Cryptocurrency for Dummies
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The document provides an overview of cryptocurrencies including bitcoin. It defines cryptocurrency as a digital currency that uses cryptography for security rather than being issued by a central authority. It discusses how transactions work using a public ledger of addresses and digital signatures on a blockchain, how new blocks are added to the chain through mining, and some examples of alternative cryptocurrencies like Litecoin and Dogecoin.
Cryptocurrency for Dummies
- 2. Who am I? • Miguel Duarte • Robotics & AI PhD Student @ ISCTE-IUL • Geek, Hacker, Maker • Sci-fi, Tech and Robotics enthusiast • IEEE, NodecopterLX, GDG, IT
- 3. Outline • Context • Transactions and the block chain • Mining • Issues • Altcoins • Discussion
- 4. What is a cryptocurrency? Digital currency that uses cryptography for security. Cryptocurrencies are generally anonymous and not issued by any central authority.
- 5. Why does it matter? • Transactions are irreversible, fast, and have low fees • Universal (within the internet) • Decentralised, no trust necessary • The supply of coins is regulated by software and the agreement of users of the system and cannot be manipulated by any government, bank, organization or individual
- 8. 1 BTC = 100,000,000 Satoshi
- 9. Account Balance Alice 10 Bob 20 Celso 9999 … … Bitcoin is a public ledger, kept by every node in the network
- 11. Addresses • 27-34 alphanumeric characters • Generated via public-key cryptography • Any user can generate multiple addresses 31uEbMgunupShBVTewXjtqbBv5MndwfXhb
- 12. Private Key Public Key Public-key Cryptography Wallet
- 13. Digital Signature Hello World 0601d109d0d2b0fa9c4484b4a5c94ee5ecc62cc ec3bd7d99e972d18994d0e2e42f6d0fcfc41216a 5ab72ee7af96d213e1c314abdde40f52731ff24c 2bf8f7323 Hello World Private Key Public Key
- 14. Alice Bob Send 20 BTC from ALICE to BOB Address: ALICE Address: BOB Balance: 30 BTC Balance: 20 BTC
- 15. Alice Bob Send 20 BTC from ALICE to BOB Address: ALICE Address: BOB Balance: 10 BTC Balance: 40 BTC Transaction
- 16. Transactions Sender: Alice Receiver: Bob Amount: 20 Digital Signature
- 17. Transactions Previous TX: tx550 Index: 0 Sender: Alice Receiver: Bob Amount: 20 Digital Signature tx550: Celso->Alice(20) status: unspent
- 18. Transactions Previous TX: tx550 Index: 0 Sender: Alice Receiver: Bob Amount: 20 Digital Signature tx550: Celso->Alice(20) status: spent
- 19. Transactions Previous TX: tx550,tx1600 Index: 0 Sender: Alice Receiver: Bob Amount: 20 Digital Signature Previous TX: tx550,tx1600 Index: 1 Sender: Alice Receiver: Alice Amount: 2 Digital Signature tx550: Celso->Alice(15) status: unspent tx1600: Bob->Alice(7) status: unspent
- 20. Transactions Previous TX: tx550,tx1600 Index: 0 Sender: Alice Receiver: Bob Amount: 20 Digital Signature Previous TX: tx550,tx1600 Index: 1 Sender: Alice Receiver: Alice Amount: 2 Digital Signature tx550: Celso->Alice(15) status: spent tx1600: Bob->Alice(7) status: spent
- 21. Account Balance Alice 10 Bob 20 Celso 9999 … …
- 22. Blocks Alice -> Bob (20) Alice -> Celso (10) … Bob -> Marley (33) ! Previous Block Hash Current Block Hash
- 23. Block chain Alice -> Bob (5) Alice -> Celso (10) … Bob -> Marley (33) …… hash_block100 … hash_block101 Bob -> Alice (20) hash_block99 … hash_block100 … The public ledger contains transactions, not balances. block 100
- 24. Block chain Alice -> Bob (5) Alice -> Celso (10) … Bob -> Marley (33) …… hash_block100 … hash_block101 Bob -> Alice (50) hash_block99 … hash_block100 … block 100
- 25. Block chain Alice -> Bob (5) Alice -> Celso (10) … Bob -> Marley (33) …… hash_block100 … hash_block101 Bob -> Alice (50) hash_block99 … hash_block100 … block 100
- 28. Mining • Mining is the process of adding blocks to the block chain, thereby confirming a set of transactions • It uses a proof-of-work algorithm • The text of the block + a nonce are hashed using SHA256 • A block is considered valid when the resulting hash starts with a certain number of 0s
- 29. Mining "Hello, world!0" 1312af178c253f84028d480a6adc1e25e81caa44c749ec81976192e2ec934c64 "Hello, world!1" e9afc424b79e4f6ab42d99c81156d3a17228d6e1eef4139be78e948a9332a7d8 ... "Hello, world!4249" c004190b822f1669cac8dc37e761cb73652e7832fb814565702245cf26ebb9e6 "Hello, world!4250" 0000c3af42fc31103f1fdc0151fa747ff87349a4714df7cc52ea464e12dcd4e9
- 30. The difficulty (number of zeros) varies depending on the hashrate of the network, which approximates the block time to 10 minutes
- 31. Mining • Miners that generate valid blocks are rewarded • The rewards halves every 4 years (geometric progression) — current reward is 25 BTC • Max number of BTC: 21 million • After 2033, rewards will be based on transaction fees
- 32. Mining • CPU (< 0.04GH/s) • GPU (< 1GH/s) • FPGA (< 1GH/s) • ASIC (< 1,000GH/s) • Pool mining 1 G = 1,000,000,000 (1 billion)
- 34. Issues • Potential loss/theft of private keys • Not truly anonymous • Double spending and the 51% attack
- 35. Double Spending Previous TX: tx551 Sender: Trudy! Receiver: Alice! Amount: 20 tx551: Bob->Trudy(20) status: unspent Previous TX: tx551 Sender: Trudy! Receiver: Trudy! Amount: 20
- 38. Altcoins
- 39. Litecoin • One of the first Bitcoin forks (2011) • Introduced the scrypt proof-of- work algorithm • Block time: 2.5 minutes, limited to 21 million LTC like BTC • Currently #2 cryptocurrency
- 40. Dogecoin • A fork of Litecoin • Made as a joke, features the famous Doge meme with the friendly Shiba Inu • No coin limit (100 billion until 2014 + 5 billion per year afterwards) • much fast (1 minute block time) • Amazing community that loves to tip and fund charities (/r/dogecoin)