1. The document provides an overview of Bitcoin and blockchain technology, explaining key concepts like cryptography, peer-to-peer networks, and distributed computing. 2. It describes how Bitcoin works as a decentralized system, with tasks like transaction validation and currency issuance performed collectively by network participants through mining. 3. Mining involves using cryptography to solve computational puzzles and record transactions in the blockchain, the public ledger that serves to verify ownership of bitcoin funds. Miners are incentivized by bitcoin rewards and transaction fees.

1. Understanding Bitcoin
Francis Pouliot
Co-founder of Satoshi Counter, physical Bitcoin exchange and brokerage office
Co-founder and CEO of Satoshi Portal, online cryptocurrency financial services and software
Director of Public Affairs at the Bitcoin Embassy, advocacy and education
President of the Bitcoin Foundation Canada, lobbying and industry relations
and rethinking money

2. ------------------------
Cryptography
Money?
Peer-to-peer networking
Computer protocols
Distributed computing
Cryptocurrency… what?
« Isin’t that the thing they use on Silk Road? Can’t be, it went bankrup after its CEO died like 2 years ago »

3. Tearing down the old, rebuilding the new
Writing a new chapter in the history of money
Asking questions about the status quo
Offering an alternative to status quo
(without compromising on the modern standards of living of a free-market economy)

4. What’s the point?
Observation 1
« In any monetary or financial system, certain tasks need to be
completed for the system to work »
1. Keeping track of assets: being able to associate assets to people
- Performed mostly by banks and various financial institutions via private ledgers
2. Safeguarding assets: making sure that only rightful owners can access the assets
- Performed banks, payment processors (like Visa), numerous middle-men
3. Clearing and settlement: ensuring the exchange of funds between parties
- They are middlemen between banks and financial institutions
4. Processing payments: coordinating transfer of funds between people and businesses
- Credit and debit cards (Interac, Visa)
5. Issuing money and preventing counterfitting: creating the units that will be used as medium of exchange
- Created by private banks, central banks (private and public)

5. What’s the point?
Observation 2
« All these tasks are centralized in the hands of a few middlemen »

6. Disproportionate power over our lives
Cannot be bypassed to secure wealth
Too big to fail
We are their clients – we pay them!
Highly inefficiant
Central points of failures
Absolute control over all transactions
*
Access to our information
Can be censored at any time
Supported by governments – influences governments

7. What’s the point?
Observation 3
« Money creation is forbidden knowledge »

9. Some facts about money
• All fiat money is created by debt
• 97% of money is created by banks
• Money is only backed by:
- Ability to repay loan (revenue)
- Enforcing demand
• Not enough « real » money to repay loans
• Continuous inflation is not natural
• A « for-profit » system
• Recent trends are radical modern experiments
- Interest rates at zero, never been done before
- Quantitative easing
A crucial premise of economics is wrong
« Banks do not simply act as intermediaries betwen
savers and borrowers. They create money and use
savers’ deposits as leverage, making a profit. »
Ambiguous ownership
The monetary system is so complex and rules change so often,
that it is not at all clear how ownership of money is established.
See: Greece, Cyprus

10. Money creation in the USA – long story short

11. To infinity and beyond!
Quantitative easing
Bank bail-outs

13. John Maynard Keynes « By continuing a process of
inflation, governments can
confiscate, secretly and
unobserved, an important part
of the wealth of their citizens »

14. Fiat money: a system based on trust
Why do you accept paper as a paycheck?
You trust it will be accepted and it will have value
Why does it have value?
It is useful because it will be accepted for goods

15. ------
14 % People who trust their goverments
Source: Edelman 2014

19. Technology
“Bitcoin is a collection of concepts and technologies that form the basis of a
decentralized transaction network and monetary system”
•The bitcoin protocol: decentralized peer-to-peer network
•The blockchain: public transaction ledger
•Distributed mining: decentralized mathematical currency issuance
•Transaction script: decentralized transaction verification system
Some important concepts
•Electronic cash: “anonymous” push-payment mechanism
•Incentive strucutre: all behavior is voluntary, no action is coherced
•Distributed consensus / crypto-economics: proof-of-work
•Smart contracts: self-enforcing and programmable
Technology = transaction network = currency

20. Satoshi Nakamoto and the origins of Bitcoin
Two persons may exchange messages, conduct business, and negotiate electronic contracts without ever knowing the True
Name, or legal identity, of the other (…) The methods are based upon public-key encryption, zero-knowledge interactive
proof systems, and various software protocols for interaction, authentication, and verification (…) the next ten years will
bring enough additional (computer) speed to make the ideas economically feasible and essentially unstoppable.
– Timothy C. May, 1992
Understanding Bitcoin

21. Open-source software
• Not « owned » by anyone
• All code is public
• Anybody can participate in upgrades
• Who is Satoshi? Doesn’t matter!
Understanding Bitcoin

22. Bitcoin: a peer-to-peer network architecture on top of the Internet.
Peer-to-peer Client-server
• Open to any participant
• All participants are:
- Consumers of ressources
- Creators of ressources
• All participants are « equal »
• Tasks required for the network are fulfilled
collectively by participants
• Participants coordinated without central entity,
but with a protocol and set of rules they agree upon
• To become a participant: download the software
Understanding Bitcoin

23. Understanding Bitcoin

24. What does this mean?
1. Broadcasting transactions
2. Validation transactions
(authentification)
3. Timestamping transactions
into the blockchain (mining)
4. Creating new bitcoins (mining)
5. Storing the database of transactions
(the blockchain)
Functions of the participants
1. All tasks are performed collectively
by the network
2. There is no central authority
3. There is redenduancy
4. Efficiancy is optimal
5. Participants are coordinated by voluntarily
following a set up rules because it is in their
self-interest to do so
Understanding Bitcoin

25. Understanding Bitcoin
Math is crucial!
Public key cryptography
• Branch of mathematics developped mostly since the 1970’s
• Type of algorythm consisting of a public key and private key (pieces of data)
• Private keys are randomly generated
• Private keys and public keys are mathematically linked
- Public keys are derived from private keys
- Messages (including transactions) can be broadcast from public keys
- Messages (including transactions) can be signed by private keys
- Anybody can verify that a message broadcast from a public key was signed by someone in
posession of the private key without knowledge of the private key
• Public keys are used to encrypt messages and verify digital signatures
• Private keys are used to decrypt messages or perform digital signatures

26. Why is math important?
Understanding Bitcoin

27. Applications that allow people to interac over the Bitcoin network
Understanding Bitcoin
Bitcoin wallet software
They are « key chains »: they manage pairs of public and private keys
-Exemple of Bitcoin address : 1HAtLEmtudEZy6SP6hLoGRSQCCTCa9ySAT
-Exemple of private key : 5KGks44v4oyBeFhjpK8v3A6dA8MLJL5KPCoKgYzKMxm3P6rkWiJ
They can generate private keys
They can construct transactions
They can use private keys to sign transactions
They can broadcast transactions to the network
They can consult the blockchain to obtain balances

28. Understanding Bitcoin
The Blockchain
• A registry (ledger) that contains the entire transaction log
• It contains all the Bitcoin addresses and their balances
• It is hosted on the computers of all the participants
• It is 100% public and searcheable

29. Step-by-step
• User selects and amount and specifies a destination address
• The wallet will transform this data into a « transaction message» using the
Bitcoin protocol’s specific transaction script
• The wallet will sign the transaction with the private key
• The wallet will broadcast the transaciont to all the other nodes
• The other nodes will verify the transaction
• If valid, the other nodes will propagate the transaction
• Each node updates its copy of the blockchain to reflect the transaction
Understanding Bitcoin
Bitcoin transactions and the Blockchain

30. What’s the point?
Observation 2
« All these tasks are centralized in the hands of a few middlemen »

32. Understanding Bitcoin
Bitcoin transactions and the Blockchain

33. Understanding Bitcoin
What problem does the blockchain solve?
the Byzantine General’s problem, is
a thought experiment meant to illustrate
the pitfalls and design challenges of
attempting to coordinate an action by
communicating over an unreliable link.

34. • Type of algorithm which will create a
random « digest » from a data input
• Any modification of input leads to random
changes in the digest
• Impossible to reconstruct input from the
digest, so it’s a « one-way » function
• The one in questions is SHA-256
Understanding Bitcoin
Cryptographic hash functions and Mining

35. Objective: establish consensus on the content on the blockchain (one « master » copy of the blockchain)
Concept: miners will permanently record « blocks » of transactions into the blockchain
How it works:
- Miners will collect transacitons broadcasted into the Bitcoin Network
- They group these transactions in « blocks » which include other data such as the previous block’s « hash value » and a
random number (nonce)
- They apply a cryptographic hash function on these blocks of transactions
- They are trying to randomly find a specific value using these inputs of data (e.g., solve a math question)
For example: they are trying to find a number which is 256 numbers long and which starts with 20 consecutive zeroes
- Once a miner finds this number, he will broadcast his finding to the entire network
- The peers in the network will recognize his finding as valid by checking the hash value against the input
- The other miners will use this hash value as the starting point in the next block of transactions ans start mining the new
block ASAP. The transactions included in the block which was « solved » by the miner are included in the blockchain.
The blockchain’s golden rule: the longest chain is the valid chain, since it is the one which has the longest « proof-of-work »
In order to cheat honest miners, bad actors would need to provide more « proof-of-work » than the rest of the network
Understanding Bitcoin
Mining

36. Mining is difficult and expensive. So why do it?
• A miner which « solves » a Block of transactions is, according to the rules of Bitcoin,
entitled to a reward of bitcoins that the entire network will recognize as being
rightfully his.
• This reward is thus introduced in the Bitcoin economy as new monteray units, which
inflate the total supply of bitcoins in the system.
• Since the likelihood of solving a block is proportional to the efforts of the miner, the
new monetary units are distributed in an objective, just and efficient manner.
• Satoshi Nakamoto: « By convention, the first transaction in a block is a special
transaction that starts a new coin owned by the creator of the block. This adds an
incentive for nodes to support the network, and provides a way to initially distribute
coins into circulation, since there is no central authority to issue them. The steady
addition of a constant of amount of new coins is analogous to gold miners expending
resources to add gold to circulation. In our case, it is CPU time and electricity that is
expended»
Understanding Bitcoin
Mining reward

37. … hence the name « Blockchain »

38. Understanding Bitcoin
Mining economics

39. Understanding Bitcoin
Mining economics

40. What is the value of Bitcoin?

41. Where do we go from here?
Rebooting the financial industry

42. Where do we go from here?
Where can’t we do?
Smart contractsDecentralized e-commerce platformsInstant settlement between
financial institutions
Global remittance networkDecentralize autonomous corporationsP2P data trading + mesh networkingBitTorrent + BitcoinPeer-to-peer lending
Replace likes with tips
Make people pay for upvotes and
downvotes
Cryptographic assets and cryptopropertyMicropayment chanelsEquity crowdfunding
Machine-to-machine payments
Smart IoT integrationPrediction marketsToken-based voting and liquid democracyDecentralized notaries
Digital wills
When no permission is
required to innovate and the
technology works,
imagination is the only limit

43. Buy and Sell Bitcoins
Satoshicounter.com
Pay all your bills with Bitcoin
Bylls.com
Bitcoinembassy.ca
Questions?