Bitcoin

and why it will change the world Luv Khemani

What is Bitcoin?

Brief History of Bitcoin

- Bitcoin Design paper released in 2008 by an annonymous programmer calling himself Satoshi Nakamoto - Bitcoin client released on 3 January 2009 - 21 May 2010 First commercial Bitcoin transaction takes place 10,000 BTC for 2 pizzas (worth ~1.22 million USD today) - 17 July 2010 MtGox Bitcoin exchange established. Currently the largest Bitcoin exchange in the world

Brief History of Bitcoin

- 06 Nov 2010 Bitcoin economy hits US$1 million at $0.50 /BTC - 9 Feb 2011 Bitcoin hits parity with US$ - 28 Nov 2012 First Bitcoin "halving day". Reward reduced from 50 to 25BTC - 28 Mar 2013 Bitcoin Market Cap crosses $1 billion

Whats the big deal with Bitcoin?

Decentralised
No Central Authority

Inflation-proof
Only 21 million Bitcoins to ever exist

Fast
Bitcoins sent appear almost instantly to receiver (like email) ~10 minutes to confirm

Cheap
Cost today ranges from free to $0.02

Whats the big deal with Bitcoin?

World's first decentralised currency
But we have had decentralised networks for decades now, why was a decentralised currency not invented earlier? -Security of funds (Ensure others cannot spend my money, solved via asymmetric cryptography) ~1973 -Syncing Ledger with all nodes (solved using P2P technology like BitTorrent/Napster/Skype/etc....) ~1993

So why did it take ~15 years for Bitcoin?

Unsolved Problems before Bitcoin

Protocol has rules to determine whether a Transaction is valid/invalid. (ie Can only spend your own coins, cant spend more than your balance, etc..) BUT... i) Consensus on order of transactions Better known as the double spending problem. 2 valid transactions trying to spend the same coin. There is NO CENTRAL authority in a decentralised system ii) Distribution of coins in a fair way

Consensus
Without a central authority, ledger consensus must be democratised. How? 1 person,1 vote? 1 ip,1 vote?

Fair Distribution of coins

Creator creates all coins and decides how to distribute them? - Unfair to those who are not favored (Everyone other than WallStreet) Could we learn from Nature? -Crops are farmed. -Minerals/Metals are mined. Work has to be done to earn

Proof of Work
Consensus 1 hash, 1 vote
*A hash function is any algorithm or subroutine that maps data sets of variable length to data sets of a fixed length.

Distribution of coins 1 hash, 1 lottery ticket

The system is secure as long as honest nodes collectively control more CPU power than any cooperating group of attacker nodes. Satoshi Nakamoto

How Bitcoin Works 101

"Bitcoin Accounts" Consists of a public key and private key Public Key Think of it as your bank account number Private Key Lets you spend funds in corresponding public key

Sending Bitcoins
Broadcast your intent to spend to Bitcoin Network
"I, owner of public key ABCDE, wish to send 2BTC to public key FGHIJ." Signed with private key of ABCDE Miner verifies that signature is valid, you have sufficient balance in ledger, transaction complies with protocol rules. Miner publishes your transaction in a block.

What is a block?
A block contains a collection of transactions verified by a miner. Miner's worldwide are racing to mine the next block. Miner who is successful, gets a block reward (Currently 25BTC) and all transaction fees of transactions he included in his block.

What a block looks like

Implications of Bitcoin

Implications of Bitcoin
- Online Payment processors made obsolete
Bitcoin is free to accept and saves merchants 3%-5% in fees. No chargebacks.

- Bitcoin used as store of value

Strong case with Central Banks debasing their currencies. Money from offshore tax heavens bowing to US pressure moves to Bitcoins. Bitcoin cannot be frozen, confiscated, debased by anyone. -

Once adoption reaches an inflection point

Global Hyperinflation
as producers of real goods/services refuse to accept depreciating Fiat Currencies with high transactional costs