Bitcoin & Blockchain Basics
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By David Moskowitz, Coin Republic. Presented at Crowdsourcing Week Global 2015. Learn more and join us at our next event: www.crowdsourcingweek.com
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Bitcoin & Blockchain Basics
- 1. Crowdsourcing Week 2015 Bitcoin and Blockchain David Moskowitz Founder : Coin Republic david@coinrepublic.com
- 2. What is Money? • Means of Exchange • Store of Value • Unit of Account • Easy to Divide and Transport • Low Cost to Preserve • Resistant to Counterfeiting • Can transferred digitally?
- 3. Forms of Money / Trade • Barter • Shells • Giant Stones • Gold / Silver • Paper – Commodity Backed • Fiat – Faith, Sovereign • Electronic / Digital
- 4. What is Bitcoin/Blockchain? • Decentralized Public Ledger (The Blockchain) • Public Key – your account number • Private Key – your key to get access/ownership • Mining – verifies transactions • Adds last 10 minutes into a block • Adds that block to the ledger
- 6. Data entered into the Blockchain Data Field: OP_RETURN 636861726c6579206c6f76657320 6865696469e Input Output Alice: 1 btc Bob: 1btc
- 7. Why Bitcoin Matters 1) Permission-less Innovation 2) Low costs 3) Science – Not Politics 4) Programmable Digital Asset
- 8. What can you do 1.0 1) Speculate 2) Consumer / Merchant 3) Remittance 4) Crowdfunding / Share Issuance
- 9. Other Coins
- 12. Smart Nation - Smart Contracts
- 14. Applications – Future? In 1995…. Facebook? Whatsapp? Kickstarter?
- 15. Thank you - david@coinrepublic.com
Editor's Notes
- Good afternoon, I’m here to talk about Bitcoin and Blockchain. But before I get into that, let’s take a look at what money is.
- Traditionally, money is defined as , A Means of Exchange, when you don’t happen to have 12 chickens for that cow it helps to have an intermediary form of transfer. It’s a Store of Value, the same amount of money will be able to buy around the same amount of goods over time. It’s a Unit of Account, items are priced in it. It’s Easy to Divide and Transport and has a Low Cost to Preserve. Money shouldn’t rot or be difficult to move in large amounts. And money needs to be Resistant to Counterfeiting. I would add that in 50 years, we will add Can be transferred digitally to this list.
- And money and currency can be 2 different things. Currency is a legal term defined by governments. But money has a much broader definition and has been everything from seashells to stones, and now 0’s and 1’s over the internet. So now let’s move on to Digital money and specifically Bitcoin and it’s underlying technology.
- Bitcoin solved a very difficult problem. How does Alice send a digital asset, often money, to Bob, over the internet without a centralized agent like a bank or other trusted third party to verify that Alice sent the asset and Bob received it. Bitcoin solved this problem by using a decentralized public ledger called the blockchain where instead of a trusted third party, you use a trustless network of decentralized computers competing against one another to verify the transactions, and store the ledger of up to date account balances. By moving to an open source decentralized system, you remove the costs of the legacy trust based systems. Bitcoin uses cryptography to create the users wallets, which is where the cryptocurrency name comes from. The wallets use a cryptographically generated public key, which is like a bank account number, and a private key which is like a pin number. You send bitcoin from one public key to another public key and use your private key to prove that you control the bitcoin. When sending, you add a small fee to the transaction, on average about 3 cents. This fee is dependent on the amount of data in the transaction, not the amount being sent. So a 10 million dollar transaction, could be the same fee as a 10 dollar transaction or even a 10 cent micro-transaction.
- When the transaction occurs, it’s timestamped and entered into a block of the previous 10 minutes of transactions. This block is then verified by specialized computers called miners, who are rewarded with bitcoin if they are the first to successfully verify this block. The block is linked to the previous block in the ledger, like a chain of transaction blocks. This is what’s known as the blockchain and the updated version is duplicated thousands of times across the internet. The Bitcoin blockchain is a decentralized ledger of all transactions.
- Within a transaction, it’s also possible to add data. Usually this is simple code telling the address of where to send bitcoin to in case of a refund. But it can also be used to embed data and programming code, turning the blockchain into a global computing system.
- Because bitcoin is open source and global, it allows for anyone to build on top of it. This is Permissionless innovation. It’s rails allows users to spend very little to transfer assets. The rules of the protocol is based on cryptography and math, with a known and predictable rate of inflation of about 25 bitcoin every 10 minutes paid to the miner. This rate is governed by the core code, not by politics.
- Here’s some ways that Bitcoin is currently being used. You can speculate on the price of bitcoin. Consumer can use it as a transaction mechanism to buy goods, and merchants can sell their goods globally for lower costs than traditional internet payment channels. For remittance, you can send money to anyone, anywhere in the world, almost instantly, and with very little cost. Companies can now crowdfund in cryptocurrencies, raising money in bitcoin or issuing their own tokens or shares. Using the programmable ability of bitcoin, you can issue additional tokens on top of the existing bitcoin, and use these in place of traditional corporate shares, vouchers, prepaid systems and loyalty programs.
- Because bitcoin is open source, people have created their own coins. For example you can now register a domain name using a decentralized DNS system and token called namecoin. Dogecoin started out as a joke coin based on an internet meme. One of my favorites was the Coinye coin, based on the image of Kanye West but was pretty quickly shut down by his lawyers. So that brings us to the next generation of uses of Bitcoin and Blockchain.
- Let’s start with Decentralized proof. You can take a book that you wrote, and use a cryptographic function to produce a unique digest or fingerprint of the text called a hash, this is 32 alphanumeric characters unique to this content. You then take that hash and put it into the data area of a transaction. You now have irrefutable proof that that book existed at that point of time. Copyright, trademarks, notary services can all be done on the blockchain.
- Next is Tokenization of Assets. You can take small amount of bitcoin, .00000001 called a satoshi, and put in a serial number of an item in the data field. Now when you send the item from the factory in china through the ports in Singapore and to it’s final destination in Los Angeles you create a new transaction at every transfer, indicating where the item is. Now when someone tries to sell you that item in London, you can go to the blockchain and see that it’s either been stolen or counterfeited as it should be in Los Angeles.
- A smart contract is a self executing contract based on a set of preprogrammed rules. Imagine Alice buys something from Bob’s shop online, but doesn’t want to pay until the item is delivered. The smart contract would receive the payment from Alice but wait for a notification from Singpost that the item has been delivered. Once the contract received the delivery notification, it would transfer the value stored in the contract to Bob’s store.
- Now let’s take this a step further and imagine in the future machines are working autonomously. Alice’s refrigerator tells a program to buy her a specific brand of milk from the cheapest of 5 merchants. The machine probes the merchants, and finds the best seller. It then transfers the funds into a new contract and the merchant then creates a contract for a drone to make the shipment. Once the shipment arrives, Alice’s robot helper accepts delivery, the contract is fulfilled and payment made to the merchant. The merchant then executes its contract with the drone for the delivery. The drone then flys to a charging base and pays for a quick charge. Even if there is no exchange of value, IOT will require a mechanism to prove that one machine communicated with another machine at a specific point in time. Blockchains allow for this proof of communication to be done using a trustless 3rd party.
- In looking ahead to the future, it’s important to see where we are in Internet time. I’d say we are somewhere around 1995. In 1995, could you imagine that we’d have social networking systems like facebook, chat and online video systems on our mobiles, or how about global access to fundraising through sites like kickstarter? This is why I’m so excited by Bitcoin and blockchain technology.
- Thank you.