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Episode: 2866
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Title: HPR2866: Intro to Bitcoin for techies
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Source: https://hub.hackerpublicradio.org/ccdn.php?filename=/eps/hpr2866/hpr2866.mp3
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Transcribed: 2025-10-24 12:30:44
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---
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This is HPR Episode 2866 entitled Intro to BitCoin for Tekken, it is posted by Mightbe Mike
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and is about 32 minutes long and carrying a clean flag.
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The summary is Survey of BitCoin, BlockChains, Blocks, Transactions, Miners, Pro-W, Hashing, Addresses, Wallets.
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This episode of HPR is brought to you by archive.org.
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Support universal access to all knowledge by heading over to archive.org forward slash donate.
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Hello again, this is Mightbe Mike.
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Last time I talked about BitCoin's game, a game built with tokens on top of the Bitcoin
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blockchain.
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There was a lot there, and if you didn't have the background to give it context, it was
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probably difficult to understand, but I thought I would just start out by covering the foundation,
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the basics of Bitcoin.
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So what do we want to talk about for Bitcoin?
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Well, this is going to be like a survey course, if you've ever taken one of those, we're
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going to cover a very wide range of topics very shallowly.
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So we're going to talk about pretty much everything that is the basics of Bitcoin without
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going very deep on any of it.
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And for some of you, that'll be totally useless because you know about Bitcoin.
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But hopefully for a lot of you, this will at least fill in some missing pieces or get
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you familiar with the basics of Bitcoin.
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This is like Survey of Bitcoin course.
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And of course, I'm going to avoid talking in any detail about any other cryptocurrency
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projects.
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So let's get started.
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So Bitcoin, what is it?
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Some people would tell you Bitcoin is financial freedom, or maybe Bitcoin is programmable money.
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And they're right at a high level from a philosophical point of view, but we want a technical answer.
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We want a more practical answer that we can explore a little bit.
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So Bitcoin is a protocol.
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It's a network protocol.
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And so there's a bunch of Bitcoin nodes that comprise a network.
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This is distributed around the world.
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There's thousands of nodes.
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And of course, what makes a network is collection of nodes running the same software.
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They're running this Bitcoin D software that implements the protocol.
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So this protocol defines a currency, if you will, a digital money.
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And it needs to store all the history of that money.
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The transaction history is what gets stored.
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So the money started in one place.
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It moves somewhere else.
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It moves somewhere else.
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And currently it's sitting here.
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That's done using a data structure that looks a lot like a linked list that's distributed
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across the network.
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And it's called a block chain.
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Block chain is a great name for this thing because it's literally a chain of blocks.
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So once again, I'll just remind you I'm speaking only about Bitcoin.
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Bitcoin is kind of the reference pattern that you use to understand all these other ones.
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So a block chain, the main data structure in Bitcoin, a chain of blocks, like I said,
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which begs the question, what is a block?
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The tip of the block chain, the latest block that's put on there, is always going to have
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a pointer back to the previous block where it's been appended.
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That pointer is actually a hash of the previous block.
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So I guess I'm getting ahead of myself.
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A block has stuff in it.
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So it has a header, which has some stuff we don't really care about, like the version and
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a timestamp.
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The main thing that a block has, transactions, could be a lot of transactions.
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Could be empty, but typically they're packed full of transactions.
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It also has something called a nons, which we'll just put off for now because we're
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going to get back to that.
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Then we talk about hashing, and we will talk about hashing.
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So if these blocks are full of transactions, what's a transaction?
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Now miners are the ones who construct these blocks, and we're going to say more about
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miners in a moment.
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But the miner instructs the block and fills it up with transactions if there's a lot
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waiting, and if he feels like it, you could have an empty block.
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The first transaction they put in there is kind of special.
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It's a coin-based transaction, which means money is being created out of thin air.
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So this is the miners reward.
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There's a block reward that a miner gets for successfully, depending on a block onto
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the blockchain.
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It started out as 50 bitcoins, and it's cut in half every four years.
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So far it's been cut in half twice.
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So right now, if you mine a block, you get 12 and a half bitcoins.
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Pretty nice take, huh?
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So the first transaction you would put in that block is a transaction to yourself.
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Presumably you send this to your own address, and the amount you send is the block reward
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amount, which is 12 and a half, plus any fees.
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These transactions have fees associated with them, and a miner picks out the transactions
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based on whatever they want, but the criterion that's usually used is the fee.
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The miner could decide to maximize the fees they're going to collect by picking out the
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transactions from a mempool.
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Mempool is where all these pending transactions sit waiting to get included in a block.
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Miners can rummage through there, pick out the ones with the biggest fees, and include
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them in the block.
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So that first transaction is the block reward, currently 12 and a half bitcoins, plus
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the sum of all the fees of the other transactions that are getting included in the block.
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So for miners, mining blocks.
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What we need to talk about mainly is their function in the Bitcoin system and the transactions
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that they're including.
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There's a couple things to say about both of those.
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So miners are critically important in Bitcoin.
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Miners are how transactions get included in the Bitcoin block chain, in the case that
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wasn't evident.
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You don't get your transaction included unless a miner decides to put it into a block,
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and typically they're not going to include it unless you add a little additional amount
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called a fee, a miner fee.
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It's not necessarily the case.
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Back in the old days, people would sometimes submit transactions with no fee.
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I did it.
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And they get included in blocks, but I think if you did that today, you might not even
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get it included in a block.
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Because why should they?
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They're there to maximize their profits.
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People mind to make a profit, and the way to do that is to be picky and include the
|
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ones with the biggest fees.
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So that's the first function of mining is to get transactions included in the official
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record, in the block chain.
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But miners, remember I talked about the Coinbase Transaction, the first one.
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This is the issuance mechanism for Bitcoins.
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The Bitcoins are created as blocks are mined.
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That's the issuance mechanism for the currency itself.
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People of work basically describes the race that these miners are engaged in to add a
|
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block onto the end of the blockchain.
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It's a contest, if you will.
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In Bitcoin, miners are using a SHA-256 hashing algorithm.
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So what the miner does is they take the entire contents of the block, plus this one field
|
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called a nonce, which I mentioned earlier.
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So what is this nonce?
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The nonce is the variable part.
|
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The entire block doesn't vary, but every time the miner hashes this thing, there's a little
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bit appended onto the end that he keeps changing.
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You could try one, and then two, and then three, and keep trying different tries for this
|
||||
nonce value until the hash result starts with a certain number of leading zeros.
|
||||
Now there's a difficulty target, and suggested the goal of this difficulty target is to keep
|
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the average block discovery times at about 10 minutes.
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||||
So the average time that it takes to add another block to the Bitcoin blockchain is 10 minutes,
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||||
eventually.
|
||||
It's never exactly 10 minutes, or rarely so.
|
||||
What happens is if the blocks are getting added a little too quickly on average, the difficulty
|
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is ratcheted up, and vice versa.
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So over time, it gets suggested a little longer, a little shorter, based on this difficulty
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target.
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The difficulty target is the number of leading zeros.
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If I hash this entire block with my nonce, whatever that is at the given moment, and remember
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they're doing this very, very fast, over and over and over and over again, really quickly.
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So I hash this block full of transactions and the other little fields and this nonce
|
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that I keep varying, and then I expect the hash and look, it started with eight leading
|
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zeros.
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Look at that.
|
||||
But the difficulty target is 10 leading zeros.
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||||
So I didn't win.
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I have to try it again.
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As soon as I hit that, as soon as I get 10 and more leading zeros, that's it.
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I have the right to add that block onto the blockchain, and what I do is right away,
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I broadcast that thing out onto the network to my peers and let it propagate against across
|
||||
the network.
|
||||
Because the way this protocol works is the longest blockchain is adopted.
|
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So miners adding blocks onto the blockchain need to reach consensus.
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Every node on the network needs to agree about the entire history of every coin in the
|
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system.
|
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So a node on the network, it has a copy of what it thinks is the most recent blockchain,
|
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but it's checking with its peers.
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And suddenly a longer chain appears.
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Its neighbor has a chain that's longer by one block.
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It's not going to waste any more time mining on that whole blockchain.
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This new one is longer, and that's the one it should immediately drop what is doing
|
||||
and start mining on this newer longer chain.
|
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So this is how all the nodes agree on the whole history of Bitcoin.
|
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This is the consensus mechanism in other words.
|
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So it's very difficult for a network of untrusted nodes to come to consensus.
|
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And that's what we have here.
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Anyone can stand up a Bitcoin node.
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You don't have to go through a screening process or be qualified in some way.
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You just have to run the same software, and you can be a part of the network.
|
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So the other thing I need to explain a little bit is the hashing.
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The hashing functions we all know and love in computer science, they're really mathematical
|
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functions, and they're functions that are deterministic one-way functions.
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While these functions, first of all, they take an arbitrary length input and produce
|
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a fixed length output.
|
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So for given input A to a hashing function, I will always get the same output B.
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I can do it 100 times in a row.
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Always going to get B when the input is A. That means it's deterministic.
|
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The one-way part of it is referring to the fact that given the output B, I can't tell
|
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you for sure what the input A was.
|
||||
And the reason I can't, even if I can find an example A that works, I can't be sure
|
||||
that's the A you used.
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Because of the other thing that I said, that for arbitrary length inputs, I'm producing
|
||||
a fixed length output.
|
||||
That means every hashing algorithm will always have another keyword coming here, collisions
|
||||
will always be possible.
|
||||
Which means there are multiple inputs that will produce the same output.
|
||||
That's just the way it goes when you have a fixed length output.
|
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If your output is 256 bits long, well, guess what?
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There are multiple inputs.
|
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If you can find them, that will produce that same fixed length output.
|
||||
But in that case, that's a pretty long length.
|
||||
And just sitting around on a computer, you're not going to find a multiple input.
|
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You're not going to find a collision, in other words.
|
||||
So another word about the transactions.
|
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Transactions intuitively, this is easy, right?
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I've got a Bitcoin, and I'm going to send it to you, that's a transaction.
|
||||
So what happens is the Bitcoin that I've got is sitting at an address.
|
||||
And there's a send transaction, where I send it from my address to your address.
|
||||
So conceptually, this transaction consists of addresses, right?
|
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There's an input address, that's my address.
|
||||
In this example, there's an amount, which is one Bitcoin.
|
||||
And there's an output, which is your address.
|
||||
A couple of important things about transactions.
|
||||
One is when miners include transactions in blocks, they're not just blindly putting something
|
||||
in there.
|
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They actually validate these transactions.
|
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So what does that mean?
|
||||
So part of that validation is making sure people can't cheat, preventing inflation specifically.
|
||||
What I mean by that is I can't just create money out of thin air.
|
||||
So part of it is a simple arithmetic check.
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The outputs cannot be greater than the inputs.
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The inputs to a transaction are 1.3 bitcoins.
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||||
The outputs cannot be more than that, or I've gotten away with creating free money.
|
||||
Bitcoin has a fixed money supply.
|
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I forgot to mention before when I was talking about the issuance mechanism.
|
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There's only going to be 21 million ever.
|
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Most of those have already been mined, some 17.7 something million of them.
|
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Maybe 17.8 by the time you hear this, I don't know.
|
||||
A lot of those, the private keys, were lost.
|
||||
And so there's not that many insurculation, but that's how many have been mined.
|
||||
There's 21 million total ever that are going to be mined.
|
||||
So anyway, back to the transactions.
|
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The other thing they check is that I was really allowed to send you that bitcoin.
|
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So the way they do that is the transaction itself is more than just addresses that are inputs
|
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and outputs.
|
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And by the way, there's usually more than one of these.
|
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I'm just keeping this one real simple.
|
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There's one whole bitcoin.
|
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That's an unspent transaction output, a UTXO, that's sitting at my address, and I'm sending
|
||||
that one bitcoin in the entirety, who you at your address.
|
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Now when I construct this transaction, before I submit this pending transaction, remember
|
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this transaction is going to sit in the mempool until a minor includes it in a block, the
|
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thing that I do is I sign the transaction.
|
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I need to mention a little bit about bitcoin addresses here.
|
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A bitcoin address is essentially a public key.
|
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And if I sound like I'm hedging there a little bit, it's not exactly.
|
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There's a process it goes through.
|
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The bitcoin address is derived from the public key.
|
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It goes through a process.
|
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Now what happens is I sign a transaction with my private key.
|
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The minor can validate this, the transaction that I've signed by using that public key to
|
||||
check.
|
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In the same way that if I sign a message and send it to you with my private key and
|
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send it to you by email, you can take my public key and prove that I was the one that constructed
|
||||
the message.
|
||||
Also the minor can check the bitcoin address against that public key.
|
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At the end of the process, the minor can tell that the transaction is legitimate.
|
||||
Because the private key that signed the transaction goes with that bitcoin address.
|
||||
In other words, I had the right to spend that money at that address since I am the holder
|
||||
of the private key.
|
||||
So those are the two main things the minor does, right?
|
||||
He makes sure I had the right to spend that unspent transaction output and make sure I
|
||||
didn't get away with creating any free money.
|
||||
So the addresses and the keys brings me to the next, maybe the last thing I need to mention
|
||||
for the basics of bitcoin.
|
||||
It's very important to talk about wallets.
|
||||
Wallets wallets, there are so many kinds of wallets and so much to say about wallets.
|
||||
We could make an entire episode all about wallets.
|
||||
But let's just skim the surface here and we'll put that off to another day.
|
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So the wallet word is a misdomer or at least there's a bad analogy there.
|
||||
A real-world wallet that I put in my pocket is a container for money and a bitcoin wallet
|
||||
is not a container for bitcoin.
|
||||
So what a wallet really contains is private keys.
|
||||
Technically, a wallet can be simply a private key.
|
||||
That matches an address that you have bitcoin at.
|
||||
Realistically though, when people talk about wallets, they're usually talking about an
|
||||
HD wallet, hierarchical, deterministic wallet.
|
||||
An HD wallet has a seed phrase.
|
||||
So this seed phrase is used to generate a tree full of key pairs.
|
||||
So a lot of addresses and private keys that match those and all these private keys are
|
||||
managed by the wallet software.
|
||||
The HD hierarchical deterministic part of the wallet, the hierarchy refers to that tree
|
||||
of key pairs because every time you put in that seed phrase, you're going to generate
|
||||
the exact same tree structure of key pairs.
|
||||
That's the deterministic part and that's the beauty of this.
|
||||
I can take my seed phrase and go to a completely different wallet software and put it in there
|
||||
and generate the exact same key pairs.
|
||||
And that new wallet software is going to scan all the addresses and find all the balances
|
||||
where my private keys match.
|
||||
And that's going to be transparent to me as the user of the wallet is just going to show
|
||||
me a number.
|
||||
Hey, you've got 2.6 bitcoins.
|
||||
Really, those 2.6 bitcoins don't live at a single place.
|
||||
They're probably spread across any number of bitcoin addresses and your wallet software
|
||||
has generated the private keys that match all of those addresses from your seed phrase.
|
||||
So it scanned the blockchain, came up with that total and it's keeping track of all the
|
||||
little addresses where that stuff lives.
|
||||
And if I send a transaction to you for a bitcoin, it may have to use the unspent transaction
|
||||
outputs at 6 different addresses to come up with an amount of one bitcoin to send you.
|
||||
It's going to handle that stuff behind the scenes making life easy for me.
|
||||
So let's talk about the types of different wallets.
|
||||
Now I mentioned software wallets and I want to get back to that because there's more
|
||||
to be unpacked there.
|
||||
But right off the bat, in contrast to software wallets, there are hardware wallets.
|
||||
Hardware wallets are very secure and this is the recommended option for anyone that
|
||||
wants to store a significant amount of bitcoin.
|
||||
Now if you have $10 worth and $10 worth doesn't mean a lot to you, then just keep it on
|
||||
any wallet.
|
||||
Just keep it on a software wallet running on your phone because it's convenient to
|
||||
go spend it.
|
||||
A software wallet running on your phone, it's low security because you want convenience.
|
||||
In the same way that you put some money in your pocket when you leave the house because
|
||||
it's convenient, you can easily spend that money knowing that it's not that secure.
|
||||
So you wouldn't put your life savings in your front pocket every day that you walk out
|
||||
of your house.
|
||||
You just put money in that you might want to spend.
|
||||
So in the same way, you can keep a small balance on your phone to spend and if you had a
|
||||
significant amount, you might want to store that on a hardware wallet.
|
||||
The reason a hardware wallet is very secure is that the private key never leaves that hardware
|
||||
wallet under normal circumstances.
|
||||
So you can construct the transaction somewhere else like on a computer but to sign the transaction,
|
||||
remember we sign these and then the miner verifies that and remember signing it requires
|
||||
the private key which is the thing you want to safeguard.
|
||||
That private key is secured by always remaining on your hardware wallet and they go to great
|
||||
lengths to protect that.
|
||||
So you've got software wallets, hardware wallets, there's another kind of wallet called
|
||||
a brain wallet and conceptually all this is is the seed phrase for your wallet.
|
||||
Was never recorded anywhere except in your brain.
|
||||
You remember this and the reason that's a cool idea is because you could walk across a
|
||||
border with a brain wallet so you could literally take a million dollars worth of Bitcoin across
|
||||
a border with nothing physical to indicate that.
|
||||
Just the seed phrase in your mind, that's a brain wallet, not recommended for use except
|
||||
in very specific circumstances.
|
||||
For obvious reasons I mean for one thing human memory is not that reliable and if you forget
|
||||
it by definition it's gone right you didn't write it down you just kept it in your brain
|
||||
and once forgotten this is not like a bank account where you could go through a procedure
|
||||
to recover money even though you lost your debit card.
|
||||
Another type of wallet is a paper wallet.
|
||||
Now a paper wallet they're not that popular but they're worth mentioning because they're
|
||||
very interesting.
|
||||
Now a paper wallet can be the most secure way to store a significant amount of Bitcoin.
|
||||
There are experts that will disagree and there are experts that will agree.
|
||||
I guess I'll start with the disagree camp.
|
||||
The critics of paper wallets say that proper operational security is extremely difficult
|
||||
and that's true.
|
||||
It's very difficult to do this very securely although to be fair securing any of these
|
||||
things is very difficult.
|
||||
Hardware wallets are not absolutely secure by any stretch of the imagination.
|
||||
They are very secure compared to software wallets generally speaking but nothing is perfect.
|
||||
And there are numerous ways you can compromise the security of your setup with paper wallets.
|
||||
People that aren't that familiar with them point out risks but the risks can be mitigated.
|
||||
So first of all what do I mean by a paper wallet?
|
||||
Well at the simplest level you simply print out or write down a private key that's a paper
|
||||
wallet and there's a couple of things wrong with what I just said.
|
||||
One is from an operational security standpoint you do not want to print out a private key.
|
||||
If you think about it that means you have the private key on your computer but you send
|
||||
the private key across a wire maybe across a network to a printer if you send it across
|
||||
a network maybe it's intercepted also maybe it resides in the printer's memory.
|
||||
Anyway let's say you handwrite this thing down on a piece of paper a lot of times critics would
|
||||
say well the piece of paper is pretty risky isn't it? That paper is that risk to fire, theft,
|
||||
loss, water damage and so on. And that's true a very simple mitigating strategy would be
|
||||
to laminate the piece of paper or something like that. A more secure strategy obviously is to
|
||||
throw it in a fireproof safe at home or put it in a safe deposit box. Another risk that's a very
|
||||
real risk that people point out is somebody sees it somebody probably can't memorize it but maybe
|
||||
they can take a picture of it with cell phone. That risk can be mitigated very easily as well.
|
||||
There's a great technique called Shamir Secret Sharing that I won't go into detail with here.
|
||||
The math involved here like the hashing Shamir Secret Sharing and other stuff.
|
||||
Merkel trees I didn't even mention. The math of Bitcoin could and should be its own episode
|
||||
because there's a lot that can be said about that stuff but at the highest level Shamir Secret Sharing
|
||||
is basically thing. Let's break this private key up into N number of pieces of which you need
|
||||
K number of pieces to reconstruct the key. So for example I break it up into five pieces and you
|
||||
must have three of those five pieces to reconstruct the private key. Could be any three of the five
|
||||
and those two numbers can be any numbers. It could be four out of seven. It could be three out of four.
|
||||
It can be anything. Look this up on the web if you're interested in the math.
|
||||
There's scripts that people have written. You can easily get a Python script to do this for you.
|
||||
To generate this stuff it's a lot of fun to actually read what it means. Run the Python script
|
||||
and do this and generate five pieces three of which are needed and separate them. Put one in a
|
||||
safe deposit box. Put one in your home safe. Put one in your car glove compartment. Put one at
|
||||
your mom's house. Send one somewhere to a post office box. How many did I do already? Anyway you
|
||||
get the point. So that's the idea of not having the private key all in one piece on a paper wallet.
|
||||
I also would be remiss if I didn't address the paper part of paper wallets. You know there's no
|
||||
reason that you couldn't just etch this into a piece of metal. Burn it into a piece of wood or
|
||||
something like that. The paper wallet is just the way people talk about this general technique.
|
||||
The other thing to say is I mentioned software wallets. The truth is what people think of as software
|
||||
wallets are really different things. They're a web based wallets. A web based wallet you'll
|
||||
typically go to a website. Enter in your seed phrase and it will generate the keys. Needless to say
|
||||
this is not the most secure thing in the world. You don't want to do this with a significant
|
||||
amount of money or anything really valuable because obviously you're trusting that website
|
||||
and you're trusting that you have or not being man in the middle attacked and so on.
|
||||
Another kind of software wallet is a piece of software you're running on a local computer. So for
|
||||
example in bitcoin there's the bitcoin reference client. Originally the mythical creator of bitcoin
|
||||
Satoshi Nakamoto he published not just the protocol but the reference wallet. So the software
|
||||
that he put out there was the software to run on a bitcoin node. That's the network software
|
||||
and there was also the wallet software that you would run. Now the reference wallet is not so
|
||||
slick in terms of user interface. It's just there to give an example of implementing all the
|
||||
functionality that the protocol supports. There are much slicker wallets out there but at the end
|
||||
of the day they have the same properties. They're running on your machine and are very vulnerable.
|
||||
So you do not really want to run a software wallet with any significant amount of bitcoin
|
||||
on a machine that you're using for everything in your life. If you have one computer and you play
|
||||
games on it you go on Facebook your kids use it. That's not the machine you want to be running a
|
||||
bitcoin wallet that has a significant amount of bitcoin in it because there's a lot of malware
|
||||
these days that looks for bitcoin wallets. There's a lot of malware that watches memory so as soon
|
||||
as you use it and try to send money somewhere remember the only way you can send bitcoin
|
||||
is to construct a transaction and sign it which means that private key is in memory and available
|
||||
to be stolen by malware. That's watching for that and there's a lot of malware these days that do
|
||||
just that. They watch for bitcoin private keys. What they actually do varies. They may just steal it
|
||||
and send it to the command and control center. They may actually substitute a different public
|
||||
address at the last second as you paste right you maybe you copied the send address that you're
|
||||
trying to send to and the malware substitutes a different address into the paste buffer at the last
|
||||
second. There's some that does that. At any rate you don't want to do this. If you're going to run
|
||||
software wallet the best way obviously is to use an air gap computer. A computer that's not
|
||||
connected to the network and therefore is not going to be so prone to downloading malicious software.
|
||||
Plenty of stuff we didn't get to but we're running a little long so let's try to wrap it all up now
|
||||
and summarize what we briefly talked about. We mentioned bitcoin as a protocol. It keeps track of
|
||||
the transaction history in a blockchain. That's like the data structure that's distributed across
|
||||
all the nodes on the network. All the nodes run the same software. The blockchain is just a chain
|
||||
of blocks. The blocks are these containers that have some information. Most significant of which
|
||||
are a collection of transactions. That include the transaction where the miner pays himself. The
|
||||
miner being the person that adds the block to the chain. The transaction that the miner pays
|
||||
himself with is the issuance mechanism for bitcoin the currency. Miners include transactions which
|
||||
have addresses. They have inputs and outputs and the inputs come from a UTXO set. These are the
|
||||
unspent outputs from previous transactions and it's the miner's job to check that the address
|
||||
that's an input for a transaction really had the right to send that bitcoin to the output
|
||||
address and that the sender is not creating any new money. What else? There's addresses,
|
||||
wallets we covered. Remember a wallet just manages private keys. It doesn't contain bitcoins.
|
||||
So that's a high level view of bitcoin. That's a survey. I talked about pretty much all the important
|
||||
stuff in bitcoin without going too deep into any of it, hopefully. And let me know what you want
|
||||
to talk about next. Thanks for listening. Might be my key with a basics of bitcoin for HBR.
|
||||
Thanks for hanging in there with a long podcast and we'll talk to you soon.
|
||||
You've been listening to Hecker Public Radio at Hecker Public Radio dot org.
|
||||
We are a community podcast network that releases shows every weekday Monday through Friday.
|
||||
Today's show, like all our shows, was contributed by an HBR listener like yourself.
|
||||
If you ever thought of recording a podcast and click on our contributing to find out how easy it
|
||||
really is. Hecker Public Radio was founded by the digital dog pound and the infonomicon computer club
|
||||
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|
||||
please email the host directly, leave a comment on the website or record a follow-up episode yourself.
|
||||
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|
||||
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|
||||
Reference in New Issue
Block a user