Bitcoin in a Nutshell

Bitcoin in a Nutshell
Dr. Daniel K.C. Chan
November, 2018

2November 2018
◦ What is bitcoin?
◦ Which bitcoin networks to trade on?
◦ Where to keep your bitcoins?
◦ Ways to pay more securely
◦ How to buy and sell bitcoins?
◦ Transaction fees are optional but …
◦ What does bitcoin have to do with
blockchain?
◦ How is consensus reached?
◦ What is bitcoin mining?
◦ What is Initial Coin Offering (ICO)?
◦ Any other risks?
Contents

3November 2019
What is bitcoin?

4November 2018
▪ First cryptocurrency (created and stored digitally) introduced in 2009
and is the most popular cryptocurrency
▪ The number of bitcoins is capped to 21 million by design
▪ It is operated by a decentralised authority
▪ No centralised authority is responsible for verification of the validity of bitcoin
transactions and decides its value - it does this on its own
▪ Acceptable to some businesses as a form of payment
▪ Advantages include low transaction fees, faster transfer of payments,
participants stay anonymous, exemption of transaction taxes, …
Introduction to Bitcoin

5November 2018
Needs & Goals of Beneficiaries & Stakeholders

6November 2018
▪ The idea behind bitcoin began in 2008 when
the name Bitcoin.org was registered
▪ On October 31, 2008 (Halloween), Satoshi
Nakamoto published a paper that dictates
how bitcoin operates
▪ No one knows the true identity of Satoshi
Nakamoto, the name associated with the person
that released the bitcoin whitepaper in 2008
▪ The identity of Satoshi Nakamoto has not been
revealed to date
The Genesis of Bitcoin
Bitcoin: A Peer-to-Peer Electronic Cash
System, Satoshi Nakamoto, 2008
(https://bitcoin.org/bitcoin.pdf)

7November 2018
Distributed Ledgers

8November 2018
Blockchain Behind Bitcoin
a chain of blocks

9November 2018
On January 3,
2009, the first
Bitcoin block was
mined and is
known as Block 0
or the “genesis
block”
Transaction total
value was 50 BTC
The Genesis
Block / Block 0
https://www.blocktrail.com/BTC/block/000000000019d6689c085ae165831e934ff763ae46a2a6c172b3f1b60a8ce26f

10November 2018
Stamping
the date of
the creation
of the
genesis
block
Coinbase
Message
Bitcoin as an Example of Blockchain Application

11November 2018
▪ The coinbase message
“04ffff001d0104455468652054696d657320
30332f4a616e2f32303039204368616e6365
6c6c6f72206f6e206272696e6b206f662073
65636f6e64206261696c6f757420666f7220
62616e6b73” captures the heading “The
Times 03/Jan/2009 Chancellor on brink of
second bailout for banks” in The Times
▪ This was probably intended as proof that
the block was created on or after January 3,
2009, as well as a comment on the
instability caused by fractional-reserve
banking

12November 2018 Bitcoin as a Blockchain Application

13November 2019
Which bitcoin networks to trade
on?

14November 2018
Main Network
(mainnet)
Global Testing
Network (testnet)
Local Regression
Testing Network
Real and mined coins with real
associated value are traded in
the live blockchains.
Coins on the main network are
traded for goods and services.
Let you instantly create a
brand-new private blockchain
with the same basic rules as
testnet.
Coins are created instantly
under your complete control.
Real and mined coins with no
associated value are traded in
the live blockchain for testing
purposes.
Testnet coins are given away
for free to anyone that wants
them.
Types of Bitcoin Networks
Coins mined in one network stay in that network, thus coins
cannot be transferred between networks

15November 2018
▪ Coins for the Testnet are given out for free from what are called Faucet
Websites (e.g. http://bitcoinfaucet.uo1.net/, https://testnet-
faucet.mempool.co/)
▪ These websites are set up by miners or other users with a surplus of Testnet
coins
▪ They send coins to anyone who requests them and kindly asks for their return
when the user is finished with them
▪ Testnet requires no separate installation
▪ Bitcoin wallets that have the ability to connect to the Testnet can be started
with a special flag that will direct the software to connect to the Testnet
blockchain instead of the main network blockchain
Where do the Testnet bitcoins come from?

16November 2019
Where to keep your bitcoins?

17November 2018
▪ A bitcoin wallet is a
program / app / device /
way that helps send and
receive bitcoin payments
▪ It keeps history of
transactions made
through all wallet
addresses
▪ It reveals the balance of
the wallet containing
bitcoins associated to one
or more bitcoin addresses
Bitcoin Wallets

18November 2018
Popular
Bitcoin
Wallets
https://bitcoin.org/en/choose-your-wallet

19November 2018
▪ Multiple addresses
▪ Multiple private & public keys
▪ Does not store any currency nor wallet balance
▪ In fact, currencies do not get stored in any single location or exist anywhere in any
physical form
▪ All that exists are records of transactions stored on the blockchain
▪ A facility to manage cryptocurrencies (bitcoin and altcoins)
▪ A medium to interact with the cryptocurrency blockchains
▪ An address can be seen as a safe deposit box that has a glass front – everybody is aware of
what is contained inside, but only the private key can be used to unlock it and put things in or
take things out
What is kept in a wallet?

20November 2018
What can you see through the glass front?
https://bitinfocharts.com/top-100-richest-bitcoin-addresses.html

21November 2018
What can you see through the glass front?
https://bitinfocharts.com/top-100-richest-bitcoin-addresses.html

22November 2018
Types of Bitcoin Wallets
Less secure Most secure
Online Desktop Mobile Paper Hardware

23November 2018
▪ Open www.bitcoin.com
▪ Create a new “Personal Wallet”
▪ Enable “testnet” within “advanced options”
if you want to play with simulated currency;
otherwise, do not enable it
Creating a Desktop Wallet

24November 2018
▪ If “testnet” is not enabled, a seed phrase
will be generated for you
▪ The seed phrase must be securely stored
as it serves as a superuser password for
your wallet
▪ The seed phrase needs to be provided
when trying to recover a wallet
Seed / Mnemonic / Recovery Phrase

25November 2018
▪ Typically, multiple addresses can be mapped
to a wallet
▪ Some wallets have a limit on the number of
addresses and some do not
▪ Each address is associated to the
public/private keypair of the wallet
▪ The public key goes through several rounds
of hashing, a checksum added, and is
converted into a base58 string to produce the
bitcoin address
▪ An address is a string of 30 characters starting
with the digit “1”
Wallet Addresses

26November 2018
▪ Private keys are needed to sign
transactions
▪ If a public key was an account number, a
private key would be like an ATM pin
▪ Provide and confirm a password before
exporting the private key as a file
▪ The private key can be shown as a QR
code to allow another device to capture it
▪ The private key can also be recovered
using the seed phrase
Private Key

27November 2018
▪ Stores your bitcoin online
▪ These use an external
service that usually has control of
your money
▪ Besides those online wallets
listed on bitcoin.org, most places
where you can exchange bitcoins,
also let you store your money on
their servers, e.g. coinbase.com
and blockchain.info
Online Wallets
https://www.coinbase.com/

28November 2018
▪ Mobile wallets are not full bitcoin
clients
▪ A full bitcoin client has to download the
whole bitcoin blockchain, which is large
and grows constantly
▪ A mobile device memory may not be
capable of storing this
▪ Mobile clients only download a small
subset of a blockchain then rely on the
trusted nodes on the network in a bid
to ensure the information they have is
correct
Mobile Wallets
https://wallet.mycelium.com/

29November 2018
▪ Paper wallets are bitcoin seed written on paper
▪ When generating a paper wallet from a website, an image of two QR codes will be generated
▪ One of the codes will be a public address that you can use to receive bitcoins
▪ The other code will be a private key that you can use to authorize payments
▪ The private key is not stored anywhere by digital means, meaning that they are not prone to hardware
failure or cyber attacks
Paper Wallets
https://paperwalletbitcoin.com/

30November 2018
▪ Also known as cold storage
▪ Download the wallet keys
generator by saving the webpage
(Ctrl-S)
https://paperwallet.bitcoin.com/
▪ Disconnect the computer
▪ Load the downloaded webpage
(without Internet connection) and
move the mouse around to
generate the keys completely
offline
Paper Wallets
https://paperwallet.bitcoin.com/

31November 2018
▪ Dedicated hardware wallets
▪ These vary quite a bit in
features, security, and interface
▪ They are not widely
used, although possibly worth
investigating if you become a
serious bitcoin enthusiast
Hardware Wallets

32November 2019
Ways to pay more securely

33November 2018
▪ Multiple parties are allowed to seed an address partially using their public keys
▪ For one to be allowed to spend the bitcoins, the other members will have to sign
▪ The number of signatures needed (N of M) for one to spend bitcoins is agreed
upon when the address is created
Multi-Signature Wallets & Payment Transactions

34November 2019
How to buy and sell bitcoins?

35November 2018
The Controlled Supply of Bitcoin
https://en.bitcoin.it/w/images/en/4/42/Controlled_supply-supply_over_block_height.png

36November 2018
Bitcoin is a Tradable Currency
Bitcoin as a Blockchain Application
https://bitinfocharts.com

37November 2018
Bitcoin’s Historical High at US$18.334k on 16-Dec-2017
https://www.blockchain.com/charts/market-price?timespan=all

38November 2018
▪ Bitcoin exchanges allows you to trade
bitcoin or fiat currency
▪ You can buy bitcoins from a bitcoin
exchange after signing up for an account
▪ You will be allowed to pay from a credit
card or a bank account
▪ The private key will be used to authorize
any payments
Buying Bitcoins through Exchanges

39November 2018
Popular Bitcoin Exchanges
Bit2me Bitbank Bitcoin Of
America
Bitcoin.com Bitcoin.de Bitfinex BitMEX Bitnovo Bitpanda BitQuick
Bitsane Bitso Bitstamp BitX BTCchina CEX.io Changelly Circle Coinbase coinBR.net
Coinfloor Digital
Securities
Exchange
CoinMate Cointal
Exmo
Gatecoin Hitbtc Huobi Kraken LakeBTC
CoinGate
TideBit

40November 2018
▪ The process of selling bitcoins is
not as easy as buying bitcoins
▪ You must decide on whether to sell
bitcoin online or in person
▪ Online
▪ Direct trades
▪ Exchange trades
▪ Peer-to-Peer Marketplaces
▪ In Person
Selling Bitcoins

41November 2018
▪ Dealing directly with another
individual and an intermediary (e.g.
LocalBitcoins and Coinbase) who
facilitates the connection
▪ Register yourself as a seller and state
you have bitcoins to sell
▪ Get a notification when a buyer is
found
▪ Required to interact directly with the
buyer even though all the trades will
be completed on the website
Direct Trades
https://localbitcoins.com/

42November 2018
▪ The exchanges act as an intermediary holding the funds for each participant
▪ To place a sell order, which states the volume and the price per unit
▪ Once a buyer posts a buy order that matches your sale order, the exchange will
complete the trade on your behalf and the bitcoins will be deducted from your
exchange account
Exchange Trades

43November 2018
▪ There is no exchange that lets you easily deposit money and then offer you any
desired cryptocurrency
▪ You have to buy bitcoins at one place
▪ Trade it for coins at another site or exchange
▪ Basically, some exchanges are specialized in converting money into bitcoins
and back and other exchanges are specialized in converting cryptocurrency
coins between each other
▪ crypto → crypto: use Changelly, takes 10 minutes
▪ money → crypto: use Coinmama, Spectrocoin or Indacoin, takes 10 minutes
▪ crypto → money: no quick option, use Spectrocoin, Coinbase or LocalBitcoins, takes 1
to 3 days
Exchange Trades – Exchange Selection

44November 2018
▪ Across all exchanges verification is required only for money trading
▪ You can deposit Bitcoin, exchange it for Ethereum and withdraw Ethereum without
verification
▪ Once you want to buy cryptocurrency with money or sell cryptocurrency for
money, you have to verify your account
▪ It usually consists of uploading photo of your ID/passport and waiting a few
days for approval
▪ Fees include exchange fee (for every exchange), fiat money deposit fee
(deposit/withdrawal from bank account or credit card), and other bank
charges (e.g. transferring money overseas)
Exchange Trades – Verification & Fees

45November 2018
Exchange Trades – Fee Comparison
http://www.coinparator.com/compare-exchanges/

https://anxpro.com/

https://www.myethshop.com/

https://gatecoin.com/

https://www.tidebit.com

50November 2018
Exchange Trades - Bitcoin ATM Locations
https://coinatmradar.com/country/96/bitcoin-atm-hong-kong/ https://coinmap.org/#/world/33.72433966/14.94140625/2/atm

51November 2018
▪ Can buy and sell bitcoins without
verification under a specified amount
▪ Need a bitcoin wallet
▪ QR code scanning with mobile phone
▪ On-site Wi-Fi is often provided
▪ Often only accepts/dispenses large
denomination notes
▪ Transaction fee (7~10%) is required
▪ Transaction receipt is provided
Exchange Trades – Using Bitcoin ATMs

52November 2018
▪ To help two groups of people with specific and complimentary needs meet
▪ Sellers: people who need to use bitcoins to buy goods from a website that does not
accept payment via digital currencies directly
▪ Buyers: people who need to buy bitcoins using their credit or debit cards through
providing discounted goods and services
▪ Seller to post “wish list” and the expected discount rate
▪ Buyer who wants to buy bitcoins with value matching seller’s purchases will
purchase items in the wish list and will have them delivered directly to seller
▪ After the delivery of goods, seller will notify the marketplace to release the
bitcoins minus the discount agreed and a fee charged by the marketplace
Peer-to-Peer Marketplaces

53November 2018
▪ To receive bitcoins, give the sender your public address or QR code
▪ Bitcoin payments are irreversible so be extra careful when sending bitcoin
payments
▪ To send bitcoins, copy the public address of the receiver or scan the
receiver’s QR code
▪ The wallet then publishes a signed copy of the transaction to the entire
bitcoin network, which will bundle the transaction into a block with other
transactions
▪ The block is tied shut with a cryptographic algorithm
Send & Receive Bitcoins

54November 2018
▪ To scan the receiver’s QR code on the phone then accept cash-in-hand
▪ Need to agree with your buyer on the rate
▪ Can be based on what is available on a popular bitcoin exchange or
CoinDesk Bitcoin Price Index (https://www.coindesk.com/price/bitcoin)
▪ Some sellers will choose to apply a particular percentage on top on
such rates as an anonymity/convenience premium or to help them cover
costs
▪ You can advertise yourself as a bitcoin seller on a website such as
LocalBitcoins (https://localbitcoins.com/)
Selling In Person

55November 2018 Bitcoin in a Nutshell
Thefirstblockwithbitcoinsending
transactionsafterthegenesisblock
90k+ blocks were created after
the genesis block but without
actual bitcoin exchange
Those 90k+ blocks were created
between January 3, 2009 and
November 8, 2010
The left hand side of the
transaction table contains input
addresses & amounts while the
right hand side has the output
addresses & amounts
“Spent” stands for bitcoins spent
through the destination address.
“Unspent” simply means bitcoin
that is still in that wallet under a
new address
https://www.blocktrail.com/BTC/block/0000000000115a0b62b7f458613747faee5278d041d957efbf1ac7d9dbaedc5f

56November 2019
Transaction fees are optional
but …

57November 2018
▪ When receiving bitcoins, one is not expected to pay any fee
▪ When spending bitcoins, you can specify the amount of fee that you are
prepared to pay
▪ The amount of fee is not determined by the amount of bitcoins that you are
transacting
▪ So the amount of fee for transferring 10,000 BTC and 1 BTC may be similar
▪ A higher transaction fee may lead to a faster transaction confirmation
▪ The fee will only affect the time you have to wait until the first confirmation
▪ For example, Next Block Fee gets the transaction mined on the next block (~10
mins), 3 Blocks Fee within 3 blocks (~30 mins), and 6 Blocks Fee within 6 blocks (~1
hour)
Bitcoin Transaction Fees

58November 2018
The Genesis Block

59November 2018
Bitcoin Transfer Carries a Transaction Fee
https://bitinfocharts.com

60November 2018
▪ Transaction fees are a form of compensation to the bitcoin miners for
the computational work they invested in confirming a bitcoin block
▪ When a transaction has a higher total denomination in its inputs than in
is outputs, the difference will go to the miner as a transaction fee
Specifying Bitcoin Transaction Fees

61November 2018
Total inputs = 0.20333199 BTC
Total outputs = 0.20097975 BTC
Transaction fee
= total inputs – total outputs
= 0.00235224
The 500kth Block
https://www.blocktrail.com/BTC/tx/c2d47d9052a7aa47d87ab1f0d0660738d9ef514ce3486bd8c64a2769c542b652

62November 2018
PredictingTransactionFees
https://bitcoinfees.earn.com/

63November 2018
▪ bitcoinfees.earn.com provides a
useful statistic: the median byte
size is the most commonly seen
byte size of transactions in the
last several blocks
▪ Also provided in the same page is
a recommended fee for fast
confirmation
▪ Multiplying these two values will
get the total fee to pay
Bitcoin Fee Calculator
https://www.buybitcoinworldwide.com/fee-calculator/

64November 2019
What does bitcoin have to do
with blockchain?

65November 2018
▪ A protocol that supports a decentralized, pseudo-anonymous, peer-to-
peer digital currency
▪ A publicly disclosed linked ledger of transactions stored in a blockchain
▪ A reward driven system for achieving consensus (mining) based on
Proof of Work (POW) for helping to secure the network
What is bitcoin again?

66November 2018
▪ The blockchain is made of a network of nodes
▪ Each node in the network is an administrator and nodes are allowed to
join the network voluntarily
▪ Anything that happens is a function of the whole network
▪ The network operation is done on a peer-to-peer basis
Blockchain as a Network of Nodes

67November 2018
▪ Blockchain technology is decentralised by design
▪ Information is in the form of shared and reconciled databases
▪ The blockchain does not keep records in a single location but at nodes
on the bitcoin network
▪ The records are available to the public to verify easily
▪ A hacker is not provided with a centralised version of records which they
can corrupt
▪ With identical blocks of information stored on the different nodes of the
network, there is no single point of failure
Decentralisation in the Blockchain

68November 2018
Bitcoin nodes found in countries around the world
https://bitnodes.earn.com/

69November 2018
▪ Must have the sender’s private key and receiver’s bitcoin address
▪ The private key is used to sign the transaction which has the input, the
amount, and the output
▪ The “involved” bitcoins are sent from the bitcoin wallet to the bitcoin
network
▪ Bitcoin miners then verify the transaction, put it into the transaction
block, and finally solve the computational puzzle against the block
▪ Solved puzzle must be verified by other miners through confirmation
and this is why sometimes you may have to wait for them to finish
Activities Leading to Confirmation

70November 2018
▪ The bitcoin blockchain is designed in such a way that each block takes
on average about 10 minutes to mine
▪ Some merchants will make you wait for the transaction to be confirmed
▪ Meaning that it may take some time before you are allowed to download the
digital goods or enjoy using the paid service
▪ Some merchants will not make you wait for the transaction to be confirmed
▪ This is mostly in cases where the value of a transaction is low, meaning that the risk
of fraud is low
▪ A transaction is often considered confirmed after having six or more
transaction confirmations from various miners
Transaction Confirmation

71November 2019
How is consensus reached?

72November 2018
The network has a unified perspective of the blockchain,
with the blue block as the tip of the main chain

73November 2018
Two miners mine two different blocks almost simultaneously,
both are children of the blue block

74November 2018
The network splits into two different perspectives, one side
topped with a red block, the other with a green block

75November 2018
The miners building on top of the green block find a new
pink block and extends the blockchain

76November 2018
The blue-green-pick chain being the longer chain becomes
the main chain and the red block becomes an orphan

77November 2019
What is bitcoin mining?

78November 2018
▪ Bitcoin mining is the process of verifying transactions and adding them
to the public ledger which is a blockchain
▪ In the mining process, recent transactions are combined into blocks and
computationally difficult puzzles are solved
▪ The computational difficulty is elevated every 2,106 blocks
▪ After the “discovery” of a particular block, the discoverer is allowed to
itself a number of bitcoins as award
▪ Bitcoin mining is also the means through which new bitcoins are
released into circulation
What is bitcoin mining?

79November 2018
ffffffff….
….
….
af658d45….
….
….
00000001….
….
000000004ff..
….
….
000000002….
000000001….
000000000….
The SHA-256 values of the different
configurations of the block header
Possible block header hash values
corresponding to possible values
assigned to the nonce field
The Computational Puzzle of Bitcoin Mining
Magic Number (4) 0xD9B4BEF9
Block Size (4) 632
BlockHeader(80)
Version (4) 1
Previous Block Header Hash (32) 0000…
Merkle Root Hash (32) d7c3….
Timestamp (4) 2010-11-08 15:34:22
Difficulty Target (4) 1.00000000
Nonce (4) What value to assign?
Transaction Counter (1-9) 3
Transactions (< 1,000,000) 1Htz....(50)
1K3d….(50) > 1Lgs….(50)
1E7o….(50) > 12Qy….(10), ….
Block header hash values are valid
only if they are below the specified
difficulty target, often interpreted as
the number of leading zeros required
Using the 500th block as an example
Nonce
= 2063568441
Find a value for the nonce field such that the block header hash value is smaller than the specified difficulty target?
In the case of the 500th block, the winning miner assigned 2063568441 to the nonce field.
✓


80November 2018
Block height is at 550,763 as of 20th Nov, 2018
https://www.blocktrail.com/BTC

81November 2018
Mining reward is halved every 210,000 blocks
https://en.bitcoin.it/w/images/en/4/42/Controlled_supply-supply_over_block_height.png

82November 2018
The birth of the very
first 50 BTC
The Genesis
Block

83November 2018
The Bitmain mine in Ordos, Inner Mongolia, has eight buildings containing
mining machines. One of them is dedicated to Litecoin and seven mine
bitcoins.
https://qz.com/1055126/photos-china-has-one-of-worlds-largest-bitcoin-mines/

88November 2018
The Cheapest and the Most Expensive

89November 2019
What is Initial Coin Offering
(ICO)?

90November 2018
▪ An ICO is the first release of a
cryptocurrency
▪ Mostly the process is done by
crowdfunding but private ICO’s are
becoming more common
▪ In an ICO, a quantity of cryptocurrency is
sold in the form of tokens (coins)
to investors, in exchange for legal
tender or other cryptocurrencies such
as bitcoin or ethereum
▪ The tokens sold are promoted as future
functional units of currency if or when the
ICO's funding goal is met and the project
launches
What is ICO?
https://www.icochamps.com

91November 2018
▪ Almost no government regulation/enforcement & no qualification process
▪ ICOs have been prone to scams and securities law violations
▪ Fewer than half of all ICOs survive four months after the offering while almost half of ICOs
sold in 2017 failed by February 2018
▪ On January 30, 2018, Facebook banned ICO advertisements as well as those
for cryptocurrencies and binary options
▪ By April 9, 2018, ICO advertising has been banned also by Twitter, Google, and MailChimp
▪ Facebook has since changed their mind and June 26, 2018 announced to reopen for approved advertisers
▪ Snapchat, LinkedIn, Baidu, Tencent, Weibo, Line, and Yandex all have limited companies from
marketing ICOs via their platforms
Issues with ICOs

92November 2018
▪ On September 4, 2017, Chinese financial regulators officially banned all ICOs
within the country, demanding that the proceeds from all past ICOs be refunded
to investors or face being severely punished according to the law
▪ The action by Chinese regulators resulted in large sell-offs for most cryptocurrencies
▪ Prior to the Chinese ban, ICOs had raised nearly US$400 million from about
100,000 Chinese investors
▪ A week later, however a Chinese financial official stated on Chinese national TV
that the ban on ICOs is only temporary until ICO regulatory policies are in place
ICOs are banned in China

94November 2018
Nature Signs Cases
▪ Fabricate a fake ICO, create
marketing hype, persuade people
to buy
▪ Seen as a quick & innovative
way to kickstart a company
▪ Ethereum has become the
breeding ground for these
fraudulent ICOs
▪ It is the ignorance of new
investors who dream of huge
gains in a matter of days by
holding worthless ICO tokens
▪ Cryptocurrency start-up Confido
disappeared with US$375,000
from an ICO
(https://medium.com/@cryptoann
a/confido-the-latest-
cryptocurrency-scam-
82aecfc896a1)
▪ Benebit ICO does a runner with
US$2.7 million of investor funds
(https://news.bitcoin.com/benebit-
ico-runner-2-7-million-investor-
funds/)
▪ Copied whitepaper
▪ Anonymous team (management,
lawyers, bankers, IT teams)
▪ Unusual hurry in execution
▪ Mismatch of written & said words
▪ Ignoring hard questions
▪ No strong reason for the token
economy
▪ No roadmap
▪ Jurisdictions that have little to no
investor protection rights
Fraudulent ICOs

95November 2019
Any other risks?

97November 2018
▪ By 2014, Mt. Gox was the largest bitcoin exchange
handling over 70% of all bitcoin transactions
worldwide
▪ In February 2014, it suspended trading, closed its
website & exchange service, and filed for
bankruptcy protection from creditors
▪ The company announced that approximately
850,000 bitcoins belonging to customers and the
company were missing and likely stolen, an amount
valued at more than US$450 million at the time
▪ Although 200,000 bitcoins have since been "found",
the reason(s) for the disappearance - theft, fraud,
mismanagement, or a combination of these - were
initially unclear
▪ New evidence presented in April 2015 by Tokyo
security company WizSec led them to conclude that
"most or all of the missing bitcoins were stolen
straight out of the Mt. Gox hot wallet over time,
beginning in late 2011"
https://www.wired.com/2014/02/bitcoins-mt-gox-implodes-2/

98November 2018
▪ In August, 2016, nearly 120,000 units of digital currency
bitcoin worth about US$72 million was stolen from the
exchange platform Bitfinex in Hong Kong, rattling the
global bitcoin community in the second-biggest security
breach ever of such an exchange.
▪ Bitfinex is the world’s largest dollar-based exchange for
bitcoin, and is known in the digital currency community
for having deep liquidity in the U.S. dollar/bitcoin
currency pair.
▪ In a statement on the Bitfinex website, the company
said “We have decided to generalise losses across all
accounts. … Upon logging into the platform, customers
will see that they have experienced a generalised loss
percentage of 36.067%.”
▪ BFX tokens were created after the hack, with an
obligation to return the 36% of lost funds to all
customers. The company finally redeemed 100% of all
issued and outstanding BFX tokens by April, 2017.
http://fortune.com/2016/08/03/bitcoin-stolen-bitfinex-hack-hong-kong/

Bitcoin in a Nutshell

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Bitcoin in a Nutshell