3. What is Bitcoin?
• Cryptocurrency
• Satoshi Nakamoto’s paper in 2008
• Decentralized
• No central authority
• Open
• Confidential
• Almost no processing fees
6. Bitcoin Identity
• They are not tied to real world identity.
• Bitcoin Address:
o Example:
16pkXDzxokb7D5YCQ9dMniWxByhdvKd8NT
o Like email address
o They can be created offline
o They can be used temporary
o Private Key and Public key
7. Clients
• Generates Bitcoin address
• Send and receive money
• Connect to Bitcoin Network
• Update the transactional block chain
• Desktop Clients:
o Bitcoind, BitcoinQT, MultiBit, Bitcoiner, …
• Online Clients:
o blockchain.info/wallet
o coinbase.com
o walletbit.com
9. How to Trade Bitcoin?
• Exchanges
o mtgox.com
o Btc-e.com
• Online websites
o Localbitcoins.com
o quickbitcoin.co.uk
o bitbargain.co.uk
10. Transaction
• Digital Signature
• Binds the sender’s identity to the transaction
• Details of a transaction is broadcasted to all
the nodes of the p2p network.
• Receiver can get some mathematically
assurance about the transaction and payer
before it gets verified or even payed.
• The network stop a bitcoin to be double
spent.
11. Blocks
• Data is permanently recorded in the Bitcoin network
through files called blocks.
• A block is a record of some or all of the most recent
Bitcoin transactions that have not yet been recorded in
any prior blocks
• New blocks are added to the end of the record ( Block
Chain) and once written, are never changed or removed.
• Contains an encoding of previous transaction block for
the purpose of continuity.
• Every 10 Minutes
12. Block Chain
• Share public transaction log
• Confirmed transactions are included
• Including information about previous blocks,
creates a chain of blocks.
• Miners broadcast the details of that chain to
all the nodes.
13. Transaction Fee
• At the moment transactions are usually free.
• Large[1] transactions require paying a fee.
• Validating Transactions in the network
• You can define a high priority for your
transaction and reward the miners with a
small fee.
* > 10KByte
15. Cryptography
• SHA-256
• MD5 ( Message digest 5 )
• Digital Signatures
• Hash function , takes a particular input and
applies a set of math transformations to
generate a digest.
• Collision Resistant
• Hide information
• Look Random
16. Digital Signature
• Signing Key (Private key), Verification Key
(Public key)
• Digest (A cryptographic message summary)
• It should be hard to come up with signing key if
you only see the verification key.
Sign
M SK
Signature
Verify
M SK
Signed or not signed
VK
18. Proof of Work
• Proof of a significant amount of computational effort.
• Difficulty (Each 2,016 Block will)
Challenge Proof response
Encrypt
Hash
0……..0xxx…x
40-bits = 0
19. Mining
• Totally 21,000,000 BTC
• 25 BTC reward
• Transaction Fees
• Reward sized is cut in half every 210,000
blocks (4 years)
• At around 2140 all the bitcoins will have
been generated.
20. Mining Mechanics
A B
T2 T3 T4 T5
Other
Transactions
Broadcasting
Transaction
M
M M M
T1
D1 D2
D3
Digests
Latest Accepted Block
Numbers Convert Challenge
H 00..0xxx..x
Proofs
?
25. Developers?
• Applications based on Bitcoin
• Parallel Programs
o Optimize until you run out of money
o Improve Algorithms
o Write your own/extend pool
• Develop your own FPGA [ ASIC?]
• Almost everything is open-source
