Bitcoin and Blockchain Technology An Introduction Ferdinando M. Ametrano Gruppo Giovani Imprenditori, Unione Industriali Pordenone, December 5, 2016 [email protected]https://twitter.com/Ferdinando1970 https://speakerdeck.com/nando1970 http://www.slideshare.net/Ferdinando1970 https://it.linkedin.com/in/ferdinandoametrano
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Bitcoin and Blockchain Technology: An Introduction
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Bitcoin and Blockchain Technology An Introduction
Ferdinando M. Ametrano
Gruppo Giovani Imprenditori, Unione Industriali Pordenone, December 5, 2016
• Why pay a fee to move bytes representing wealth?
• Why only 9-5, Monday-Friday?
• Who (and when) will gift humanity with a global instantaneous free p2p payment network?
BANK
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• Decentralized digital currency • Not backed by any government or organization • Instantaneous peer-to-peer transactions • No need for trusted third party • Cryptographic security • Low-cost banking for everybody everywhere
• Decentralized: no authority • Permissionless: no regulator • Censorship resistant: no frozen funds • Open-access: no discrimination, no amount limits, 24/7, 365 days • Free: negligible transaction costs • Borderless: no geographic limits • Transnational: no specific jurisdiction applies • Secure: non falsifiable, non repudiable transactions • Resilient: nothing has been able to stop it or break it
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Investment Landscape
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A Blockchain Transaction https://blockchain.info/tx/8f1d3a8ef6b2d4a25d2f499279e01518b4770819ccbc39a765c4c326170c61b3
October 2013: Silk Road Shut-down • Online market, operated as a Tor hidden service • Online users were able to buy illicit goodies using bitcoins,
while browsing it anonymously and securely without potential traffic monitoring
• Launched in February 2011, shut down in October 2013 • Ross William Ulbricht, alleged to be the owner of Silk Road,
arrested in San Francisco, sentenced to life in prison • Other black markets have filled in as successors
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December 2013: China Crackdown • People’s Bank of China crackdown:
– prohibits financial institutions from trading, underwriting, or offering insurance in bitcoins or any other digital currency
– Bitcoin is not to be considered a currency – owning bitcoins is not outlawed or prohibited
• As of December 2013 BTC China was world's largest Bitcoin exchange by volume
• Alibaba, China's top Internet retailer, stopped using bitcoins as of January 19 2014
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February 2014: Mt Gox Bankruptcy • As of January 2014 Mt Gox was world's largest Bitcoin
exchange by volume • In February 2014 it filed for bankruptcy protection
from creditors • It announced that around 850,000 bitcoins belonging
to customers and the company were missing and likely stolen, an amount valued at more than $450 million at the time
• Fraud or theft?
10/27
Bitcoin resilience • Is there anything else in financial world: • Just 7 years old • Without government or corporation backing • That can lose its main (China) market • With fraud/theft at its main reference exchange (Mt
Gox) • With such a bad reputation (Silk Road) • That could be still alive and kicking?
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The announcement From: Satoshi Nakamoto <satoshi <at> vistomail.com> Subject: Bitcoin P2P e-cash paper Newsgroups: gmane.comp.encryption.general Date: 2008-10-31 18:10:00 GMT
I've been working on a new electronic cash system that's fully peer-to-peer, with no trusted third party. The paper is available at: http://www.bitcoin.org/bitcoin.pdf The main properties: Double-spending is prevented with a peer-to-peer network. No mint or other trusted parties. Participants can be anonymous. New coins are made from Hashcash style proof-of-work. The proof-of-work for new coin generation also powers the network to prevent double-spending.
Bitcoin: A Peer-to-Peer Electronic Cash System Abstract. A purely peer-to-peer version of electronic cash […]
Satoshi Nakamoto --------------------------------------- The Cryptography Mailing List 12/27
Satoshi Nakamoto • Unknown identity: pseudonymous person or group? • Worked on Bitcoin since probably 2007 • Published the paper in 2008 • Released the code in January 2009 • Stopped involvement mid-2010 • Entrusted the project and a copy of the alert key to Gavin Andresen,
effectively his successor • He owns about 1M bitcoins, never spent
Bitcoin: a currency and a protocol • Bitcoin: protocol, software, and community • bitcoins: units of the currency
bitcoins are sent using Bitcoin
• bitcoins are the first powerful protocol application: a digital property created inside the Bitcoin protocol
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Bitcoin the protocol • Distributed public ledger of transactions: • shared with peer-to-peer technology • allows to transfer a unique digital token • the token can be exchanged, but not duplicated • keeps records of each and every transaction forever
• It can replace any processing central authority • with decentralized peer-to-peer cryptographically secure
equivalent
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The bitcoin currency • Not to be found anywhere, they only exist as public ledger documented
transactions • A bitcoin wallet is a public address • 1FEz167JCVgBvhJBahpzmrsTNewhiwgWVG
• the bitcoin public ledger (aka blockchain) certifies for everybody how many bitcoins are associated to the wallet
• Transactions are bundled in blocks, sequentially chained, about one block every 10 minutes
• The block chain is a history of transactions resilient to network attackers
• The cryptographic link between blocks requires large amount of computing power, so the block chain cannot be altered without huge resources
• Computing power is measured in hash/s, hash being the basic operation needed for validation
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Network hash rate Specialized non-generic hardware, with hashing capacity thousands times that of the combined 500 largest supercomputers
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Mining • Miners are the nodes of the network providing the computing
power for: – processing and validating transactions (avoiding double spending) – securing the network – synchronizing the nodes
• Miners compete to process a new block of transactions. The winner provides a proof-of-work and is rewarded with the issue of new bitcoins.
• Seigniorage revenues subsidize the network, making transaction almost free
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Validation Process: Block Generation The proof-of-work difficulty is adapted to the overall available computing power to ensure an average of one block every ten minutes
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Bitcoin Monetary Rule
• 2009: 50BTC every 10 minutes – halving every 4Y
• This is the only way new bitcoins are released
• It is called mining because of its similarity with the progressive scarcity of gold extraction
digital cash supply free of discretionary intervention
Bitcoin as (Digital) Gold in the History of (Crypto)Money
gold • Its adoption was not centrally
planned
• For centuries it has been the most successful form of money
• It has bootstrapped all monetary systems we know of
• It has been surpassed by other kind of money without becoming obsolete
bitcoin • Its adoption has not been
centrally planned • It is the most successful form of
cryptocurrency • It will bootstrap new monetary
systems • It might be surpassed by more
advanced type of cryptocurrencies without becoming obsolete
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Friedrich August von Hayek - Denationalisation of Money
• history of coinage is an almost uninterrupted story of debasements; history is largely a history of inflation engineered by governments for their gain
• why government monopoly of the provision of money is regarded as indispensable? It deprived public of the opportunity to discover and use a better reliable money
Blessed will be the day when it will no longer be from the benevolence of the government that we expect good money but from the regard of the banks for their
own interest
A Free-Market Monetary System, Gold and Monetary Conference, New Orleans, Nov. 1977, https://mises.org/daily/3204
Hayek, F. A., Denationalisation of Money, The Institute of Economic Affairs,http://www.mises.org/books/denationalisation.pdf