Cryptocurrency for Dummies

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Cryptocurrency

description

This talk was presented by Miguel Duarte (http://miguelduarte.pt) at Codebits (VII) (http://codebits.eu). A video of the talk is available here: http://youtu.be/PgETyozr2cM There original abstract was as follows: You've probably heard of Bitcoin, right? Bitcoin is original cryptocurrency which exploded in value in the last few months and paved the way for alt-coins such as Litecoin, Quark or Dogecoin. Currently, 1 bitcoin is worth nearly $1000, which left some of the original investors and miners, with thousands upon thousands of bitcoins, quite rich. Recently, even the Dogecoin community helped fund Jamaica's bobsled team to help go to the Sochi Winter Olympics by donating 30 million dogecoins, or roughly $30,000! What the hell is that all about? This talk aims to explain what cryptocurrencies are, how they work, and how they create value. Here are some of the topics I intend on covering: -the advantages of cryptocurrencies; -the basics of the blockchain; -how new blocks are mined using proof-of-work algorithms; -how to mine using CPU, GPU or even ASIC miners; -differences between Bitcoin's algorithm and scrypt-based alt-coins; -security considerations; -an overview of how cryptocurrencies are currently being used in society; -how cryptocurrencies can change the world's economic landscape.

Transcript of Cryptocurrency for Dummies

Page 1: Cryptocurrency for Dummies

Cryptocurrency

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Who am I?

• Miguel Duarte

• Robotics & AI PhD Student @ ISCTE-IUL

• Geek, Hacker, Maker

• Sci-fi, Tech and Robotics enthusiast

• IEEE, NodecopterLX, GDG, IT

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Outline• Context

• Transactions and the block chain

• Mining

• Issues

• Altcoins

• Discussion

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What is a cryptocurrency?

Digital currency that uses cryptography for security. Cryptocurrencies are generally

anonymous and not issued by any central authority.

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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

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1 BTC = 100,000,000 Satoshi

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Account Balance

Alice 10

Bob 20

Celso 9999

… …

Bitcoin is a public ledger, kept by every node

in the network

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________________________

________________________

________________________

________________________

________________________

________________________

________________________

________________________

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Addresses

• 27-34 alphanumeric characters

• Generated via public-key cryptography

• Any user can generate multiple addresses

31uEbMgunupShBVTewXjtqbBv5MndwfXhb

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Private Key Public Key

Public-key Cryptography

Wallet

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Digital Signature

Hello World0601d109d0d2b0fa9c4484b4a5c94ee5ecc62ccec3bd7d99e972d18994d0e2e42f6d0fcfc41216a5ab72ee7af96d213e1c314abdde40f52731ff24c

2bf8f7323Hello World

Private Key Public Key

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Alice Bob

Send 20 BTC from ALICE to BOB

Address: ALICE

Address: BOB

Balance: 30 BTC

Balance: 20 BTC

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Alice Bob

Send 20 BTC from ALICE to BOB

Address: ALICE

Address: BOB

Balance: 10 BTC

Balance: 40 BTC

Transaction

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Transactions

Sender: Alice Receiver: Bob

Amount: 20 Digital Signature

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Transactions

Previous TX: tx550 Index: 0

Sender: Alice Receiver: Bob

Amount: 20 Digital Signature

tx550: Celso->Alice(20) status: unspent

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Transactions

Previous TX: tx550 Index: 0

Sender: Alice Receiver: Bob

Amount: 20 Digital Signature

tx550: Celso->Alice(20) status: spent

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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

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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

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Account Balance

Alice 10

Bob 20

Celso 9999

… …

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Blocks

Alice -> Bob (20) Alice -> Celso (10)

… Bob -> Marley (33)

!Previous Block Hash Current Block Hash

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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

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Block chain

Alice -> Bob (5) Alice -> Celso (10)

… Bob -> Marley (33)

……hash_block100

… hash_block101

Bob -> Alice (50) hash_block99

… hash_block100

block 100

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Block chain

Alice -> Bob (5) Alice -> Celso (10)

… Bob -> Marley (33)

……hash_block100

… hash_block101

Bob -> Alice (50) hash_block99

… hash_block100

block 100

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Block chain forks

………

… …

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Block chain forks

………

… …

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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

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Mining

"Hello, world!0" 1312af178c253f84028d480a6adc1e25e81caa44c749ec81976192e2ec934c64

"Hello, world!1" e9afc424b79e4f6ab42d99c81156d3a17228d6e1eef4139be78e948a9332a7d8

...

"Hello, world!4249" c004190b822f1669cac8dc37e761cb73652e7832fb814565702245cf26ebb9e6

"Hello, world!4250" 0000c3af42fc31103f1fdc0151fa747ff87349a4714df7cc52ea464e12dcd4e9

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The difficulty (number of zeros) varies depending on the hashrate of the network, which

approximates the block time to 10 minutes

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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

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Mining

• CPU (< 0.04GH/s)

• GPU (< 1GH/s)

• FPGA (< 1GH/s)

• ASIC (< 1,000GH/s)

• Pool mining1 G = 1,000,000,000

(1 billion)

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Issues

• Potential loss/theft of private keys

• Not truly anonymous

• Double spending and the 51% attack

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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

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Altcoins

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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

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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)

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$30k

$55k

$30k

Ɖ30M

$30k

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ping @miguelduarte42

10k giveaway