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Article from 15 January

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Content

History of the bitcoin

What can I do with a bitcoin

How can I get bitcoins

How does the bitcoin infrastructure ( blockchain) look like

How can this effect our future

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History of money in NL

End of paper money being 100% covered by gold

1914 1936

Introduction of coinsnot made of precious metal

1918

End of paper money being 40% covered by gold

1971

No more connectionbetween gold and money

2009

Bitcoin

Litecoin

DarkcoinPeercoin

Dogecoin Primecoin

2011 2012 2013 2014

People are prepared to exchange items for paper that can be exchanged for gold

People are prepared to exchange items for paper

People are prepared to exchange items for a combination of zero’s and one’s

2002

Euro

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Bitcoin at a glance

• Virtual currency invented / go live in 2009 by Satoshi Nakamoto

• 22 May 2010 first real world transaction: 2 pizza’s were ordered for BTC 10,000

• Number of transactions: 220,000 per day

• Number of bitcoins available December 2015: 15m

• Maximum number of bitcoins: 21m (expected to be reached in 2140)

• Based on “blockchain” technology

• Current value of 1 bitcoin = +/- EUR 330

Bitcoin Units Abbreviation Decimal

Bitcoin BTC or XBT 1

Milli Bitcoin mBTC 0.001

Micro Bitcoin uBTC 0.000001

Satoshi Sat 0.00000001

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What can you do with a bitcoin

Transfer value around the world:• To pay for things you buy• To donate/give present

Speculate on the exchange rate

Earn money (mining)

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Transfer value around the world

Bitcoin Currency

Speed <5 seconds Between 2 and 5 days

Cost +/- 5 cents Around EUR 45 for businesses, around EUR 11 for private individuals

Exchange rate risk Low if converted to currency same day

Low

Visibility to regulator None Yes

Currency conversion required Yes if converted to local currency

Yes

Example of sending value of EUR 500 from NL to India

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Pay for things you buy

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Speculate – historical bitcoin rate in USD

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Speculate – December 2015 rates

Speculate – Jan 2016 rates

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How do I get bitcoins

Bitcoin miner

Bitcoin exchange

Bitcoin wallet

Bitcoin user

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Step 1: get a (free) wallet

For Iphone, very easy user interface, but has less flexibility on transaction fees

For computer, slightly more difficult interface, but has more flexibility on transaction fees

Your account number in a string: 19vzwXeRRcACKHMHDhNQYMncuvySdQQeCw

Your account number as a picture:

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Step 2: go to a bitcoin exchange

3.2% margin (buy vs sell)

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Step 3: buy bitcoins

Your account string:19vzwXeRRcACKHMHDhNQYMncuvySdQQeCw

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How does your wallet work in terms of value?

0.2

0.3

0.1

0.4

Balance is BTC 1

However the transactions are not merged into 1 amount

Incoming 3 transactions:receiving BTC 1 in 4 inputs

Outgoing transactions:paying BTC 0.7in 2 outputs

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How does your wallet work in terms of size/age?

0.2

0.3

0.1

0.4

Every output has in principle the same size: 180 bytes

The size of all the inputs of this wallet is 720 bytes

Every output is linked to a block in which it was mined. This is called the “age”

Block 389,121

Block 250,263

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How much you pay for a BTC transaction?

You only have to pay for outgoing transactions and the fee depends on value, age and size:

Value fee: charged only for outputs<BTC 0.01, the fee is BTC 0.0001. In general, for smaller outputs you pay more. Age fee: might be charged, based on the average age of the outputs. In general the older the inputs, the less you pay

Size fee: is charged for outputs>10,000 bytes (5 outputs or more). In general, the more outputs, the more you pay

Fees are multiples of BTC 0.0001 which is a matter of cents with the current exchange rate.

You have the possibility to increase the fee manually to get the transaction confirmed faster.

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How does the infrastructure work?

Block chain

Node

Block chain

Node

Block chain

NodeBlock chain

Node

Block chain

Node

Block chain

NodeBlock chain

Node

Block chain

Node

• Same data in decentralised structure, i.e. Blockchain structure made up of identical Blockchain nodes

• +/- 6,000 Blockchain nodes around the world, mostly in US

• Majority rules, i.e. 51% of nodes

need to confirm the transaction

• Each Blockchain node is 35GB and is growing with 1-2GB a year

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Block chain

Node

Block Block Block Block

• Blockchain nodes are made up of blocks

• A block contains bitcoin transactions; reward for creating the block; proof of work by the bitcoin miner

• Blockchain nodes currently contain 393,000 blocks, with 1 added in every 10 minutes by bitcoin miners

• A block will only be added if more then 51% of the nodes accept the block as valid

• By linking every block to its predecessor via a hash you cannot temper with previous blocks

How does the infrastructure work?

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Blockchain.info

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How bitcoin mining works?

• Bitcoin miners ensure that the bitcoin network is up and running and stays up-to-date. They collect the transactions in blocks and add them to the Blockchain. A block is added to the Blockchain in every 10 minutes

• At his moment there are between 5,000 and 100,000 miners

• The miner who solves the Proof of Work mathematical problem first, is able to put his block in the Blockchain and gets rewarded (BTC 25 and all the fees of the transactions in the block)

• ‘The winner takes it all’, so the other miners get nothing. But there is a race every 10 minutes and each time you start from scratch

• Costs: entrance is free however to race you need fast computers and electricity. So racing costs real money!

• Revenues: close to EUR 10,000 in 10 minutes. But then you need to be the fastest and smartest!

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How can you successfully mine?

• Ensure you have more computer power (hash rate) then other miners, which increases the chance that you solve the Proof of Work first

• Pool together with other miners and agree that you share the reward if one person in the pool wins

• Check www.blockchain.info to see who won the latest block

BUT:• The more miners there are – i.e. the more computer power

becomes available – the faster the mining of a block. To avoid too fast mining, the Proof of Work is made increasingly difficult (difficulty)

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How will this impact us?

• Not a given that Bitcoin will have a future but virtual currencies are here to stay• Virtual currencies are a new form of competition to banks• Banks and other financial institutions are actively looking at the technology

behind virtual currencies to improve their own technology and lower their costs• Most Banks are actively looking at Blockchain, not at Bitcoin

Source: Computerweekly.com – October 2015

RBS and Blockchain

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Questions?

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Sources for this presentation

– https://99bitcoins.com/bitcoin-mining-profitable-beginners-explanation/

– https://blockchain.info/

– https://en.bitcoin.it/wiki/Comparison_of_mining_pools

– https://bitcoin.org/en/

– http://organofcorti.blogspot.mx/

– https://www.khanacademy.org/economics-finance-domain/core-finance/money-and-banking/bitcoin/v/bitcoin-proof-of-work

– https://www.khanacademy.org/economics-finance-domain/core-finance/money-and-banking/bitcoin/v/bitcoin-transaction-block-chains

– https://bitnodes.21.co/

– http://bitcoinfees.com/

– Andreas M. Antonopoulos: "Consensus Algorithms, Blockchain Technology and Bitcoin" [UCL] (https://www.youtube.com/watch?v=sE7998qfjgk)