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Bitcoin and blockchain for

dummies:

-An introduction to the

technology and its applications

Svein Ølnes, Vestlandsforsking

Jon Bing’s Memorial Seminar, 19th of April 2016

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Research institute located in Sogndal, founded in 1985

Research areas:

Climate and environment

Information technology

Tourism

Around 25 employees

Part of the research infrastructure in Norway

Vestlandsforsking

www.vestforsk.no

Researcher at Vestlandsforsking since 1996

Research field: ICT in public sector

Interested in Bitcoin/blockchain since 2011

bought my first bitcoins in 2011 (Mt. Gox!)

have followed the development since then

interested in the intersection of technology, economy, and society

About me

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Imagine sending money to anyone in the world...

... as fast and easy as e-mail

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Imagine being able to pay 5 øre (NOK 0.05) or

less for something

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Imagine being able to store certificates

securely on the Net and available to anybody

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Imagine a world without passwords!

«One password to rule them all»

Secure web (HTTPS)

Domain names registered on the blockchain

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What is Bitcoin?

Bitcoin - the currency

Blockchain - the infrastructure

Currency and infrastructure interplay

A future-looking use case

Content

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What is Bitcoin?

1. A currency

Digital cash («Internet money», «Money over IP»)

2. An infrastructure

Blockchain technology

An open, permissionless infrastructure for innovation

Bitcoin is proof of ownership without the need for a third-party

First presented in the white paper «Bitcoin – A Peer-to-Peer

Electronic Cash System», by Satoshi Nakamoto, Oct. 2008

The Bitcoin system was launched on 3rd of Jan. 2009

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Technological breaktrough

1. Secure transactions made possible in a trustless environment

(Internet) without the need for a third-party

«The Byzantine Generals’ Problem»

How to reach consensus in a decentralized environment without a

trusted third-party

2. The first functional system for micro payments

3. The first open, permissionless platform for financial innovation

You don’t need to ask anybody to make a payment system

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The Bitcoin software

Open source software (code available on Github)

Based on well known cryptographic standards

Public key cryptography

Hashing functions

TCP/IP for communication between nodes (IPv6 is supported)

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Centralized, decentralized og distributed

Paul Baran: «On Distributed Communications Network»

[Baran invented packet switching, together with Donald Davies, UK]

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Typical innovation progress

1980s: DigiCash (David Chaum)

1990s: HashCash, b-money (Adam Back, Wei Dai)

2000s: Bit gold (Nick Szabo)

2008: Bitcoin (Satoshi Nakamoto)

Solved the «double spending» problem

Bitcoin emerged from the cypherpunk environment (which all

of the above belonged to)

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Bitcoin and the financial crisis

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What is a bitcoin?

A bitcoin transaction is a digital signature

Handing over ownership from one to another (bitcoins, assets)

Bitcoins never leave the blockchain!

Chain of transactions: A bitcoin is always an unspent output

Bitcoins can disappear, like ordinary cash: by loosing your private key, by «burning»

The ownership of bitcoins (assets) is recorded on the

blockchain

A distributed ledger, shared by all nodes (compters) in the system

Anybody can read the content

Updating the ledger requries computer resources («Proof of work»)

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A bitcoin transaction

Alice pays 0.7 bitcoin to Bob

Alice has 1.1 bitcoins

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A bitcoin transaction

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A bitcoin transaction

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Unspent transactions (UTXO)

Spent transactions Unspent transactions (UTXO)

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The blockchain – A distributed ledger

(Ill: Antony Lewis – www.bitsonblocks.net)

Blockchain

A block is a bunch of transactions, like records in a database

Blocks are linked to form a long chain = the blockchain

Anybody can read

Adding new blocks needs lot of resources (= «Proof of work»)

Adding a new block is rewarded with 25 new bitcoins (soon to be 12,5)

After about one hour (5-6 confirmations) the trans. become immutable

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Key actors

(Ill: Antony Lewis – www.bitsonblocks.net)

Bitcoin users

running the full client software

Miners

securing the transactions

Programmers

maintaining the system, implementing improvements

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Today

Deterministic

max. 21 mill. bitcoins

1 bitcoin = 108 satoshi

25 new bitcoins every 10th minute

«Halving» of supply every 4th year

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Bitcoin exchange rates 2012 - today

Source: http://bitcoincharts.com

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Bitcoin as an infrastructure

Bitcoin infrastructure (Network Services)

Blockchain, Consensus, Ordering, Hash storage, Security

Bitcoin currency

Colored coins

(Mastercoin,

Counterparty

++)

Sidechains

Payment

channels

(Lightning

Network..)

Smart

contracts

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The self-driving taxi..

+ +

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Relevant literature

Nakamoto Satoshi: «Bitcoin - A Peer-to-Peer Electronic Cash

System» (bitcoin.org/en/bitcoin-paper)

Andreas Antonopolous: «Mastering Bitcoin»

Nathaniel Popper: «Digital Gold»

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Thanks for your attention!

E-mail: sol@vestforsk.no

This presentation:

http://www.slideshare.net/sveino/jonbingmemorial

My Bitcoin address (= ”accounting number”):

1HpvvptgrYJh4xUHerm1ruZtvnyUnnnHkU