bitcoin was invited invented by
an anonymous person called Satoshi Nakamoto
it was a paper
published about 8 years ago
This is the paper that dr. Jad Hamza
a postdoctoral researcher of the IC School
at the EPFL is talking about
And this paper might become one of the
most important papers ever published in
the history of computer science…
even though no one knows who the hell the guy who wrote it is
In any case, the paper introduces
a whole new kind of currency: the Bitcoin
And Satoshi Nakamoto, whoever he is, he also gave
an original implementation
which was open source
and many people improved it
I think, at the beginning, it was
well-received because it was published
in a community of crypto enthusiasts
which were happy
about having this decentralized currency
in fact, it is the clever combination of
cryptography and distributed programming
into a technology called the blockchain
that got computer scientists so excited
we’ll talk more about the blockchain in
future episode. For now, let’s stress the
reasons why many computer scientists
believe that the Bitcoin and the blockchain
are fundamental breakthroughs
bitcoin is there is a digital currency
but that does not work makes it very
specific because if we think of the
swiss franc or the dollar or the euro
today, to some extent, they are digital currencies
this is Professor Rachid
Guerraoui of the IC School at EPFL. If you own
one thousand Swiss francs, it doesn’t mean that you
have 1000 francs in cash at home
it means that there is an information
typically stored or stored in a digital form
somewhere that says that you own
one thousand francs
so from that perspective the Swiss franc,
the dollar
they’re all digital currencies
the Bitcoin from that perspective is not very unique
so what’s exciting about the Bitcoin?
what makes it unique is that the
information that you own one thousand
bitcoins is not stored in a Swiss bank
or american bank or German bank
it is stored
at all computers of all Bitcoin users
there is no bank, or more specifically,
the bank is the set of Bitcoin users
this information that you own one
thousand Bitcoins is stored everywhere
in the system. So it is a distributed
system, a distributed implementation of
the bank. In other words, all over the world,
there are plenty of computers with
a very special kind of computer file:
the Bitcoin ledger. This information that
you own one thousand bitcoins is stored
in what is called a ledger. So this is
something classical in in banking
systems, except that here, the ledger is
stored in a digital form. It’s a database.
it’s a distributed databases
as i pointed out. It’s stored everywhere in the system
but actually the bitcoin does not say
exactly how many bitcoins each person owns
what is stored more specifically
is the fact that somebody gave you this
1000 Bitcoin so let’s say you bought them
from some entity, you gave Swiss francs and
you got bitcoins, and this entity
transfers to you 1000 bitcoins. And this
transaction is stored in a ledger
in what is called a ledger. So, the ledger
is a sequence, a chain of transactions
it is called the blockchain. It contains
a sequence of transactions, each of them
says somebody has transferred some
amount of bitcoins to somebody else
the ledger is the sequence of these transactions
but evidently if you know
all the transactions ever made by
a Bitcoin account, you can easily compute
how much is owned by the Bitcoin account
so here there is something important
to understand, which is that the ledger is public
which means that every machine knows
everything about every other machine in
the system, as far as the ledger is concerned
this is a crucial feature of
the Bitcoin, because it allows anyone to
verify that when I make a one Bitcoin
transaction to Professor Rachid Guerraoui

I indeed have enough Bitcoins in my Bitcoin account
to carry out the transaction
All the machines throughout the network know
precisely all the transactions ever made
through my Bitcoin account
but it doesn’t mean that
the machines know everything
about the users
yes my BItcoin account is associated to
an address
or a public key, and everything about my
public key is, well, public. However, people
do not know to which user correspond
which key. So it is a public, as far as the keys
are concerned. So you have to acquire a key
and this key is your entry to the system
once you get the key you can then
use the system through your key which acts as
an identity. So technically the ownership
of the public keys is not a public
information, at least, it’s not in the blockchain
But this ownership can be
verified through private keys
These private keys are here just to prove that
you own the bitcoins which are
associated with this address. This is the magic
of asymmetric cryptography which
professor Serge Vaudenay mentioned in a
previous video. With this private key,
you can sign transactions saying that
I’m sending one bitcoin to Bob
Or say i wanted to give money to dr. Jad Hamza
then what i would do is to broadcast
through the internet, the claim “I, Lê,
give one Bitcoin to Jad.” And i would
encode this claim using my private key
thereby, anyone can read the claim
by the decoding it using my public key
but crucially, they will know that the claim comes
from me, because only i could have encoded
the message using my private key because
only i know my private key. In particular
asymmetric cryptography prevents
identity thief. N o one else will be able to
spend my money, because, to spend my money,
to make a connection claim from my bitcoin account,
one needs to encode the message
using my private key, and only I know my
private key. And this also guarantees that
i really did make this claim
Such a claim cannot have come out of thin air
it must have come from me
This proves that i really did make this claim
at some point in the past.More generally,
anything that’s in the Bitcoin ledger can
never be disclaimed there is no take-backs
in Bitcoin. The trick of using a private key
to encode a message is called
a signature. And the beauty of it is that
people are going to be able to verify
that the signature is valid, without me
having to provide them the private key
so they can verify the signature only by
looking at the public key. I can prove that
I know my private key without having to
reveal it. And when you think about it
that’s pretty cool! But it also means
that if i lose my private key, I lose
access to my Bitcoin account. Not only is
there nothing that I can do
there’s nothing that anyone can do about it
and this can be very frustrating
take James Howells for instance. In 2009
he bought 7500 bitcoins. Back then, bitcoins
were worth nothing. But these days, one bitcoin
is worth around a thousand US dollars
which means that James Howells fortune
in bitcoins is now of several million
dollars… However, James Howells lost his
private key. His several million dollar worth bitcoins
are now frozen in some inaccessible
bitcoin account. Frozen, forever…
Now the fact that only the owners
of the bitcoins know that
they own their accounts has made the bitcoin
very popular in illegal industries
There are lots of quite mind-boggling stories
relating the Bitcoin to things like drug dealing
or arms trafficking. I’ll let you
google “the Silk Road” on your own time

having said that, if you plan on using
the Bitcoin for some illegal business
I would advise you to think twice
the Bitcoin ledger records all kinds of metadata
like the time of the transactions
and the amount of the transactions
combining such metadata to
all kinds of different data, has allowed
some security agencies to deanonymize
some bitcoin accounts. If you are to use bitcoin,
then i would advise you to use
it as though it was a completely public platform
i guess i would also advise you
not to do anything illegal
but I’m not your father so…
let’s sum up what you have just discussed. To make a
bitcoin transaction, you would typically
use something like your smartphone and
using this smartphone, you would
broadcast throughout the internet
a claim that you make this Bitcoin transaction, and you’d sign
your Bitcoin transaction using the
private key of your Bitcoin account
which is typically going to be stored
somewhere in your smartphone
Then some computers on the internet will take care
of writing down your transaction claim
into the bitcoin ledger. These nodes
who try to do that, are called miners
they have some legitimacy because they would
solve a puzzle. This puzzle is typically
a computationally
challenging problem that they solved by
let’s say, burning some energy. They need to
have some computational power, they need
to do some work. There are plenty of
fascinating details about the roles of
these miners and the way they interact
with the Bitcoin ledger. We’ll address this in future videos
but suffice it to say that
for now at least, it seems that they do incentives
to update the bitcoin ledger correctly
whenever a miner finds a block
they get a predetermined reward
once again there are so many more cool
technical details to mention here
but on a high level, to make sure that
your transaction has been registered in the
bitcoin ledger, you need to wait for
confirmation by a miner, actually maybe
several miners, if you are conducting the
large Bitcoin conduction you better wait
for a few confirmations
it depends how big your payment is
but if it’s really a large payment, then you should be safe
with 6 confirmations. How much
time will that take?
you need to wait one hour to get six confirmations
in average. And that is stunningly fast
for large financial transactions
at least compared to other the transaction means
in fact, in general terms, i think
it’s fair to say that the success of the bitcoin
is breathtaking! 8 years ago
it was merely a paper with a
description of a protocol. It was worth nothing
however these days, the total amount of
bitcoins out there is worth billions of dollars
perhaps more impressively the
bitcoin protocol has withstood the
attacks by top hackers and cryptographers
the excitement behind the technology of the bitcoin
has taken over all computer science departments
throughout the world
and many people regard it as one of
the potentially most disruptive technology
for societies. Bitcoin and eventually
the blockchain might eventually deeply improve
our daily lives
having said that, the bitcoin is not perfect
there remains many open problems
that computer scientists
throughout the world are currently working on
to improve the technology
there are many criticism of Bitcoin
some people criticized the loss of energy
which is used by all the
computers doing the mining to maintain
the Bitcoin network. There are also
financial criticisms. For instance,
based on the fact that there is a fixed value of bitcoins
some people believe it’s a good thing
so there is no inflation
but some people believe it’s good for the economy
that the currency’s created more and more
for now
number of bitcoins is still increasing but
there is a cap which is
about 21 million bitcoins. It’s all there will ever be
for some people it’s a bad thing
other criticism include
the big volatility of the bitcoin
if you own Bitcoin you are subject
to larger changes of the price which
may easily vary by ten percent or
twenty percents even in one day sometimes
when there are
some news around the world which are
either good or bad. The market reacts very
quickly because of their relatively
small market cap of Bitcoin
Another line of research is try to increase the
scalability of the blockchain and of the Bitcoin.
Currently, Bitcoin
can only support about seven
transactions per second, which is really
not much compared to large financial entities
which are centralized. So people
have been trying to come up with better
and smarter algorithms in order to
to scale the number of transactions
per second in a secure way
the blockchain record every Bitcoin transaction
that has ever happened and
as of late 2016 the complete ledger is
about 107 gigabytes of data
after bitcoin was invented, some people have
tried to separate the idea of the blockchain
and to abstract it