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Bitcoin the hype, the myth and the truth

Bitcoin: The Hype, The
Myth and The Truth
~ A Technical Overview about How Bitcoin works ~

~ Part 1 - 30/10/2017 ~
- Tran Duc Thang -


Index









What is Bitcoin?
Bitcoin Ecosystem
Bitcoin Fundamental

Bitcoin Transaction
Double-spending problem
The Blockchain Concept
Bitcoin Network
The Next Part

2


Disclaimer
The purpose of this Seminar is to
explain How Bitcoin works,
not to encourage you to buy Bitcoin.
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What is 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
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What is Bitcoin?
I've been working on
a new electronic
cash system that's
fully peer-to-peer,
with no trusted
third party.
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
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What is Bitcoin?
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
Nakamoto Satoshi - 11/02/2009
Bitcoin open source implementation of P2P currency The Cryptography Mailing List
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What is Bitcoin? - The Truth
● 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).
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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.
8


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

9


Bitcoin Ecosystem







Bitcoin Client: Bitcoin Core, Bitcoin XT, Bitcoin Classic, Bitcoin Unlimited,
BTC1, btcd ...
Bitcoin Wallets: Bitcoin Core, Bitcoin.com, Electrum, Bitgo, Xapo,
Blockchain, Jaxx ...
Bitcoin Exchanges: Bitfinex, Bitflyer, Bithump, LocalBitcoins, Kraken,
Coinbase ...
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 ...
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Bitcoin Fundamental
● 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:
○ 1XPTgDRhN8RFnzniWCddobD9iKZatrvH4
○ 3J98t1WpEZ73CNmQviecrnyiWrnqRhWNLy

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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

12


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
address to be spent

13


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.

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Bitcoin Fundamental
Signing Signature

Digital
Signature

Digital
Signature

Private Key

Message: I’m
Thang. I have
10 bitcoins. I
want to send
5 bitcoins to
Tien ...

Public Key

Hash

Hashed
Message:
a1b2c3d4e
5f6….

Signature
Verifying
Algorithm

Hashed
Message
Verifying Signature

How does Bitcoin use private & public key to verify message

15


Bitcoin Transaction







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
○ https://blockchain.info
○ https://blockchair.com

16


Bitcoin Transaction

17


Double spending problem


Double-spending is the result of successfully spending
some money more than once
Bitcoin solves the
“double-spending” problem
by inventing the blockchain
and proof-of-work concept

18


Blockchain
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


19


Blockchain
Block n

Block n + 1

Block n + 2

Block n + 3

Block Header

Block Header

Block Header

Block Header

- Block Hash
- Previous Block Hash
….

- Block Hash
- Previous Block Hash
….

- Block Hash
- Previous Block Hash
….

- Block Hash
- Previous Block Hash
….

Transactions

Transactions

Transactions

Transactions

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
change of the block hash, which will then lead to the change of the child block.
20


Blockchain






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.

21


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

22


Bitcoin Network





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's core consensus rules independently with other nodes.
23


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
depending on a pool server to maintain a full node.

24


Bitcoin Network

25


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