Introduction to Bitcoin

Robert McNally
What Is Money?
 Money Is:

A Medium of Exchange
Stands in for an arbitrarily long
chain of barter.

Widely accepted.
 Money Is:

A Unit of Account
Recognizable

Fungible

Divisible

Transportable

Transferable

Hard to counterfeit
 Money Is:

A Store of Value
Stable supply

Durable

Securable

Stable value
What Is Cryptocurrency?
 Cryptocurrency Is:
A Bearer
Holder has ownership
Instrument
No other records kept as to
identity of owner

Easy to keep anonymous

Hard or impossible to replace if

lost or stolen
 Cryptocurrency Is:
A Bearer Instrument...

...based on digital cryptography

Derives trust from mathematical
properties
Based on established, trusted
cryptographic primitives
NOT from chemical/physical
properties
NOT from coercive
Legal Tender statutes
 Cryptocurrency Is:
A Bearer Instrument...

...based on digital cryptography:

“Downloadable Money”
What Makes Bitcoin Different?
 Bitcoin Is:
Decentralized, Distributed, Voluntary
No central issuing or verification authority,
no “Bitcoin Corp.”

Bitcoin Foundation (bitcoinfoundation.org)

Growing numbers of of entrepreneurs accepting or basing
new business concepts on Bitcoin
Relative to other bearer instruments

Easier to transport anywhere in the world

Easier to secure
Relative to other electronic currencies

Immune to sovereign censorship, shutdown, or confiscation

How Does Bitcoin Work?
 Bitcoin Tech
Bitcoin is a protocol. The unit of account is "bitcoins."

Based on the block chain: a growing general public ledger of cryptographically-

signed transactions.
All transactions are public, but are not by default tied to anyone's real identity.
Anonymity and traceability are “user defined”, i.e. the counter parties can be as
anonymous as they take steps to be— even to each other.

Transfer of bitcoins consists not of physically moving an object from A to B, but

simply of adding a new, publicly accepted transaction to the block chain.

Secured by collective compute power of miners. It is very difficult to create a new

valid block, but very easy for every client, miner or not, to check the validity of a
new block.

Miners are awarded newly-minted bitcoins or transaction fees for successfully

finding blocks. The distributed algorithm ensures that bounty of new bitcoins will
asymptotically approach 21M, and the reward for mining will then become
Bitcoin Tech
Number of Bitcoins
Over Time
Bitcoin Mining Rig
ModMiner Quad by BTCFPGA.COM
 Bitcoin Tech
The distributed algorithm dynamically adjusts how much
computing power it takes to find a valid block, limiting block
creation to around 1 block every 10 minutes.

The bounties or transaction fees miners earn are compensation

for securing the block chain.
Network Compute Power
What Do Bitcoins “Look”
Like?
What Do Bitcoins “Look”
Like?
Public Key
(“Address”)
1454A2geTxaJwF8eqry7oLECdomgDSj6Zx

34 characters starting with 1 or 3

Represents a possible destination for

Private Key
payment
5JHkYd4mYkTsCsF5axnFj573PG6tqpeJ39Rz2M33vwBka4S1hu6

51 characters starting with 5

Required to transfer value from the

address
What Do Bitcoins “Look”
Like?
Digital Diversion
Hard Disk SD Card
Safe

Paper
Bills

Memorized Passphrase Hashable to Private

Casascius Physical
Key
Bitcoins
“Brainwallet”
USD Exchange Rate
 What is the
Legal Status of
Bitcoin?
Exchanging bitcoins for anything is basically barter,
which is legal.

The enhanced anonymity of Bitcoin potentially affords

the same benefits as cash or gold to people operating
outside the law, but additionally, is relatively frictionless
to transfer to anyone in the world.

As with barter, exchanging in Bitcoin does not remove

What Can You Buy
With Bitcoin?

Before 2011
What Can You Buy
With Bitcoin?

Late 2011
What Can You Buy
With Bitcoin?

Late 2012
Bitcoin-Denominated
Poker Chips
 Robert McNally
ironwolf@dangerousgames.com