bitcoin: what the hell is it...and why should we care?

@dugcampbell | Digital Thinking

BITCOINWHAT THE HELL IS IT...…AND WHY SHOULD WE CARE?

Codebase Talk | 29th May 2014

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the world’s first, completely decentralised peer-to-peer digital currency

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but how is this different to today?

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it all comes down to the ledger

and trust

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third parties bring their own problems

Bitcoin provides an answer

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WHY IS IT DIFFERENT?DIGITISED MONEY (BANKS)1 JUST DIGITS/NUMBERS

2 CENTRAL AUTHORITY/BANK

3 BANKS HOLD ELECTRONIC $/£

4 ‘NUMBERS’ CANNOT BE STOLEN

5 PAPER MONEY USED AS CASH

6 PHYSICAL PAPER MONEY

7 COUNTERFEIT NOTES & COINS

8 QUANTITATIVE EASING / INFLATE

9 ALL TRANSACTIONS RECORDED

10 NOTE PRINTING - INFLATIONARY

11 GOVERNMENT CONTROLS CURRENCY & LEGAL TENDER

12 PRIVATE DATA COMPROMISED?

13 TRANSACTION FEES / FOREX

DIGITAL MONEY (BITCOIN)1 CRYPTOGRAPHIC PROTOCOL

2 P2P NETWORK ISSUES BITCOINS

3 CONSUMERS HOLD BTC IN THEIR OWN WALLETS

4 BITCOINS CAN BE REMOVED / STOLEN

5 BITCOINS ARE (ELECTRONIC) CASH

6 NO PHYSICAL BITCOINS

7 BITCOINS CANNOT BE COUNTERFEITED

8 BITCOIN - FIXED SUPPLY - DEFLATIONARY

9 ANONYMOUS RECORDING IN BLOCKCHAIN

10 NO NOTE PRINTING - DEFLATIONARY

11 NO ONE CONTROLS BTC. TOTAL CAPPED AT 21 MILLION

12 NO PRIVATE DATA GIVEN TO MERCHANTS

13 NONE OR 0.00005 MINER’S FEE

Courtesy of Michael Parsons

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Limit of 21 million, issued every ~10 mins

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With Bitcoin, you own your own money - 100%

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Accounts can’t get frozen or seized

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Irreversible, guaranteed payment

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International transfers - safe, secure, simple

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Pseudonymous - not anonymous

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Immediate transfers...and cheaper

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BTC is the first practical way to do business over the internet with no prior relationship, no central administrator, and no trust required.

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information wants to be free

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time for the $64,000 dollar* question…

how does it work?

* approx. 110.2 BTC

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How to get bitcoins

MiningATMExchange goods/servicesSwap fiat on an exchange

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a wallet generates a bitcoin address

each address creates a cryptographic key pair

a public key and a private key

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Private key: c4bcbb1fbec99d65bf59d85c8cb62ee2db963f0fe107f483d9afa73bd4e39a8a

Public key: 0478d430274f8c5ec1321338151e9f27f4c532a008bdf8638d07c0b6be9ab35c7 1a1518063243acd4dfe93b66e3f2ec8013c8e072cd09b3834a19f81f659cc3455

Address: 1JwSSuhprg6iPtRjtyqhUYYH7bZg3Lfy1T

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to transfer BTC’s, you sign a transaction with the private key

provides mathematical proof to the network that you own the BTC’s

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cryptography proves digital ownership

but still needs to prevent ‘double-spend’

network agrees every 10 minutes on what transactions have taken place

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a miner

a peer in the network who works to collect transactions and organise them into blocks

racing to win the right to update the ledger

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Mining (competitive bookkeeping)

Race to solve a mathematical puzzle

Miners bundle new transactions into a ‘block’

Hash information & hope for correct answer

Difficulty adjusts, solved every 10 minutes

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Easy for network to check answer (Proof of Work) is correct - without redoing the work

Network agrees and new block added to chain

Winner receives 25 BTC’s (+ transaction fees)

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Want to cheat the network?

You still need to carry out that intensive work

Every ten minutes

And control 51% of network to control agreement

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Current cost of carrying out a 51% attack:

$1,112,153,015 (source: http://www.coinometrics.com/bitcoin/rix)

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so now you can see

if this invention can work for money, it can work for other digital assets also

the block chain isn’t just about money...

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“This is the distributed trust network that the Internet always needed and never had”

Marc Andreessen

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the block chain

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Physical property whose ownership transfers with a bitcoin transaction

anything that can be associated with a digital entity can be stored in bitcoin’s digital asset register

(stocks, shares, cars, houses, legal documents)

Smart Property

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Programmable Money

Endless possibilities

Money only available in certain GPS coordinates

Release money by calendar dates

Or according to specific events

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Multi-signature Transactions

Require a certain number of signatures in an organisation

Mathematically guaranteed that money cannot be spent without those signatures

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Transparency

Audit governments, companies, charities

Inspect their accounts

Ensure that money is being spent properly

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Crowdfunding

Ways to fund creation of a public good

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Micro-transactions

Website advertsInternet radioNewspaper website pageviewsPublic Wi-Fi

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Machine to Machine Payments

An economic identity for the Internet of Things

Economy that does not yet exist

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Security

The concept of irrecoverable data

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Regulation: the elephant in the room?

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The Future

like layers of an onion

decentralise currencythen you need to decentralise marketsthen you need to decentralise identity….

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We’re just at the start of the journey...

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More consumers pay with Bitcoin

More merchants accept Bitcoin

More miners validate transactions & secure the network

More entrepreneurs build products to meet the demand

the network is starting to strengthen

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Any questions?