Chapter one: Introduction to bitcoin:Our world is changing, changing as fast as a lightning speed, every day a new trend is up, some of these trends doesn’t end up well or lead to a Ponzi scheme The newest trend is Bitcoin. Bitcoin can be traded for goods and services with Verdures who accept them as a payment. Bitcoin was created from nothing. Bitcoins get their values in a similar way to stocks buyers drive them up, and sellers drive them down. It is said that the transactions are made anonymously that is why it is used to sell drugs or laundering money others say it is legit.
So the biggest question is what is bitcoin? And is it good or bad?Definition of bitcoin:Bitcoin is a digital asset (also known as crypto-currency) and a global payment system; it is not backed by any central bank or government. You can get them through downloading bitcoin software which acts like a virtual wallet with these bitcoins leading them to a process called mining, or you can get them from a bitcoin currency exchange.Why use bitcoin?Bitcoin payments: it can be made from one person to another regardless of his location or authority, payments are fast, it takes seconds. Incases when the financial system is poor it can be a very useful method of transferring value to anyone who can access to the internet.Potential users: some societies are under served by banks due to the high cost of banking model, some international transfers are uncertain, or can take many days, with manual processes and faxes being used as a part of the penetrate.Price volatility: like any other currency, the price of bitcoin changes, more than any other currency.Conversion: just like any other currency, if you have one currency, for example (Canadian dollar), and you want to convert it to bitcoins, you need to find someone to exchange it with.
Conversion these days is getting easier as the days pass by, and cheaper as more exchanges are taking place in more countries.Maintain cynicism: bitcoin can be known as being “fast” and “low cost “this is true, but you should always maintain doubt and thinking about the costs involved in the process of exchanging the unlimited amount of currencies into bitcoin and back. How bitcoin began:On August.18.2008 the domain was registered and protected, meaning that the person who registered it is unknown, then on October.13.2008 an announcement was made by a person named Satoshi Nakamoto that “I have been working on a new electronic cash system that is fully peer-to-peer, with no trusted third party” ,afterword’s on January.
3.2009 the first bitcoin block was mined, After that the first version of the software was announced on the Cryptography mailing list on January.8.2009, in the end block one was mined on Jnuary.9.2009. The identity of Nakamoto is still unknown.
In popular culture:Film: a documentary movie that was released on October.10.2014 under the name of “the rise and rise of bitcoin”.
Television: the famous science fiction series “the big bang theory” air casted an episode under the name of ” The bitcoin entanglement”, it narrates the story of the three main characters( Leonard, Raj and Howard) who tried to track down the bitcoins the have mined seven years ago. Chapter two: bitcoin designBlockchain: it is a chain of blocks that contains information, it was originally intended to timestamp digital documents so it becomes impossible to backdate them, or to tamper with them, well it remained unused till it was adapted by “Nakamato” in 2009. It is a distributed ledger that is completely open to anyone. There is a fact that once a data is stored inside a blockchain it becomes very difficult to change it, well how does that work? Well each block contains data, the hash of the block and the hash of the previous block.
The data that is stored inside a blockchain depends on the type of it, a bitcoin blockchain stores the details about the transactions that took place in it, such as: the sender, receiver and the amount of coins, it also contains a hash, a hash works as a finger print and it helps you to identify the block contents, it is very useful when you want to detect changes to blocks. The third element is the hash of the previous block, and it is the technique that makes the block so secure. Changing a single block will make the entire following blocks invalid, they secure themselves by being distributed, and they use a peer-to-peer network instead of a central entity to manage the chain. When a new block is created, it is send to everyone in the network. So to successfully tamper with a blockchain you need to tamper with all the blocks and take control of more than 50% of the network. The newest development in the blockchaintechnology is smart contracts, these contracts are simple programs that are stored on the chain and can be used to automatically exchange coins based on certain conditions.
Transaction and transaction fees: bitcoin transaction are messages, which are digitally signed using cryptography and sent to the entire bitcoin network for verification, a transaction is comprised of three parts: an input (the record of the bitcoin address) , the amount ( the specific amount of bitcoins that you want to send) and the output ( the public key, commonly known as your bitcoin address). The transaction requires having access to a public key in which where the previous amount was sent and a private key in which it authorizes the previous bitcoins to be sent elsewhere. Public keys are a random sequences of numbers and letters, you can share them with others, on the other hand private keys are meant to kept as a secret, others cannot see what is inside your address but only the ones with the private key can access to the funds. When you want to send some bitcoin, you use the private key to sign a message with the details, after that it is send to the blockchain, then the transaction will be broadcasted and the miners will have access to the inputs.The transaction fees are calculated by many methods, one method is to allow users to manually set transaction fees. Fees are used to increase the transaction speed.
Mining and pooled mining: bitcoin works as a peer-to-peer network; this means that everyone who uses bitcoin is considered as a small part of the bitcoin bank. Miners use special software to solve math problems, in exchange they are issued a certain number of bitcoins, since minors are required to approve on transaction more miners which mean a much safer network. The network automatically changes the difficulty of math problems, depending on how fast they are being solved. Back to the early days miners used to solve these problems with the processors and computers, and then the graphic cards that are used for gaming were discovered but the problem was that they consumed a lot of energy and generated a lot of heat, then programmers developed ASIC (application specific integrated circuit) these chips were specifically designed for mining, this technology made the mining process faster and consumed less energy. Pooled mining: as the popularity of the bitcoin increases, more people had joined the network which made math problems even more difficult so the term of pooled mining was invented. Itcombines the work of many miners toward a common goal. They are rewarded of the amount he or she provides.
Mining ensures fairness while keeping the network, stable, safe and secure.Decentralization: there is a difference between coercive centralization and market based centralization. Coercive centralization is the movement of money in the financial industries, on the other hand market base is a centralized entity, but you do not need to use bitcoin, you can always trade it over the blockchain, or store it in your wallet without the permission of a third party.
The key of distinction is that the user of the fiat is forced to utilize a central service.Wallets: a bitcoin wallet is software that allows you to send or receive bitcoin to your public address. Public addresses are 160 digit long and they always start with number one. Private keys always start with number 5 and are created automatically. There are two main types of wallets: the desktop wallet and the online wallet. The desktop wallet is software that can be downloaded in the computer or installed from a CD, an example: multi bit or bitcoin cutie, the other type is the online wallet, when a person is registered online through an online wallet just like the Hotmail and Gmail, itis not that secure because it is online.
Privacy: your privacy can be protected by following these basic steps: step number one, bitcoin should be understood traceability, theaddress can be traced by the history of all the transactions they got involved with. Step two: always use a new address to receive payments, always, always and always have more than a wallet, and use different addresses when new payments are received. Step number three; make sure to hide your IP addresses so it cannot be logged into the account. Chapter three :EconomicsClassification: The first transaction coasted ten thousand bitcoin just to buy a pizza, eight years later they worth more than twenty million dollars. Bitcoin cannot be classified as a currency, electronic money or a payment instrument. According to the supreme court in California Banker Associationfollows:” currency is defined in the secretary’s regulation as the ‘ coin and currency of the united states or any other country, which circulate in and are customarily used and accepted as money in the country in which issued ‘”, as it lacks the requirements of a legal tender it cannot be classified as a currency, also it does not fit under the definition of a payment instrument in Finland nor as an electronic money defined by the European Union. Money is defined as a store of value, medium of exchange and a unit of account.
These characteristics also apply to bitcoin, it can be stored for years before it is fetched and it is value is considered is considered to be more stable than other currencies. As for a medium of exchange, you can buy, and sell services and products with, for example Reeds Jewelers, Inc. acceptcryptocurrency, and bitcoin can be a ” a unit of account as long as the relation of its value to the value of other goods can be determined”. So bitcoin cannot be classified as a currency but surely itscharacteristics apply on bitcoin. General use: the number of cryptocurrency users is estimated to be between 2.
9 million and 5.8 million, and it is said that the number of active wallets is 11.5 million wallets.Acceptance by merchants: bitcoin is the largest, most known digital currency. Many well-known companies are accepting them as a legal source of funds; they are accepted in large and small companies.it is accepted in Subway, Microsoft, Lumfile a server company that offers free-cloud based services, Domino’s pizza and Virgin Galatic airlines and mobile. Financial institutions: banks are afraid thatbitcoin will destroy them; bitcoin has great potentials of becoming the new currency, free of control.
That’s why governments and banks want to minimize its potentials. Big governments by setting up regulations of Initial Coin Offerings (ICOs) and by shutting down the exchanges. The Chinese government has recently crushed cryptocurrency.Central banks discourage institutions to do business with virtual currencies because it involves high risk and it may lead to losses of funds. Here is a list of some unfriendly banks:1. In Australia the commonwealth bank.2. In Germany Commerzbank had shut down 24 bitcoin account.
3. In Canada the royal bank of Canada froze the accounts. As an investment: many Argentine citizens are looking for alternative methods to protect their cash.
A growing number of the population has transacted to bitcoin because of the high inflation rates and strict capital control.Bitcoin pricing: the difference between bitcoin pricing and other currencies, that the pricing is solely set by the supply and demand in the community, the price is easily influenced by news and rumors, large markets like the European Union, China, Japan and the US may announce new regulations causing the price either to rise or fall. The price can also be influenced by internal factors.Supply and demand: bitcoins supply is limited to 21 million units, this was set in the programming of the bitcoins software, as more and more people came to use bitcoin, the increased demand combined with the fixed supply will force the price to go up. As more people use bitcoin, the value of the network is going to increase.
