Bitcoin 101 - for MELI

Bitcoin

By Rodri B

Bitcoin

Rodri B

Validation

Generation of Blocks

• Solving a difficult math problem
• Difficulty is precisely know
• 6 solutions x hour will be found

Nothing is valid yet

Transactions are only real if the network approves them

Network validation makes each bitcoin have value

Verifying Transactions

Transaction

"The network"

Address + $

Bitcoin address

An unorganized worldwide network of Bitcoin miners (computers solving cryptographic hash functions)

Mining is incentivized

31uEbMgunupShBVTewXjtqbBv5MndwfXhb

Signed by Bitcoin client

(PrivKey)

Bitcoin Wallets

"Email address" with a bitcoin balance

Anyone can generate an address

Rami & Mati have bitcoin wallets

Transaction request pushed to network

Rami has a bitcoin address in Bitcoin Software for the amount he wants to send.

A Bitcoin wallet is a file that contains a collection of addresses

Example

Imagine this is a transaction in a block

Address breakdown

1CC3X2gu58d6wXUWMffpuzN9JAfTUWu4Kj

Cryptographic Key Pair

http://en.wikipedia.org/wiki/Bitcoin

Rami knows the private key:

5Kb8kLf9zgWQnogidDA76MzPL6TsZZY36hWXMssSzNydYXYB9KF

Private Key

He can "unlock" the address + spend the bitcoins

Public Key

Kept secret in Rami's wallet

Entire network privy

Bitcoin Transaction

example

5) Solved block demonstrates 'proof of work' by network

3) [Hash + Nonce] run through Hashcash

4) Output must have fixed # of 0's, otherwise step 3 occurs again

Proof of Work

Find a SHA-256 hash beginning with a number of zeros

6) Solved block sent out to the network.

1) Miner collects many transactions in a block

Ramiro wants to send Mati bitcoins.

2) Block converted to large string (the block's hash value)

Verification Process

Near impossible to inject malicious blocks etc.

Each hash combines previous transaction blocks

Network Verification

"Proof of work" difficulty is elastic

Factors in computers increasing in speed

25 Bitcoins ~ $3,400

25 Bitcoins released for each block solved

1 BitCoin every 10 Minutes

6 solutions x hour will be found

Network Longevity

What is Bitcoin?

Real World Uses

An open source P2P digital currency

Bitcoin is a digital currency, a protocol, and a software that enables :

• Instant peer-to-peer transactions
• Worldwide payments
• Low or zero processing fees

Assumptions

How did this all start?

In 2008, someone using the alias "Satoshi Nakamoto" published a paper describing how Bitcoins could work.

In 2009, the bitcoin network came into existence with the release of the first open source bitcoin client and the issuance of the first bitcoins

Beyond bitcoin, no other links to Satoshi Nakamoto have been found. His involvement in the original bitcoin protocol does not appear to extend past mid-2010.

• Bitcoin can be transferred by arbitrary nodes in the network

• Transactions are irreversible

• Double spending is prevented

• Transactions are verified by the network

• Transactions can be received 24/7