Bitcoin the hype, the myth and the truth

What is Bitcoin?Nakamoto Satoshi - 11/02/2009 Bitcoin open source implementation of P2P currency - The Cryptography Mailing List I've developed a new open source P2P e-cash system called

Bitcoin: The Hype, The Myth and The Truth

~ Part 1 - 30/10/2017 ~

Tran Duc Thang

-~ A Technical Overview about How Bitcoin works -~

The purpose of this Seminar is to

explain How Bitcoin works,

not to encourage you to buy Bitcoin.

● Bitcoin is the world's first decentralized digital currency,

as the system works without a central repository or

single administrator.

● It is commonly referred to with terms like digital cash,

virtual currency, electronic currency, or cryptocurrency

● The vision about Bitcoin was shared by a person (or a

group?) under the name Nakamoto Satoshi, with the

famous whitepaper “Bitcoin: A Peer-to-Peer Electronic

Cash System”, released on 31/10/2008

What is Bitcoin?

Nakamoto Satoshi - 01/11/2008

Bitcoin P2P e-cash paper - The

Cryptography Mailing List

What is needed is an electronic payment

system based on cryptographic proof

instead of trust, allowing any two willing

parties to transact directly with each other without the need for a trusted

third party.

Nakamoto Satoshi - 31/10/2008 Bitcoin: A Peer-to-Peer Electronic Cash System

What is Bitcoin?

Nakamoto Satoshi - 11/02/2009 Bitcoin open source implementation of P2P currency - The Cryptography Mailing List

I've developed a new open source P2P e-cash system called Bitcoin It's completely

decentralized, with no central server or trusted parties, because everything is based

on crypto proof instead of trust

● The identity of Bitcoin’s father, Nakamoto Satoshi, is still

the Myth From middle 2010, Nakamoto Satoshi handed

over control of the source code repository and network

alert key as well as transferred several related domains to

various prominent members of the bitcoin community,

and stopped his involvement in the project

● Nakamoto Satoshi is said to own about 1 million Bitcoins,

which give him about 6 billions USD (with the price at the

time of writing this Slide: 1 bitcoin ~ 6100 USD)

What is Bitcoin? - The Truth

● There will be only 21,000,000 bitcoin in supply The

current Circulating Supply is 16.6 million.

● New Bitcoins are created when a “block” is “mined”

● A new “block” is expected to be “mined” after every 10

minutes (expected blocks generated in a day: 144)

● The number of Bitcoin reward is halved after every

210,000 blocks (~ 4 years) It went down from 50 (2009) ->

25 (28/11/2012) -> 12.5 (2016-07-09) -> 6.25 (~ 2020)

● The last Bitcoin will be created in ~ 2140

What is Bitcoin? - The Truth

● You can spend up to 0.00000001 (one hundred millionth)

Bitcoin Each of these bitcoin units is called a satoshi A

satoshi is the smallest unit in a bitcoin.

● Bitcoin can be sent very fast, nearly real time? → Wrong

● Bitcoin can be sent without any fee? → Wrong

● Bitcoin is totally anonymous? → Wrong

What is Bitcoin? - The Truth

● Bitcoin Client: Bitcoin Core, Bitcoin XT, Bitcoin Classic, Bitcoin Unlimited,

● Bitcoin Mining: Bitmain, Bitcoin.com, Bitfury, Bixin.com, Genesis Mining,

ViaBTC, F2Pool, Slush ….

● Bitcoin Payment Processors: BitPay, Coinbase, BitPagos, Blockchain

● Bitcoin News and Data: https://news.bitcoin.com/ ,

https://www.coindesk.com/ , https://cointelegraph.com .

Bitcoin Ecosystem

● Bitcoin Address is an identifier of 26-35 alphanumeric

characters, beginning with the number 1 or 3, that

represents a possible destination for a bitcoin payment

Simply, people use Bitcoin Address to receive Bitcoin.

● Example of Bitcoin Address:

Bitcoin Fundamental

● Bitcoin Private Key

○ Public key cryptography: or asymmetrical cryptography, is any

cryptographic system that uses pairs of keys: public keys which may be disseminated widely, and private keys which are known

only to the owner.

○ The public key can be used to verify that a holder of the paired

private key sent the message

Bitcoin Fundamental

● Bitcoin Private Key

○ A private key is usually a 256-bit number (some newer wallets may

use between 128 and 512 bits)

○ Any 256-bit number from 0x1 to 0xFFFF FFFF FFFF FFFF FFFF FFFF

FFFF FFFE BAAE DCE6 AF48 A03B BFD2 5E8C D036 4140 is a valid

private key Example private key in Base58 format:

5Kb8kLf9zgWQnogidDA76MzPL6TsZZY36hWXMssSzNydYXYB9KF

○ Bitcoin Address is actually not randomly generated It is calculated

from the public key, which is calculated from the private key (which

is a random string) Therefore, we have the 1 - 1 - 1 relation between private key - public key - bitcoin address.

○ The private key allows the bitcoins that belongs to the paired

Bitcoin Fundamental

● Bitcoin Private Key

○ The private key allows the bitcoins that belongs to the paired

address to be spent.

○ The private key can not be recovered when you lose it Revealing

the private key will lead to losing Bitcoin

● Digital Signature

○ We use private key to sign a “Digital Signature”

○ Everyone in the Bitcoin network can use the public key to decrypt

the “Digital Signature” to verify the private key ownership.

Bitcoin Fundamental

a1b2c3d4e 5f6….

Hash

Digital

Digital Signature

Hashed Message

Signing Signature

Verifying Signature

Signature Verifying Algorithm

● A transaction is a transfer of Bitcoin value that is broadcast to the

network

● A transaction typically references previous transaction outputs

as new transaction inputs and dedicates all input Bitcoin values

to new outputs

● When you send Bitcoin, you actually spend your Unspent

Transaction Outputs (UTXO) , to generate one or more other

UTXO

● Check Bitcoin Transaction

Bitcoin Transaction

Bitcoin Transaction

● Double-spending is the result of successfully spending

some money more than once

Double spending problem

Bitcoin solves the

“double-spending” problem

by inventing the blockchain and proof-of-work concept

● Blockchain is the chain of blocks (actually, the keyword

blockchain was not mentioned in the Bitcoin Whitepaper,

but only used after that)

● A newly created transaction must be verified to create

valid UTXO

● Verified transactions are aggregated into a block

● Each block has a unique hash id A valid block contains

the hash id of the previous block

Blockchain

The block hash is generated based on the previous block hash, as well as the transactions

data inside the block It means that, every single change with transactions will lead to the

● The block is not easy to generated It require a proof-of-work

● A proof-of-work is a piece of data which is difficult (costly,

time-consuming) to produce but easy for others to verify

● The difficulty of this work is adjustable and it is adjusted after

every 2016 blocks to limit the rate at which new blocks can be

generated by the network to one every 10 minutes.

● Due to the very low probability of successful generation, this

makes it unpredictable which worker computer in the network

will be able to generate the next block.

Blockchain

● Currently, Bitcoin has block size limit It is 1MB*.

● Latest block height 492211, with more than 266.5 millions

confirmed transactions.

● Total Bitcoin blockchain size: 163.92 GB It will take much time to

download the full blockchain and verify each block

● Average transaction per block ~ 2000

● Average transaction per second ~ 3.3

Blockchain

● Any computer that connects to the Bitcoin network is called a node

● Nodes that fully enforce all of the rules of Bitcoin are called full nodes.

○ Blocks may only create a certain number of bitcoins

○ Transactions must have correct signatures for the bitcoins being

spent

○ Transactions/blocks must be in the correct data format

○ Within a single block chain, a transaction output cannot be

double-spent.

○

● Full nodes maintain a complete and up-to-date copy of the blockchain

They download every block and transaction and check them against

Bitcoin Network

● SPV (Simple Payment Verification) Node, or Lightweight

Node, or Thin Client: maintain only a subset of the

blockchain and verify transactions using a method called

simplified payment verification SPV Nodes download

only the block headers, and do not download the

transactions included in each block

● Mining Node: compete to create a new block Some

mining nodes are also full nodes, while others are

lightweight nodes participating in pool mining and

Bitcoin Network

Bitcoin Network

● The Block and the Chain in depth

● Proof-of-work Algorithm

● Bitcoin Mining

● Bitcoin problems and weakness - The Truth about 51%

Attack

● Bitcoin Soft fork vs Hard fork

● Bitcoin Scaling: On-chain vs Off-chain

The Next Part

● Bitcoin whitepaper: https://bitcoin.org/bitcoin.pdf

● Bitcoin wiki: https://en.bitcoin.it/wiki/Main_Page

● Bitcoin forum: https://bitcointalk.org/

● Bitcoin Reddit: https://www.reddit.com/r/Bitcoin/ and

Thank you for listening!