This document provides an introduction to Bitcoin and blockchain technology. It describes Vestlandsforsking, a Norwegian research institute where the author works and his background in Bitcoin. The core concepts of Bitcoin as a digital currency and blockchain as its underlying infrastructure are explained. Key aspects like how transactions work and how the blockchain ledger is distributed across nodes are summarized. Examples of potential applications beyond currency like smart contracts and digital certificates are also briefly mentioned.

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Bitcoin and blockchain for
dummies:
-An introduction to the
technology and its applications
Svein Ølnes, Vestlandsforsking
Jon Bing’s Memorial Seminar, 19th of April 2016

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 Research institute located in Sogndal, founded in 1985
 Research areas:
 Climate and environment
 Information technology
 Tourism
 Around 25 employees
 Part of the research infrastructure in Norway
Vestlandsforsking

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 Researcher at Vestlandsforsking since 1996
 Research field: ICT in public sector
 Interested in Bitcoin/blockchain since 2011
 bought my first bitcoins in 2011 (Mt. Gox!)
 have followed the development since then
 interested in the intersection of technology, economy, and society
About me

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Imagine sending money to anyone in the world...
... as fast and easy as e-mail

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Imagine being able to pay 5 øre (NOK 0.05) or
less for something

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Imagine being able to store certificates
securely on the Net and available to anybody

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Imagine a world without passwords!
 «One password to rule them all»
 Secure web (HTTPS)
 Domain names registered on the blockchain

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 What is Bitcoin?
 Bitcoin - the currency
 Blockchain - the infrastructure
 Currency and infrastructure interplay
 A future-looking use case
Content

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What is Bitcoin?
1. A currency
 Digital cash («Internet money», «Money over IP»)
2. An infrastructure
 Blockchain technology
 An open, permissionless infrastructure for innovation
 Bitcoin is proof of ownership without the need for a third-party
 First presented in the white paper «Bitcoin – A Peer-to-Peer
Electronic Cash System», by Satoshi Nakamoto, Oct. 2008
 The Bitcoin system was launched on 3rd of Jan. 2009

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Technological breaktrough
1. Secure transactions made possible in a trustless environment
(Internet) without the need for a third-party
 «The Byzantine Generals’ Problem»
 How to reach consensus in a decentralized environment without a
trusted third-party
2. The first functional system for micro payments
3. The first open, permissionless platform for financial innovation
 You don’t need to ask anybody to make a payment system

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The Bitcoin software
 Open source software (code available on Github)
 Based on well known cryptographic standards
 Public key cryptography
 Hashing functions
 TCP/IP for communication between nodes (IPv6 is supported)

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Centralized, decentralized og distributed
Paul Baran: «On Distributed Communications Network»
[Baran invented packet switching, together with Donald Davies, UK]

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Typical innovation progress
 1980s: DigiCash (David Chaum)
 1990s: HashCash, b-money (Adam Back, Wei Dai)
 2000s: Bit gold (Nick Szabo)
 2008: Bitcoin (Satoshi Nakamoto)
 Solved the «double spending» problem
 Bitcoin emerged from the cypherpunk environment (which all
of the above belonged to)

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Bitcoin and the financial crisis

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What is a bitcoin?
 A bitcoin transaction is a digital signature
 Handing over ownership from one to another (bitcoins, assets)
 Bitcoins never leave the blockchain!
 Chain of transactions: A bitcoin is always an unspent output
 Bitcoins can disappear, like ordinary cash: by loosing your private key,
by «burning»
 The ownership of bitcoins (assets) is recorded on the
blockchain
 A distributed ledger, shared by all nodes (compters) in the system
 Anybody can read the content
 Updating the ledger requries computer resources («Proof of work»)

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A bitcoin transaction
Alice pays 0.7 bitcoin to Bob
Alice has 1.1 bitcoins

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A bitcoin transaction

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A bitcoin transaction

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Unspent transactions (UTXO)
Spent transactions Unspent transactions (UTXO)

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The blockchain – A distributed ledger
(Ill: Antony Lewis – www.bitsonblocks.net)
 Blockchain
 A block is a bunch of transactions, like records in a database
 Blocks are linked to form a long chain = the blockchain
 Anybody can read
 Adding new blocks needs lot of resources (= «Proof of work»)
 Adding a new block is rewarded with 25 new bitcoins (soon to be 12,5)
 After about one hour (5-6 confirmations) the trans. become immutable

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Key actors
(Ill: Antony Lewis – www.bitsonblocks.net)
 Bitcoin users
 running the full client software
 Miners
 securing the transactions
 Programmers
 maintaining the system, implementing improvements

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Today
 Deterministic
 max. 21 mill. bitcoins
 1 bitcoin = 108 satoshi
 25 new bitcoins every 10th minute
 «Halving» of supply every 4th year

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Bitcoin exchange rates 2012 - today
Source: http://bitcoincharts.com

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Bitcoin as an infrastructure
Bitcoin infrastructure (Network Services)
Blockchain, Consensus, Ordering, Hash storage, Security
Bitcoin currency
Colored coins
(Mastercoin,
Counterparty
++)
Sidechains
Payment
channels
(Lightning
Network..)
Smart
contracts

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The self-driving taxi..
+ +

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Relevant literature
 Nakamoto Satoshi: «Bitcoin - A Peer-to-Peer Electronic Cash
System» (bitcoin.org/en/bitcoin-paper)
 Andreas Antonopolous: «Mastering Bitcoin»
 Nathaniel Popper: «Digital Gold»

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Thanks for your attention!
E-mail: sol@vestforsk.no
This presentation:
http://www.slideshare.net/sveino/jonbingmemorial
My Bitcoin address (= ”accounting number”):
1HpvvptgrYJh4xUHerm1ruZtvnyUnnnHkU