I have a question how many people here
own Bitcoin okay I see a few how many
people know how it works well hopefully
I’ll increase that number today but I’m
going to start with something simple
splitting a cookie between two people I
bet a lot of you have split a cookie by
having one person cut and the other
person pick this method is special
because it’s always fair even if each
person acts purely in their own
interests if Alice doesn’t care about
Bob at all she just wants the biggest
piece of the cookie she’ll still have to
cut it down the middle since otherwise
Bob would leave her with a smaller piece
we call this a trustless system since
neither person has to trust the
intentions of the other one and yet both
will still consider the outcome fair
this same idea is the foundation of
Bitcoin it’s what makes it unique you
may have heard that bitcoin is a digital
currency that’s true but that’s not
really what makes it special
at its heart bitcoin is like our method
of splitting a cookie it has a set of
rules that work even if everyone expiry
in their own interests after all being a
digital currency isn’t particularly new
or unique these days actual coins and
bills are rare more than 90% of all
money today exists only on computer
services so in a way the Canadian dollar
is mostly a digital currency but it is a
trustless we have to trust our banks to
keep our money secure we have to trust
Visa and others every time we swipe our
credit card and we have to trust the
government not to print too much new
money and SAP away the values of our
dollars through inflation this is
significant because even if you do trust
all these institutions they still had a
cost
to all our transactions you might be
wondering what I mean by a digital
currency how can money exist only on a
computer it seems hard to imagine
because there are no tangible coins or
bills but the basic idea is simple it’s
just a table of numbers in a computer
file like a big Excel spreadsheet this
table which is called a ledger records
the amount of money that everyone has
and all the transactions that they make
it doesn’t matter whether I swipe a Visa
card or transfer Bitcoin in both cases a
computer somewhere updates its ledger
table my total balance goes down and the
recipients goes up the ledgers for
regular currencies like the Canadian
dollar are kept by banks we must trust
these banks to update the ledgers
accurately and honestly but let’s
imagine for a second that we are
bitcoins mysterious creator Satoshi
Nakamoto and we want to invent a
trustless currency the first thing we’d
realize is that we can’t let a single
party control the ledger like a bank
since that necessarily requires it to be
trusted instead everyone must have a
copy of the ledger and all must have
some say in how it is update it that is
what it means when people say bitcoin is
decentralized it also makes it more
secure because it’s not susceptible to a
single hack or data loss but
decentralizing the ledger introduces new
problems for one how do we keep
everybody’s copy the ledger in sync if I
buy two pizzas for 10,000 Bitcoin that
transaction has to be recorded on
everyone’s copy the ledger furthermore
there is a potential for conflict if I
am dishonest and remember we can’t trust
anybody I might wait until I have my
pizza and then change my ledger to erase
the Bitcoin payment so our system needs
a way of determining whose version of
the ledger is correct if two copies
happen to differ
bitcoins ingenious solution to these
problems is basically a type of voting
in which everyone votes for the copy of
the ledger they believe to be correct
but it has a clever twist
we can’t just give everyone a single
ballot to cast because it’s easy to
create multiple identities on the
Internet and hard to verify the unique
people behind them instead Bitcoin
requires computers to spend time doing
work in order to submit a vote I’ll talk
more about what this work is in a second
but what’s important now is that it
requires computer hardware time and
electricity each with real-world costs
and so it’s enormous ly unlikely that
anyone can submit enough votes to
overwhelm the rest of the community so
why do voters pay these real-world costs
well because they receive new Bitcoin
for doing so this process of doing work
to to vote and receiving Bitcoin in
return is called mining just as
real-world mining is the only source of
new gold this process is the only way
that new bitcoins are created and like
real gold the returns for mining
diminished with time and will eventually
run out capping the total amount of
Bitcoin that will ever exist to about 21
million so Bitcoin won’t lose value to
inflation in the long run that’s true
for gold too but unlike gold Bitcoin is
easy to buy sell store and transfer in a
trustless way between people and across
borders okay so mining is the system
used to keep everybody’s copy of the
ledger honest and in sync but what
exactly is this mining how does it work
the answer centers on another word you
may have heard the blockchain the
blockchain is bitcoins ledger remember
that a ledger records transactions in
the case of Bitcoin transactions happen
all the time all around the world every
10 minutes Bitcoin miners group all new
transactions together into a block and
then chain it to all the previous blocks
that is the ultimate purpose of mining
in Bitcoin to build its ledger the
blockchain out of these ten-minute
blocks but here’s the catch
adding a new block to the chain isn’t
easy it requires lots of work from all
the miners this work is a lot like real
world gold mining in the 1800’s back
then prospectors would filter a
streambed through a sieve or pan if they
were lucky there would be gold left
after the water and gravel drained out
but most times would be nothing and
they’d have to try again Bitcoin miners
use computers instead of shovels and
pans instead of pail of sand they start
with a block of new Bitcoin transactions
which they want to add to the blockchain
and instead of a sieve they run this
block through a special computer program
called a hash which takes the blocks
bytes scrambles them up and turns them
into a big number this number acts kind
of like a fingerprint for the block in
that is unique to its contents if we
change anything in the block it will
have a new fingerprint number the
equivalent to a gold miner finding gold
in his pan is a Bitcoin miner finding a
fingerprint number that starts with 2000
in Bitcoin is that a block can only be
added to the blockchain
if it’s fingerprints first 20 digits are
all 0 blocks with these special
fingerprints are extremely rare and so a
miner needs to create many versions of a
new block before he finds one that can
be added to the blockchain miners do
this by adding an arbitrary number to
the end of a block this number has no
real world significance it’s not a part
of any transaction but it does change
the fingerprint so miners guess at it
over and over again until a lucky one
eventually finds a value that changes
Bitcoin network and everyone can add the
now valid version of the block to their
copy of the blockchain
as for the lucky miner she hits paydirt
receiving around $160,000 worth of newly
minted Bitcoin this lucrative reward has
driven a modern-day Gold Rush in Bitcoin
mining since anyone can be a miner all
you need is a powerful enough computer
and it’s scale is staggering the chances
of any guess finding a valid fingerprint
are about the same as finding one
specific grain of sand in all the
world’s oceans that sounds absolutely
impossible but there are many millions
of mining computers all over the world
and each one does many trillions of
guesses a second amazingly all this
collective effort results in a valid
block being found once every 10 minutes
these computers do use a substantial
amount of electricity about the same as
the entire province of Manitoba remember
that the point of all this work and
electricity is to keep everybody’s copy
of the ledger honest and in sync to
summarize how imagine that I try to dine
and dash on a lunch I paid for in
Bitcoin by the time I finish eating my
payment transaction will be recorded in
everyone’s copy of the blockchain my
plan is to erase it from my copy and
then convince everyone else that mine is
the correct version the problem is that
by changing a block I’ll also change its
fingerprint that breaks my blockchain
for other people to take it seriously
I’ll have to remind a new fingerprint
one that starts with 2004 by myself
that’s almost unthinkable but the real
clincher is that the block chain links
blocks together such that each block
depends on the previous one so it’s not
just one block I’ll have to remind it’s
all the ones that came after as well so
the blockchain is the clever idea that
Satoshi Nakamoto realized could be used
to prevent people from going back and
editing bitcoins ledger once a
transaction is in the blockchain is
renin stone but since then people have
realized that this can be used for other
purposes as well to see why realize that
the contents of a block don’t have to be
Bitcoin transactions in order for the
blockchain to work our fingerprint
program just scrambles bytes it doesn’t
care what those bytes represent as an
example imagine that you come up with a
new idea you don’t want to spend time
and money patenting it but you also
don’t want someone else to come along
patent the same idea and sue you one
old-fashioned solution is to type up the
idea into a letter and mail it to
yourself if you ever get called into
padded court you can take this copy of
the letter still sealed and dated by the
canada post office and hopefully
convince the judge that you came up with
the idea when you did but these days a
more foolproof strategy is to use the
blockchain the idea here is to include
the letter in a block in place of a
regular Bitcoin transaction the same
reasoning applies just as you can’t go
back and edit an old Bitcoin transaction
you can’t go back and retroactively lis
add a letter to an old block it’s
inclusion in the blockchain truly proves
that you came up with the idea when you
did there are many such applications and
the interested players are major ones
IBM Walmart TD Bank and more are
investing significant resources into
applications that range from supply
chains to escrow services the diamond
giant De Beers is launching an
industry-wide blockchain this year to
track diamonds this is important because
after being mined diamonds may change
hands many times a conscientious
consumer might not trust all these
middlemen but using the blockchain he
can still be sure that he’s not buying a
conflict or Blood Diamond blockchain
technology also has the potential to
revolutionize political voting which has
been in the spotlight since the 2016 US
election currently when we cast a vote
we put a ballot into a box
and never see it again we have to trust
that it gets counted and that the system
is secure against hacks both these
problems could be solved by recording
votes on a public blockchain doing so
would make them immune to future
tampering and allow us to independently
verify their counts similarly the
blockchain may help provide more
transparency to charitable donations one
day we may be able to use it to see
exactly how our money is spent which can
only help increase charity’s efficiency
and honesty and it’s already more than
90% cheaper to send money to places like
Africa using Bitcoin as compared to
traditional methods these are real
applications but with bitcoins dizzying
price increase in the past year there
has been irrational hype around both it
and the blockchain the best example is
the Long Island iced tea company this
past December it simply renamed itself
along blockchain company and its stock
immediately tripled to cut through this
hype it’s important to remember what the
blockchain really is a useful tool to
record information when the participants
don’t necessarily trust each other and
that’s what I hope you take away from
this talk today there are a few subjects
that generate as much hype and as much
vitriol as Bitcoin in the blockchain
both some idea how it works I hope
you’ll see that it truly is a
technological advancement that solves
real problems and who knows Bitcoin is
already as trustless as splitting a
cookie like Alice and Bob maybe one day
it’ll be just as widespread thank you [Applause]
own Bitcoin okay I see a few how many
people know how it works well hopefully
I’ll increase that number today but I’m
going to start with something simple
splitting a cookie between two people I
bet a lot of you have split a cookie by
having one person cut and the other
person pick this method is special
because it’s always fair even if each
person acts purely in their own
interests if Alice doesn’t care about
Bob at all she just wants the biggest
piece of the cookie she’ll still have to
cut it down the middle since otherwise
Bob would leave her with a smaller piece
we call this a trustless system since
neither person has to trust the
intentions of the other one and yet both
will still consider the outcome fair
this same idea is the foundation of
Bitcoin it’s what makes it unique you
may have heard that bitcoin is a digital
currency that’s true but that’s not
really what makes it special
at its heart bitcoin is like our method
of splitting a cookie it has a set of
rules that work even if everyone expiry
in their own interests after all being a
digital currency isn’t particularly new
or unique these days actual coins and
bills are rare more than 90% of all
money today exists only on computer
services so in a way the Canadian dollar
is mostly a digital currency but it is a
trustless we have to trust our banks to
keep our money secure we have to trust
Visa and others every time we swipe our
credit card and we have to trust the
government not to print too much new
money and SAP away the values of our
dollars through inflation this is
significant because even if you do trust
all these institutions they still had a
cost
to all our transactions you might be
wondering what I mean by a digital
currency how can money exist only on a
computer it seems hard to imagine
because there are no tangible coins or
bills but the basic idea is simple it’s
just a table of numbers in a computer
file like a big Excel spreadsheet this
table which is called a ledger records
the amount of money that everyone has
and all the transactions that they make
it doesn’t matter whether I swipe a Visa
card or transfer Bitcoin in both cases a
computer somewhere updates its ledger
table my total balance goes down and the
recipients goes up the ledgers for
regular currencies like the Canadian
dollar are kept by banks we must trust
these banks to update the ledgers
accurately and honestly but let’s
imagine for a second that we are
bitcoins mysterious creator Satoshi
Nakamoto and we want to invent a
trustless currency the first thing we’d
realize is that we can’t let a single
party control the ledger like a bank
since that necessarily requires it to be
trusted instead everyone must have a
copy of the ledger and all must have
some say in how it is update it that is
what it means when people say bitcoin is
decentralized it also makes it more
secure because it’s not susceptible to a
single hack or data loss but
decentralizing the ledger introduces new
problems for one how do we keep
everybody’s copy the ledger in sync if I
buy two pizzas for 10,000 Bitcoin that
transaction has to be recorded on
everyone’s copy the ledger furthermore
there is a potential for conflict if I
am dishonest and remember we can’t trust
anybody I might wait until I have my
pizza and then change my ledger to erase
the Bitcoin payment so our system needs
a way of determining whose version of
the ledger is correct if two copies
happen to differ
bitcoins ingenious solution to these
problems is basically a type of voting
in which everyone votes for the copy of
the ledger they believe to be correct
but it has a clever twist
we can’t just give everyone a single
ballot to cast because it’s easy to
create multiple identities on the
Internet and hard to verify the unique
people behind them instead Bitcoin
requires computers to spend time doing
work in order to submit a vote I’ll talk
more about what this work is in a second
but what’s important now is that it
requires computer hardware time and
electricity each with real-world costs
and so it’s enormous ly unlikely that
anyone can submit enough votes to
overwhelm the rest of the community so
why do voters pay these real-world costs
well because they receive new Bitcoin
for doing so this process of doing work
to to vote and receiving Bitcoin in
return is called mining just as
real-world mining is the only source of
new gold this process is the only way
that new bitcoins are created and like
real gold the returns for mining
diminished with time and will eventually
run out capping the total amount of
Bitcoin that will ever exist to about 21
million so Bitcoin won’t lose value to
inflation in the long run that’s true
for gold too but unlike gold Bitcoin is
easy to buy sell store and transfer in a
trustless way between people and across
borders okay so mining is the system
used to keep everybody’s copy of the
ledger honest and in sync but what
exactly is this mining how does it work
the answer centers on another word you
may have heard the blockchain the
blockchain is bitcoins ledger remember
that a ledger records transactions in
the case of Bitcoin transactions happen
all the time all around the world every
10 minutes Bitcoin miners group all new
transactions together into a block and
then chain it to all the previous blocks
that is the ultimate purpose of mining
in Bitcoin to build its ledger the
blockchain out of these ten-minute
blocks but here’s the catch
adding a new block to the chain isn’t
easy it requires lots of work from all
the miners this work is a lot like real
world gold mining in the 1800’s back
then prospectors would filter a
streambed through a sieve or pan if they
were lucky there would be gold left
after the water and gravel drained out
but most times would be nothing and
they’d have to try again Bitcoin miners
use computers instead of shovels and
pans instead of pail of sand they start
with a block of new Bitcoin transactions
which they want to add to the blockchain
and instead of a sieve they run this
block through a special computer program
called a hash which takes the blocks
bytes scrambles them up and turns them
into a big number this number acts kind
of like a fingerprint for the block in
that is unique to its contents if we
change anything in the block it will
have a new fingerprint number the
equivalent to a gold miner finding gold
in his pan is a Bitcoin miner finding a
fingerprint number that starts with 2000
in Bitcoin is that a block can only be
added to the blockchain
if it’s fingerprints first 20 digits are
all 0 blocks with these special
fingerprints are extremely rare and so a
miner needs to create many versions of a
new block before he finds one that can
be added to the blockchain miners do
this by adding an arbitrary number to
the end of a block this number has no
real world significance it’s not a part
of any transaction but it does change
the fingerprint so miners guess at it
over and over again until a lucky one
eventually finds a value that changes
Bitcoin network and everyone can add the
now valid version of the block to their
copy of the blockchain
as for the lucky miner she hits paydirt
receiving around $160,000 worth of newly
minted Bitcoin this lucrative reward has
driven a modern-day Gold Rush in Bitcoin
mining since anyone can be a miner all
you need is a powerful enough computer
and it’s scale is staggering the chances
of any guess finding a valid fingerprint
are about the same as finding one
specific grain of sand in all the
world’s oceans that sounds absolutely
impossible but there are many millions
of mining computers all over the world
and each one does many trillions of
guesses a second amazingly all this
collective effort results in a valid
block being found once every 10 minutes
these computers do use a substantial
amount of electricity about the same as
the entire province of Manitoba remember
that the point of all this work and
electricity is to keep everybody’s copy
of the ledger honest and in sync to
summarize how imagine that I try to dine
and dash on a lunch I paid for in
Bitcoin by the time I finish eating my
payment transaction will be recorded in
everyone’s copy of the blockchain my
plan is to erase it from my copy and
then convince everyone else that mine is
the correct version the problem is that
by changing a block I’ll also change its
fingerprint that breaks my blockchain
for other people to take it seriously
I’ll have to remind a new fingerprint
one that starts with 2004 by myself
that’s almost unthinkable but the real
clincher is that the block chain links
blocks together such that each block
depends on the previous one so it’s not
just one block I’ll have to remind it’s
all the ones that came after as well so
the blockchain is the clever idea that
Satoshi Nakamoto realized could be used
to prevent people from going back and
editing bitcoins ledger once a
transaction is in the blockchain is
renin stone but since then people have
realized that this can be used for other
purposes as well to see why realize that
the contents of a block don’t have to be
Bitcoin transactions in order for the
blockchain to work our fingerprint
program just scrambles bytes it doesn’t
care what those bytes represent as an
example imagine that you come up with a
new idea you don’t want to spend time
and money patenting it but you also
don’t want someone else to come along
patent the same idea and sue you one
old-fashioned solution is to type up the
idea into a letter and mail it to
yourself if you ever get called into
padded court you can take this copy of
the letter still sealed and dated by the
canada post office and hopefully
convince the judge that you came up with
the idea when you did but these days a
more foolproof strategy is to use the
blockchain the idea here is to include
the letter in a block in place of a
regular Bitcoin transaction the same
reasoning applies just as you can’t go
back and edit an old Bitcoin transaction
you can’t go back and retroactively lis
add a letter to an old block it’s
inclusion in the blockchain truly proves
that you came up with the idea when you
did there are many such applications and
the interested players are major ones
IBM Walmart TD Bank and more are
investing significant resources into
applications that range from supply
chains to escrow services the diamond
giant De Beers is launching an
industry-wide blockchain this year to
track diamonds this is important because
after being mined diamonds may change
hands many times a conscientious
consumer might not trust all these
middlemen but using the blockchain he
can still be sure that he’s not buying a
conflict or Blood Diamond blockchain
technology also has the potential to
revolutionize political voting which has
been in the spotlight since the 2016 US
election currently when we cast a vote
we put a ballot into a box
and never see it again we have to trust
that it gets counted and that the system
is secure against hacks both these
problems could be solved by recording
votes on a public blockchain doing so
would make them immune to future
tampering and allow us to independently
verify their counts similarly the
blockchain may help provide more
transparency to charitable donations one
day we may be able to use it to see
exactly how our money is spent which can
only help increase charity’s efficiency
and honesty and it’s already more than
90% cheaper to send money to places like
Africa using Bitcoin as compared to
traditional methods these are real
applications but with bitcoins dizzying
price increase in the past year there
has been irrational hype around both it
and the blockchain the best example is
the Long Island iced tea company this
past December it simply renamed itself
along blockchain company and its stock
immediately tripled to cut through this
hype it’s important to remember what the
blockchain really is a useful tool to
record information when the participants
don’t necessarily trust each other and
that’s what I hope you take away from
this talk today there are a few subjects
that generate as much hype and as much
vitriol as Bitcoin in the blockchain
both some idea how it works I hope
you’ll see that it truly is a
technological advancement that solves
real problems and who knows Bitcoin is
already as trustless as splitting a
cookie like Alice and Bob maybe one day
it’ll be just as widespread thank you [Applause]
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