Presentation on how the bitcoin protocol works.

1. Bitcoin
A Decentralized, P2P, Crypto Currency

2. Bitcoin protocol
1.
2.
3.
4.
Transactions
Block (Chains)
Bitcoin Mining (Pools)
Wallet

3. Bitcoin Beginning
1. 2008
2. “Satoshi Nakamoto”
3. Anonymous Underground Genius

4. Bit What ?
“Bitcoin is an innovative payment method
& a new kind of money”
--bitcoin.org

5. Bit What ?
“Bitcoin is an innovative payment method
& a new kind of money”
PEER TO PEER
FUND TRANSFER
GLOBAL
ACCEPTANCE
LOW or NO
PROCESSING FEE

6. Bit What ?
NO BANKS OR REGULATING AGENCIES
PEER TO PEER
FUND TRANSFER
GLOBAL
ACCEPTANCE
LOW or NO
PROCESSING FEE

7. Bit What ?
ANONYMOUS
TRANSFERS
NO TRANSFER
LIMITS
YOUR ACCOUNT
CANNOT BE SEIZED
NO BANKS OR REGULATING AGENCIES
PEER TO PEER
FUND TRANSFER
GLOBAL
ACCEPTANCE
LOW or NO
PROCESSING FEE

8. Bitcoin Protocol is Complex
And requires knowledge of :
1. Hashing
2. Digital Signatures
3. JSONRPC
4. Digital Architecture (general)
5. Finance
6. Sociology (explicitly built into system)

9. Digital Signatures
Alice
SK
VK

10. Digital Signatures
Alice
SK
VK
Message
SK
ECDSA
Signature

11. Digital Signatures
Alice
SK
VK
Message
SK
Message
Sign
VK
ECDSA
ECDSA-1
Signature
bool

12. Bitcoin transactions
Are like a ledger entry to a global(open)
ledger called the block chain
You own bitcoins if there is a record of
some bitcoins being credited to you in the
ledger

13. Naming Conventions
Transactions (ledger entry)
Blocks (ledger page)
Block Chains (ledger)

14. Transaction Records
Alice
VKa
SKa
฿ 50
Bob
VKb
SKb

15. Transaction Records
฿ 50
Alice
VKa
SKa
Bob
VKb
30
VKc
40
VKd
10
VKe
Record of bitcoins being
transferred to Alice earlier
SKb

16. Transaction Records
฿ 50
Alice
VKa
SKa
Bob
VKb
30
VKc
Dc
40
VKd
Dd
10
VKe
De
SKb

17. Transaction Records
฿ 50
Alice
VKa
SKa
Bob
INPUT
OUTPUT
30
VKc
Dc
VKb, ฿ 50
40
VKd
Dd
VKa, ฿ 28
10
VKe
De
VKb
SKb
฿ 2 transaction fee
that’s charged by
the miner against
Proof Of Work

18. Transaction Records
฿ 50
Alice
VKa
Bob
SKa
VKb
30
VKc
Dc
VKb, ฿ 50
40
VKd
Dd
VKa, ฿ 28
10
VKe
De
SKa
SKb

19. Transaction Records
Dc
VKb, ฿ 50
Dd
VKa, ฿ 28
De
SKa

20. Proof of Work Protocol
A proof of work is a piece of data which is
difficult to produce so as to satisfy certain
requirements.
Producing a proof of work can be a
random process with low probability.

21. Bitcoin’s Proof of Work
Bitcoin needs a miner to solve for a proof
which, the hash of, when concatenated
with hash string should have a certain
(predefined) number of preceding zeros.

22. Bitcoin’s Proof of Work
Example (Let challenge = C, proof i = Pi)
Hash(P1C) = fj8wru38wrajfhjafhjka…
Hash(P2C) = fuwu893r98wefjlioas…
…
Hash(PnC) = 000fhf8iaedihuhfuias...

23. Transaction Blocks
Alice
฿ 50
Bob
Single
transaction

24. Transaction Blocks

25. Transaction Blocks
MINER
MINER
MINER
MINER
MINER

26. Transaction Blocks
MINER
MINER
MINER
MINER
MINER

27. Transaction Blocks
MINER
MINER
MINER
MINER
MINER

28. Transaction Blocks
MINER
HASH
HASH
FINAL HASH

29. Transaction Blocks
MINER
HASH
HASH
FINAL HASH
CHALLENGE
(256 bit hash)

30. Transaction Blocks
MINER
HASH
HASH
FINAL HASH
CHALLENGE
(256 bit hash)
PROOF
HASH
00000000006872hkhaks67y7q2kjnjzxc8zx9mq3w8703q09chjchajhcjhajc3rnqw

31. MINER
25
+
Transaction Fee

32. MINER
25
+
The miner is allowed to add a
coinbase transaction to every
block she mines as a reward.
This is how new coins are
generated.
Transaction Fee

33. Time taken per block
As per the specification, the network
should come up with a new block every 10
minutes.
This also means that a transaction should
generally take 10 minutes to be
completed.

34. Difficulty Calibration
To ensure 10 minute transaction time, the
difficulty of mining is calibrated every
2016 blocks(or two weeks)

35. Reducing Difficulty
Happens when the network more than 10
minutes per block
The difficulty is reduced by reducing the
number of preceding 0s required in the
proof string

36. Increasing Difficulty
Happens when the network less than 10
minutes per block
The difficulty is increased by increasing
the number of preceding 0s required in
the proof string

37. Jinter Video Demo
I was able to mine
0.000005 BTC

38. SHIVEK KHURANA
Cluster Innovation Centre
University Of Delhi