2. We are an experienced entrepreneurial team focused
on building successful tech companies in Latin
America and Beyond
Investigation and analysis led by
Julieta Duek
Stanford MBA, 2013
Demian Brener
Senior Analyst at Quasar Ventures
4. Bitcoin is an electronic payment system based on a
decentralized global ledger
Bitcoin
• An electronic
payment network
− Based on a
global ledger
that records all
txs ever made in
the system
− Ledger cannot be
overwritten or
changed
• Bitcoin is also the
name of the
currency unit of the
payment system
Main features of the Bitcoin network
Decentralized
Network maintenance and tx processing done by a
network of individuals’ computers (“miners”)
P2P network
Theoretically, transactions can be done P2P; there
are also exchanges to facilitate txs
Global
The system doe not care about the tx
origin, destination, or where it is processed
Secure
Ownership and tx of bitcoins are secured by
protocol rules and mathematical algorithms
Open source
Zero or low
processing fees
Software changes can be proposed by any
node, and are widely implemented when 80% of
the nodes adopt the change
Initially free processing, with miners rewarded with
newly generated bitcoins
As # bitcoins reaches 21M, tx fees will prevail
3
5. How a transaction works: Alice sends bitcoins to Bob (I)
Alice
Bob
creates and Address
for this tx
creates and Address
for this tx
AdressAlice
AdressBob
Message
• AdressAlice
• AdressBob
• Amount to send
• Change
• Tx fee
Signed message
Private keyAlice
Public keyAlice
4
6. How a transaction works: Alice sends bitcoins to Bob (I)
Alice
Bob
creates and Address
for this tx
creates and Address
for this tx
AdressAlice
AdressBob
Message
• AdressAlice
• AdressBob
• Amount to send
• Change
• Tx fee
Private keyAlice
Public keyAlice
Signed message
Broadcasted to the
Bitcoin network
Miners
5
7. How a transaction works: Alice sends bitcoins to Bob (I)
Alice
Bob
creates and Address
for this tx
creates and Address
for this tx
AdressAlice
AdressBob
Message
• AdressAlice
• AdressBob
• Amount to send
• Change
• Tx fee
Signed message
Signature verified
Private keyAlice
Public keyAlice
Miners
Processed by one of the nodes
• Adds tx to the global ledger
(block chain)
• Verifies signed message
through Public key
6
8. How a transaction works: Alice sends bitcoins to Bob (I)
Alice
Bob
creates and Address
for this tx
creates and Address
for this tx
AdressAlice
AdressBob
Message
• AdressAlice
• AdressBob
• Amount to send
• Change
• Tx fee
Signed message
Signature verified
Private keyAlice
Public keyAlice
Miners
Processed by one of the nodes
• Adds tx to the global ledger
(block chain)
• Verifies signed message
through Public key
7
9. How a transaction works: Alice sends bitcoins to Bob (II)
The ledger registers input and outputs that record the “balance of bitcoins” for each address
Alice
AdressAlice
Message
• AdressAlice
• AdressBob
• Amount to send
• Change
• Tx fee
Bob
Input
from AdressAlice
Output
to AdressBob
Signed message
AdressBob
Only Bob knows the private
key for this address, so only
he can send bitcoins out
from this address
Private keyAlice
Public keyAlice
“balance of bitcoins” for an
address: all the outputs
referenced to the adress’
public key, that haven't been
used as inputs in later txs
8
10. The Block chain orders who processes each tx block
Miners create blocks of processed
txs to be added to the block chain
The first miner to solve a certain math
problem adds his block to the chain
• Txs are bundled in blocks by miners
• Blocks linked together form the block chain
(the giant ledger)
• Each block is referenced to the previous
block, which gives a time order to the txs
• The system has to determine whose block will
be the next to enter the block chain
• The next valid block is the one that contains
the answer to a certain mathematical problem
• The 1st miner to solve it gets to add his block
to the block chain
− It takes an average of 10 min for
someone to find a solution
− That miner is rewarded with newly
generated bitcoins
9
11. What is a hash function?
A hash function creates a fixed short digest (H) from any arbitrary length of text (M)
H = hash(M)
Bitcoin uses a SHA256 function, resulting in a 32 byte number.
Properties of a hash function
• It is easy to compute the hash value for any given message
• It is infeasible to generate a message that has a given hash
• It is infeasible to modify a message without changing the hash
• It is infeasible to find two different messages with the same hash
• Pre-image resistance. It is a one-way function: given a hash H it is difficult to find any message m
such that H = hash(M)
• Collision resistance. It should be difficult to find two different messages M1 and M2 such that
hash(M1) = hash(M2).
10
12. If two miners solve the math problem at the same time, two
branches are created, but only the longest one will prevail
Two miners solve the math problem at
the same time, creating two branches
Only the longest chain will be part of
the block chain
Carol’s chain
• Nodes keep building the blocks on top of the
two blocks created by Carol and Frank
Block # 9JD
Prev #7CF
txns…
txns…
Block # 26K
Prev #7CF
Block # 6TY
Prev # 26K
txns…
txns…
Block # 7CF
Prev #2A4
txns…
Block # Y7T
Prev # 1L7
txns…
Block # 2A4
Prev #473
Block # 1L7
Prev # 9JD
txns…
• Nodes immediately switch to the longest
branch available
• Blocks that belong to the shortest chains, and
the blocks built on top of them, are destroyed
Frank’s chain
11
13. The Block chain prevents double spending fraud
The decentralized processing could
be risky of double spending fraud…
…but the block chain structure
makes it impossible
• To execute the double-spending Alice would
have to pre-create a “longer chain”
• But the previous-block-reference is part of the
text that goes through the hash function of the
next block
• So she cannot pre-create the chain, because
she needs info from previous blocks to
generate it
• Alice could create a longer branch with the
double-spend tx, that replaces the chain with
the tx to Bob
• The chain with the tx to Bob would get erased
for being shorter
• Bob´s money would get erased
• The only way to do it is being the 1st to create
that chain
•
• She could only win if she has >50% of the
computing power of the network, one of
bitcoins risks
12
14. Mining and bitcoin generation
Miner´s incentive = 1
Reward for verifying a block of txs + 2
Tx fees
1 Reward for verifying a block of txs
• Miners receive 50 newly generated bitcoins for the first 210,000 blocks and half the
previous amount of bitcoins for each subsequent 210,000 blocks
• Each block takes an average of 10 min to be verified (210,000 blocks take ~4 years)
− The difficulty of the math problem to verify a block is adjusted every 2 weeks so that
the average time to solve a block remains around 10 mins
• Newly minted BTCs cannot be spent for 100 blocks
2 Tx fees
• Incentive for miners verify those txs faster, by including them earlier in the block chain
• They arise from the difference between the values of input and output on a tx
• When all bitcoins are issued, tx fees will be the only compensation for miners to verify
txs, so eventually sending money through bitcoins will not be free
• Rewards and tx fees are a transaction with no input called “coinbase“, included in the block
the miner just created
13
15. Bitcoin current status (I)
Price grew explosively to $1200 (Mt. Gox) in December, but stabilized around $950 in January
Jul-2012
Oct-2012
Jan-2013
Apr-2013
Jul-2013
Oct-2013
16. Bitcoin current status (II)
Total volume of bitcoins, and Market Cap
Total # bitcoins is predictable and will
reach 21M in 2140
# bitcoins
(million)
Market Cap fueled by price increase
was around $11.5 Bn in Dec-2013
Mkt Cap
U$S Bn
22
15,0
US dollars stock: $1.220 Bn
US dollars stock: $943 Bn
Gold stock: $8.200 Bn
20
18
12,0
16
14
9,0
12
10
6,0
8
6
3,0
4
2
0
0,0
01/01/2010
01/01/2020
01/01/2030
01/01/2140
Sep-2012
Jan-2013
May-2013
Sep-2013
Historical
Projected
15
17. Bitcoin current status (III)
Bitcoin volume of transacions per day
# tx/day highly volatile
# tx/day
th
400
350
300
Daily tx volume between $200 – 400M
reaching the level of Paypal
tx/day
$M
450
400
350
300
250
Visa: $16.513 M
Mastercard: $9.863 M
China UnionPay: $7.562 M
Amex: $2.434 M
Discover (Pulse): $438 M
Paypal: $397 M
250
200
200
150
150
100
100
50
50
0
0
Jul-2012 Oct-2012 Jan-2013 Apr-2013 Jul-2013 Oct-2013
Jul-2012 Oct-2012 Jan-2013 Apr-2013 Jul-2013 Oct-2013
16
18. Emerging crypto currencies can be classified as Bitcoin
alternatives and currencies for Other Uses
Alternatives to Bitcoin
• Used as currency, for purchases, money
transfer, store of value, etc
• With slight different functionalities:
Litecoin
Less energy consumption to
process txs
• Based on the Bitcoin protocol
• Created ledgers to transact, register, or
represent other things that are not necesarily
monetary value
Faster txs
Useful for small amounts
Peercoin
Crypto currencies for other uses, based
on protocols similar to Bitcoin
Ripple
Namecoin
Centrally administered Bitcoin
Only one exchange
Quarkcoin
Could be more secure
Not really much different than Btc
Worldcoin
Photoshares
Same protocol as BTC for
representing asset ownership
Similar protocol to Bitcoin but to
acquire shares in Invictus
Innovation DAC
30 second tx time
Direct competitor of Litecoin
• All their functions could be easily incorporated
to Btc as needed
− Except Ripple’s centralized governance
• Could be replaced by Btc.
− I.e.: buying the domain with Btc instead of
Namecoins
17
19. Alternatives to Bitcoin
Litecoin
(Mkt Cap $727.9M)
Peercoin
(Mkt Cap $93.4M)
• 84 M total coins, four times more
than Btcs
• Tx time 4x less than Btc (2.5
min/block)
• Trying to be the Btc for small txs
Ripple
((Mkt Cap $3.7Bn)
• “Proof of Work/Proof of Stake”
makes processing less energy
consuming
• Inflationary: volume grows 1% per
yr, proportional to PCP held
• Fixed 0.01 PCP tx fee
• Not decentralized, founder Sunny
King has checkpoint control of txs
• Central control by Ripple Labs
• Shared public ledger that holds
balances in any currency
• It is an exchange: ledger registers
offers to buy or sell assets
• Fee in XRP required to transact
• Founders held XRP 100M
initially, gifted XRP 80M to Ripple
Labs, who will distribute 55M
XRPs to users
Quarkcoin
(Mkt Cap $52.3M)
Worldcoin
(Mkt Cap $22.9M)
• 245M Quarkcoins, with 98%
already mined
• Some claim that the more stable
stock of Quarkcoins will make it
less volatile
• With a 6-way hashing
method, claims to be more secure
than Btc but a 51% attack is
equally possible
• 30 second tx time
• Mining has 1% reward reduction
per week, encouraging fast mining
18
20. Crypto currencies for other uses, based on protocols
similar to Bitcoin
Namecoin
(Mkt Cap $46.9 M)
• Same protocol as Btc but to represent asset
ownership
• Platform can also be used to register
messages, votes, and as login system
• Colored Coins is another service for
representing asset ownership, but can run on
top of BTC or any protocol
Photoshares
(Mkt Cap $21.8 M)
• Photoshares represent shares in Invictus
Innovation Decentralized Autonomous
Corporations (DACs)
• Invictus is a platform that brings together and
coordinates developers who want to build
DACs
• Only 2 M Photoshares are available
• Transaction cost is 0.01NMC
− E.g.: registering a domain or transferring
it costs 0.01 NMC
19
21. New application platforms and programming languages are
being built using the blockchain technology and protocol
Ethereum1
Bitcloud2
• Ethereum is a decentralized mining network
and software development platform designed
to allow users to encode advanced transaction
types, smart contracts and decentralized
applications into the blockchain
• Bitcloud works on a variation of proof of stake
known as proof of bandwidth. The nodes in
this system are similar to the miners in the
Bitcoin protocol in that they mine cloudcoins by
providing bandwidth to the network
• It includes a Turing-complete programming
language that can be used to build applications
and features on top of the ledger using
contracts as building blocks
• Instead of using a proof of work system where
miners are looking for the solution to a
complex mathematical equation, the nodes in
Bitcloud are rewarded based on their share of
the total amount of bandwidth used in the
Bitcloud network
• A contract is like a computer program that lives
inside the Ethereum network, which is
triggered every time a transaction is sent to it
• Each block reward is distributed among the
nodes based on their share of the overall
amount of bandwidth needed by the Bitcloud
users
1.Ethereum.org
2.GitHub Bitcloud white paper at https://github.com/wetube/bitcloud/blob/master/Bitcloud%20Nontechnical%20White%20Paper.md
20
23. What are the benefits compared to Fiat and Gold?
What is Money? Medium of exchange, unit of account and store of value
Scarce
Durable
Portable
Divisible
Easily Verifiable
Easily Stored
Fungible
Authenticity
Mass adoption
Fiat
Neutral
Neutral
Neutral
Yes
Yes
Neutral
Yes
Neutral
Yes
Gold
Yes
Yes
No
Neutral
Neutral
No
Neutral
Neutral
Neutral
Bitcoin
Yes
Yes
Yes
Yes
No
Yes
Yes
Yes
No
22
24. The rules of the Bitcoin system have implications and
consequences
Deflation
Implications of
decentralization
Due to limited number
of coins
(+) Harder to stop by
states or companies
Does not invalidate
most of its uses
• It does invalidate
debt txs
(-) Very vulnerable to
market reactions
(-) No central leader to
deal with governments
Volatility
Compare with other
currencies/gold
Understand if higher
volume would solve it
Open source
governance
Anyone can
• Find bugs or errors
• Propose changes
Prioritization and
implementing is led by
the core developers
Concentration of
Bitcoin holders
(-) Are market
makers, thus
controlling price
(+) Could lead
development of the
ecosystem if they can
coordinate themselves
Mining incentives
and tx fees
Still evolving in the
protocol
Will probably end in
market-set tx fees
Mining power
structure
Grouping of miners to
stabilize profits
Pools are not a risk
• But governments
could take over
mining for an attack
Anonimity
Currently achievable
In the future,
regulation will
eliminate it
25. Five mining pools concentrate 80% of the revenues
Mining generates $4M revenues per day
but is currently not profitable
Top five mining pools
concentrate 80% of revenues
• Total nodes: ~5000
• Mining is no longer profitable
− Excess investment caused excess supply
− Raising the Difficulty levels set by the system
− Causing an arms race of mining technology
that is now slowing down
Unknown & Others
17%
Eclipse MC
• Around $4M revenues per day
Slush
3%
6%
Bitminter
7%
Eligius
11%
BTC Guild
27%
G.Hash.IO
29%
Mining revenues
24
26. The formation of mining pools could pose a risk for the
Bitcoin system: the 51% attack
The 51% cartel attack is unlikely
An attack would be costly and difficult to
implement
• Requires controlling >33% mining power
• Bitcoin processing power is now >500 most
powerful computers in the world
• Will become even more costly over time
• Building this power takes time1
• The attack itself would have last 20-30 min
• Nodes have tools to report bad behavior
A Goldfinger attack3
could be possible
The attack won’t come from
• Those who own Bitcoins, profit from Bitcoin
industry, or would gain Bitcoins in the attack
The attack could come from:
• Someone who would achieve utility outside the
Bitcoin economy through the attack
Social protestor or hacker
Rewards are limited2
• The attacker could:
– Double-spend his/her own Bitcoins
– Delay others’ txs confirmations
• The attacker could NOT
– Create or destroy coins
– Fake transactions
– Take someone else’s Bitcoins
Too costly for an individual
or non-for-profit
organization
Investor short in Bitcoin
Gain from shorting not
enough to cover costs
Government
Company competing
with Bitcoin
Only a major tech company
could do it, or coordination
of several (low probability)
1. http://hackingdistributed.com/2013/11/04/bitcoin-is-broken 2. https://en.bitcoin.it/wiki/Myths and https://en.bitcoin.it/wiki/Myths
3. The Economics of Bitcoin Mining or, Bitcoin in the Presence of Adversaries, by Joshua A. Kroll, Ian C. Davey, and Edward W. Felten, Princeton University
25
27. Governance of Bitcoin by emerging leaders
whose power is constrained by the possibility of a fork
Core developers have to push
improvements and avoid forks
Core developers rise and get respect through
their skills and contributions to the system
• Satoshi still has some lingering influence
New core developers can arise anytime
• Power changes have happened in the past1
Main incentives of the core developers are
• Improve the system
– Eliminate bugs and vulnerabilities
– Implement changes to increase adoption
and make the system sustainable
• Generate consensus
– Sometimes the optimal solution is unclear
– If a hard fork happens, and Bitcoin gets
split in two sub-Bitcoins, everyone loses
Upcoming features
Solve the long confirmation time
Develop capabilities for refunds
Multisignature transactions
Smarter tx fee system
• Based on free market rule instead of fixed as it
is today
Put a node in the space as backup to the
nodes on Earth
Researchers2 consider that some governance will have to
emerge to deal with the government intervention risk
1.GitHub history of Bitcoin protocol, where the change of core developers can be seen http://www.youtube.com/watch?v=OztVYTS_Ei8
2. The Economics of Bitcoin Mining or, Bitcoin in the Presence of Adversaries, by Joshua A. Kroll, Ian C. Davey, and Edward W. Felten, Princeton University
26
29. Different Bitcoin businesses are dependent
on different stages of evolution and adoption of the system
Legitimized system
Regulation
Low volatility / Sufficient market depth
Fast tx processing & confirmation
Now
Easy access worldwide
Secure
Time
Mining (Btc generation and tx processing)
• Mining hardware manufacturing and selling
• Mining pools
Enablers to
hold and
transact Btcs
• Cloud mining
• Equipment reselling
• Equipment and/or platforms to optimize mining
Niche based adoption
Widespread adoption
• Wallets
• Exchanges
• Links between local banks and
exchanges/wallets
• In person exchange organizers
• ATMs
• Instant tx provider
• Issuers of physical unit of Btc
• Btc investment funds
• Online payment services
− Cross-border (hotels, flights, etc)
• Individuals’ money transfer
− Cross-border (remittances)
• Escrow and settlement of high cost tx
(e.g.: real estate)
• Micropayments for current businesses
•
•
•
•
Non-currency use of the protocol
• Time stamping
• Asset ownership and contracts
• Notary services
Btc as store of value
• Btc investment fund
• Wallets
• Exchanges
• Storage
safety
• Identity
proofing
Enablers to buy/sell Btcs with fiat
• Investment advisors
• High security storage systems
• Store of value financial
instruments
• Providers of market and blockchain info
Support services
• Tx fee calculator
Merchant services (online and offline)
Corporate money transfers & payments
Imports/Exports payments
New business models based on
micropayments
• Financial instruments for Btc
• Investment firm in Btcs
• Btc tax advisory
28
30. Bitcoin is at the chasm in the technology adoption cycle
Innovators
THE CHASM
Moore’s adoption cycle for disruptive technologies
Tornado
Bowling
Alley
Early
adopters
Early
majority
Innovators or Visionaries
Don’t need the technology to work perfectly
• Will make an effort to make it work
Motivated by their vision of the technology
Laggards
Early adopters
Will only buy a complete solution
≠
Motivated by economic rationale
Bowling Alley: niche-based adoption, driven by compelling customer needs and
vendors crafting niche-specific complete products
29
31. Currently, the bottle neck in the chain is the exchange
from $ to Btc and viceversa
Banked
…
Tx cost
Bank transfer: free
In person cash exchange: free
Btc ATM (CAN, US): 6-7%
Paypal: 6%
Gift card (US): 8.7%
Unbanked
Tx cost
In person cash exchange: free
Btc ATM (CAN, US): 6-7%
Gift card (US): 8.7%
…
Tx cost
FREE
Family in ≠ country
(Biz: Remittances)
Purchase
(Biz: Merchant services)
Tx cost
Bank transfer: free
In person cash exchange: free
Paypal: 6%
Gift card (US): 8.7%
Micropayment
(Biz: Micropayment
services)
Home seller
(Biz: Escrow/middleman for
costly txs)
Tx cost
In person cash exchange: free
Key links in the system
• In US these links are solved a business focused in the US doesn’t have to worry about that
• For businesses outside the US, there are two options:
− Build those links
− Find a way to go around them (e.g. focus on payments from US to Argentina, work with large Btc holders)
30
32. Map of opportunities that are feasible in the short term (I)
Business opportunity
Mining
System
enablers
Platform to optimize Btc
mining overall cost
Give access to buy/sell Btcs
in new markets
• Develop a platform to optimize mining
• E.g.: mine where electricity is cheaper, etc
Target market
Global or LatAm
• Btc can offer payments with lower tx costs
• Help building the key gates to the system, and
keep part of the value created
LatAm
(there are already big
players in developed
markets)
• Price volatility and tx confirmation times have a
cost for users
• A centralizer could neutralize part of the
volatility, reduce the overall cost, and charge a
fee lower than the cost borne by individual
transactors
Global
Id proofing services
• Needed to make the system more secure
• Should grow as Btc becomes more regulated
Global
Safety storage tools
• The need is clear
• Not a clear winner yet
Global
Compliance services
• Need will grow together with regulation
• At Western Union, compliance is ~20% of cost
Global
Tx fee optimizer
• Tx fees ~0.6 M /month, high growth expected
• Available best practices are not widely used
Global
Merchant services
Instant Btc txs for a fee
Instant fiat/Btc txs for a fee
Hedging of Btc txs for a fee
System
improver
High-level business hypothesis
31
33. Map of opportunities that are feasible in the short term (II)
Business opportunity
High-level business hypothesis
Target market
International money transfer
US/LatAm
Btc accounts for foreign
investment
• Btc global nature and low tx costs used to
enable individuals to invest abroad
Global
• Can help increase monetization of sites
• Tx fee costs kept low taking the txs off-block
Global
App to locate Btc holders
and merchants
• As Btc grows people will need to know where
Btc is accepted
Global
Price and blockchain data
provider
• There are sites currently available
• Could be improved and made local
LatAm
Btc news provider
Use of Btc
protocol
• Leverage low tx costs of Btc
• Niche need in payments of foreigners to Arg.
Micropayments solutions
Support
services
US/LatAm
International payments
Complete
solutions
• High prices of current remittances services
• Leverage lower tx costs of Btc
• There are sites currently available
• Could be improved and made local
LatAm
Registering info
ultra-securely
• Unclear how big is the market
• Cost/registration would be 5 to 50 cents
Global
32
34. Map of Bitcoin existing businesses (non-comprehensive)
Mining ecosystem (Btc generation and tx processing)
Enablers to hold and transact, and buy/sell Btcs with fiat
Wallets
Niche based adoption
Gaming
Exchanges
Remittances
Enablers to buy Btc
Merchant services
Identity proofing
Btc as store of value - trading
Support services
33
The Bitcoin System is a decentralized network where each node contains information of all transactions made in the history of the system as ledgers. Nodes update their ledger when they receive the message of a new transaction and pass it on to the next node. So basically, it is a system that allows a group of computers to maintain a unified ledger.
How transactions workWhen Alice sends bitcoins to Bob, she broadcast a message with the accounts and the amount sent. To verify that the transaction is authentic a digital signature is used, always different for every new transaction.A digital signature is composed by a private key and a public key. The private key, only known by the owner, is used to create a signature, and the public key is used to verify the authenticity of that signature, without the need of revealing the private key. Public keys are actually the send to addresses in bitcoin.Since the digital signature depends on the private key and the message (transaction):each digital signature is different for every transaction and therefore can´t be reused by someone for a different transaction.the message is original, since any changes to the message would invalidate the signatureThe mathematical algorithms for digital signatures are the Elliptic Curve Digital Signature Algorithm (ECDSA) and the Mathematical Trap Door.Ownership of funds is verified by links to previous transactions, called inputs. Each input must be sent completely in a transaction, so if you try to send an amount that not exactly match one of your inputs, you need to send any remaining amount back to yourself (called change). Therefore, the validity of each transaction is dependent on previous transactions.
How transactions workWhen Alice sends bitcoins to Bob, she broadcast a message with the accounts and the amount sent. To verify that the transaction is authentic a digital signature is used, always different for every new transaction.A digital signature is composed by a private key and a public key. The private key, only known by the owner, is used to create a signature, and the public key is used to verify the authenticity of that signature, without the need of revealing the private key. Public keys are actually the send to addresses in bitcoin.Since the digital signature depends on the private key and the message (transaction):each digital signature is different for every transaction and therefore can´t be reused by someone for a different transaction.the message is original, since any changes to the message would invalidate the signatureThe mathematical algorithms for digital signatures are the Elliptic Curve Digital Signature Algorithm (ECDSA) and the Mathematical Trap Door.Ownership of funds is verified by links to previous transactions, called inputs. Each input must be sent completely in a transaction, so if you try to send an amount that not exactly match one of your inputs, you need to send any remaining amount back to yourself (called change). Therefore, the validity of each transaction is dependent on previous transactions.
How transactions workWhen Alice sends bitcoins to Bob, she broadcast a message with the accounts and the amount sent. To verify that the transaction is authentic a digital signature is used, always different for every new transaction.A digital signature is composed by a private key and a public key. The private key, only known by the owner, is used to create a signature, and the public key is used to verify the authenticity of that signature, without the need of revealing the private key. Public keys are actually the send to addresses in bitcoin.Since the digital signature depends on the private key and the message (transaction):each digital signature is different for every transaction and therefore can´t be reused by someone for a different transaction.the message is original, since any changes to the message would invalidate the signatureThe mathematical algorithms for digital signatures are the Elliptic Curve Digital Signature Algorithm (ECDSA) and the Mathematical Trap Door.Ownership of funds is verified by links to previous transactions, called inputs. Each input must be sent completely in a transaction, so if you try to send an amount that not exactly match one of your inputs, you need to send any remaining amount back to yourself (called change). Therefore, the validity of each transaction is dependent on previous transactions.
How transactions workWhen Alice sends bitcoins to Bob, she broadcast a message with the accounts and the amount sent. To verify that the transaction is authentic a digital signature is used, always different for every new transaction.A digital signature is composed by a private key and a public key. The private key, only known by the owner, is used to create a signature, and the public key is used to verify the authenticity of that signature, without the need of revealing the private key. Public keys are actually the send to addresses in bitcoin.Since the digital signature depends on the private key and the message (transaction):each digital signature is different for every transaction and therefore can´t be reused by someone for a different transaction.the message is original, since any changes to the message would invalidate the signatureThe mathematical algorithms for digital signatures are the Elliptic Curve Digital Signature Algorithm (ECDSA) and the Mathematical Trap Door.Ownership of funds is verified by links to previous transactions, called inputs. Each input must be sent completely in a transaction, so if you try to send an amount that not exactly match one of your inputs, you need to send any remaining amount back to yourself (called change). Therefore, the validity of each transaction is dependent on previous transactions.
To prevent double spending, for each input, nodes check every other transaction ever made to make sure that input hasn't already been used before. Outputs are more mathematical puzzles than addresses. Sending money in bitcoin is like putting it in a public locker and attaching a math puzzle that must be solved to open it, and it is specifically designed so only the owner of a specific public key can solve it.So, the “balance of bitcoins” for a given private key are all the outputs that are referenced to its public key, that haven't been used as inputs in later transactions.
The technology adoption lifecycle summarises how communities respond to discontinuousinnovation, i.e. new products that require the end user and the marketplace to dramaticallychange their past behaviour to achieve the promise of equally dramatic new benefits. Pastexamples of this are fax machines, personal computers, spreadsheets and electronic mail.The original work from as early as the 1950’s has been extended by Geoffrey Moore in his booksCrossing the Chasm and Inside the Tornado to include his observation of a large gap betweenthe take up of new technology by technology enthusiasts and the majority market.Visionaries (Early Market):IntuitiveSupport RevolutionContrarianBreak away from the packFollow their own dictatesTake RisksMotivated by future opportunitiesPragmatists (Majority Market):AnalyticSupport EvolutionConformistStay with the herdConsult with their colleaguesManage risksMotivated by present problemsThe Chasm Model has a number of key implications for consideration when developing strategyfor innovation. It should be obvious that the majority of the profit and revenue is made by themarket leader in the majority market.What is less obvious, but crucially important, is that market leader in the majority market willprobably be the market leader when the market takes off.The only cost effective way for vendors that are not leading in a majority market (assuming theleader does not make major mistakes) to attain market leadership is to either introduce or rideon the back of a discontinuous innovation i.e. work in a different market.Moore has developed the concepts in Inside the Tornado to identify 6 parts of the lifecycle thatneed to be considered when developing strategy.• The Early Market, a time of great excitement when customers are technology enthusiasts andvisionaries looking to be first to get on board with the new paradigm.• The Chasm, a time of great despair, when the early market’s interest wanes but themainstream market is still not comfortable with the immaturity of the solutions available.• The Bowling Alley, a period of niche-based adoption in advance of the general marketplace,driven by compelling customer needs and the willingness of vendors to craft niche-specificwhole products.• The Tornado, a period of mass market adoption when the general marketplace switches overto the new infrastructure paradigm.• Main Street, a period of aftermarket development, when the base infrastructure has beendeployed and the goal now is to flesh out its potential• End of Life, which can come all too soon in high tech because of the semiconductor enginedriving price/performance to unheard of levels, enabling wholly new paradigms to come tomarket and supplant the leaders who themselves had only just arrived.