Bitcoin: What The Hell Is It...And Why Should We Care?

@dugcampbell | Digital Thinking
BITCOIN
WHAT 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
Mining
ATM
Exchange goods/services
Swap 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)

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 adverts
Internet radio
Newspaper website pageviews
Public 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 currency
then you need to decentralise markets
then 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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