This document provides a general introduction to Bitcoin. It begins with an outline and background on Bitcoin's history and the concept. It then provides a technical overview explaining addresses and keys, transactions, the blockchain, and Bitcoin mining. An economic overview discusses Bitcoin's fixed money supply and the maximum number of bitcoins that will exist. The document aims to explain Bitcoin at both the micro level of individual transactions and the macro level of its global monetary policy functions.
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General Introdution to Bitcoin
1. General Introduction to Bitcoin
Jérémie Dubois-Lacoste, PhD
jeremie.dl@gmail.com
Les Geeks Anonymes - Liège - 27/02/2015
2. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Preliminaries
Who am I?
Post-doc researcher in Computer Science
(AI lab of ULB)
Founder & Organizer of “Bitcoin Brussels” meetup group
(250 members)
Founder & Director of ASBL/VZW “Belgian Bitcoin
Association”
Involved in Bitcoin startups
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3. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Preliminaries
Disclaimer
I own some bitcoins
Bitcoin should (still) be seen as an experiment
The topic is often hard, because of its paradigm novelty.
Don’t be frustrated if you don’t get 100% :-)
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4. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Outline
Outline
Bitcoin in a Nutshell
Technical Overview
Economical Overview
Business Development Overview
Conclusion
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5. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Bitcoin in a Nutshell
Outline
Bitcoin in a Nutshell
History
What is Bitcoin?
Technical Overview
Economical Overview
Business Development Overview
Conclusion
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6. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Bitcoin in a Nutshell
History
Apparition of Bitcoin
Money based on cryptography: an old cypherpunk ideal
b-money (Wei Dai, 1999)
bitgold (2005, Nick Szabo)
Main issue with these attempts: requires a trusted third-party to
avoid “double-spending”
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7. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Bitcoin in a Nutshell
History
The Tour de Force of “Satoshi Nakamoto”
Scientific Article (November 2008) :
Complete description of the concept
Introduce the idea of the blockchain
Implementation (January 2009)
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8. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Bitcoin in a Nutshell
What is Bitcoin?
Outline
Bitcoin in a Nutshell
History
What is Bitcoin?
Technical Overview
Economical Overview
Business Development Overview
Conclusion
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9. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Bitcoin in a Nutshell
What is Bitcoin?
What is Bitcoin? (1/3)
Formal Answer
Bitcoin: Information exchange protocol (like http, smtp...),
that allows the transfer of units of account; these units
behave like the money we are used to.
Durability
Portability
Fungibility
Divisibility
Relative rarety
bitcoin(s): name of the unit of account circulating on the
Bitcoin network
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10. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Bitcoin in a Nutshell
What is Bitcoin?
What is Bitcoin? (2/3)
Informal Answer - Micro Scale
A system for people to send and receive payments
Without depending on any third-party
Reasonably privately
Instantly
Reliably
Typical transaction fee today: zero or 0.03C
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11. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Bitcoin in a Nutshell
What is Bitcoin?
What is Bitcoin? (3/3)
Informal Answer - Macro Scale
Money supply policy governed by maths; known in
advance
Without border
Distributed
Open source software; community developed
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12. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Bitcoin in a Nutshell
What is Bitcoin?
What is the core innovation of Bitcoin?
In the “usual” world
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13. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Bitcoin in a Nutshell
What is Bitcoin?
What is the core innovation of Bitcoin?
In the “usual” world
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14. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Bitcoin in a Nutshell
What is Bitcoin?
What is the core innovation of Bitcoin?
In the “usual” world
Trusted third parties are “keeping the books”
Centralized consensus
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15. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Bitcoin in a Nutshell
What is Bitcoin?
What is the core innovation of Bitcoin?
In Bitcoin world
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16. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Bitcoin in a Nutshell
What is Bitcoin?
What is the core innovation of Bitcoin?
In Bitcoin world
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17. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Bitcoin in a Nutshell
What is Bitcoin?
What is the core innovation of Bitcoin?
In Bitcoin world
No trusted parties, “keeping the books” is done collectively
without trust
Decentralized consensus
The mechanism to allow that is called the blockchain
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18. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Bitcoin in a Nutshell
What is Bitcoin?
What is the core innovation of Bitcoin?
In Bitcoin world
Remark: Bitcoin use decentralized consensus
to determine ownership.
Much more can be done (outside the scope of this talk...)
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19. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Technical Overview
Outline
Bitcoin in a Nutshell
Technical Overview
Addresses and keys
Transactions
The Blockchain
Bitcoin Mining: Blocks
Economical Overview
Business Development Overview
Conclusion
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20. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Technical Overview
Addresses and keys
Addresses and keys
Assymetric cryptography (public/private key pair)
Bitcoins exchanged between addresses:
1JwSSubhmg6iPtRjtyqhUYYH7bZg3Lfy1T
Everybody can see the amount associated to an address
Only owners of corresponding private key can spend them
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21. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Technical Overview
Addresses and keys
Private keys can be stored...
On a computer
On a USB stick, a DVD-Rom
Printed or written on paper
Only in your memory: “brain-wallet”
On a specific device
In poetry
etc.
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22. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Technical Overview
Transactions
Outline
Bitcoin in a Nutshell
Technical Overview
Addresses and keys
Transactions
The Blockchain
Bitcoin Mining: Blocks
Economical Overview
Business Development Overview
Conclusion
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23. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Technical Overview
Transactions
Transactions
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24. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Technical Overview
Transactions
Paul received 3 BTC via 2 transactions
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25. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Technical Overview
Transactions
Paul wants to send 3 BTC to Jacques
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26. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Technical Overview
Transactions
Paul wants to send 3 BTC to Jacques
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Technical Overview
Transactions
Once the transaction is confirmed
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Technical Overview
Transactions
How to do this without trusted third-party?
How does Jacques know that Paul really had 3 BTC
available?
How to avoid that Paul spends them again?
→ Blockchain
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29. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Technical Overview
The Blockchain
Outline
Bitcoin in a Nutshell
Technical Overview
Addresses and keys
Transactions
The Blockchain
Bitcoin Mining: Blocks
Economical Overview
Business Development Overview
Conclusion
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30. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Technical Overview
The Blockchain
Blockchain
Contains all transactions and distributed on every node
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31. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Technical Overview
The Blockchain
Secured by Mining
The miners “clear” transactions and secure the blockchain
by recording them in blocks
In exchange, they are rewarded with new bitcoins created
ex-nihilo (at a fix rate)
Emerging behavior: the system as a whole acts honestly
as long as a large enough majority acts honestly
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32. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Technical Overview
Bitcoin Mining: Blocks
Outline
Bitcoin in a Nutshell
Technical Overview
Addresses and keys
Transactions
The Blockchain
Bitcoin Mining: Blocks
Economical Overview
Business Development Overview
Conclusion
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33. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Technical Overview
Bitcoin Mining: Blocks
Hashing Algorithms
Hashing Algorithms take inputs of any size, and produce
outputs (hash) of standard sizes:
“haha” -> bcb4fe6563d225fbc7b0e90571fc670f1ee197f18ba18e52a39c2ca80672812f
“hello world” -> a948904f2f0f479b8f8197694b30184b0d2ed1c1cd2a1ec0fb85d299a192a447
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34. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Technical Overview
Bitcoin Mining: Blocks
Hashing Algorithms: SHA256
SHA256 State-of-the-art hashing algorithm, used for many
applications in the world, and also for bitcoin mining.
Public, many open source implementations, can be
downloaded or implemented yourself.
Typically installed on every computer.
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35. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Technical Overview
Bitcoin Mining: Blocks
Hashing Algorithms: SHA256
SHA256 State-of-the-art hashing algorithm, used for many
applications in the world, and also for bitcoin mining.
Public, many open source implementations, can be
downloaded or implemented yourself.
Typically installed on every computer.
Let’s play with it!
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36. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Technical Overview
Bitcoin Mining: Blocks
Quite chaotic
Example!
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37. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Technical Overview
Bitcoin Mining: Blocks
Not Reversible: Brute force!
Find the English word that produces the hash:
3dc3ae00e6d09d5e491895aca9237b14a87deabad03bfb9f5679eb49ff8b9744
Example!
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38. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Technical Overview
Bitcoin Mining: Blocks
Not Reversible: Brute force!
Find the English word that produces the hash:
3dc3ae00e6d09d5e491895aca9237b14a87deabad03bfb9f5679eb49ff8b9744
Example!
Must try all words in English dictionary until you try with
“zebra”
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39. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Technical Overview
Bitcoin Mining: Blocks
Link with bitcoin mining
Bitcoin mining is nothing else than “brute force” as we just
did.
But the goal in bitcoin mining is not to find input with
specific hash (that would be too hard).
The goal is to find input with a hash that starts with enough
’0’ at the beginning:
0000000006d09d5e491895aca9237b14a87482b6d03bfb9f5679eb49ff8b9744 -> OK
adc3ae4af8ec45b812ac2e5f6b4c5d79114d4741av1895aca9237b14a87dea78 -> not OK
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40. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Technical Overview
Bitcoin Mining: Blocks
Let’s be a Minner!
Our goal is to find a hash starting with one ’0’.
Our input are the recent transactions that happened on the
bitcoin network. Here we simplify all these data to the
string of characters “block-data”:
Example!
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41. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Technical Overview
Bitcoin Mining: Blocks
Let’s be a Minner!
Our goal is to find a hash starting with one ’0’.
Our input are the recent transactions that happened on the
bitcoin network. Here we simplify all these data to the
string of characters “block-data”:
Example!
Hash NOT OK
We can include an arbitrary number (“nonce”) to obtain
more hashes for our data.
So we “mine” (brute force) this:
“block-data free-number=<we_can_choose>”
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42. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Technical Overview
Bitcoin Mining: Blocks
Let’s be a Minner: Success!
We found a hash OK, we can confirm the block and tell
everyone. They check themselves that indeed the hash is
OK
We earned 25 BTC
Bitcoin mining is nothing more complex than that
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43. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Technical Overview
Bitcoin Mining: Blocks
Real Bitcoin Mining: same thing but (much) harder
In reality, the (current) goal is to find hashes starting with
17 ’0’ in a row.
We did 4 trials in few seconds to mine a block starting with
one ’0’.
Miners together are doing 350 thousands of billions of
trials per second (350 Peta hashes / s) to find hashes
starting with 17 ’0’.
The difficulty adapts automatically to the network hash
rate, to keep one block confirmation every 10mn
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44. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Technical Overview
Bitcoin Mining: Blocks
Bitcoin total mining power
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Technical Overview
Bitcoin Mining: Blocks
Blockchain = sequence of blocks
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Technical Overview
Bitcoin Mining: Blocks
Blockchain = distributed consensus
The blockchain is a database that everybody can freely
read...
But it is hard to expand...
And excessively hard to “rewrite”
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47. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Economical Overview
Outline
Bitcoin in a Nutshell
Technical Overview
Economical Overview
Money Supply
Number of base units
Price
Business Development Overview
Conclusion
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48. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Economical Overview
Money Supply
Money supply of Bitcoin
Central bank, state-backed currency:
Monetary policy decided/updated regularly
Bitcoin:
Fixed since the very beginning, known in the future forever
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Economical Overview
Money Supply
Money supply of Bitcoin
Inspired from gold mining
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Economical Overview
Number of base units
Number of units
21 Millions of BTC will exist maximum, ever
Divisible up to 8 decimals (for now...)
In fact, this number has very little economic relevance!
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51. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Economical Overview
Price
Price
The bitcoin system itself does not include any price setting
mechanism
Like any scarce resource, supply and demand determine
price wrt. things outside of the system.
Price discovery happens only at the boundaries of the
system where it meets another one (think forex)
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Business Development Overview
Outline
Bitcoin in a Nutshell
Technical Overview
Economical Overview
Business Development Overview
Example of Potential Market Disruption
Investments in Bitcoin Ecosystem
Conclusion
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53. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Business Development Overview
Example of Potential Market Disruption
Remittance Market
Significant part of GDP in many countries
414bn$ sent to developing countries in 2013 (x4 amount of
2000!)
Source: World Bank
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Business Development Overview
Example of Potential Market Disruption
The case of Africa
In Africa, the amount sent back by migrants is 3 times
amount of aid from developed countries
On average, an African migrant sending 200$ home will
pay 25$ (12%)
Source: World Bank
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Business Development Overview
Example of Potential Market Disruption
Fees Africa <-> Africa
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Business Development Overview
Example of Potential Market Disruption
Fees overall
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Business Development Overview
Example of Potential Market Disruption
What when they will use Bitcoin?
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Business Development Overview
Investments in Bitcoin Ecosystem
Outline
Bitcoin in a Nutshell
Technical Overview
Economical Overview
Business Development Overview
Example of Potential Market Disruption
Investments in Bitcoin Ecosystem
Conclusion
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59. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Business Development Overview
Investments in Bitcoin Ecosystem
Venture Capital Investment in Bitcoin (1/3)
Source: coindesk.com
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60. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Business Development Overview
Investments in Bitcoin Ecosystem
Venture Capital Investment in Bitcoin (2/3)
Source: coindesk.com
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61. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Business Development Overview
Investments in Bitcoin Ecosystem
Venture Capital Investment in Bitcoin (3/3)
Similarly to Internet historical development, US dominates...
Source: coindesk.com
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62. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Conclusion
Outline
Bitcoin in a Nutshell
Technical Overview
Economical Overview
Business Development Overview
Conclusion
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63. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Conclusion
More info (online)
http://www.blockchain.info
http://www.bitcoin.org
https://en.bitcoin.it/wiki/
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Conclusion
More info (in real life)
http://www.bitcoinassociation.be
http://www.meetup.com/Bitcoin-Brussels
jeremie.dl@gmail.com
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Conclusion
The first five times you think you understand bitcoin, you don’t – Dan Kaminski
I’m a big fan of Bitcoin, regulation of money supply needs to be depoliticized – Al Gore
There are 3 eras of currency: commodity based, politically based, and now, math
based – Chris Dixon
We have elected to put our money and faith in a mathematical framework that is free of
politics and human error – Tyler Winklevoss
Bitcoin is a technological tour de force – Bill Gates
This may be the purest form of democracy the world has ever known, and for one I am
thrilled to be here to watch it unfold – Paco Ahlgren
It will be everywhere, and the world will have to readjust. World governments will have
to readjust – John McAfee
Bitcoin will do to banks what email did to the postal industry – Rick Falkvinge
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Additional
Asymmetric Cryptography and Bitcoin Transactions
(A)symmetric Cryptography?
Before talking about asymmetric cryptography, what is
symmetric one:
Symmetric cryptography is simply encoding something
with a secret password that is required to decode it later.
In other words, it is just the “good old way” to encrypt and
decrypt messages.
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Additional
Asymmetric Cryptography and Bitcoin Transactions
Asymmetric Cryptography
What’s different in Asymmetric cryptography:
Term “asymmetric”: there are two “keys” instead of a single
“secret password”.
One key is called “public” and can be shared with
everyone, one key is “private” and is kept by user.
Keys are just large numbers:
6589841676498741318947564149846542118715985245454020989874567891618907498
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Additional
Asymmetric Cryptography and Bitcoin Transactions
Asymmetric Cryptography
What’s different in Asymmetric cryptography:
Term “asymmetric”: there are two “keys” instead of a single
“secret password”.
One key is called “public” and can be shared with
everyone, one key is “private” and is kept by user.
Keys are just large numbers:
6589841676498741318947564149846542118715985245454020989874567891618907498
Let’s use graphics instead to explain the concept
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69. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Additional
Asymmetric Cryptography and Bitcoin Transactions
Asymmetric Cryptography explained with Graphics
This is an asymmetric-crypto lock
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70. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Additional
Asymmetric Cryptography and Bitcoin Transactions
Asymmetric Cryptography explained with Graphics
These are Filip and Chris
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71. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Additional
Asymmetric Cryptography and Bitcoin Transactions
Asymmetric Cryptography explained with Graphics
This is Filip’s public key, everybody has it (Chris too)
Turn only clock-wise
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72. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Additional
Asymmetric Cryptography and Bitcoin Transactions
Asymmetric Cryptography explained with Graphics
This is Filip’s private key, only him has it
Turn only counter clock-wise
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73. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Additional
Asymmetric Cryptography and Bitcoin Transactions
Asymmetric Cryptography explained with Graphics
What fun stuff can we do with this lock and these two keys?
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74. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Additional
Asymmetric Cryptography and Bitcoin Transactions
Fun Stuff #1
(Not directly related to Bitcoin)
1. Chris puts a message in the box
2. He closes the lock using the public key of Filip.
3. Only the private key can now open the box.
→ Chris can send 100% private messages to Filip!
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75. A General Introduction to Bitcoin Jérémie Dubois–Lacoste jeremie.dl@gmail.com
Additional
Asymmetric Cryptography and Bitcoin Transactions
Fun Stuff #2
(Directly related to Bitcoin, time to wake up!)
1. Filip puts his message in the box
2. Filip closes the lock using its private key.
3. Chris open the box with Filip’s public key and knows that
only the private key of Filip could have closed the box on
the “left” position!
→ Filip can send messages to Chris, and prove he his the
writer: called digital-signature.
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Additional
Asymmetric Cryptography and Bitcoin Transactions
Fun Stuff #2 and Bitcoin
Instead of a message to Chris only, Filip writes to
everybody (leaving many boxes in public places).
Everybody can check he his actually the writer of the
message.
His message is for instance:
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Additional
Asymmetric Cryptography and Bitcoin Transactions
Fun Stuff #2 and Bitcoin
We just did a bitcoin transaction! :-)
In the Bitcoin system, a public key is a bitcoin address to
receive money.
The corresponding private key is used to “spend” the coins
from that address and send them to somebody else.
Everybody can send coins to Filip just knowing his address
Only Filip can send coins associated with his address to
somebody else (spend them). People know that it is really
Filip who decides to spend them.
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