The Value of Decentralization

Who Am I?

• David Vorick
• Bitcoin enthusiast since 2011
• Bitcoin researcher since 2013
• Working on decentralized cloud storage since 2014

Bitcoin - No Borders

• Money without borders
• Everywhere that has good Internet, has Bitcoin
• Bitcoin is the same, everywhere in the world

Bitcoin - No Banks

• Money without a bank
• The rules for Bitcoin were established in the beginning, cannot be changed
• There is a single, known inflation rate
• There are strict rules for sending money around

Full Nodes

• Transactions happen on Bitcoin in the form of blocks
• Full nodes decide to accept blocks based on a set of rules
• All full nodes have the same set of rules
• Nodes with different rules are a different currency!

Bitcoin's Rules, Simplified

• Some people have money
• Money can be sent from one person to another
• Once you send the money, it no longer belongs to you
• Nobody can stop you from sending money

Bitcoin's Rules, Simplified

• People who 'mine' blocks get Bitcoins
• This is where inflation comes from
• 25 Bitcoin reward for mining a block
• 1 block every 10 minutes - enforced by the node rules
• Illegal blocks will be ignored by the network

Full Nodes Repeated

• Full nodes accept blocks
• Chains of blocks form the history
• Full nodes will ignore illegal blocks
• Every full node has the same exact definition of 'illegal'
• Nodes with a different definition of illegal diverge from the network - a different, isolated & worthless currency

Miners in Bitcoin

• Miners create blocks
• All blocks must follow the rules
• Blocks that don't follow the rules are worthless
• Miner's don't enforce the rules, they build consensus

Double Spending

• I send the same $10 to two people, Alice and Bob
• Who has the $10?
• Miners decide who gets the $10

Double Spending

• Miners put transactions into blocks
• Transactions are not allowed to conflict
• Blocks build upon eachother in a chain

Multiple Histories

• There can be multiple orderings of blocks
• Different orderings are called 'Forks'
• One ordering might say 'Alice got my $10', and another might say 'Bob got my $10'

Which Ordering is Real?

• The ordering that has the most 'work'

The Towers Example

• There are two towers. One says 'Alice got $10', one says 'Bob got $10'. Who has $10?
• The tallest tower wins!
• It's hard to build a tower, but easy to see which tower is tallest

The Towers Example

• People are paid to build on the tallest tower.
• People don't get paid if they build on a smaller tower
• Everyone tries to build on the tallest tower
• One tower eventually definitely wins

Mining is Tower Building

• Blocks are like stones building a tower
• Miners get paid only if their block is in the longest chain
• When two competing chains appear, one will definitely win
• Then, everybody knows who got the $10.

This is Why Bitcoin is Special

• Anyone can verify the true history by just seeing the towers!
• Largest legal tower wins! (illegal towers are ignored)
• There is no trust!

Why Does This Matter?

• You can't be cheated
• You don't need to go to court
• If you have money, and it's got work on top of it, that money is definitely yours.

My Bitcoin Savings

• I have some Bitcoins saved
• They have over 50,000 blocks on top of them
• Theft requires rebuilding 50,000 blocks - $500 Million of Work!
• They are safe

My Bitcoin Savings

• No bank can steal my bitcoins
• There is no inflation on my bitcoins
• I can spend my bitcoins anywhere that accepts bitcoins (no capital controls)

And All you Need is the Internet and a Computer

• An Internet connection + a computer is enough for you to have your own bitcoin wallet
• When someone sends you bitcoins, they are irreversibly yours
• No strings attached!

Q & A

Bitcoin in the Real World

Bitcoin is Really Powerful

• Bitcoin can be used in areas where there are no banks
• Bitcoin can be used by merchants to minimize chargeback risk
• Bitcoin can be used to send money across borders

Bitcoin is Good and Bad

• Like all powerful technology, it can be used for good and for evil
• In the early days of Bitcoin, it was mostly used for evil
• Today, it is mostly used for good

More Good than Bad

• Bitcoin is empowering remittances
• Bitcoin is enabling bankless regions
• Many of the bitcoin criminals have been caught
• Don't make Bitcoin illegal - traditional criminal investigation can be used to catch Bitcoin criminals

Bitcoin's Value Restated

• Blockchains allow you to interact safely with people you don't trust.

Irreversibility

• A transaction that is confirmed on Bitcoin cannot be reversed
• This is great if you are receiving money
• This is bad if someone is stealing your money

With Power Comes Responsibility

• Bitcoin lets you be your own bank
• If you get robbed, you are to blame
• Nobody can get your coins back, no matter who they are
• No FDIC Insurance

Securing Bitcoins

• Run a full node
• Keep a cold wallet
• Use a hardware wallet

Full Nodes

• Validate all of the rules
• Full nodes are heavy, most wallets are not full nodes
• Anything less has a significantly reduced security model - trusts miners, or worse trusts an centralized entity such as Blockchain.info or Coinbase

Cold Wallets

• Wallets have private keys
• Without the keys, you can't spend the coins
• Cold wallets are not connected to the internet - you can't hack into a computer that's offline.

Hardware Wallets

• Special hardware to keep keys secure
• Basically, an advanced cold wallet
• Keys inside the wallet never escape - you can only spend the bitcoins if you have the physical hardware wallet.

Web Wallets

• Bitcoins held by a third party
• Third party has full control
• Insecure, they can steal. Same as a bank.

Brain Wallets

• Memorized password that can be used to generate keys
• Can be used anywhere, very convenient
• Very insecure!
• Convenient/okay for small amounts of money

Scalability

• Bitcoin can handle 1MB every 10 minutes
• This number may go up, but it won't go up by much
• Currently about 3tps, one day maybe 300tps
• VISA does 50,000tps at peak times

Bitcoin Doesn't Scale

• Today: Send money anywhere in the world for 6 cents
• Next Year: Probably several dollars
• Bitcoin is cheap today, will be expensive in the future
• Can't scale because we lose trustlessness

For Big Purchases, Scale is Not Needed

• We can't support every transaction on the Bitcoin blockchain
• Buying houses is more important than buying coffee
• Bitcoin cannot support most coffee purchases
• Bitcoin can support most Big purchases

Bitcoin is Good for Savings

• Can't be seized
• Will not inflate
• Useful all over the world

Bitcoin is Good for Savings

• It's not as important to decentralize your small payments as it is to decentralize your savings and your big payments

Q & A

Innovations on top of Bitcoin

Lightning Network

• Cutting edge, unfinished technology that enables small payments on Bitcoin
• Operates by trustlessly cramming a ton of payments into a single transaction
• Still not complete, needs more time

Altcoins

• Simple Altcoins - Litecoin, Dogecoin, etc. - not very valuable to ecosystem
• Advanced Altcoins - Ethereum, Sia, etc. - highly experimental, very risky, but provide lots of knowledge
• Alternate Consensus Systems - Peercoin, Ripple, MaidSAFE, etc. - generally considered insecure

Private Blockchains

• Reintroduce the need for trust
• Often useful, but suboptimal
• Generally missing the point of the technology, but again can be useful even if unnecessarily clunky (simpler systems serve the same goals)

Don't Make Your Own

• DANGER
• Just because it works, does not mean that it is secure
• Anyone can design something they don't know how to break. But someone smarter than you may know how to break it

Don't make your own

Bitcoin was made by dozens of experts. Even dozens of experts got a lot of things wrong. This stuff is HARD, innovation should happen through groups of experts

People Lose Money

• Bitcoin is particularly bad, because there is often a money prize for taking advantage of a broken system
• Security concerns means that innovation is slow, but the tech is powerful so that's okay.

Bitcoin Is The Future

• Trustless finance will change the way we look at money
• Bitcoin is going to be reshaping the world, and rapidly
• It's worth investigating further. My talk has only scratched the surface

Q & A