finance, economics, and money; hard assets (physical property); and intangible assets (votes, ideas, reputation, intention, health data, information, etc.). In fact the blockchain concept is even more, it is a new organizing paradigm. – Melanie Swan, Founder, Institute for Blockchain Studies
  • 3. New VC investment cycle: Blockchain Tech October 11, 2014 Blockchain Technology “The blockchain is the core innovation,” Marc Andreessen, CoinSummit (Mar 2014) “We want a whole sequence of companies: digital title, digital media assets, digital stocks and bonds, digital crowdfunding, digital insurance. If you have online trust like the blockchain provides, you can reinvent field after field after field.” 2 http://www.bloomberg.com/news/2014-03-28/bitcoin-2-0-shows-technology-evolving-beyond-use-as-money.html
  • 4. About Melanie Swan Traditional Background October 11, 2014 Blockchain Technology 3 New market startups: Grouppurchase Prediction Markets Quantitative Methods Virtual World Valuation Blockchain Futures http://www.slideshare.net/lablogga/singularity-university-live-prediction-markets-simulation-big-data-indicators http://www.slideshare.net/lablogga/virtual-worlds-economy
  • 5. Agenda for Blockchain Futures  Blockchain Industry Status  Bitcoin Protocol 1.0  Bitcoin 2.0 Protocols  Bitcoin 2.0 Platform: Ethereum  Appendix: Bitcoin Basics October 11, 2014 Blockchain Technology 4 Based on information synthesized from Internet resources including cryptocurrency expert Andreas M. Antonopoulos and Ethereum project members (Vitalik Buterin, Gavin Wood, Stephan Tual)
  • 6. What is Bitcoin? Terminology confusion  The term Bitcoin is used to refer to 3 things: 1. The underlying technology concept/platform 2. The protocol for using this technology platform 3. The currency for transactions using this protocol  It is as if Paypal called the Internet Paypal, upon which the Paypal protocol was run to transfer Paypal currency  Instead, more appropriate terminology is 1. Blockchain technology: the underlying technology platform (decentralized digital transaction ledger; an information technology akin as a ‘class of thing’ to the Internet) 2. Bitcoin protocol: transaction system to move value between parties without third party interaction 3. Bitcoin currency (denoted as btc): the bitcoin coins October 11, 2014 Blockchain Technology 5
  • 7. What is the Blockchain? October 11, 2014 Blockchain Technology 6  Decentralized transaction database shared by all network nodes, owned, updated, and monitored by everyone, controlled by no one  Like a giant interactive spreadsheet everyone has access to and updates to confirm that the digital transactions are unique  Solution to the double-spend problem  Previously, a centralized third party had to issue and reconcile digital cash transactions to prevent the electronic cash from being spent multiple times (easy to copy digital assets)  BitTorrent P2P file-sharing technology plus public key cryptography combined to make a new form of currency  Name blockchain: literally transactions grouped into blocks and posted sequentially in a chain to the ledger
  • 8. Blockchain explorer allows viewing of latest transactions posting to the Ledger October 11, 2014 Blockchain Technology 7
  • 9. Specific Transaction Detail October 11, 2014 Blockchain Technology 8
  • 10. Proposed Blockchain Uses  Decentralized transaction ledger could be used to encode and confirm/transfer all property  Financial  Currency, Stock, Private Equity, Bonds, Derivatives, Crowdfunding  Public Records  Land Titles, Vehicle Registries, Business Licenses, Passports, Voter IDs, Death Certificates, Proof of Insurance  Private Records  Contracts, Signatures, Wills, Trusts, Escrows  Physical Asset Keys  Home, Hotel Rooms, Rental Cars, Car Keys  Intangibles: Patents, Trademarks, Reservations, Domain Names October 11, 2014 Blockchain Technology 9 http://ledracapital.com/blog/2014/3/11/bitcoin-series-24-the-mega-master-blockchain- list
  • 11. Blockchain Industry Status  Bitcoin protocol ossifying (like IPv4: victory by diffusion)  To be stabilized within 2 years for 30 years  Harder to make any changes: 6 constituencies for consensus 1. Miners (independents, pools, ASICs) 2. Merchant processing gateways 3. Web wallet companies (Blockchain.info) 4. Exchanges (Coinbase, Bitstamp) 5. Users/consumers 6. Hardware manufacturers (TREZOR) TREZOR hardware wallet  Impossible for new alt.coins to get network effect traction  Bitcoin developer focus  BIP0032 spec  Hierarchical deterministic wallet trees, sidechains (btc-pegged) October 11, 2014 Blockchain Technology 10
  • 12. Bitcoin code on github October 11, 2014 Blockchain Technology https://github.com/bitcoin/bitcoin/graphs/contributors 11
  • 13. Bitcoin Protocol 1.0 and 2.0  Bitcoin 1.0: democratization of money, payments  Bitcoin 2.0: democratization of markets (‘web -> Amzn’)  Not just currency, contracts, property, savings accounts  Financial instruments: stock, bonds, derivatives  Decentralized exchanges  Decentralized applications (DAOs)  Decentralized companies (DACs)  1.0 protocol: various technical limitations  Multi-signature, blockchain bloat, processing  Irreversible transactions, one asset per token  Anonymity, fungibility, scalability, vulnerability (51% attacks)  Robust Turing-complete protocol system, scripting language October 11, 2014 Blockchain Technology 12
  • 14. Bitcoin 2.0 Protocol Projects/Companies  Similar fungible functionality, application-specific foci  Bitcoin overlay (‘HTTP/HTML/SMTP to Bitcoin’s TCP/IP’)  Colored Coins: issue your own currency on the bitcoin network (by adding metadata to Bitcoin transaction)  Counterparty: a decentralized exchange between alt.currencies  Mastercoin: financial derivatives  ZeroCoin, NXT  Alt.chains: Separate blockchains (‘new TCP/IP’)  Namecoin: decentralized domain name registry  Ripple: gateway, payment, exchange, remittance network  BitShares: decentralized crypto-equity share exchange  Ethereum: decentralized Turing-complete platform October 11, 2014 Blockchain Technology 13
  • 15. Bitcoin/Blockchain Sector Funding (as of Oct 2014)  $300 million venture capital  $30 million crowdfunding  https://bitcoinstarter.com/, http://coinfunder.com/ October 11, 2014 Blockchain Technology 14 http://www.coindesk.com/will-bitcoin-venture-capital-investment-reach-300m-2014/ http://en.wikipedia.org/wiki/List_of_highest_funded_crowdfunding_projects
  • 16. Bitcoin 2.0 Protocols: Difference Parameters  How plugs into Bitcoin ecosystem  Own blockchain or overlay to bitcoin  Functions of own currency (issue and retire assets)  Money supply  Fixed, growth-specified (inflationary, deflationary)  Mined, pre-mined  Currency/tokens: native, fiat, other cryptocurrency  How blocks are created (transactions fees and rewards)  Consensus, proof-of-work, proof-of-stake, hybrid, proof-of-burn; code feature bounties  Issuance (crowdfunding, venture capital) October 11, 2014 Blockchain Technology Source: Piotr Piasecki 15
  • 17. $18.4m USD Ethereum Fundraising 7/2014  Initial Sale  (Sliding) 2,000 ether to 1 bitcoin or $620  60m Ether (ETH) sold ($1 USD ~ 3.25 ETH)  Dev offices in Berlin (expanding to ~20)  Ongoing Macroeconomic Policy  Ether has build-in increase of overall money supply at fixed rate  40% of the amount raised in the fundraiser will be the annual increase in money supply  Ether subunits  Finney (10-3), szabo (10-6), shannon (10-9), babbage (10-12) October 11, 2014 Blockchain Technology Vitalik Buterin, Creator Gavin Wood, Architect 16 Stephan Tual, CCO http://www.businessinsider.com/ethereum-launches-ether-2014-7
  • 18. The Ethereum Project  Complete Step 3 of Satoshi Nakamoto’s original plan 1. (The blockchain) Decentralized database, put assets into a transparent ledger, everyone has a copy 2. (The bitcoin protocol) Transaction system to move value between parties without third party interaction 3. Robust scripting system; instead of just sending currency, send contracts, smart property; requires Turing completeness  ‘General-purpose’ cryptocurrency network  A decentralized publishing platform featuring stateful user-created digital contracts and a Turing-complete contract programming language  Chain implementation & contracts with shared mining October 11, 2014 Blockchain Technology 17
  • 19. Smart Contracts: Programmable Money  Multisignature (multiparty) escrows (~Bitrated 2.0)  Financial exchanges  Savings Accounts  Domain name registries  Self-enforcing contracts and agreements  Crowdfunding platforms, Prediction markets  Smart property  Intellectual property  Voting systems  Company governance  Nationstate constitution and bill of rights October 11, 2014 Blockchain Technology 18
  • 20. Write your own Smart Contracts October 11, 2014 Blockchain Technology 19 http://forum.ethereum.org/discussion/1402/how-to-get-started-your-first-dapp-under-one-hour
  • 21. Example: Smart Property  Instead of trading coin, shares, trade/buy-sell assets  Encode asset to the blockchain via unique key  Trade cars on the blockchain through a decentralized exchange  Entire used auto market trades via blockchain October 11, 2014 Blockchain Technology 20  Blockchain becomes an inventory, tracking, and exchange mechanism for all hard assets
  • 22. Ethererum Browser ‘Mist’ Mock-up October 11, 2014 Blockchain Technology 21 http://forum.ethereum.org/discussion/1402/how-to-get-started-your-first-dapp-under-one-hour
  • 23. The key benefit of Ethereum for the automated-economy is that it is a Turing-complete VM Ethereum Virtual Machine (EVM) October 11, 2014 Blockchain Technology 22  The Ethereum blockchain is…  A blockchain with a built-in programming language  The decentralized, massively replicated database in which the current state of all accounts is stored  A consensus-based globally executed virtual machine  The Ethereum Virtual Machine (EVM) handles internal state and computation  Large decentralized computer with millions of account objects  Each account object  Has its own internal code  Contains a 32-byte key/value database called storage  Can call or send messages to other objects https://github.com/ethereum/wiki/wiki/Ethereum-Development-Tutorial
  • 24. Tech Specs Accounts stored in a Patricia tree (like a Merkle tree)  A root hash refers to the entire tree; tree contents cannot be modified without changing the root hash  A miner produces a new block each minute with the latest transactions and the root hash of the Patricia tree representing the new state  4-tuple stored per account  [account_nonce, ether_balance, code_hash, storage_root]  account_nonce: the number of transactions sent from the account (kept to prevent replay attacks)  ether_balance: the balance of the account  code_hash: the hash of the code if the account is a contract  storage_root: the root of another Patricia tree with the storage data October 11, 2014 Blockchain Technology 23 https://github.com/ethereum/wiki/wiki/Ethereum-Development-Tutorial
  • 25. Ethereum Contract Processing October 11, 2014 Blockchain Technology 24  Two account object types  Contract  EOA (externally owned account)  Contract receives a message and runs the code  Ability to read/write to its own internal storage  Read the storage of the received message  Send messages to other contracts, and to itself  The contract is the code that executes the contract  Contract can interact with the world outside the EVM  EOA (externally owned account) messages the contract  Transaction is sent signed by the EOA’s private key  Advanced: SchellingCoin Universal Data Feed for derivatives (minimal trust, two-step commitment protocol per round) https://github.com/ethereum/wiki/wiki/Ethereum-Development-Tutorial https://blog.ethereum.org/2014/03/28/schellingcoin-a-minimal-trust-universal-data-feed/
  • 26. Ethereum Contract Example  GavCoin is stored as entries in the GavCoin contract's database  The bet contract sees the temperature and messages the GavCoin contract to payout (object autonomy) October 11, 2014 Blockchain Technology 25  GavCoin weather bet between Bob and Alice  Automated EVM communications  Heterogeneous user security preferences  A transaction is sent, triggering forwarding contract and EAO messaging EAO (externally owned account) https://github.com/ethereum/wiki/wiki/Ethereum-Development-Tutorial
  • 27. EVM Operation / “Gas” Fees  Ethereum consensus model  Each operation executed in the EVM is simultaneously executed by every full node  Benefit: any contract on the EVM can call any other contract at almost zero cost  Cost: computational steps on the EVM are very expensive  Transaction fee and block operation limit  The Ethereum protocol charges a market-based fee in ether per computational step (prevent deliberate attacks and abuse)  Floating limit on the number of operations contained in a block  Even miners who can afford to include transactions at close to no cost are forced to charge a fee commensurate with the cost of the transaction to the entire network October 11, 2014 Blockchain Technology 26 https://github.com/ethereum/wiki/wiki/Ethereum-Development-Tutorial
  • 28. Smart Contract-DOA/DAC Progression  Smart Contract  Transaction protocol that executes the terms of a contract  Smart property: property whose ownership is controlled via the blockchain using contracts (examples: cars, phones, houses)  Đapp (Decentralized Application)  Contract plus graphical interface for contract execution  JavaScript API ‘eth object’ interacts with Ethereum blockchain  DAO (Decentralized Autonomous Organization)  Self-enforcing smart contract (group of contracts) on a cryptographic blockchain, multiparty complexity  (Like remittances) avoid local business jurisdictional costs  Own Ethereum address (key) and balance, send and receive transactions, EtherScript scripts can modify their own code October 11, 2014 Blockchain Technology 27 http://www.slideshare.net/mids106/ethereum-decentralized-autonomous-organizations Egalitarian DAO contract explained: https://www.youtube.com/watch?v=Q_gxDytSvuY
  • 29. Decentralized Autonomous Corporations  DACs, automated markets, and tradenets  Fully-autonomous business entity  Autonomous property, example: self-owned, self-driving car  Example: Vehicles use the tradenet to find customers and bid for road space  Storj.io (decentralized cloud storage) - Gregory Maxwell  MetaDisk: upload your data to the Storj network  DriveShare: earn money by being a part of the Storj network  Doesn’t work on bitcoin due to scripting language limitations October 11, 2014 Blockchain Technology 28 http://www.slideshare.net/mikehearn/future-of-money-26663148, http://storj.io/ http://bitcoinmagazine.com/7050/bootstrapping-a-decentralized-autonomous-corporation-part-i/
  • 30. Tech Specs State Machine, Languages, and Code  Current Release  Proof of concept build - PoC5, GitHub release on July 22, 2014 with the launch of the Ether pre-sale  EVM computation via a stack-based bytecode language  Bitcoin Script, traditional assembly, and Lisp  A program in EVM is a sequence of opcodes  Contract programming with high-level languages  LLL, serpent, Mutan compiles into EVM  Create contracts by sending the transaction containing the EVM bytecode  One-click installation for everything (like mobile apps)  Ecosystem Plug-and-play: Wallet, Open Transactions, Ripple October 11, 2014 Blockchain Technology 29
  • 31. Classes of Ethereum Applications October 11, 2014 Blockchain Technology 30  Finance and Economics  BitCloud (decentralized escrow), OpenLibernet (open comms)  Debt market, futures (derivatives), savings  Voting (Futarchy, Liquid Democracy)  Resource exchange: eBay, Amazon, Uber, AirBnB  Functions: authentication, validation, escrow, delivery  P2P Package Courier Service (notified as you leave location)  Real-time cost-based data center storage swapping  Loyalty, everyone’s own currency: JefCoin  Automated markets, tradenets  Economics: transactions/contracts pay-on-board network Ether  GBI (Guaranteed Basic Income) – Switzerland freicoin
  • 32. One use for Ethereum Blockchain Genomics October 11, 2014 Blockchain Technology 31  Jurisdictional regulation prevents individuals from having access to their own genetic data http://genomesunzipped.org/2011/03/people-have-a-right-to-access-their-own-genetic- information.php
  • 33. Alt.apps: Blockchain Health  Using blockchain tech for health-related applications 1. Personal Health Record Storage  Personal health records stored and administered via blockchain  Users key-permission doctors and other parties into records 2. Health Research Commons  Aggregated personal medical records, quantified self data commons (DNA.bits) 3. Health Document Notary Services  Proof-of-insurance, test results, prescriptions, status, condition, treatment, physician referrals 4. Doctor Vendor RFP Services  (Like Uber drivers) doctors and health practices bid to supply medical services; automated bidding via tradenets October 11, 2014 Blockchain Technology 32 http://futurememes.blogspot.fr/2014/09/blockchain-health-remunerative-health.html
  • 34. Demurrage Blockchain Health  Demurrage currency: built-in mechanism for spend/action-taking  Freicoin: Switzerland GBI (Guaranteed Basic Income)  GBHA (Guaranteed Basic Health Initiative): paid out and payable in HealthCoin; HSA (Health Savings Account) 2.0  Fitbit and smartwatch are demurrage health currencies  Health itself as a demurrage currency, a continually auto-redistributing commodity among synapses, cells, humans; body and brain as a DAO/DAC AI  Concept: demurrage resource-allocation + Đapp  Automatic redistribution of any commodity within a system (brain or mindfile (potentiation, optogenetic stimulation)), body (‘health’ (oxygen, waste removal nanobots, circulating lab-on-chips)), work team (ideas), society (liberty) October 11, 2014 Blockchain Technology 33 Fitbit is a demurrage (action-inciting) health currency
  • 35. Alt.apps: Blockchain Futures  Any venue for decentralized contracts (Đapp)  ‘Bitcoin MOOCs’ (‘Kickstarter for literacy’)  Like remittances, blockchain-improved aid, microcredit, development economics 2.0  Write Ethereum Literacy Contracts to emerging market peers  Reading, Technical, Agricultural, Vocational Literacy  New implementation of education in the blockchain  Blockchains as a public good  Wikileaks, ICANN, Wikipedia, Genomics  Uplifted to cloud from jurisdiction October 11, 2014 Blockchain Technology 34
  • 36. Alt.apps: Blockchain Futures  Community supercomputing time  Blockchain tech as resource allocation for science efforts  Funding markets like crypto-equity and crowdfunding for any resource  Reputation systems (OpenBazaar), insurance (SchellingQuake), Key recovery (wallet key protection)  Blockchain GAAP: valuation, amortization, retirement  Intangible asset encoding, tracking, and trade  Attention, intention, reputation, health, ideas  Cryptoledger, financial cryptography, consensus-based ledger: revolutionizing concept for traditional institutions and startups in finance and beyond October 11, 2014 Blockchain Technology 35
  • 37. Tech Specs Ethereum: Vitalik 9/14 Silicon Valley update  Key progress: proof of stake  Custody mining, hybrid proof-of-stake proof-of-work, Slasher, TenderMint, dbus  Decentralized application architecture  Ethereum: blockchain, account registry  Whisper: decentralized messaging (decentralized Twitter)  MadeSafe, Swarm: decentralized off-chain storage (images)  NameCoin, KeyID.info, Open Libernet: decentralized DNS, network messaging  Dev priorities: fully decentralized Internet Đapps  Proof of Concept 6 (?) – consensus algorithm SchellingCoin (POW-POS); UI; mobile client; DevTools  Ethereum 1.0 core, optimization, security, virtual machine October 11, 2014 Blockchain Technology 36
  • 38. Tech Specs Ethereum JavaScript API: eth object  Ethereum contract execution interface is implemented as an HTML/CSS/JS webpage  JavaScript API, eth object interacts with the Ethereum blockchain, JavaScript API components:  eth.transact(from, ethervalue, to, data, gaslimit, gasprice) - sends a transaction to the desired address from the desired address (note: from must be a private key and to must be an address in hex form) with the desired parameters  (string).pad(n) - converts a number, encoded as a string, to binary form n bytes long  eth.gasPrice - returns the current gas price  eth.secretToAddress(key) - converts a private key into an address  eth.storageAt(acct, index) - returns the desired account's storage entry at the desired index  eth.key - the user's private key  eth.watch(acct, index, f) - calls f when the given storage entry of the given account changes  Required: Ethereum client (not regular web browser)  JavaScript API example: see source of link below October 11, 2014 Blockchain Technology 37 https://github.com/ethereum/wiki/wiki/Ethereum-Development-Tutorial
  • 39. Tech Specs Ethereum Code  PoC5 (Proof of Concept #5) (stable):  AlethZero (C++)  Ethereal (Go)  pyeth (Python)  PoC6 (experimental):  https://github.com/ethereum/cpp-ethereum/  https://github.com/ethereum/go-ethereum  https://github.com/ethereum/pyethereum October 11, 2014 Blockchain Technology https://github.com/ethereum/wiki/wiki 38
  • 40. Resources  Coindesk (Bloomberg of Bitcoin)  http://www.coindesk.com  Let’s Talk Bitcoin podcast  http://letstalkbitcoin.com/  Industry experts  ‘Crypto-guru’ Andreas Antonopoulos http://antonopoulos.com  Economist Susan Athey (Stanford, Microsoft, Ripple) http://www.coindesk.com/professor-susan-athey-people-use-bitcoin-intrinsic-value/  Overview News Articles  SATOSHI'S REVOLUTION: How The Creator Of Bitcoin May Have Stumbled Onto Something Much, Much Bigger http://www.businessinsider.com/the-future-of-the-blockchain-2014-4  Future of Bitcoin & Math-Based Digital Currencies http://www.youtube.com/watch?v=Yg1JnbIS60g October 11, 2014 Blockchain Technology 39
  • 41. Resources  Ethereum  http://www.reddit.com/r/ethereum/  https://www.youtube.com/user/EtherCasts  https://github.com/ethereum/wiki/wiki  Ethereum Development Tutorial  White paper, Yellow Paper (http://gavwood.com/Paper.pdf)  Bitcoin Original White Paper  Satoshi Nakamoto’s design for the blockchain (2008)  https://bitcoin.org/bitcoin.pdf October 11, 2014 Blockchain Technology 40
  • 42. Image credit: M. Ghezel October 11, 2014 Bitcoin Meetup Slides: http://slideshare.net/LaBlogga Blockchain: The Information Technology of the Future Melanie Swan melanie@BlockchainStudies.org www.BlockchainStudies.org Thank You! Questions?
  • 43. Appendix: Bitcoin/Blockchain Background  The New Economy… October 11, 2014 Blockchain Technology 42 http://www.google.com/trends/explore#q=bitcoin
  • 44. Cryptocurrency Market Cap Tracking October 11, 2014 Blockchain Technology 43 https://coinmarketcap.com/
  • 45. What is Bitcoin?  Digital currency, payments system, decentralized ledger  History: by combining BitTorrent technology (peer-to-peer file sharing) and public key cryptography a new form of currency was made possible  Arose as a solution to the double-spend problem  Prior to bitcoin and the blockchain concept, a centralized third party had to issue and reconcile digital cash transactions to prevent the digital cash from being spent multiple times (digital cash, like an image attached to an email, can be copied infinite times like any digital cash)  Implication: any transaction on the Web can be decentralized and stripped of a controlling authority October 11, 2014 Blockchain Technology 44 http://codinginmysleep.com/bitcoin-mining-in-plain-english/, https://github.com/ethereum/wiki/wiki/White-Paper http://offtheblockchain.com/2014/02/22/read-the-original-satoshi-nakamoto-bitcoin-white-paper/
  • 46. Economic Arguments for Bitcoin  Banking services market: 5 billion individuals worldwide without access to banking, financial, credit services  Remittances market: $4T global market 5-30% transaction fee, immediate funds transfer  Payments market: 1-3% merchant transaction fee  Successful examples indicate demand for digital payments: Starbucks mobile payment app October 11, 2014 Blockchain Technology 45
  • 47. What is Bitcoin Mining?  The process of adding transaction records to Bitcoin’s public ledger of past transactions (the blockchain)  Confirms to the rest of the network that unique transactions have taken place  Bitcoin nodes use the block chain to distinguish legitimate Bitcoin transactions from attempts to re-spend coins that have already been spent elsewhere  Intentionally designed to be resource-intensive so that the number of blocks found each day by miners remains steady  Individual blocks must contain a proof of work to be considered valid. This proof of work is verified by other Bitcoin nodes each time they receive a block. Bitcoin uses the hashcash proof-of-work function October 11, 2014 Blockchain Technology 46 http://codinginmysleep.com/bitcoin-mining-in-plain-english/