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Bitcoin

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by

Marcin Szychowski

on 18 May 2015

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Transcript of Bitcoin

Adresses
Bitcoin limitations
Bitcoin network in present shape can handle at most seven (7) transactions per second.

A new consensus is needed to overcome this limitation.
What makes Bitcoin different?
There is no central Bitcoin authority - there is general consensus instead
Bitcoin
What is Bitcoin?
Questions?
a quick introduction to
purely digital money

Decentralized virtual currency
with distributed ledger
anyone can read
full transaction
history
everyone can verify
anyone's account
('address') balance
BUT only the owner
knows which address
is his / hers
there is no central
(or "master")
copy of the ledger
this ledger holds
entire transaction
history since the
dawn of Bitcoin
back in 2009
Bitcoin is backed by the network of
peers
, constantly exchanging information about transactions - both current and past (sort of Bittorrent for notorious bookkeepers).
they share a consensus
about protocol parameters
in order to keep Bitcoin
alive and attractive
(just like Internet participants
abide RFCs...)
...but if some disregard RFCs,
some features sometimes break;
if Bitcoin network looses
consensus - entire system
would collapse.

Thus the consensus is
strong
they do not trust
each other
peers
do not know
each other
Bitcoin network uses strong cryptography to protect integrity (and immutability)
of the ledger
How does
the ledger
work?
unconfirmed transactions
propagate over the network to reach the
miners
At this point your transaction is
unconfirmed
miner picks up transactions of their
own choice
in order to form a block and verifies if coins hadn't been
already spent
once transaction makes it into a block, it is considered
confirmed
and formation of next block starts
Once you decide to pay someone, you pick up appropriate number of coins from your wallet and transfer them to his / her wallet

By no surprise - this is called
transaction

You authorize transactions with your private keys and transmit information about transaction to the network
Without consensus
the ledger
would not function at all.

The ledger itself is a
chain of blocks
filled with information about past transactions.

This technology is called
blockchain
and is
key idea
behind Bitcoin

Once in block, transaction cannot be altered, so there is no such thing like "canceled Bitcoin transaction"
each subsequent block in chain
confirms
our transaction even more
miner
distributes block
he / she just formed so that other miners could build next block upon it
or "
How do I pay with Bitcoin?
"
As it was said, you authorize transactions with your private keys.
Private keys are kept in wallets.
You can have as many private keys as you want.
Really.
Bitcoin uses Elliptic Curve Cryptography with 256-bit keys. That means almost every 256-bit wide integer can be your private key. Specifically, every number from
0x1
to
0xfffffffffffffffffffffffffffffffebaaedce6af48a03bbfd25e8cd0364140
is valid private key.
source: https://en.bitcoin.it/wiki/Private_key
That's a lot of numbers, about 1e77
If every human from
ten billion
Earth's population would use Bitcoin and would like to have
ten billion
private keys, that would make
1e20 keys
, leaving holes of roughly
1e57
betweeen them. Even if we consider birthday paradox, that's still a lot of keys. Not too much room for key collisions.
From private key a public one is devised and a "Bitcoin address" is formed.

Opposite operation is impossible
"Address" is used to send the coins to. It looks like this:
1Ea5pBhciHzs9byPadjvy349ZG7BQUVjJ6
and uses Base58-Check encoding, created specifically for this purpose.

Since it is not trivial to type or remember, QR-codes are used in order to streamline Bitcoin transactions.
that's how
blockchain
grows
The enormous number of Bitcoin addresses provides it's users with great deal of anonymity. Most time you spend your coin, two new coins are formed: actual payment, and the change.

Since you should never reuse addresses, it is very hard to tell
which part was the payment,
and which was the change.
This of course attracts all sorts of criminals, so - you can buy virtually anything with Bitcoin on underground markets, usually operating in TOR network.

I strongly
discourage
you from doing that.
How much does it cost to pay with Bitcoin?
You decide!
Each time you send coins, you voluntarily decide to pay small amount as transaction fee. It could even be 0.00000000
Your fee is collected by miner, who added your transaction to blockchain
Miner may decide to ignore your transaction if it is not payed well enough for his / her needs.

Besides of that, the network limits rate of free transactions, so if you want get quick confirmation, you may decide to pay more.
Total future number of bitcoins is well-known upfront: there will never be more than about 21 million Bitcoins.
But do not worry! Bitcoin is divisible up to eight decimal places, so it should not be a problem even if it's value reaches 1 million USD
All you need is a good random numbers generator
You can send coins to anyone - regardless of borders.
Bitcoin transactions usually takes minutes to complete and cost fractions of traditional bank transfers
Transactions are irreversible - if you send coins to wrong address, there is no one who could revert that.

All you can do is to gladly ask receiver to send it back to you.
Anyone can start accepting Bitcoin payments instantly.
You do not need to invest in any special equipment to become part of 'the bank of Bitcoin'
If you liked this presentation, please consider tipping me to the following bitcoin address:
1Ea5pBhciHzs9byPadjvy349ZG7BQUVjJ6

Besides - there is no limit how you can use Bitcoin
See https://blockchain.info/address/17jJ1WAJwqizCNLC6p2KadeRqPYhVispzt for transaction history
Donations?
Feel free to contact me via LinkedIn or Twitter to ask questions, get answers, and provide appreciated feedback.
My LinkedIn profile:
https://linkedin.com/in/szycha
My Twitter address:
@szycha
It's bitcoin - you can track donations here:
https://blockchain.info/address/1Ea5pBhciHzs9byPadjvy349ZG7BQUVjJ6
Bitcoins are like physical coins in a wallet in your pocket,
that you can send in minutes
to anyone, anywhere
at virtually no cost.

- What do one need
the bank for?
If you loose your wallet, your coins are doomed.
Full transcript