Introduction to Bitcoin, prepared by Bitcoin Manchester to initially be presented at the Manchester Free Software Festival in February 2014. Contents: * What is money? * What is good money? * How does fiat money work? * What is Bitcoin? * How does Bitcoin work? * Why is Bitcoin important?

1. manchester
http://www.bitcoinmanchester.org.uk/
Introduction to Bitcoin
Why is cryptocurrency so important?
Ash Moran
ash@ashleymoran.net

2. Overview
1. What is money?
2. What is good money?
3. How does fiat money work?
4. What is Bitcoin?
5. How does Bitcoin work?
6. Why is Bitcoin important?

3. 1.
What is money?

4. Question
What makes you consider
something as money?

5. One definition of money
“Money is the general medium of exchange,
the thing that all other goods and services
are traded for, the final payment for such
goods on the market”
Murray Rothbard
(referring to Ludwig von Mises)

6. 2.
What is good money?

7. Question
What makes something good
as a form of money for you?

8. Qualities of good money
‣
Generally accepted
‣
Recognisable
‣
Uniform
‣
Divisible
‣
Scarce
‣
Durable
‣
Portable

9. 3.
How does fiat money work?

10. Notes and coins
Who likes pound coins and notes?

11. Bank debt
Who likes bank debt?

12. Who remembers when beer cost this much?

13. Who has noticed the price of beer is now this?

14. Why has this happened?

15. UK money supply (billion GBP)
Source: Wikipedia

16. When will this happen?

17. The bankers are stealing your beer
+
=

18. 4.
What is Bitcoin?

19. Not this

20. Browsing Blockchain.info

21. Addresses
Example: 1kqHKEYYC8CQPxyV53nCju4Lk2ufpQqA2
Donation address for http://bitcoincharts.com/

22. Transactions
public record

23. Blocks and the blockchain
T8
Block 1
T1
T2
Block 2
T3
T5
Block 3
T6
T7
T9
public record

24. Aside: centralised banking
private record
(central, trusted authority)

25. Distributed peer-to-peer-network
Internet
public record
(no central authority, no trust)

26. 5.
How does Bitcoin work?

27. Three difficult problems to solve
1. Defining the sequence of events (transactions)
2. Ensuring only address owners can spend coins
3. Ensuring address owners can only spend coins
once

28. One easy problem to solve
1. Issuing bitcoins

29. Defining a sequence of events
a “timestamp server”
using cryptographic hashes

30. Ensuring only address owners can spend coins
Elliptic Curve Digital Signature Algorithm

31. Ensuring address owners can only spend coins once
Longest chain
(“true history”)
Genesis block
Dead forks
We need to make this hard to generate
to prevent double-spending

32. Ensuring address owners can only spend coins once
Cryptographically hard to calculate

33. Bitcoin mining hardware
a Butterfly Labs ASIC miner

34. Issuing bitcoins

35. Issuing bitcoins
Feb 2014:
12.4MBTC
~2033:
21MBTC
Creation halves every
210k blocks / ~4 years

36. 6.
Why is Bitcoin important?

37. Reason 1
“Give me control of a nation's money supply,
and I care not who make its laws”
– Mayer Amschel Rothschild

38. Reason 2
“It is well enough that people of the nation do
not understand our banking and monetary
system, for if they did, I believe there would
be a revolution before tomorrow morning.”
– Henry Ford

39. Qualities of good money revisited
‣
Generally accepted
‣
Recognisable
‣
Uniform
‣
Divisible
‣
Scarce
‣
Durable
‣
Portable

40. Scarcity
vs
Which policy do you prefer?

41. No hyperinflation

42. Sadly no money forts either

43. Scarcity
“Economic growth is good for you”

44. Scarcity
?
consumption
capital

45. Durability
private keys

46. Portability
“At WordPress.com, our mission is making publishing democratic —
accessible and easy for anyone, anywhere. And while anyone can start a free
blog here, not everyone can access upgrades (like going ad-free or enabling
custom design) because of limits on traditional payment networks.
Today, that changes: you can now buy WordPress.com upgrades with
bitcoins.
PayPal alone blocks access from over 60 countries, and many credit card
companies have similar restrictions. Some are blocked for political reasons,
some because of higher fraud rates, and some for other financial reasons.
Whatever the reason, we don’t think an individual blogger from Haiti, Ethiopia,
or Kenya should have diminished access to the blogosphere because of
payment issues they can’t control. Our goal is to enable people, not block
them.”
– Andy Skelton, WordPress.com

47. Portability
Transactions are easy to broadcast

48. Portability
‣
Bitcoins are free or cheap to move around
(free as in beer)
‣
Bitcoin is free software
(free as in beer and speech)
‣
Bitcoin is free money
(free as in speech)

49. Related Info
Bitcoin: A Peer-to-Peer Electronic Cash System
‣
‣
Original paper - surprisingly accessible if you’re a bit
technical
‣
https://bitcoin.org/bitcoin.pdf
Money as Debt (video by Paul Grignon)
‣
‣
Explains the history of our monetary system
‣
Highly recommended
‣
http://www.youtube.com/watch?v=jqvKjsIxT_8

50. Finish
Questions?