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General Introduction to Bitcoin
Jérémie Dubois-Lacoste, PhD
Les Geeks Anonymes - Liège - 27/02/2015
A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Preliminaries
Who am I?
I Post-doc researcher in Computer Science(AI lab of ULB)
I Founder & Organizer of “Bitcoin Brussels” meetup group(250 members)
I Founder & Director of ASBL/VZW “Belgian BitcoinAssociation”
I Involved in Bitcoin startups
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Preliminaries
Disclaimer
I I own some bitcoins
I Bitcoin should (still) be seen as an experiment
I The topic is often hard, because of its paradigm novelty.Don’t be frustrated if you don’t get 100% :-)
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Outline
Outline
Bitcoin in a Nutshell
Technical Overview
Economical Overview
Business Development Overview
Conclusion
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Bitcoin in a Nutshell
Outline
Bitcoin in a NutshellHistoryWhat is Bitcoin?
Technical Overview
Economical Overview
Business Development Overview
Conclusion
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Bitcoin in a Nutshell
History
Apparition of Bitcoin
I Money based on cryptography: an old cypherpunk ideal
I b-money (Wei Dai, 1999)
I bitgold (2005, Nick Szabo)
Main issue with these attempts: requires a trusted third-party toavoid “double-spending”
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Bitcoin in a Nutshell
History
The Tour de Force of “Satoshi Nakamoto”
Scientific Article (November 2008) :
Complete description of the concept
Introduce the idea of the blockchain
Implementation (January 2009)
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Bitcoin in a Nutshell
What is Bitcoin?
Outline
Bitcoin in a NutshellHistoryWhat is Bitcoin?
Technical Overview
Economical Overview
Business Development Overview
Conclusion
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Bitcoin in a Nutshell
What is Bitcoin?
What is Bitcoin? (1/3)Formal Answer
I Bitcoin: Information exchange protocol (like http, smtp...),that allows the transfer of units of account; these unitsbehave like the money we are used to.
I DurabilityI PortabilityI FungibilityI DivisibilityI Relative rarety
I bitcoin(s): name of the unit of account circulating on theBitcoin network
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Bitcoin in a Nutshell
What is Bitcoin?
What is Bitcoin? (2/3)Informal Answer - Micro Scale
A system for people to send and receive payments
I Without depending on any third-party
I Reasonably privately
I Instantly
I Reliably
I Typical transaction fee today: zero or 0.03C
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Bitcoin in a Nutshell
What is Bitcoin?
What is Bitcoin? (3/3)Informal Answer - Macro Scale
I Money supply policy governed by maths; known inadvance
I Without border
I Distributed
I Open source software; community developed
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Bitcoin in a Nutshell
What is Bitcoin?
What is the core innovation of Bitcoin?In the “usual” world
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Bitcoin in a Nutshell
What is Bitcoin?
What is the core innovation of Bitcoin?In the “usual” world
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Bitcoin in a Nutshell
What is Bitcoin?
What is the core innovation of Bitcoin?In the “usual” world
I Trusted third parties are “keeping the books”
I Centralized consensus
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Bitcoin in a Nutshell
What is Bitcoin?
What is the core innovation of Bitcoin?In Bitcoin world
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Bitcoin in a Nutshell
What is Bitcoin?
What is the core innovation of Bitcoin?In Bitcoin world
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Bitcoin in a Nutshell
What is Bitcoin?
What is the core innovation of Bitcoin?In Bitcoin world
I No trusted parties, “keeping the books” is done collectivelywithout trust
I Decentralized consensus
I The mechanism to allow that is called the blockchain
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Bitcoin in a Nutshell
What is Bitcoin?
What is the core innovation of Bitcoin?In Bitcoin world
Remark: Bitcoin use decentralized consensusto determine ownership.
Much more can be done (outside the scope of this talk...)
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Technical Overview
Outline
Bitcoin in a Nutshell
Technical OverviewAddresses and keysTransactionsThe BlockchainBitcoin Mining: Blocks
Economical Overview
Business Development Overview
Conclusion14 / 57
A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Technical Overview
Addresses and keys
Addresses and keys
I Assymetric cryptography (public/private key pair)
I Bitcoins exchanged between addresses:1JwSSubhmg6iPtRjtyqhUYYH7bZg3Lfy1T
I Everybody can see the amount associated to an address
I Only owners of corresponding private key can spend them
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Technical Overview
Addresses and keys
Private keys can be stored...
I On a computerI On a USB stick, a DVD-RomI Printed or written on paperI Only in your memory: “brain-wallet”I On a specific deviceI In poetryI etc.
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Technical Overview
Transactions
Outline
Bitcoin in a Nutshell
Technical OverviewAddresses and keysTransactionsThe BlockchainBitcoin Mining: Blocks
Economical Overview
Business Development Overview
Conclusion17 / 57
A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Technical Overview
Transactions
Transactions
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Technical Overview
Transactions
Paul received 3 BTC via 2 transactions
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Technical Overview
Transactions
Paul wants to send 3 BTC to Jacques
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Technical Overview
Transactions
Paul wants to send 3 BTC to Jacques
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Technical Overview
Transactions
Once the transaction is confirmed
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Technical Overview
Transactions
How to do this without trusted third-party?
I How does Jacques know that Paul really had 3 BTCavailable?
I How to avoid that Paul spends them again?
→ Blockchain
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Technical Overview
The Blockchain
Outline
Bitcoin in a Nutshell
Technical OverviewAddresses and keysTransactionsThe BlockchainBitcoin Mining: Blocks
Economical Overview
Business Development Overview
Conclusion24 / 57
A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Technical Overview
The Blockchain
Blockchain
Contains all transactions and distributed on every node
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Technical Overview
The Blockchain
Secured by Mining
I The miners “clear” transactions and secure the blockchainby recording them in blocks
I In exchange, they are rewarded with new bitcoins createdex-nihilo (at a fix rate)
I Emerging behavior: the system as a whole acts honestlyas long as a large enough majority acts honestly
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Technical Overview
Bitcoin Mining: Blocks
Outline
Bitcoin in a Nutshell
Technical OverviewAddresses and keysTransactionsThe BlockchainBitcoin Mining: Blocks
Economical Overview
Business Development Overview
Conclusion27 / 57
A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Technical Overview
Bitcoin Mining: Blocks
Hashing Algorithms
Hashing Algorithms take inputs of any size, and produceoutputs (hash) of standard sizes:
“haha” -> bcb4fe6563d225fbc7b0e90571fc670f1ee197f18ba18e52a39c2ca80672812f
“hello world” -> a948904f2f0f479b8f8197694b30184b0d2ed1c1cd2a1ec0fb85d299a192a447
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Technical Overview
Bitcoin Mining: Blocks
Hashing Algorithms: SHA256
SHA256 State-of-the-art hashing algorithm, used for manyapplications in the world, and also for bitcoin mining.
I Public, many open source implementations, can bedownloaded or implemented yourself.
I Typically installed on every computer.
I Let’s play with it!
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Technical Overview
Bitcoin Mining: Blocks
Hashing Algorithms: SHA256
SHA256 State-of-the-art hashing algorithm, used for manyapplications in the world, and also for bitcoin mining.
I Public, many open source implementations, can bedownloaded or implemented yourself.
I Typically installed on every computer.
I Let’s play with it!
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Technical Overview
Bitcoin Mining: Blocks
Quite chaotic
Example!
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Technical Overview
Bitcoin Mining: Blocks
Not Reversible: Brute force!
Find the English word that produces the hash:3dc3ae00e6d09d5e491895aca9237b14a87deabad03bfb9f5679eb49ff8b9744
Example!
I Must try all words in English dictionary until you try with“zebra”
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Technical Overview
Bitcoin Mining: Blocks
Not Reversible: Brute force!
Find the English word that produces the hash:3dc3ae00e6d09d5e491895aca9237b14a87deabad03bfb9f5679eb49ff8b9744
Example!
I Must try all words in English dictionary until you try with“zebra”
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Technical Overview
Bitcoin Mining: Blocks
Link with bitcoin mining
I Bitcoin mining is nothing else than “brute force” as we justdid.
I But the goal in bitcoin mining is not to find input withspecific hash (that would be too hard).
I The goal is to find input with a hash that starts with enough’0’ at the beginning:0000000006d09d5e491895aca9237b14a87482b6d03bfb9f5679eb49ff8b9744 -> OK
adc3ae4af8ec45b812ac2e5f6b4c5d79114d4741av1895aca9237b14a87dea78 -> not OK
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Technical Overview
Bitcoin Mining: Blocks
Let’s be a Minner!
I Our goal is to find a hash starting with one ’0’.
I Our input are the recent transactions that happened on thebitcoin network. Here we simplify all these data to thestring of characters “block-data”:
Example!
I Hash NOT OK
I We can include an arbitrary number (“nonce”) to obtainmore hashes for our data.So we “mine” (brute force) this:“block-data free-number=<we_can_choose>”
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Technical Overview
Bitcoin Mining: Blocks
Let’s be a Minner!
I Our goal is to find a hash starting with one ’0’.
I Our input are the recent transactions that happened on thebitcoin network. Here we simplify all these data to thestring of characters “block-data”:
Example!
I Hash NOT OK
I We can include an arbitrary number (“nonce”) to obtainmore hashes for our data.So we “mine” (brute force) this:“block-data free-number=<we_can_choose>”
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Technical Overview
Bitcoin Mining: Blocks
Let’s be a Minner: Success!
I We found a hash OK, we can confirm the block and telleveryone. They check themselves that indeed the hash isOK
I We earned 25 BTC
I Bitcoin mining is nothing more complex than that
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Technical Overview
Bitcoin Mining: Blocks
Real Bitcoin Mining: same thing but (much) harder
I In reality, the (current) goal is to find hashes starting with17 ’0’ in a row.
I We did 4 trials in few seconds to mine a block starting withone ’0’.
I Miners together are doing 350 thousands of billions oftrials per second (350 Peta hashes / s) to find hashesstarting with 17 ’0’.
I The difficulty adapts automatically to the network hashrate, to keep one block confirmation every 10mn
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Technical Overview
Bitcoin Mining: Blocks
Bitcoin total mining power
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Technical Overview
Bitcoin Mining: Blocks
Blockchain = sequence of blocks
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Technical Overview
Bitcoin Mining: Blocks
Blockchain = distributed consensus
I The blockchain is a database that everybody can freelyread...
I But it is hard to expand...
I And excessively hard to “rewrite”
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Economical Overview
Outline
Bitcoin in a Nutshell
Technical Overview
Economical OverviewMoney SupplyNumber of base unitsPrice
Business Development Overview
Conclusion
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Economical Overview
Money Supply
Money supply of Bitcoin
I Central bank, state-backed currency:Monetary policy decided/updated regularly
I Bitcoin:Fixed since the very beginning, known in the future forever
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Economical Overview
Money Supply
Money supply of BitcoinInspired from gold mining
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Economical Overview
Number of base units
Number of units
I 21 Millions of BTC will exist maximum, ever
I Divisible up to 8 decimals (for now...)
I In fact, this number has very little economic relevance!
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Economical Overview
Price
Price
I The bitcoin system itself does not include any price settingmechanism
I Like any scarce resource, supply and demand determineprice wrt. things outside of the system.Price discovery happens only at the boundaries of thesystem where it meets another one (think forex)
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Business Development Overview
Outline
Bitcoin in a Nutshell
Technical Overview
Economical Overview
Business Development OverviewExample of Potential Market DisruptionInvestments in Bitcoin Ecosystem
Conclusion
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Business Development Overview
Example of Potential Market Disruption
Remittance Market
I Significant part of GDP in many countries
I 414bn$ sent to developing countries in 2013 (x4 amount of2000!)
Source: World Bank
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Business Development Overview
Example of Potential Market Disruption
The case of Africa
I In Africa, the amount sent back by migrants is 3 timesamount of aid from developed countries
I On average, an African migrant sending 200$ home willpay 25$ (12%)
Source: World Bank
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Business Development Overview
Example of Potential Market Disruption
Fees Africa <-> Africa
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Business Development Overview
Example of Potential Market Disruption
Fees overall
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Business Development Overview
Example of Potential Market Disruption
What when they will use Bitcoin?
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Business Development Overview
Investments in Bitcoin Ecosystem
Outline
Bitcoin in a Nutshell
Technical Overview
Economical Overview
Business Development OverviewExample of Potential Market DisruptionInvestments in Bitcoin Ecosystem
Conclusion
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Business Development Overview
Investments in Bitcoin Ecosystem
Venture Capital Investment in Bitcoin (1/3)
Source: coindesk.com
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Business Development Overview
Investments in Bitcoin Ecosystem
Venture Capital Investment in Bitcoin (2/3)
Source: coindesk.com
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Business Development Overview
Investments in Bitcoin Ecosystem
Venture Capital Investment in Bitcoin (3/3)Similarly to Internet historical development, US dominates...
Source: coindesk.com53 / 57
A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Conclusion
Outline
Bitcoin in a Nutshell
Technical Overview
Economical Overview
Business Development Overview
Conclusion
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Conclusion
More info (online)
I http://www.blockchain.info
I http://www.bitcoin.org
I https://en.bitcoin.it/wiki/
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Conclusion
More info (in real life)
I http://www.bitcoinassociation.be
I http://www.meetup.com/Bitcoin-Brussels
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Conclusion
The first five times you think you understand bitcoin, you don’t – Dan Kaminski
I’m a big fan of Bitcoin, regulation of money supply needs to be depoliticized – Al Gore
There are 3 eras of currency: commodity based, politically based, and now, math
based – Chris Dixon
We have elected to put our money and faith in a mathematical framework that is free of
politics and human error – Tyler Winklevoss
Bitcoin is a technological tour de force – Bill Gates
This may be the purest form of democracy the world has ever known, and for one I am
thrilled to be here to watch it unfold – Paco Ahlgren
It will be everywhere, and the world will have to readjust. World governments will have
to readjust – John McAfee
Bitcoin will do to banks what email did to the postal industry – Rick Falkvinge
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Additional
Asymmetric Cryptography and Bitcoin Transactions
(A)symmetric Cryptography?
Before talking about asymmetric cryptography, what issymmetric one:
I Symmetric cryptography is simply encoding somethingwith a secret password that is required to decode it later.
I In other words, it is just the “good old way” to encrypt anddecrypt messages.
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Additional
Asymmetric Cryptography and Bitcoin Transactions
Asymmetric Cryptography
What’s different in Asymmetric cryptography:
I Term “asymmetric”: there are two “keys” instead of a single“secret password”.
I One key is called “public” and can be shared witheveryone, one key is “private” and is kept by user.
I Keys are just large numbers:6589841676498741318947564149846542118715985245454020989874567891618907498
I Let’s use graphics instead to explain the concept
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Additional
Asymmetric Cryptography and Bitcoin Transactions
Asymmetric Cryptography
What’s different in Asymmetric cryptography:
I Term “asymmetric”: there are two “keys” instead of a single“secret password”.
I One key is called “public” and can be shared witheveryone, one key is “private” and is kept by user.
I Keys are just large numbers:6589841676498741318947564149846542118715985245454020989874567891618907498
I Let’s use graphics instead to explain the concept
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Additional
Asymmetric Cryptography and Bitcoin Transactions
Asymmetric Cryptography explained with GraphicsThis is an asymmetric-crypto lock
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Additional
Asymmetric Cryptography and Bitcoin Transactions
Asymmetric Cryptography explained with GraphicsThese are Filip and Chris
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Additional
Asymmetric Cryptography and Bitcoin Transactions
Asymmetric Cryptography explained with GraphicsThis is Filip’s public key, everybody has it (Chris too)
Turn only clock-wise
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Additional
Asymmetric Cryptography and Bitcoin Transactions
Asymmetric Cryptography explained with GraphicsThis is Filip’s private key, only him has it
Turn only counter clock-wise
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Additional
Asymmetric Cryptography and Bitcoin Transactions
Asymmetric Cryptography explained with Graphics
What fun stuff can we do with this lock and these two keys?
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Additional
Asymmetric Cryptography and Bitcoin Transactions
Fun Stuff #1(Not directly related to Bitcoin)
1. Chris puts a message in the box
2. He closes the lock using the public key of Filip.
3. Only the private key can now open the box.
→ Chris can send 100% private messages to Filip!
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Additional
Asymmetric Cryptography and Bitcoin Transactions
Fun Stuff #2(Directly related to Bitcoin, time to wake up!)
1. Filip puts his message in the box
2. Filip closes the lock using its private key.
3. Chris open the box with Filip’s public key and knows thatonly the private key of Filip could have closed the box onthe “left” position!
→ Filip can send messages to Chris, and prove he his thewriter: called digital-signature.
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Additional
Asymmetric Cryptography and Bitcoin Transactions
Fun Stuff #2 and Bitcoin
I Instead of a message to Chris only, Filip writes toeverybody (leaving many boxes in public places).
I Everybody can check he his actually the writer of themessage.
I His message is for instance:
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A General Introduction to Bitcoin Jérémie Dubois–Lacoste [email protected]
Additional
Asymmetric Cryptography and Bitcoin Transactions
Fun Stuff #2 and Bitcoin
We just did a bitcoin transaction! :-)
I In the Bitcoin system, a public key is a bitcoin address toreceive money.
I The corresponding private key is used to “spend” the coinsfrom that address and send them to somebody else.
I Everybody can send coins to Filip just knowing his address
I Only Filip can send coins associated with his address tosomebody else (spend them). People know that it is reallyFilip who decides to spend them.
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