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


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


but how is this different to today?


it all comes down to the ledger

and trust


third parties bring their own problems

Bitcoin provides an answer


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


Limit of 21 million, issued every ~10 mins


With Bitcoin, you own your own money - 100%


Accounts can’t get frozen or seized


Irreversible, guaranteed payment


International transfers - safe, secure, simple


Pseudonymous - not anonymous


Immediate transfers...and cheaper


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


information wants to be free


time for the $64,000 dollar* question…

how does it work?

* approx. 110.2 BTC


How to get bitcoins

MiningATMExchange goods/servicesSwap fiat on an exchange


a wallet generates a bitcoin address

each address creates a cryptographic key pair

a public key and a private key


Private key: c4bcbb1fbec99d65bf59d85c8cb62ee2db963f0fe107f483d9afa73bd4e39a8a

Public key: 0478d430274f8c5ec1321338151e9f27f4c532a008bdf8638d07c0b6be9ab35c7 1a1518063243acd4dfe93b66e3f2ec8013c8e072cd09b3834a19f81f659cc3455

Address: 1JwSSuhprg6iPtRjtyqhUYYH7bZg3Lfy1T


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

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


cryptography proves digital ownership

but still needs to prevent ‘double-spend’

network agrees every 10 minutes on what transactions have taken place


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


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


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)


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


Current cost of carrying out a 51% attack:

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

http://www.coinometrics.com/bitcoin/rix


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...


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

Marc Andreessen


the block chain


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


Programmable Money

Endless possibilities

Money only available in certain GPS coordinates

Release money by calendar dates

Or according to specific events


Multi-signature Transactions

Require a certain number of signatures in an organisation

Mathematically guaranteed that money cannot be spent without those signatures


Transparency

Audit governments, companies, charities

Inspect their accounts

Ensure that money is being spent properly


Crowdfunding

Ways to fund creation of a public good


Micro-transactions

Website advertsInternet radioNewspaper website pageviewsPublic Wi-Fi


Machine to Machine Payments

An economic identity for the Internet of Things

Economy that does not yet exist


Security

The concept of irrecoverable data


Regulation: the elephant in the room?


The Future

like layers of an onion

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


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


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


Any questions?

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

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