The document introduces cryptocurrency, explaining how its value is derived through acceptance as a payment medium, likening it to traditional currency. It describes Bitcoin as a digital, decentralized ledger maintained by a peer-to-peer network, highlighting the significance of cryptographic signatures and proof of work in securing transactions. The text also discusses the challenges of decentralization, transaction verification, and mining rewards, illustrating with examples how the Bitcoin system functions and operates.

1. Introduction To Cryptocurrency
Speaker - Rounak kumar kedia

2. So, What is a Currency ?
What makes a piece of paper valuable?

3. The currency(say a dollar bill) has value because
everyone accept them as a medium of exchange.
The currency we use has value because the RBI
says and guarantees that it will pay the bearer the
said amount.
Similarly, Cryptocurrency derives its value when
people accept it as a mode of payment.

4. BITCOIN
ETHEREUM
RIPPLE
LITECOIN
First Cryptocurrency.
Invented in 2009 by Satoshi Nakamoto.
Fun Fact:
No one really knows who Satoshi Nakamoto is.
It’s a pseudo-name for the developer of BItcoin

5. So , What is Bitcoin? Or, For that matter any
Cryptocurrency
Bitcoin is a basically a huge “ledger” that depends on cryptography for
verification and implementation of transactions.
Its a “Digital", "Decentralized” Currency that means No Banks to issue coins
or Verify transaction or maintain balance of users and prevent fraud etc.…
You get the idea, right?
So how does Bitcoin work if there is no centralized authority to maintain the
system.
Its depends on a decentralized peer-to-peer networking for maintaing the
ledgers. We will get to that in some time.

6. Ledger – Trust + Cryptography = CryptoCurrency

7. LEDGER
ALICE PAYS BOB ₹100
BOB PAYS CHARLIE ₹50
YOU PAY CHARLIE ₹20
.
.
.
.
ALICE
BOB
CHARLIE
YOU

8. Protocol
• Ledger is public and is accessible to all
• Anyone can go and add a line to the ledger
• At the end of every month everyone comes together and settle up
Problem with this system –
Since, anyone can add a line how can we trust that someone might not
cheat?

9. How to prevent such cheating?
The idea is when say Bob adds a line “Alice pays Bob ₹ 100” then Alice should be
able to add a signature next to it saying that she has seen it and approves it.
To prevent this we use something called a public key/private key pair
which generate something called a “Digital Signature”.
But, again what is preventing someone to simply copy that signature and
authorize any message they want. After all copying bits of data is pretty easy.

10. A public key is something(string of bits) that is visible to everybody whereas a
private key is something you want to keep to yourself.
Public Key : 0010101…
Private Key : 1101010…

11. The way it works is that for each transaction or say message we
have a signature that is produced with the help of your private key
and that signature is dependent on the message.
That means , changing the message even slightly can change the
signature a lot.
The fact that it requires your private key to produce the signature
says that only you can create the signature.
And since the signature changes even with a slight change in
message ensures that no one can simply copy your signature.

12. Sign(Message , private key) = Signature
Verify(Message , Signature , public key) = T/F
00110010011000110110011000110010001101000110010
00110001001100001001101010110011001100010001100
00011000010011001100110000011001010011001000110
11001100101001110000011001101100010001100100110
00010110001100110101011000100011100101100101001
10010001110010110010100110001011000100011000100
11011000110001011001010011010101100011001100010
11001100110000100110111001101000011001000110101
01100101001101110011001100110000001101000011001
10011001100110110001100100011100100110011001110
000110001000111001001110000011001000110100

13. The sign function has private key as parameter
that means that only you can produce the
signature.
And the verify function uses your public key to
check that the message was generated by the
private key associated with the public key and that
it is valid for the given message.

14. But there is still a slight problem with this
system. Any Guesses?
Even though no one can forge your signature or create
a new message but one can simply copy the
transaction and use it again and again.
To prevent this we add a sequence number(or a
unique id) to each message which prevents duplication
of transaction.

15. Protocol
• Ledger is public and accessible to all
• Anyone can add line
• ONLY SIGNED TRANSACTIONS ARE VALID
But there is still a problem.
Infuriating right?
What if someone stacks up a lot of debt and simply refuses to pay
up at the end of the month

16. Solution -
At the beginning of every month , every money into the system and
make the first few entries of the ledger “Alice gets ₹10000” and
everyone is allowed to spend only a maximum of that much.
NO OVERSPENDING
To implement this we need to know the full
history of transactions up to that point.

17. So basically Bitcoin is a Ledger.
The history of transactions is the currency.

18. But the question that is still not answered is how
do we achieve “Decentralization”?
We can’t host it at a website , that would meaning
trusting a central system or a couple of systems.

19. To make things simpler we can consider a
poker analogy here
Suppose you and your friends have to play a poker game but none of you
have got money.
So someone from the group volunteer to keep a ledger.
But this person can cheat and manipulate the ledger entry in his favour.
So, to remove this trust issue all the players maintain a ledger and at the end
of every hand all of them compare their ledgers and find any discrepancies.
Simple, right?

20. Peer-to-Peer Network
Hey , I want
to sent $10
to A

21. What is this Ledger ?
Each Ledger can be thought as a chain of blocks.
Each block containing data about a certain transaction like –
1. Account # of Sender
2. Account # of Receiver
3. Amount of Bitcoin to send
and things like that …
These blocks are connected in a chain format hence is called
“BlockChain”

22. But is this system really practical?
How can you be sure that everyone that is listening received and
believes the same transaction.
How can you be sure that everyone is recording the same transaction
and in same order.
What if there are two conflicting ledgers?
Whom to trust?

23. Solution given in Bitcoin paper
The Bitcoin protocol states that you should trust whichever ledger has
the most computational work put into it.
To add a block each person maintaing a ledger has to solve a special
kind of maths problem based on a Cryptographic Hash Function
The network automatically changes the difficulty of the problem with
each adding block

24. What’s a Cryptographic hash function?
• We input a variable string the hash function returns a fixed string of
bits.
• Changing the input slightly can completely change the hash
• Its totally infeasible to get the input if the output is given i.e., Its
irreversible

25. LEDGER
ALICE PAYS BOB ₹100
BOB PAYS CHARLIE ₹50
YOU PAY CHARLIE ₹20
1025455765
.
.
.
.
Proof of Work
SHA256
00000000000000000000000000000000
00000000000000000000000000001001
00110101011001100110001000110000
01100001001100110011000001100101
00110010001101100110010100111000
00110011011000100011001001100001
01100011001101010110001000111001
01100101001100100011100101100101
00110001011000100011000100110110
00110001011001010011010101100011
00110001011001100110000100110111
00110100001100100011010101100101
00110111001100110011000000110100
00110011001100110011011000110010
00111001001100110011100001100010
00111001001110000011001000110100

26. Now for someone to find that special no for which some no of starting bits is zero
is very difficult.
For say 60 zeroes the special no would be 1 in 2^60.
That means they would have to grow through approx.
11,52,92,15,04,60,68,46,976 nos to find a special no for which we have 60
starting zeroes. This requires a lot of computational effort and the special no is
what is called a proof of work.
Once the number is know its really quick to verify simply run the hash and check.
This is what Bitcoin does, you can verify that someone went through a large
amount of work without doing that work again.

27. Each Block(a set of transactions) will have a Proof of work attached to it.
ALICE PAYS BOB ₹100
BOB PAYS CHARLIE ₹50
YOU PAY CHARLIE ₹20
1025455765
ALICE PAYS BOB ₹10
BOB PAYS CHARLIE ₹250
YOU PAY CHARLIE ₹200
13436291730
ALICE PAYS BOB ₹1000
BOB PAYS CHARLIE ₹950
1274934702
BLOCKS

28. To add an standard order to these blocks we will store the hash of
previous block in its header
ALICE PAYS BOB ₹100
BOB PAYS CHARLIE ₹50
YOU PAY CHARLIE ₹20
1025455765
ALICE PAYS BOB ₹10
BOB PAYS CHARLIE ₹250
YOU PAY CHARLIE ₹200
13436291730
ALICE PAYS BOB ₹1000
BOB PAYS CHARLIE ₹950
1274934702
Prev Hash Prev Hash

29. This way if we go back and change the value of any block or swap the
order of two block, it would change the hash of that block and the
block next to it and so on.
So to make any changes we would have to redo all the work of finding a
new proof of work for all the upcoming blocks, which would be totally
impractical and infeasible

30. Order of Transaction matters.
Say if a person has 2 transactions of $50 but the total balance in his
account is $50 dollars.
Then who gets the money depends highly upon the order of the arrival
of the blocks.
Moreover, in case of Bitcoin ,since there is no centralized authority the
delays in network can lead to diff individuals receiving the blocks in diff
orders which poses a big problem

31. To overcome this, each new transaction block is put into a memory
pool
And to add a new block to the main blockchain one needs to solve a
mathematical problem.
Whoever solves the problem first gets to add his block to the chain,.
And the new chain is broadcasted to all listeners.

32. What if two persons solve the problem at
precisely the same time?
The chain “forks”(the blockchain will temporarily have two heads)
Nodes will accept the first block they’ve seen, until eventually another
block is mined, making one of the chains longer, and resolving the chain
fork (nodes that were using the wrong block will throw it out and switch
to the correct one; transactions from the losing block that aren’t also in
the winning block will be put back in the mempool, the temporary
storage, so they have another chance to confirm, this time on the correct
chain).
After three confirmations, the block is almost guaranteed to remain
permanent. Three confirmations is another way of saying that the block is
three levels deep and has been accepted by the network for certain.

33. ALICE PAYS BOB ₹100
BOB PAYS CHARLIE ₹50
YOU PAY CHARLIE ₹20
1025455765
ALICE PAYS BOB ₹10
BOB PAYS CHARLIE ₹250
YOU PAY CHARLIE ₹200
13436291730
ALICE PAYS BOB ₹1000
BOB PAYS CHARLIE ₹950
1274934702
ALICE PAYS BOB ₹100
BOB PAYS CHARLIE ₹50
YOU PAY CHARLIE ₹20
1025455765
If this block gets 3 confirmations it is
assumed that this is the correct block.
The other block is discarded and put
back into the memory pool.

34. The forking is useful in one more scenario
Say Alice wants to cheat Bob and send the block to Bob saying
“Alice Pays Bob $100”.
This transaction was recorded by just Bob and not all.
To do this Alice has to find a valid proof of work before all the other miners.
But Bob will still hear the broadcast from other miner.
That main chain will continue to grow with each block being mined.
To keep up with his wrong block Alice would have to find the blocks before all the
miners in the network
For this to be possible, Bob would require at least 50% computational power of all
the network combined.
Which quiet frankly is simply not feasible

35. One more question that begs our attention is
that how is money created?
Every time a volunteer solves a puzzle to add a block to the chain.
He is rewarded with some coins out of thin air.
Solving these problems is called mining as this is how money enters the
system.
With every 2,10,000 blocks the reward is cut into half.
For e.g.-
Bitcoin initial mining reward – 50 BTC
Bitcoin current mining reward – 12.5 BTC
That means there will never be more than 21 million bitcoins

36. Some Facts
• As of June 2019 the main bitcoin ledger is 226.6 gigabytes in size.
• Out of the total available 21 million coins, 14 million have already been
mined.
• Bitcoin has a mean block time of about 10 mins while for Ethereum its 10-
20 seconds.
• Even after all the 21 million Bitcoins are mined, miners will still able to earn
as they will get a transaction fee for each transaction.
• As the no of miners increase that means the no of transaction each miner
is able to add reduces. This increases the transaction fee as that way a
miner would prioritize your block over others
• Each Bitcoin can be broken into smaller pieces.
i.e., 1 BITCOIN = 100000000 Satoshi

37. How to miners work?
• The miners in the start used their normal processors to mine bitcoin
• Later, it was discovered that the High End Graphic Card speed up the
process due there highly parallelised number crunching capabilities
• Now a day special ASIC chips are used which even though highly
speed up the process, consume a lot of electricity.
• Since as the increase in number of miner decreases the chance of a
individual miner to find the nonce first.
• Miners work in a group, called miner pools.
• Each miner is awarded proportionate to their contribution

39. Any Questions?
Thank You