How Bitcoin Works Under the Hood

new 3.5 in-depth course: Introduction to Bitcoin, Blockchain and Decentralized projects (Ethereum).

Italian voiceover of How Bitcoin Works (by Simone Falcini)
Spanish Translation (by Diego J Martinez Garcia)

Intro

The goal of this video is to explain how Bitcoin works under the hood, to give a clearer idea of what it really means to own, send or “mine” Bitcoins.

New: Turkish translation by bitkoyun.com now available.

If, instead of how it works, you're looking for where to buy Bitcoin, I use coinbase. And for trading, check out bitcoin wealth alliance (both affiliate links).

What is Bitcoin at a high level?

First, a brief high-level overview of what Bitcoin is.

At its core, Bitcoin is just a digital file that lists accounts and money like a ledger. A copy of this file is maintained on every computer in the Bitcoin network. (update: you don't have to maintain a ledger just to use Bitcoin to send and receive money, this is for people who want to help maintain the system).

These numbers don’t represent anything in the physical world, they only have value because people are willing to trade real goods and services for a higher number next to their account, and believe that others will do the same. The numbers only have value because we believe they have value, just like any other fiat currency.

To send money, you broadcast to the network that the amount on your account should go down, and the amount on a receiver’s account up. Nodes, or computers, in the Bitcoin network apply that transaction to their copy of the ledger, and then pass on the transaction to other nodes. This, with some math-based security, is really all there is--a system that lets a group of computers maintain a ledger.

While this may sound similar to the way a bank maintains a ledger, the fact that the ledger is maintained by a group rather than a single entity introduces a number of important differences. For one, unlike at a bank where you only know about your own transactions, in Bitcoin, everyone knows about everyone else’s transactions.

Also, while you can trust your bank, or can at least sue it if something goes wrong, in Bitcoin, you’re dealing with anonymous strangers, so you shouldn’t trust anyone. The Bitcoin system is amazingly designed so that no trust is needed--special mathematical functions protect every aspect of the system.

The rest of this entry will explain in detail how Bitcoin allows such a group of strangers to manage each other’s financial transactions.

How to find out where the Sun Rises and Sets in your yard

My first thought was to get up at sunrise and try and find the sun, and do the same at sunset. Getting up early involves getting up early, and trying to find the sun at night can be tricky because you have to catch it before it disappears behind trees.

A better, and probably more accurate way is to use a compas app on a smart phone. The position of the sun varies by latitude and time of year, but there are calculators online that will tell you the exact heading of the sun at any time of day.

3 Great Things about BitCoin

1. No transaction fees, so you can actually charge someone $.05 for something.
2. You can accept payments from places that don't speak paypal (Bangladesh, Pakistan).
3. Transaction is final, no chargebacks, freezing of paypal accounts, etc.
4. Ok, one more. No government manipulation!

I went to Atlanta Startup's Village to hear 5 tech / web startups describe themselves, and one of them was bitpay. They let you accept bitcoins at your ecommerce store and automatically convert it to cash for you, and it costs 1%. 

BitPay presenting at Atlanta Startup Village 4/30/13

In the Future, When Robots do All Our Work, What of Capitalism?

There's been a lot of concern lately about our current economic system and its wealth inequality, lack of jobs, and environmental impact. And many (1, 2, 3, 4, 5... ) think that new robots and advanced software (AI) will soon exacerbate job availability and wealth inequality. Futurists are envisioning some drastic changes to our capitalistic system as the only solution: much greater wealth re-distribution, possibly including a basic living wage for all,  living in a world without economic growth, or even efforts to slow down technology advancements. As someone for whom Ayn Rand resonates deeply, my default belief is that laissez faire capitalism, individual ownership, and the hopefully rapid growth associated with those systems is our best bet long term, even for the poorest among us. But I don't have very compelling answers for many of the troubling questions that the future will soon raise--namely, who will pay us when robots take all our jobs? Are we destined to social chaos if we don't change our system in the future? To a more ... socialist one?

From "The End of Labor: How to Protect Workers from the Rise of Robots", credit Reuters

Income Inequality Trends

One statistic many site as cause for concern is growing income inequality, which can be seen by a stagnent household median income* even as GDP continues to rise. The middle income earners in this country are making the same or less than they did in 1987 in inflation adjusted dollars. The growth in GDP is only due to the highest earners. The top quintile makes over 50% of income (H2).

How to Mechanically Calculate an Inverse and Integral

Just watched a neat series of videos on "mechanical computers" that were used to aim warship guns in realtime, using up to 25 input variables like speed, direction, enemy speed, wind, etc.

Adding

One simple example is adding using a differential, made clearer with two linear racks:

The position of the center gear is A + B / 2. You can see rack Ahas been moved to 4, which caused the gear center to move to 2, since rack B stayed still. If rack B moved to 4, too, the gear center would move another 2 units to 4 (4 + 4 / 2 = 4).

The same idea applies to a differential, where the racks are two bevel gears. Note that the middle gear spins freely on its shaft, and that the output is the rotation of that whole middle block as shown with the arrow. The outer two gears are locked to the outside shafts, but not the middle.

Inverse

To do things more complicated than adding or multiplying (which can all be done with gears), a cam and follower, or pin and slot are used. As the wheel rotates, it pushes the pin down at exactly a 1/x rate. By cutting the path in different ways, you can express just about any y = f(x) using this technique, as long as the slope isn't too step I imagine. Arbitrary functions using wheels and slots!

If you make the pin follow the curve cut on the surface of a cylinder, you can provide two inputs: z = f(x,y).

Integration

Hold on to your pants, you can even integrate with these chunks of metal. Imagine you want to know the total distance a ship has traveled, and your only input is the speed over time: s = f(t). On paper, you would need to calculate the area under the speed curve, or you could pull out one of these bad boys.

That bottom platter is rotating constantly, which rotates the balls above it through friction. The location of the balls can be shifted left and right. If the balls are positioned directly above the platter, they won't move since the speed is 0 in the center. At the edge of the platter, the speed is max. By adjusting the balls' position along with speed, you're effectively calculating the total distance (d = speed * time), or integrating the speed. It's basically just an adjustable gear ratio, but neat regardless.

2 Basic Things about the Supreme Court You Thought Were in the Constitution

The Constitution Text (Article III Section 1)

The judicial Power of the United States shall be vested in one supreme Court, and in such inferior Courts as the Congress may from time to time ordain and establish. The Judges, both of the supreme and inferior Courts, shall hold their Offices during good Behaviour, and shall, at stated Times, receive for their Services a Compensation, which shall not be diminished during their Continuance in Office.

There's some more, but it's just some technicalities about which court can hear which case. Actually, except for the part about "there shall be a Supreme Court," there's not much in Section 1, either. All that stuff you learned in elementary school was decided by Congress or just sort of happened and stuck. Am I missing something here??

9 Justices

No where in the constitution does it say anything about 9 justices. And it only mentions a Chief Justice in passing when talking about how to fire the President. Congress gets to decide the numbers, which begs the question of how separate the Judicial branch of the government really is.

It went from 6 to 7 in 1807, to 9 in 1837, to 10 in 1863, and back to 9 in 1869, where it's stayed since--but just barely.

Roosevelt didn't appreciate the court overturning a bunch of his New Deal laws during his first term, so he proposed a law that would "pack" the court with up to 15 judges. This law didn't make it through congress, but a retirement and death allowed Roosevelt to pick two new justices anyway. Before that, however, the court suddenly decided in favor of one of Roosevelt's laws, perhaps to play nice before something drastic happened... you can't always count on the rest of the government to play fair.

As Jackson was supposed to have said, "John Marshall has made his decision; now let him enforce it!"

Judicial Review

Congress and the President pass laws, and the Supreme Court rules them unconstitutional. Nice and balanced "separation of powers," except the fact that the constitution doesn't say anything about ruling laws unconstitutional, ie, "Judicial Review."

Top 4 Awkward Everyday Moments

Meeting someone when your right hand is full.

Checkout Line, Waiting on the Receipt, you and the cashier have run out of small talk.

The double-goodbye: You've said your farewells, the person leaves, but then comes back in to grab a forgotten item.

Talking to someone while trying to figure out if you've met them before.

A Bunch of Clever Product Ideas (RedDot awards)

The RedDot awards are some sort of design awards. Here are a few products that won in 2012.

Lady Shifting
The patient leans onto a carrier that functions like dolly so someone much smaller can maneuver them to sit on the bed.

Easy_to_Cut
A little triangular kink gives you enough room to get the cutter blade under the tie wrap.

Should Small Inventors Pursue Patents?

I recently attended a talk by Shane Matthews, an engineer who worked on the Super Soaker and Nerf Guns, and who has gobs of patents and products out there selling. He asked, "If you only have $10-20k left, should you get a patent, or should you invest that in marketing?" The answer was marketing, since getting a patent can easily cost that much.

I asked him how many of his products have patents, and he said about 2/3 don't have any patents. He said lots of times patents don't make sense, like for many types of toys, and for things that are only going to be around for a few years. By the time your competitors copy you, the fad is over.

Ok, so as a small-time inventor, I don't need a patent. Great!

Shane went on to say that the only reason he's able to license products to manufacturers without patents, is because he has a long history with those manufacturers. He said it's extremely unlikely that any manufacturer will even talk to you if you don't have a patent. And the Super Soaker and Nerf Guns? Well there are 30 patents on some of the Super Soakers.

For someone looking to license their technology, patents look like a necessary evil.

What about someone wanting to form a company around a new product? In this case, I believe the smaller the company / investment, the less value patents provide.