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Cryptocurrency Bitcoin: Tsaschikher Nyamgerel 2015
Cryptocurrency Bitcoin: Tsaschikher Nyamgerel 2015
Cryptocurrency Bitcoin: Tsaschikher Nyamgerel 2015
Tsaschikher Nyamgerel
2015
Overview
• What is cryptocurrency? (Introduction)
• How it works
• How to use it
• Transaction
• Security (Block Chain, Proof of work)
• Statistics
• Cryptocurrency comparisons
• It’s market and its future
• BitCoin vs LiteCoin
What is Cryptocurrency?
• Cryptocurrency is electronic money or virtual currency. (Online cash,
digital cur…)
• Very difficult and expensive to hack (Hacking 10 minutes cost around half
billion USD)
How Does Transaction Work?
• Use digital signature for transaction (identity like real signature)
Private key
Public Key
• Elliptic curve multiplication function generate a public key from
private key (compressed 33 and uncompressed 65)
• No need to be secret
– Used for verifying account owner
• “Account address” is generated from public key
– Using a one-way cryptographic hash function
• Used to verify the “Digital Signatures”
– Using this digital signature he can transact bitcoin (without revealing
private key)
• Verifying digital signature, we can now that he has a private key
(owner or not)
Public key
Account Address
• Bitcoin address is string of digits and characters
and generated from public key
– Using cryptographic hash (SHA256)
•
Public Key and Address
Generation
ScriptSig contains:
Signature + Public Key
– Block chain:
• Is used to order transactions (TimeStamp)
• While transaction chain keeps track of how
ownership changes
Block Chain
• Block chain (Public Ledger) is used to order
transactions
– Ordered and timestamped record of transactions
New Block
•
Item here represents transaction
Block Chain
• Problem
– Multiple blocks can be created at the same time
• Can’t rely on the order because they may arrive in different order
• Solution
– Vote the blocks and whichever wins will be selected
• How to vote?
– Every nodes need to solve problem in order to vote
• Which makes it difficult to vote (from fake votes)
• Proof of work
– That puzzle is called proof of work
– Which measures (proves) computing power is used or not
Block Chain
• In this picture,
– Three blocks are happened at the same time and
– Each node build on top of the first one it received
– Other nodes may have received the blocks in a different order and will be
generating on the first block they received.
•
Block Chain
– Current block link gets broken when someone solves
another block (prev picture)
• Key feature
– Work must be hard to compute
– But easy to verify
Proof of Work
Proof Challenge Prev BC Hash
Hash
• Which means block cannot be solved before the previous block is solved
Proof of Work
• After successfully solving the problem
– Block will be accepted (to the next chain)
– Each node collects new transactions put it into a block and works on
finding a difficult proof-of-work for its block (problem solving)
– Nodes accept the block only if all transactions in it are valid and not
already spent
• In the network, there is other nodes (CPU) will also solve and result
(vote) will be the same as one of them
• Modifying a past block, attacker have to redo all the proof of work
of the previous blocks
Network (Safety)
• Moreover, when two different blocks are found, nodes work on the first
one they received, but save the other branch in case it becomes longer
• Link will be broken when the next POW is found and other link becomes
longer
• And nodes that are working on the other branch will then switch to the
longer one.
• That is coin-based transaction and this is how new coins get included in
the BTC system.
• This is the reward for work associated with adding a new transaction block
to the existing transaction block chain for Bitcoin
– Because these nodes are using a lot of computational power (Hardware and
electricity) to come up with these proofs
• Moreover, succeeded miner also get to collect the transaction fees that
are specified in the transaction records
Bitcoin Generation (reward)
• 25 BTC reward
– Current BTC reward for solving new block (This was 50 at the
beginning)
• Transaction Fees
– After all BTC generated, reward will depends on the transaction
fees
Bitcoin Generation
• Reward size is cut in half every 210,000 blocks (4 years)
– Every 10 minutes there’s new block generated
– So 1 block * 6 (hour) * 24 * 365 * 4 = 210,240
BTC addresses
Receive using address
Price bubble
1 BTC ~ $1000 USD
•
Potential Outcome of BTC
• BTC will either succeed with the mainstream or fail
• If succeed:
– By 2025
• The estimated world GDP is expected to be around $71T in the
year 2025
• “If” BTC can establish a 0.1% Market Cap or $71B and 25% are
used for transactions, then market price of one Bitcoin would be
about.. ($14,947) (Old data from end of the 2013)
• Rule #1 of investing: (Because of “if”)
– Invest only what you can afford to lose!
• Bitcoin is still experimental, so its future cannot be
predicted by anyone.
Price
– Previous data is from 2013
• Current GDP US$74.31 trillion (from wikipedia)
• Value of the bank balance is set by supply and demand of the market
Fee per day
Old data
Price and Market Cap
BitCoin LiteCoin
1 vs USD
$234.50 USD ~1.4 USD ($1.42771)
Market Capacity
$3,299,521,813.80 $55,143,333.40
(~$3.3B USD) (~$55M USD)
100% 1.67%
# of Transactions
106,955 4,505
Conclusion
• Bitcoin is decentralized cryptocurrency
• Transferred person to person
• No bank or government control
• Low transaction fees
• Bitcoin solves “double spend” problem through distributed network
– Proof of work
– Hash
• Open to anyone
– Public ledger
– Block chain
• Very difficult and expensive to hack
– Winning a lottery consecutive times in 10 minutes
• Transparent (open source)
References
• https://bitcoin.org/bitcoin.pdf
• http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2544331
• http://en.wikipedia.org/wiki/Proof-of-work_system
• https://en.bitcoin.it/wiki/Proof_of_work
• https://bitcoin.org/en/developer-guide#payment-processing
• http://alphapixel.com/sites/default/files/download/BitCoinPresentation.p
df
• https://www.stlouisfed.org/~/media/Files/PDFs/DWTF/Bitcoin-3-31-
14.pdf
• http://www.imponderablethings.com/2013/07/how-bitcoin-works-under-
hood.html
• https://www.tbs-certificates.co.uk/FAQ/en/sha256.html
• www.khanacademy.org/economics-finance-domain/core-finance/money-
and-banking/bitcoin
• http://www.coindesk.com/price/
Thank you
• Questions?