Introduction Of bitcoin
Throughout history, the primary method of communicating with someone over long distances was sending a letter. This could take days, weeks, even months, with no guarantee the letter would arrive at all. Even then it was only one-way communication, for a conversation to take place it would take longer still.
This is true of our current system of money today. Most people don’t stop to think about the drawbacks of our current monetary system, but a new technology is already beginning to change that. This new technology—called Bitcoin—is rapidly changing the way we view money.bitcoin users
Bitcoin? How it form
When people say “Bitcoin” they are referring to one of two things.
1. A digital currency.
2. A payment system used for sending and receiving money online. Typically the term is used to apply to the currency itself, but the payment system is every bit as important as the currency. Let me explain both.bitcoin network
What is bitcoin ? Fully Explain
Bitcoin is a digital currency that was created in 2009. It has no physical form and can be stored as an encrypted string of numbers on your computer or phone, which you then use to buy things online.
The way that Bitcoin works means that it is not issued by governments, like traditional currency: it is “mined” by computers solving mathematical problems and is released via open-source software to the public. The value of Bitcoin fluctuates with supply and demand – people who own Bitcoins can exchange them for goods and services with anyone else who owns Bitcoins – making the virtual currency.
Bitcoin is a digital currency that enables instant payments to anyone, anywhere in the world. Bitcoin uses peer-to-peer technology to operate with no central authority: managing transactions and issuing money are carried out collectively by the network. Bitcoin was invented by an unknown person or group of people under the name Satoshi Nakamoto and released as open-source software in 2009. Bitcoins are created as a reward for a process known as mining. They can be exchanged for other currencies, products, and services. As of February 2015, over 100,000 merchants and vendors accepted bitcoin as payment.
Bitcoin As A Currency: Bitcoin is a digital, decentralized, peer to peer, pseudonymous currency based on cryptography. If that sentence made no sense to you, don’t worry - I’ll break it down for you.
Digital – Bitcoins exist only as code, they do not exist as anything physical. People can (and have) made physical representations of Bitcoin, but ultimately they are based in the digital world.
Decentralized – There is no central bank or institution that issues or controls Bitcoin. It is a group of individuals all over the world who run the program that keeps the monetary system running.
Peer to Peer – You control your own Bitcoin, and when you send Bitcoin to someone else, it goes directly to them. There are no banks or middlemen.
Pseudonymous – While all Bitcoin transactions are publically viewable in an open ledger called the Blockchain (we’ll get to that later), the sender and receiver are only known as a string of numbers and letters. If you’re careful about your identity, using Bitcoins can be done anonymously.
Based on Cryptography – The strength of Bitcoin as a digital currency lies in the code, which uses strong cryptography to ensure that the coins cannot be accessed without proper permission.
Bitcoin is the first digital currency that has these characteristics, and as a result it is the first digital currency to become widely adopted on the internet. As of June 2013, it is handling nearly 60,000 transactions each day, and this number is accelerating quickly. Payment system
Bitcoin as a Payment SystemAs a new digital currency, Bitcoin is impressive, but the truly revolutionary aspect of Bitcoin is in a new payment system. Before I explain this system, let me briefly describe one of the primary reasons why digital currencies have always failed in the past.
In the physical world, money can’t be in two places at once: once you spend it, it is inside store A’s cash register and it can’t be in store B’s cash register. With digital currency, this isn’t necessarily true. Since digital currency is computer code, the same money could actually reside in multiple places. This is obviously a huge problem, and would lead to rampant fraud.Bitcoin’s payment system solves the double spend problem, does it without relying on a single point of failure, and requires substantially smaller fees. It does this by using a public ledger called the Blockchain, which I’ll discuss in more detail later in the book.
Why Use Bitcoin?
The Advantages and Disadvantages of Digital Money
Now you have a general sense for what Bitcoin is, and know about its history. But why use it at all? What is wrong with our current money?
1. Banks. When using banks, you are trusting that they will be able to pay you back when you withdraw your money, and that they will not go bankrupt. As we have seen many times in history, bank runs and financial panics prove that you cannot be certain your money is safe inside a bank.
2. Central Banks. The United States has the Federal Reserve, the European Union has the European Central Bank (ECB), Japan has the Bank of Japan; this is repeated the world over. Countries have central banks that control the issuance of their currency.
3. Payment Processors. We trust that when we spend or accept money online, the payment processors will ensure there are no double spends, and that they will not reverse the transaction. We also trust that they will allow us to spend our money as we like, but this isn’t always true. Political advocacy group Wikileaks was trying to solicit donations in 2012, but due to pressure from governments payment processors (such as Visa and PayPal) refused to allow donations from their users.
4. Governments. Events in Cyprus during March of 2013 show how dangerous governments can be to our currency. Investors in banks had many of their assets confiscated in order to pay for the country’s debt problems. Also, governments tend to restrict the types of things that individuals can spend money on, such as drugs, prostitution, gambling, etc.
5. Identity Required. For banks, payment processors, and government, using currency typically requires being identified. Under the currency system, unless you are using cash in person, you must be identified, which can cause privacy and security problems.
How does Bitcoin reduce the trust necessary.
1. Banks. No banks are needed when using Bitcoin. You manage the currency yourself, and if you take the right precautions you can be sure your Bitcoin are right where you left them.
2. Central Banks. Bitcoin are not created by any central institution, and they are created by the network at a predictable and steady rate. No need to worry about inflation.
3. Payment Processors. There are none. Bitcoin is peer-to-peer, meaning the transaction occurs directly from one user to another. No middlemen at all.
4. Governments. There is little that governments can do to negatively impact Bitcoin. They cannot confiscate coins from banks, and they can’t prevent users from spending their Bitcoin however they like. However, they aren’t completely powerless: they can target the exchanges, the points at which people buy or sell Bitcoin for fiat currencies. Still, their control over Bitcoin is substantially less than traditional currencies.
5. Identity Not Required. If you choose to be anonymous with Bitcoin, you can be. Even though all transactions are publicly viewable on the blockchain, the sender and receiver of the funds are only known by a string of numbers and letters. If you’re careful, you cannot be identified in the blockchain.
Simple to use. While they may not be very easy to obtain, they are easy to spend. All you need to do is input the receiver’s public address (often done by scanning a QR code), enter the amount, and hit send.
Internet Integrated. Bitcoin is made for the internet, and it shows. It is very easy to integrate Bitcoin into online services. Many websites offer Application Programming Interface (API) around Bitcoin services such as the current price, or details on the blockchain. One good example is Bitcointip bot on Reddit, a popular website that aggregates content. This bot allows users to send Bitcoin to each other, within Reddit itself.
Fast. A Bitcoin transaction occurs as quickly as sending an email. Wiring money to another country could take days, but only takes seconds with Bitcoin. However, it is wise to wait for verification from the network – I’ll talk about that soon.
Secure. The cryptography behind Bitcoin is very advanced, and currently it isn’t feasible for anyone to break it. Nearly all theft of Bitcoin has occurred because of improper storage of the coins, or a hacking of the exchanges themselves. As far as anyone in the community knows, no one has ever broken the cryptography – and it isn’t for lack of trying! Several well known security experts have openly tried to expose security holes in the code, only to admit defeat.
Deflationary. There will only be 21 million Bitcoins ever created – we are at 11 million now – and this slow monetary growth means that the coins will likely increase in value over time. While there is no certainty that this increase relative to fiat money will continue, if the coins are in demand and used for transactions as they are today, the price should continue to slowly rise as fewer and fewer Bitcoin become available. Because of these advantages, the number of people using Bitcoin has continually
grown since its introduction in 2009. However, Bitcoin isn’t perfect. Here are some of the disadvantages.
How Does Bitcoin Work?
At this point, you might be interested in learning how you can obtain Bitcoin. I discuss that here, but before you skip to that part, it would be valuable to understand the inner workings of this new technology. It isn’t a necessity to know how Bitcoin works in order to use it – so you can skip ahead if you like – but I do recommend that users familiarize themselves with the basics so they aren’t completely in the dark when it comes to their own money.
How to Obtain Bitcoin?
So, you’re sold on the benefits of having Bitcoin. Great! But how can you get them? There are a variety of methods, some simpler than others, but I’ll walk through each of them for you.
Before I talk about how to get coins, here is a warning: it is important to know how to properly store and secure them. Your coins are only as safe as you make them. I’ll discuss the different ways to safely handle your Bitcoins in the next section, so make sure you’ve read that section before going out and buying any.
There are four ways to obtain Bitcoin: receiving them for free, selling your goods and services for them, buying them directly, or mining them.
The Future of Bitcoin?
Where is Bitcoin headed? No one knows for sure, but a popular refrain is heard in the Bitcoin community: In ten years, either Bitcoin will be worth nothing, or significantly more than today. I believe this is true.
The idea of digital money that you manage yourself is a powerful one, and in the first four years of this monetary experiment we’ve seen explosive growth. It’s easy to see continued growth in both individual users and businesses that accept coins. If it continues at its current pace, the value of 1.0 BTC will continue to rise compared to other currencies. Eventually, goods and services might be priced in Bitcoin itself, instead of relying on other currencies to judge value. Online shopping might not require entering your credit card information, or signing up for a PayPal account. Your identity wouldn’t need to be revealed when purchasing goods, unless you made that choice/computing power
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1. Technical. Right now the Bitcoin economy runs fairly smoothly, handling tens of thousands of transactions daily. But what will happen if that hits millions of transactions daily? Can Bitcoin handle the same amount of volume that a major credit card does? There is speculation on both sides of the issue, but no one really knows. If the system isn’t able to handle a large amount of transactions, its value is obviously limited.
2. Governmental. Because Bitcoin can be used for illegal activities (so can cash), and because the Bitcoin system is inherently difficult to regulate, governments across the world might decide to limit their citizens’ ability to use Bitcoin. If this happens, it will obviously inhibit the Bitcoin economy significantly.
3. Competition. Right now, Bitcoin is the clear leader among digital currencies, but it isn’t the only one. Several alternative cryptocurrencies have taken the Bitcoin code, altered it, and launched their own currency. Some of the most popular ones include Litecoin, PPCoin, and Ripple. These aren’t nearly as valuable as Bitcoin, but it is possible that one day another digital currency could replace Bitcoin if it were significantly better.
