1.
Introduction to Bitcoin
Robert McNally

2.
What Is Money?

3.
Money Is:
A Medium of Exchange

4.
Money Is:
A Medium of Exchange
• Stands in for an arbitrarily
long chain of barter.

5.
Money Is:
A Medium of Exchange
• Stands in for an arbitrarily
long chain of barter.
• Widely accepted.

6.
Money Is:
A Unit of Account

7.
Money Is:
A Unit of Account
• Recognizable

8.
Money Is:
A Unit of Account
• Recognizable
• Fungible

9.
Money Is:
A Unit of Account
• Recognizable
• Fungible
• Divisible

10.
Money Is:
A Unit of Account
• Recognizable
• Fungible
• Divisible
• Transportable

11.
Money Is:
A Unit of Account
• Recognizable
• Fungible
• Divisible
• Transportable
• Transferable

12.
Money Is:
A Unit of Account
• Recognizable
• Fungible
• Divisible
• Transportable
• Transferable
• Hard to counterfeit

13.
Money Is:
A Store of Value

14.
Money Is:
A Store of Value
• Stable supply

15.
Money Is:
A Store of Value
• Stable supply
• Durable

16.
Money Is:
A Store of Value
• Stable supply
• Durable
• Securable

17.
Money Is:
A Store of Value
• Stable supply
• Durable
• Securable
• Stable value

18.
What Is Cryptocurrency?

19.
Cryptocurrency Is:
A Bearer Instrument

20.
Cryptocurrency Is:
A Bearer Instrument
• Holder has ownership

21.
Cryptocurrency Is:
A Bearer Instrument
• Holder has ownership
• No other records kept as to
identity of owner

22.
Cryptocurrency Is:
A Bearer Instrument
• Holder has ownership
• No other records kept as to
identity of owner
• Easy to keep anonymous

23.
Cryptocurrency Is:
A Bearer Instrument
• Holder has ownership
• No other records kept as to
identity of owner
• Easy to keep anonymous
• Hard or impossible to
replace if lost or stolen

24.
Cryptocurrency Is:
A Bearer Instrument...
...based on digital cryptography

25.
Cryptocurrency Is:
A Bearer Instrument...
...based on digital cryptography
• Derives trust from
mathematical properties

26.
Cryptocurrency Is:
A Bearer Instrument...
...based on digital cryptography
• Derives trust from
mathematical properties
• Based on established, trusted
cryptographic primitives

27.
Cryptocurrency Is:
A Bearer Instrument...
...based on digital cryptography
• Derives trust from
mathematical properties
• Based on established, trusted
cryptographic primitives
• NOT from chemical/physical
properties

28.
Cryptocurrency Is:
A Bearer Instrument...
...based on digital cryptography
• Derives trust from
mathematical properties
• Based on established, trusted
cryptographic primitives
• NOT from chemical/physical
properties
• NOT from coercive
Legal Tender statutes

29.
Cryptocurrency Is:
A Bearer Instrument...
...based on digital cryptography:
“Downloadable Money”

30.
What Makes Bitcoin Different?

31.
Bitcoin Is:
Decentralized, Distributed,Voluntary

32.
Bitcoin Is:
Decentralized, Distributed,Voluntary
• No central issuing or verification authority,
no “Bitcoin Corp.”

33.
Bitcoin Is:
Decentralized, Distributed,Voluntary
• No central issuing or verification authority,
no “Bitcoin Corp.”
• Bitcoin Foundation (bitcoinfoundation.org)

34.
Bitcoin Is:
Decentralized, Distributed,Voluntary
• No central issuing or verification authority,
no “Bitcoin Corp.”
• Bitcoin Foundation (bitcoinfoundation.org)
• Growing numbers of of entrepreneurs accepting or basing
new business concepts on Bitcoin

35.
Bitcoin Is:
Decentralized, Distributed,Voluntary
• No central issuing or verification authority,
no “Bitcoin Corp.”
• Bitcoin Foundation (bitcoinfoundation.org)
• Growing numbers of of entrepreneurs accepting or basing
new business concepts on Bitcoin
• Relative to other bearer instruments

36.
Bitcoin Is:
Decentralized, Distributed,Voluntary
• No central issuing or verification authority,
no “Bitcoin Corp.”
• Bitcoin Foundation (bitcoinfoundation.org)
• Growing numbers of of entrepreneurs accepting or basing
new business concepts on Bitcoin
• Relative to other bearer instruments
• Easier to transport anywhere in the world

37.
Bitcoin Is:
Decentralized, Distributed,Voluntary
• No central issuing or verification authority,
no “Bitcoin Corp.”
• Bitcoin Foundation (bitcoinfoundation.org)
• Growing numbers of of entrepreneurs accepting or basing
new business concepts on Bitcoin
• Relative to other bearer instruments
• Easier to transport anywhere in the world
• Easier to secure

38.
Bitcoin Is:
Decentralized, Distributed,Voluntary
• No central issuing or verification authority,
no “Bitcoin Corp.”
• Bitcoin Foundation (bitcoinfoundation.org)
• Growing numbers of of entrepreneurs accepting or basing
new business concepts on Bitcoin
• Relative to other bearer instruments
• Easier to transport anywhere in the world
• Easier to secure
• Relative to other electronic currencies

39.
Bitcoin Is:
Decentralized, Distributed,Voluntary
• No central issuing or verification authority,
no “Bitcoin Corp.”
• Bitcoin Foundation (bitcoinfoundation.org)
• Growing numbers of of entrepreneurs accepting or basing
new business concepts on Bitcoin
• Relative to other bearer instruments
• Easier to transport anywhere in the world
• Easier to secure
• Relative to other electronic currencies
• Immune to sovereign censorship, shutdown, or confiscation

40.
Bitcoin Is:
Decentralized, Distributed,Voluntary
• No central issuing or verification authority,
no “Bitcoin Corp.”
• Bitcoin Foundation (bitcoinfoundation.org)
• Growing numbers of of entrepreneurs accepting or basing
new business concepts on Bitcoin
• Relative to other bearer instruments
• Easier to transport anywhere in the world
• Easier to secure
• Relative to other electronic currencies
• Immune to sovereign censorship, shutdown, or confiscation
• Immune to inflation and bank defaults

41.
How Does Bitcoin Work?

42.
Bitcoin Tech

43.
Bitcoin Tech
• Bitcoin is a protocol. The unit of account is "bitcoins."

44.
Bitcoin Tech
• Bitcoin is a protocol. The unit of account is "bitcoins."
• Based on the block chain: a growing general public ledger of
cryptographically-signed transactions.

45.
Bitcoin Tech
• Bitcoin is a protocol. The unit of account is "bitcoins."
• Based on the block chain: a growing general public ledger of
cryptographically-signed transactions.
• All transactions are public, but are not by default tied to anyone's real
identity.

46.
Bitcoin Tech
• Bitcoin is a protocol. The unit of account is "bitcoins."
• Based on the block chain: a growing general public ledger of
cryptographically-signed transactions.
• All transactions are public, but are not by default tied to anyone's real
identity.
• Anonymity and traceability are “user defined”, i.e. the counter parties can be
as anonymous as they take steps to be— even to each other.

47.
Bitcoin Tech
• Bitcoin is a protocol. The unit of account is "bitcoins."
• Based on the block chain: a growing general public ledger of
cryptographically-signed transactions.
• All transactions are public, but are not by default tied to anyone's real
identity.
• Anonymity and traceability are “user defined”, i.e. the counter parties can be
as anonymous as they take steps to be— even to each other.
• Transfer of bitcoins consists not of physically moving an object from A to B,
but simply of adding a new, publicly accepted transaction to the block chain.

48.
Bitcoin Tech
• Bitcoin is a protocol. The unit of account is "bitcoins."
• Based on the block chain: a growing general public ledger of
cryptographically-signed transactions.
• All transactions are public, but are not by default tied to anyone's real
identity.
• Anonymity and traceability are “user defined”, i.e. the counter parties can be
as anonymous as they take steps to be— even to each other.
• Transfer of bitcoins consists not of physically moving an object from A to B,
but simply of adding a new, publicly accepted transaction to the block chain.
• Secured by collective compute power of miners. It is very difficult to create
a new valid block, but very easy for every client, miner or not, to check the
validity of a new block.

49.
Bitcoin Tech
• Bitcoin is a protocol. The unit of account is "bitcoins."
• Based on the block chain: a growing general public ledger of
cryptographically-signed transactions.
• All transactions are public, but are not by default tied to anyone's real
identity.
• Anonymity and traceability are “user defined”, i.e. the counter parties can be
as anonymous as they take steps to be— even to each other.
• Transfer of bitcoins consists not of physically moving an object from A to B,
but simply of adding a new, publicly accepted transaction to the block chain.
• Secured by collective compute power of miners. It is very difficult to create
a new valid block, but very easy for every client, miner or not, to check the
validity of a new block.
• Miners are awarded newly-minted bitcoins or transaction fees for
successfully finding blocks. The distributed algorithm ensures that bounty of
new bitcoins will asymptotically approach 21M, and the reward for mining
will then become transaction fees only.

50.
Bitcoin Tech

51.
Number of Bitcoins Over Time
Minted as of 2012 November: 10.35M

52.
Bitcoin Mining Rig
ModMiner Quad by BTCFPGA.COM
839Mh/s @ 63W = ~BTC0.2/day

53.
Bitcoin Mining Rig
ModMiner Quad by BTCFPGA.COM
839Mh/s @ 63W = ~BTC0.2/day

54.
Bitcoin Tech

55.
Bitcoin Tech
• The distributed algorithm dynamically adjusts how much
computing power it takes to find a valid block, limiting
block creation to around 1 block every 10 minutes.

56.
Bitcoin Tech
• The distributed algorithm dynamically adjusts how much
computing power it takes to find a valid block, limiting
block creation to around 1 block every 10 minutes.
• The bounties or transaction fees miners earn are
compensation for securing the block chain.

57.
Network Compute Power
As of 2012 November: 24.34Th/s (309.18PFLOPS)

58.
What Do Bitcoins “Look” Like?

59.
What Do Bitcoins “Look” Like?

60.
What Do Bitcoins “Look” Like?
1454A2geTxaJwF8eqry7oLECdomgDSj6Zx
Public Key (“Address”)
34 characters starting with 1 or 3
Represents a possible destination for payment

61.
What Do Bitcoins “Look” Like?
1454A2geTxaJwF8eqry7oLECdomgDSj6Zx
Public Key (“Address”)
34 characters starting with 1 or 3
Represents a possible destination for payment
5JHkYd4mYkTsCsF5axnFj573PG6tqpeJ39Rz2M33vwBka4S1hu6
Private Key
51 characters starting with 5
Required to transfer value from the address

62.
What Do Bitcoins “Look” Like?

63.
What Do Bitcoins “Look” Like?
Hard Disk

64.
What Do Bitcoins “Look” Like?
Hard Disk Digital Diversion Safe

65.
What Do Bitcoins “Look” Like?
Hard Disk Digital Diversion Safe SD Card

66.
What Do Bitcoins “Look” Like?
Hard Disk Digital Diversion Safe SD Card
Paper Bills

67.
What Do Bitcoins “Look” Like?
Hard Disk Digital Diversion Safe SD Card
Paper Bills
Casascius Physical Bitcoins

68.
What Do Bitcoins “Look” Like?
Hard Disk Digital Diversion Safe SD Card
Paper Bills
Memorized Passphrase Hashable to Private Key
Casascius Physical Bitcoins
“Brainwallet”

69.
USD Exchange Rate
As of 2012 November: BTC1.00 = $10.83

70.
USD Exchange Rate
As of 2012 November: BTC1.00 = $10.83

71.
What is the Legal
Status of Bitcoin?

72.
What is the Legal
Status of Bitcoin?

73.
What is the Legal
Status of Bitcoin?
• Exchanging bitcoins for anything is basically barter, which is legal.

74.
What is the Legal
Status of Bitcoin?
• Exchanging bitcoins for anything is basically barter, which is legal.
• The enhanced anonymity of Bitcoin potentially affords the same benefits
as cash or gold to people operating outside the law, but additionally, is
relatively frictionless to transfer to anyone in the world.

75.
What is the Legal
Status of Bitcoin?
• Exchanging bitcoins for anything is basically barter, which is legal.
• The enhanced anonymity of Bitcoin potentially affords the same benefits
as cash or gold to people operating outside the law, but additionally, is
relatively frictionless to transfer to anyone in the world.
• As with barter, exchanging in Bitcoin does not remove the requirement
to pay taxes on income or sales.

76.
What is the Legal
Status of Bitcoin?
• Exchanging bitcoins for anything is basically barter, which is legal.
• The enhanced anonymity of Bitcoin potentially affords the same benefits
as cash or gold to people operating outside the law, but additionally, is
relatively frictionless to transfer to anyone in the world.
• As with barter, exchanging in Bitcoin does not remove the requirement
to pay taxes on income or sales.
• Value entirely inside the bitcoin economy can be extremely difficult or
impossible to trace.

77.
What is the Legal
Status of Bitcoin?
• Exchanging bitcoins for anything is basically barter, which is legal.
• The enhanced anonymity of Bitcoin potentially affords the same benefits
as cash or gold to people operating outside the law, but additionally, is
relatively frictionless to transfer to anyone in the world.
• As with barter, exchanging in Bitcoin does not remove the requirement
to pay taxes on income or sales.
• Value entirely inside the bitcoin economy can be extremely difficult or
impossible to trace.
• Authorities are most likely to attempt to regulate the Bitcoin economy's
end-points: the exchanges.

78.
What Can You Buy
With Bitcoin?
Before 2011

79.
What Can You Buy
With Bitcoin?
Late 2011

80.
What Can You Buy
With Bitcoin?
Late 2012

81.
Bitcoin-Denominated Poker Chips
by Robert McNally

82.
Bitcoin-Denominated Poker Chips
by Robert McNally

83.
Robert McNally
ironwolf@dangerousgames.com