Bitcoin is a peer-to-peer electronic cash system and the first truly decentralized network for sending and receiving value over the Internet. This presentation gets into the details of the technology and answers common questions related to the bitcoin, how it works.

1. A primer on Bitcoin technology
Sebin Benjamin
B.Tech - Computer Science
Software Developer

2. https://www.youtube.com/watch?v=IP0jCjyrew8

3. Bitcoin is a peer-to-peer electronic cash system.
First truly decentralized network for sending and receiving value over
the Internet.
It is a virtual currency that captures many aspects of security in its
requirements.
No one controls it. Bitcoins aren’t printed, like dollars or euros –
they’re produced by people, and increasingly businesses, running
computers all around the world, using software [bitcoin mining] that
solves mathematical problems.
Bitcoins

4. Cash - peer to peer
Electronic Cash -
Requires 3rd party trust
Every step adds cost

5. ● Several “forks” (modified versions) and derivative cryptocurrencies have
Satoshi Nakamoto invented the bitcoin
protocol, publishing a paper via the
Cryptography Mailing List in November
2008.
First version of the bitcoin software client
in 2009.
He/She participated with others on the
project via mailing lists, until he finally
began to fade from the community
toward the end. of 2010.

6. Milestones
October 2008 – Bitcoin design paper – Satoshi Nakamoto
January 2009 – Bitcoin v0.1 announced (software client)
May 2010 – Pizza purchased for 10,000 Bitcoins [1st real-world tx, $25 ->$5M]
July 2010 – Mt. Gox was established as a Bitcoin exchange market in Tokyo
by 2013 was handling 70%. Bankrupt in 2014 as $450M lost.
March 2013 – U.S. Treasury issues first regulatory guidance for virtual
currencies.
November 2013 – Federal regulators, including Bernanke, comment favorably
upon Bitcoin at the U.S. Senate hearing.
2015 :100,000 Merchants Worldwide including Facebook, Mozilla, Wikimedia
Spotify, Ryanair, Microsoft, Dell, and PayPal accepted Bitcoin

7. How Bitcoin Works?
It is a peer to peer network operated by a decentralized authority, unlike
government issued currencies.
Idea was to produce a currency independent of any central authority,
transferable electronically, more or less instantly, with very low transaction
fees.
You can set up a bitcoin address in seconds, no questions asked, and with
no fees payable. BTC to BTC tx are technically free*.
Users can hold multiple bitcoin addresses, and they aren’t linked to names,
addresses, or other personally identifying information

8. How Bitcoin Works?
Bitcoin stores details of every single transaction that ever happened in the
network in a huge version of a general ledger, called the blockchain.
If you have used bitcoin address, anyone can tell how many bitcoins are
stored at that address. They just don’t know that it’s yours.
There are no bitcoins, only records of bitcoin transactions. They don’t exist
anywhere, even on a hard drive. Instead, there are only records of
transactions between different addresses, with balances that increase and
decrease.
Bitcoin miners verify the transaction and processes it.

9. How are bitcoins sent?
You need two things: a bitcoin address and a private key.
A bitcoin address is generated randomly, and is simply a 32 character
sequence of letters and numbers.
1BWEgGNEj2ED9SyyvXqH3wWiphFMczM1Uy
The private key is another sequence of letters and numbers, but unlike your
bitcoin address, this is kept secret.
Bitcoin addresses are derived from the hash of the public key, paired with
your private key
2^160 addresses & 2^96 private keys possible for each address

10. How are bitcoins sent?
A transaction is sent by signing a message with
1. The input, source transaction(s) of the coins
2. Amount
3. Output (Receiver's address).
This information will be made into a transaction.The bitcoin network deals
collects all of the transactions made during a set period into a list, called a
block. Miner’s confirm those transactions, and write them into a general ledger,
the blockchain.

11. Hashing
Lulu International Exchange → C2DBC3640C8AE4E14AEBAC300C0144A29312B107189B8E54A34E87FB8224C6A0
Lulu International Exchange. → 964F18BB5B57915A4BD178FFF12C59006E63C6414BDBE953F60BC2DA9B19CDCA
SHA256 was used like in bitcoins

12. Merkle Tree

13. Bitcoin blockchain

14. A cryptographic system that uses two keys -- a public key known to everyone and
a private key (secret key) known only to the sender of the message.
Each coin is associated with its current owner's public key, hashed to form
bitcoin address.
When you send some bitcoins to someone, you create a transaction, attaching the
new owner's public key to this amount of coins, and sign it with your private key.
When this transaction is broadcast to the bitcoin network, this lets everyone know
that the new owner of these coins is the owner of the new key.
Your signature on the message verifies for everyone that the message is
authentic. The complete history of transactions is kept by everyone, so anyone
can verify who is the current owner of any particular group of coins.
Public Key Cryptography in bitcoin

15. Computational complexity in bitcoin
The hash of a block (block header) must start with a certain number of zeros.
The probability of calculating a hash that starts with many zeros is very low,
therefore many attempts must be made.
Any change to the block data (such as the nonce) will make the block hash
completely different. Many different nonce values are tried, and the hash is
recomputed for each value until a hash containing the required number of zero
bits is found. The hashing is based on the hashcash function.
The number of zero bits required is set by the difficulty. As this iterative calculation
requires time and resources, the presentation of the block with the correct nonce
value constitutes proof of work.

16. Bitcoin mining
Miners’ confirm the transactions, and write the
block into the blockchain.
Blockchain contains an increasingly lengthy
list[append-only] of all the transactions [verified &
valid] that ever took place on the bitcoin network.
A constantly updated copy of the block is given to
everyone who participates (mining), so that they
know what is going on.
New transactions are constantly being
processed by miners into new blocks which are
added to the end of the chain and can never be
changed or removed once accepted by the
network

17. How are transactions verified ?
The main data structures in the bitcoin network are transactions and blocks.
Blocks are composed of the block header followed by transactions in the
block. Transactions & Blocks are identified by their hash value.
A miner chooses a list of transactions from a pool of unconfirmed transaction.
The miners work on them to "solve" the block and once a block is "solved",
it is broadcast to the network, and all the transactions in the block becomes
confirmed.
Miners only include tx that don't break the rules*. The rules include checking
that the inputs are valid, that a coin isn't double-spent, that the output isn't
more than the input, etc. When a miner generates a block with an invalid
transaction on top of a valid block, other miners will not accept the new block.
* Bitcoin Protocol rules

18. How are Bitcoins generated [mined] ?
The creation of coins must be limited for the currency to have any value.
Bitcoins are slowly mined into existence by following a mutually agreed-upon set of
rules. A user mining bitcoins is running a software program that searches for a
solution to a very difficult math problem the difficulty of which is precisely known.
When a solution is found, the user may tell everyone of the existence of this newly
found solution by relating the block. The solution itself is a proof-of-work or PoW.
It is hard to find, but easy to verify.

19. How are Bitcoins generated [mined] ?
Blocks create 12.5 new bitcoins at present [October 2016].
block reward - incentive for people to perform the computation work required for
generating blocks.
Roughly every 4 years, the number of bitcoins that can be "mined" in a block
reduces by 50%. Principle of Controlled supply, Quantitative easing applies etc
here to some extend. The Bitcoin generation algorithm defines, in advance, how
currency will be created and at what rate.
Originally -> 50 bitcoins November 2012 -> 25 July 2016 -> 12.5.
In the end, no more than 21 million bitcoins will ever exist, but not necessarily
spendable.

20. Bitcoins in circulation

21. Who/what decides value of Bitcoin ?
Bitcoin’s price is measured against fiat currency, such as American Dollars
(BTCUSD), Chinese Yuan (BTCCNY) or Euro (BTCEUR).
Unlike fiat currencies however, there is no official Bitcoin price; only various
averages based on price feeds from global exchanges.
Demand & Supply - Price discovery occurs at the meeting point between demand
from buyers and supply of sellers. Majority of supply is controlled by early adopters
and miners, capped at 21 Million
Supply - Miners currently produce around 3,600 bitcoins per day, some portion of
which they sell to cover electricity and other business expenses.

22. Who/what decides value of Bitcoin ?
Demand - Current mining reward is 12.5 BTC per block solution, Bitcoin supply is
inflating at around 6.25% annually.
That Bitcoin’s price is rising despite such high inflation indicates extremely
strong demand. Every day, buyers absorb the thousands of coins offered by
miners and other sellers.
Demand is commonly monitored by
Google trends data (from 2011 to the present) for the search term “Bitcoin.”
High levels of public interest may exaggerate price action; media reports of
rising Bitcoin prices draw in greedy, uninformed speculators, creating a
feedback loop.

23. Who/what decides value of Bitcoin ?
Banking Blockades - first such instance was the late 2010 WikiLeaks banking
blockade, whereby VISA, MasterCard, Western Union and PayPal ceased
processing donations to WikiLeaks.
Darknet drug markets - a commercial website on the dark web that operates
via darknets such as Tor or I2P. They function primarily as black markets,
selling or brokering transactions involving drugs, cyber-arms, weapons,
counterfeit currency, stolen credit card details, forged documents,
unlicensed pharmaceuticals,steroids,other illicit goods as well as the sale of
legal products.

24. Who/what decides value of Bitcoin ?
Fiat Currency Crises - Bitcoin wallet can be a lot safer than a bank
account. Eg In Greece, strict capital controls were imposed in 2015. daily
withdrawal limit of €60.
After the Greek crisis, China began to devalue the Yuan. As reported
at the time, Chinese savers turned to Bitcoin to protect their
accumulated wealth.
Bitcoin is ultimately worth what people will buy and sell it for.
Bitcoin rose to a high of $737 following the US election results, up
from its $707 price when the market closed yesterday.

25. Who/what decides value of Bitcoin ?
Bitcoin’s value is determined by perception. Instead of the trust (govt)
other factors (the technology, widespread acceptance, understanding of e-
money, etc.) are taken into consideration.
When magazines and online entities write intriguing articles about Bitcoin,
people take interest in it, the demand goes up and so does its value.
Likewise when Mt. Gox is DDoSed, a bitcoin service shutters, or
$250,000 worth of BTC is stolen, people get nervous, demand drops, and
so does BTC's value.

26. http://www.coindesk.com/price/
Bitcoin Exchange Rates

27. http://www.coindesk.com/price/

32. Are bitcoin transactions 100% free ?
For a long time in Bitcoin’s existence, miners processed transactions without
fees. All miners today expect transactions to include fees due to the overall
volume of the network and to avoid spamming of the Bitcoin network.
Also because the block reward will decrease over the long term, miners will
some day instead pay for their hardware and electricity costs by collecting
transaction fees. Or hypothetically after 21 million bitcoins are mined (in 2144*).
The sender of money may voluntarily pay a small transaction fee which will
be kept by whoever finds the next block. Paying this fee will encourage miners
to include the transaction in a block more quickly.
https://en.bitcoin.it/wiki/Transaction_fees
* Bitcoin reward schedule

33. How long does a bitcoin transaction take ?
Your transaction must be verified by miners. So you are sometimes forced to
wait until they have finished mining. The bitcoin protocol is set* so that each
block takes roughly 10 minutes to mine [few seconds to upto 90 minutes]
Some merchants may make you wait until this block has been confirmed,
whereas some merchants won’t make you wait until the transaction has been
confirmed. They effectively take a chance on you, assuming that you won’t try
and spend the same bitcoins somewhere else before the transaction confirms.
This often happens for low value transactions, where the risk of fraud isn’t as
great.
* Mining difficulty

34. How long does a bitcoin transaction take ?
Receiving notification of a payment is almost instant with Bitcoin. However,
there is a delay before the network begins to confirm your transaction by
including it in a block.
A confirmation means that there is a consensus on the network that the
bitcoins you received haven't been sent to anyone else and are considered
your property.
Once your transaction has been included in one block, it will continue to be
buried under every block after it, which will exponentially consolidate this
consensus and decrease the risk of a reversed transaction. Every user is free
to determine at what point they consider a transaction sufficiently confirmed,
but 6 confirmations is often considered to be as safe as waiting 6 months on a
credit card transaction.

35. Bitcoin nodes/network
In order to validate and relay transactions, bitcoin requires more than a network of
miners processing transactions, it must broadcast messages across a network
using 'nodes'. This is the first step in the transaction process that results in a
block confirmation.
A node is a machine with Bitcoin core client installed with the complete block
chain. The more nodes there are, the more secure the network is.
Unlike bitcoin mining, where participants are rewarded for confirming transactions,
running a bitcoin node does not provide any incentive. The only benefit for
someone to run a node is to help protect the network

39. Is Bitcoin legal?
Bitcoin is NOT illegal* by legislation in most jurisdictions at present**. Although it is
also being used for illegal purposes; similar to technologies like Internet (copyright
violations etc).
Some jurisdictions (such as Argentina and Russia) severely restrict or ban foreign
currencies. Other jurisdictions (such as Thailand) may limit the licensing of certain
entities such as Bitcoin exchanges.
Regulators from various jurisdictions are taking steps to provide individuals and
businesses with rules on how to integrate this new technology with the formal,
regulated financial system. For example, the Financial Crimes Enforcement
Network (FinCEN), US.
** Was illegal in Russia & Thailand in past
* https://en.wikipedia.org/wiki/Legality_of_bitcoin_by_country#List_by_country

40. Has Bitcoin been hacked in the past?
The rules of the protocol and the cryptography used for Bitcoin - NO
There are often misconceptions about thefts and security breaches that happened
on diverse exchanges and businesses. None of them involve Bitcoin itself being
hacked, nor imply inherent flaws in Bitcoin; just like a bank robbery doesn't mean
that the dollar is compromised.
A complete set of good practices and intuitive security solutions is needed to give
users better protection of their money, and to reduce the general risk of theft and
loss.
Bitcoin protocol itself may be secure, the wallets and services used to store
and exchange Bitcoin may not.

41. https://www.youtube.com/watch?v=GmOzih6I1zs

42. Hypothetically, if a single entity contributed the majority of the network’s mining
hashrate(processing power), they would have full control of the network and
would be able to manipulate the public ledger (blockchain) at will.
Mining pools - groups of bitcoin miners who pool their resources & share their
rewards
Ghash.io (mining pool) has twice come dangerously close to obtaining 51% of the
bitcoin network's hashing power. In October, 2016, GHash.IO pool has been
closed.
At current network mining difficulty levels, not even large-scale governments could
easily mount a 51% attack.
51% attack

44. Bitcoin Wallet
Without a wallet, you can’t receive, store, or spend
bitcoins easily.
Bitcoin wallets contain private keys; secret codes
that allow you to spend bitcoins.
In reality, it’s not bitcoins that need to be stored and
secured, but the private keys that give you access
to them.
Wallets can be s/w, h/w, paper wallet, Rings etc.
Nowadays Apps, websites store it for you & you
won't be seeing your private keys.

45. Paper Wallet
Bitcoin ring

46. Paper Wallet

47. Bitcoins in recent news
Alleged Bitcoin Scammer Busted By Dubai Police - November 9, 2016
Emirates NBD, ICICI Complete Cross-Border Blockchain Transaction - October 12, 2016
https://www.icicibank.com/aboutus/article.page?identifier=news-icici-bank-executes-indias-first-b
https://www.icicibank.com/managed-assets/docs/about-us/2016/icici-bank-executes-blockchain-w
Dubai Bitcoin Exchange BitOasis Completes First Funding Round - May 24, 2016
Bitoasis - to be ‘Middle East & North Africa's leading bitcoin wallet and exchange’
founding member of the Dubai-based Global Blockchain Council (by Dubai Museum of the
Future Foundation), a 32-member organization exploring the impact of blockchain
technology and digital currencies in UAE.

48. Bitcoins in recent news
UAE's First Bitcoin Exchange Launches in Dubai - Igot - August 29, 2014
Buy & sell bitcoin in UAE, also payment processor
Dubai’s first Bitcoin ATM opens up currency debate - April 23, 2014
Umbrellab - developed the system
Startup software integration service provide
Developed piiko - topup mobile network in 100 countries
Provides payment solution, software & consultancy
Dubai Pizzeria Becomes First Merchant in the UAE to Accept Bitcoin -
February 19, 2014

49. Bitoasis - startup to be ‘Middle East & North Africa's leading bitcoin
wallet and exchange’
Igot - Buy & sell bitcoin in UAE, also payment processor
Umbrellab - Startup software integration service provide
Unocoin - India
https://www.unocoin.com/
India's most popular bitcoin wallet. Securely buy, use and accept bitcoin,
following KYC-AML guidelines.
Bitcoin related exchanges/companies

50. Other Cryptocurrencies (Altcoins)
The word “altcoin” is an abbreviation of “Bitcoin alternative,” and thus describes
every single cryptocurrency except for Bitcoin.
Altcoins are referred to as Bitcoin alternatives because, at least to some extent,
most altcoins hope to either replace or improve upon at least one Bitcoin
component.
A cryptocurrency must have some of the following qualities:
The currency must have a market cap of one million US dollars.
The currency must be the first to introduce an innovative protocol.
Map of coins - http://mapofcoins.com/bitcoin

51. Why do people trust Bitcoin? - The Blockchain
Much of the trust in Bitcoin comes from the fact that it requires no trust at all.
Bitcoin is fully open-source and decentralized. This means that anyone has
access to the entire source code at any time. Any developer in the world can
therefore verify exactly how Bitcoin works.
All transactions and bitcoins issued into existence can be transparently
consulted in real-time by anyone.
All payments can be made without reliance on a third party and the whole
system is protected by heavily peer-reviewed cryptographic algorithms like those
used for online banking.
No organization or individual can control Bitcoin, and the network remains secure
even if not all of its users can be trusted.

52. The blockchain is a global distributed ledger, which facilitates the
movement of assets across the world in seconds, with only a minimal
transaction fee. These assets can be any type of value, as long as they
can be represented digitally.

53. https://www.youtube.com/watch?v=4RRD4Jy6aWw

54. https://www.youtube.com/watch?v=lD9KAnkZUjU

55. Bitcoin Wiki maintained by the Bitcoin community. -
https://en.bitcoin.it/wiki/Main_Page
FAQ by bitcoin.org - https://bitcoin.org/en/faq
https://bitcoin.org/en/resources
More info on Bitcoins

56. References
https://en.bitcoin.it/wiki/Main_Page
https://commons.wikimedia.org/wiki/File:Hash_Tree.svg
https://www.authorize.net/
http://www.coindesk.com/palantir-quantum-bitcoin-cloud-mining/
http://www.coindesk.com/
http://bitcoin.stackexchange.com/
https://dret.net/lectures/web-fall07/security
’Bitcoin & Blockchain’ - Bart Preneel - Presentation
https://bitcoin.org/en/resources