Sunday, July 19, 2015

Re-Post: Bitcoins

What is Bitcoin?


Bitcoin is a distributed peer-to-peer digital currency that can be transferred instantly and securely

between any two people in the world. It's like electronic cash that you can use to pay friends or merchants.

Who created bitcoins?
According to various newspaper article, a 64-year-old Japanese-American physicist Satoshi Nakamoto is speculated as the creater of Bitcoin.



What are bitcoins?
Bitcoins are the unit of currency of the Bitcoin system. A commonly used shorthand for this is “BTC” to refer to a price or amount (e.g. “100 BTC”). There are such things as physical bitcoins, but ultimately, a bitcoin is just a number associated with a Bitcoin Address. A physical bitcoin is simply an object, such as a coin, with the number carefully embedded inside. See also an easy intro to Bitcoin.

How can I get bitcoins?
The entire bitcoins currency is generated by algorithms, it is very easy to make sure that once the 21 million mark is reached there are no more bitcoins to be issued. Bitcoins, their issue and their maximum circulation have been predetermined from the beginning and therein lies its innate value.

You can obtain Bitcoins by purchasing them from someone else using regular currency or by earning them through a system called Bitcoin Mining. Bitcoins are stored in Bitcoin wallets which also manage addresses from which you can send and receive payments. New and different addresses can be generated for different transactions and can be done as many times as required.

How does it work?
As a new user, you can get started with Bitcoin without understanding the technical details. Once you have installed a Bitcoin wallet on your computer or mobile phone, it will generate your first Bitcoin address and you can create more whenever you need one. You can disclose your addresses to your friends so that they can pay you or vice versa. In fact, this is pretty similar to how email works, except that Bitcoin addresses should only be used once.

Balances - block chains - The block chain is a shared public ledger on which the entire Bitcoin network relies. All confirmed transactions are included in the block chain. This way, Bitcoin wallets can calculate their spendable balance and new transactions can be verified to be spending bitcoins that are actually owned by the spender. The integrity and the chronological order of the block chain are enforced with cryptography.




Transactions - private keys - A transaction is a transfer of value between Bitcoin wallets that gets included in the block chain. Bitcoin wallets keep a secret piece of data called a private key or seed, which is used to sign transactions, providing a mathematical proof that they have come from the owner of the wallet. The signature also prevents the transaction from being altered by anybody once it has been issued. All transactions are broadcast between users and usually begin to be confirmed by the network in the following 10 minutes, through a process called mining.



Processing - mining - Mining is a distributed consensus system that is used to confirm waiting transactions by including them in the block chain. It enforces a chronological order in the block chain, protects the neutrality of the network, and allows different computers to agree on the state of the system. To be confirmed, transactions must be packed in a block that fits very strict cryptographic rules that will be verified by the network. These rules prevent previous blocks from being modified because doing so would invalidate all following blocks. Mining also creates the equivalent of a competitive lottery that prevents any individual from easily adding new blocks consecutively in the block chain. This way, no individuals can control what is included in the block chain or replace parts of the block chain to roll back their own spends.




How do we do business? Using bitcoins!

You offer to pay me for my services via bitcoins and I accept the same. Why bitcoins? Because bitcoins are anonymous and are not traceable by anyone. They are the perfect way for people to do business with each other without revealing identities. They don't leave any digital footprints like credit card records, bank transactions, etc.

So let's say that we agree to a 'deal' and you agree to send me bitcoins in advance to pay me for my job. I set the price at 3 bitcoins for my work. The current rate is about Rs 38,000 per bitcoin. So, you are paying me about Rs 1.15 lakh for this covert operation.

Why are bitcoins so valuable?
The absolute brilliance of bitcoins is that only 21 million bitcoins will ever be made available in the market. (So far 13 million are in circulation and 8 million more will be gradually released into the system by the end of 2140). Given that the entire bitcoins currency is generated by algorithms, it is very easy to make sure that once the 21 million mark is reached there are no more bitcoins to be issued.

Does Bitcoin guarantee an influx of free money?
Since Bitcoin is a new technology, what it is and how it works may be initially unclear. Bitcoin is sometimes presented as being one of three things:
A. Some sort of online 'get-rich-quick' scam.
B. A loophole in the market economy, the installation of which guarantees a steady influx of cash.
C. A sure investment that will almost certainly yield a profit.
In fact, none of the above is true.

Is Bitcoin a 'get-rich-quick' scheme?


If you've spent much time on the Internet, you've probably seen ads for many 'get-rich-quick' schemes. These ads usually promise huge profits for small amounts of easy work. Bitcoin is in no way similar to these schemes. Bitcoin doesn't promise windfall profits. There is no way for the developers to make money from your involvement or to take money from you. Bitcoin is an experimental, virtual currency that may succeed or may fail.


As an investment, is Bitcoin a sure thing?
Bitcoin is a new and interesting electronic currency, the value of which is not backed by any single government or organization. Like other currencies, it is worth something partly because people are willing to trade it for goods and services. Its exchange rate fluctuates continuously, and sometimes wildly. It lacks wide acceptance and is vulnerable to manipulation by parties with modest funding. Anyone who puts money into Bitcoin should understand the risk they are taking and consider it a high-risk currency.

How are new bitcoins created?
New bitcoins are generated by the network through the process of "mining". In a process that is similar to a continuous raffle draw, mining nodes on the network are awarded bitcoins each time they find the solution to a certain mathematical problem (and thereby create a new block). Creating a block is a proof of work with a difficulty that varies with the overall strength of the network. The reward for solving a block is automatically adjusted so that, ideally, every four years of operation of the Bitcoin network, half the amount of bitcoins created in the prior 4 years are created.

Blocks are mined every 10 minutes, on average and for the first four years (210,000 blocks) each block included 50 new bitcoins. As the amount of processing power directed at mining changes, the difficulty of creating new bitcoins changes.

Is Bitcoin a Ponzi scheme?
In a Ponzi Scheme, the founders persuade investors that they’ll profit. Bitcoin does not make such a guarantee. There is no central entity, just individuals building an economy.

A ponzi scheme is a zero sum game. Early adopters can only profit at the expense of late adopters. Bitcoin has possible win-win outcomes. Early adopters profit from the rise in value. Late adopters, and indeed, society as a whole, benefit from the usefulness of a stable, fast, inexpensive, and widely accepted p2p currency.

Facts about Bitcoin
- Bitcoin is a real currency that fluctuates in price and which can be exchanged to conduct real business.
- The business of transacting bitcoins and earning bitcoins in return is really the nerve centre of this esoteric currency, and this is what makes it unique.
- Bitcoin is a work of not one but many geniuses. Satoshi Nakamoto may have been the chief blueprint architect whose master design many other super clever architects used to build on.
- Bitcoins will get harder and harder to earn. Hence they will only keep growing in value as the years roll by.
- Bitcoin is vulnerable despite being proclaimed as a digital currency with a permanent trace. But its theft only points to the fact that it is potentially very valuable.
- Bitcoin is here to stay. It may have its share of troubles, but its acceptability is growing leaps and bounds.



No comments: