The Basics of Bitcoin

Bitcoin is a digital currency (or cryptocurrency) that was first proposed in 2008 and created in 2009 by Satoshi Nakamoto. Satioshi’s identity is still unknown, many theories exist trying to figure out who he really is. Bitcoin was not the first attempt at making digital money , but it was the first to use a “Blockchain” to keep tally of who-owns-what with Proof of Work to verify transactions.
Bitcoins are created by computers and exist on the blockchain. In the early days, a single bitcoin was worth less than one tenth of a US cent, and they could be easily “mined” by a laptop or home computer.
Bitcoin quickly became popular with people who disagreed with the power governments had to devalue their savings by recklessly printing money and the irresponsible behaviour of the financial sector. It gained media attention early on for its use on the “Deepweb” and the online drug marketplace Silk Road but has since been adopted by businessmen, entrepreneurs and charities around the world for its unique features. Bitcoin is changing the way we look at money, in ways similar to how the Internet changed communication 20 years ago.

 

 

Satoshi’s whitepaper:  Bitcoin: A Peer-to-Peer Electronic Cash System
 

 

An Introduction to Mining
Bitcoins are “mined” by everyone participating in the Bitcoin network. The software is open source, and once connected, “miners” attempt to solve a complex math problem proposed by the algorithm, SHA256 (a cryptographic hash function). The key here is that the math problem’s difficulty changes. More computers mine bitcoin, the problem gets harder. Computers stop mining, and they become easier again, keeping the problem “10 minutes hard” and ensuring every ten minutes (on average), someone mining bitcoin solves a block, and receives the reward for doing so.
At time of writing, there are just over 13 million bitcoins in circulation. There will only ever be 21 million mined, with the last one scheduled to be mined in 2140.

 

Bitcoin Hash-Rate Chart / Bitcoin Difficulty Chart
 

 

 

What is Bitcoin Mining? Have you ever wondered how Bitcoin is generated? This short video is an animated introduction to Bitcoin Mining.
 
Meet The Blockchain
"
The Blockchain is a transparent, public ledger system shared by all the nodes participating in the Bitcoin network. Every transaction that has ever taken place is recorded into the Blockchain (forever) and anyone can check it at anytime. This data is recorded on files called blocks, with each new block representing recent bitcoin transactions that have not yet been recorded. Think of it as a giant record book on the internet, that keeps tally of everyone’s bitcoin.

 

 

The blockchain is the heart of the Bitcoin protocol, with each 10 minute confirmation time forming Bitcoin’s heartbeat. Each confirmation cements recorded transactions with more and more strength as more blocks are built on top of them. This is why merchants wait sometimes for a certain number of “confirmations” before they complete a transaction, because each confirmation added makes it significantly harder for an attacker to successfully commit fraud.
    
 
Here's a more technical video on the Blockchain:

 

 

Source: BraveNewCoin.com

Believers And Skeptics

Bitcoin has some great believers and skeptics. Here’s how they match up.
 

Believers

 
  • Nas & 50 Cent: Both hip-hop artists support bitcoin, 50 cent even accepts bitcoin for his latest album.
 
  • Richard Brandson: Accepts bitcoin to pay for flights with Virgin Galactic.
 
  • The Winklevoss Twins: Bought tickets on Virgin Galactic with bitcoin, they intend to launch a bitcoin ETF .
 
  • Naval Ravikant: A famous angel investor , has compared Bitcoin to the internet in the 1990’s.
 
  • Marc Andreessen: One of few businessmen respected enough to be able to rebut Warren Buffett and be taken seriously. He has invested millions into Bitcoin startups via Andreesen Horowitz, a venture capital firm which he co-founded.

 

  • Patrick Byrne: CEO of Overstock, a competitor to Amazon and Ebay, the first major online retailer to accept bitcoin payments.

 

  • Bill Gates: Stated that “Bitcoin is a technological tour de force”, and sees use for cryptocurrency in helping remittance flows.

 

 

Skeptics

 
  • Warren Buffett: Arguably the most famous investor to have ever lived. He is CEO of Berkshire Hathaway Inc.& stated in an interview that bitcoin’s value is a “mirage”.
 
  • Paul Krugman: Nobel Prize winning economist, wrote an article titled “Bitcoin is Evil” for the New York Times and many other pieces of writing from a skeptical viewpoint.
 
  • Jamie Dimon: CEO of JP Morgan, called bitcoin a “terrible store of value”.
 
  • Senator Joe Manchin: US senator. Wrote a letter to federal regulators calling for a ban on bitcoin back in february 2014, highlighting its use as a potential tool for money laundering and drug trade.
 
  • Alan Greenspan: Former treasurer of the Fed. labelled bitcoin a “bubble” “without intrinsic value” in 2013.

Source: BraveNewCoin.com

Legends

 
The $5 Million Pizzas

In May 2010, a bitcoin forum member called “laszlo” paid another member called “jercos” 10,000 bitcoins in exchange for two pizzas. The bitcoins at the time were worth approximately $40. Jercos bought the pizzas using his credit card. Each pizza was worth over 5 million dollars each at bitcoin’s price peak in December 2013.
Here's the original thread, Pizza for bitcoins?
 

 

The lost hard drive

Sometime in 2013, a man in the UK called James Howells threw away an old hard drive containing 7500 bitcoins. When he realised, his lost hard drive was worth about £4 million, and lost somewhere in a football pitch sized landfill. Ouch!
 
The Jamaican Bobsled Team & Dogecoin

 

Whilst technically not a “bitcoin” legend, the story of how Dogecoin, a cryptocurrency based upon the “doge” meme is too good to ignore. Redditors and members of the dogecoin community raised approximately $30 000 to get the Jamaican bobsled team to the Sochi winter olympics in 2014. Later on they even sponsored a Nascar…

 

 

 

  Satoshi Nakamoto has been found

In March 2014, Newsweek published an article claiming that they had found the creator of Bitcoin, Dorian Prentice Satoshi Nakamoto, living in California. This has since been denied by Nakamoto & his lawyers, and evidence indicates that the real Satoshi is still unidentified. Leah McGrath Goodman, the journalist who wrote the article, has since been reproached for violating Dorian Nakamoto’s privacy and shoddy journalism.

We hope you have enjoyed your introduction to the world of cryptocurrency, please feel free to... Comment, Donate, or Tip, & give feedback.

Source: BraveNewCoin.com


 
So by now you know a bit more about Bitcoin’s history, how its made, and why it is interesting. Let’s get back to that mining thing, and introduce another bitcoin quirk, the hardware arms race to build better miners.
 

 

The Evolution of Miners
 
As Bitcoin’s value rose, the reward for solving a block increased with it. Miners are now rewarded thousands of dollars worth of bitcoin for solving a block, and so people were willing to pay more to increase their chances of getting these rewards. Bitcoin mining hardware has evolved through 3 distinct phases: 

 

  • CPU \ s 2009 - 2011: In the beginning any laptop or PC could easily mine bitcoins. The CPU processor provided the computing power.
 
  • GPU s. 2011-2013: As bitcoin increased in value, the graphics cards contained within gaming PCs were used. These could solve SHA256 problems much more quickly than CPUs but were more expensive.
 
  • ASIC s. 2013 onwards: Finally, as bitcoin’s value soared to over $1000 USD in 2013, purpose built mining hardware was created to mine bitcoin. ASIC computers were much more powerful and efficient at mining than GPUs, and are now what keep the Bitcoin network running. They are however, very expensive, and have been criticised because most people cannot afford them.

 

This arms race has resulted in Bitcoin becoming the world’s most powerful supercomputer , with total hardware investment in the millions of dollars. This makes it extremely expensive to perform a 51% attack on the network.
 
 
The mining arms race and Bitcoin’s increasing popularity made the network hash rate skyrocket. With so many miners
competing to solve a block, individual miners could mine for days, weeks, months, even years, without ever being rewarded (when they were rewarded though, it would be a big pay day).
 
To deal with this problem, miners agreed to combine their computing power to increase the likelihood of solving a block, and then redistribute the reward out to those contributing their mining power. This meant miners received smaller, more consistent payment, allowing them to better cover their day to day costs of electricity, rent, and other needs.
 
Certain mining pools have grown huge, causing concern amongst the Bitcoin community. If a single pool controlled more than 50% of the networks power, they could theoretically create fraudulent transactions. This however doesn't seem to be an issue, as mining pools have it in their best interest to maintain bitcoin’s price and network security.

 

See how the pools compare:   blockchain.info/pools
 

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Cloud Mining

“Cloud mining”, also known as cloud hashing , is another new way for anyone to mine cryptocurrency. Cloud mining is the renting out of mining hardware to anyone willing to pay online, for a pre-specified period of time. These agreements are called “ mining contracts ”.

We hope you have enjoyed your introduction to the world of cryptocurrency, please feel free to... Comment, Donate, or Tip, & give feedback.

Source: BraveNewCoin.com

Bitcoin is many things. It is decentralised, digital, frictionless, volatile, pseudonymous (not anonymous, the difference is important), highly divisible, irrevocable once sent, and very confusing if not explained well. Lets clarify these buzzwords.

 

  • Decentralised -  This is a key property of the Bitcoin network. Decentralisation means no single entity has control over Bitcoin. It also increases the network’s security by eliminating points of vulnerability. The network is a peer-to-peer (p2p) network , much like BitTorrent .

 

 

 

 

 

  • Digital - Imagine Bitcoin as an email application that allows you to send money. Payments can be sent and received on any computing device with an internet connection, instantly, anywhere. Just like you can access your email account on any computer in the world with an internet connection, the Bitcoin network allows you to access your money wherever you are if you wish to.

 

  • Highly Divisible - People often ask “if one bitcoin is worth so much money, how can I possibly pay for small things?” The answer lies in the fact that a bitcoin is highly divisible. Like a dollar can be divided into 100 cents, a single bitcoin can be divided into 100,000,000 satoshis - that's a hundred millionth of a bitcoin!

 

This allows payments to be extremely precise, and means bitcoin can function flawlessly with prices much higher than today. (In fact, an individual bitcoin would need to be worth $1 million dollars for a satoshi to equal one cent).

 

  • Frictionless - As said before, a bitcoin can be sent to anyone, anywhere, at any time, for free. Transaction fees are drastically lowered for both consumers and merchants using bitcoin. This feature, combined with bitcoin’s divisibility, allows you to pay one tenth of a cent or a million dollars without transaction fees.

 

  • Volatile - Bitcoin’s price volatility has been a major cause for concern amongst people new to the currency. Whilst this is an issue, bitcoin’s volatility is a product of it being a new, young, and illiquid  market. This dangerous volatility will pass as bitcoin becomes more established. In addition to this, there are easy ways for merchants accepting bitcoin to overcome these volatility problems.

 

  •  Pseudonymous - Media sources report bitcoin as being an “anonymous”currency like cash, this is incorrect. Bitcoin is not anonymous . Since every transaction that ever takes place in the Bitcoin network is recorded in the blockchain, the identity of any person involved in a transaction is only protected by their ability to deny their association with that bitcoin address. Once your identity is linked to a bitcoin address , everything you do through that address can be tracked.

 

Users can protect their privacy by generating a new address every time they make a payment, but this has not proven to be a foolproof answer to maintaining financial privacy. This is because once one address is known, a little bit of snooping around can reveal all other addresses associated with it (and you).This association between addresses is called “ taint ” and by analysing it, stolen bitcoins can be tracked.

 

  • Irrevocable once sent - Like cash, once you pay someone, there is no way to get that money back without the recipient’s approval. For merchants accepting bitcoin payments, this is useful, since credit card payments can be revoked up to a week after payment.
 

We hope you have enjoyed your introduction to the world of cryptocurrency, please feel free to... Comment, Donate, or Tip, & give feedback.

Source: BraveNewCoin.com

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How Do I Store Them?
 

 

Bitcoins are kept in a bitcoin wallet. This is where the “keys” which allow you to spend your bitcoin are stored, and since the security of your bitcoins is so important, these wallets must be strong enough to stop attackers. Many different types of wallet exist, each offer their advantages and disadvantages. Let’s take a look at the options:

 

 

  • Desktop wallets: The original bitcoin client, Bitcoin QT is an example of a desktop wallet. These wallets store private keys locally on your computer, and some, such as Armory and DarkWallet, offer additional features like improved security and anonymity.
 

 

  • Online Wallets: These wallets are web based, with your private keys stored online. These wallets allow users to access their bitcoin anywhere, however they entrust the wallet provider with the private keys, which can be risky. Coinbase, Xapo and Coinjar are reputable examples of online wallet providers.
 

 

  • Mobile Wallets: These wallet apps allow you to pay on the go with a smartphone or tablet. People can use their phone’s camera or NFC capabilities to pay in bitcoin, using QR codes or simply tapping a payment terminal. These wallets are often liked to an online wallet provider who create the mobile app as an extension of their online wallet.

 

 

  • Paper Wallets: The paper wallet offers one of the easiest, most secure storage methods for your bitcoin. When done properly, a paper wallet’s private key will only be accessible by taking physical possession of the wallet, nothing is left online. Store your bitcoins in safes and other secure locations, as long as no one steals your paper wallet, the bitcoins it can spend are safe.
 

 

  • Other: Many more kinds of wallets exist which are not yet as popular as those listed above. Examples of these include brain wallets and hardware wallets .

 

Find the wallet that’s right for you:   choose-your-wallet

 

 

Make Your Wallet Bulletproof
 
Here are some straightforward steps to make sure your bitcoin will survive anything. Regardless of whatever wallet you’re using, one of these steps can help you:
 
  • Back it up: If you lose a computer with a bitcoin wallet, those private keys, and the bitcoins they have access to, are lost forever. Avoid this by making a copy of your wallet and storing it safely somewhere else, so if something does happen, you still have access to your bitcoins.

 

  • Encrypt it: Using a strong password to encrypt your wallets data makes it much more difficult for attackers to gain access to a wallet.
 
  • Go Offline: This is known as “ cold storage ”, and is a very safe way to store bitcoins. A paper wallet is an example of a “cold wallet”. By having your bitcoin wallet’s private keys offline, hackers cannot access your wallet.
 
 

Always remember, a bitcoin wallet is only as safe as your cyber security. A perfectly managed wallet is useless on an unsecured device or computer.

We hope you have enjoyed your introduction to the world of cryptocurrency, please feel free to... Comment, Donate, or Tip, & give feedback.

Source: BraveNewCoin.com

The answer? Many things. Already, your bitcoins can buy a huge selection of goods and services.

 

  • Buy almost anything online: There are many online retailers that accept bitcoin for everything from patio furniture  to flowers .
 

  • Food & drink: Bitcoins can also be used in bars, restaurants and cafes that accept them. Its easy to buy coffee with bitcoin.

 

  • Real Estate: Property has been put up for sale across the world in bitcoin. (BitPremier)
 
  • Send money cheaply: \ Remittances can be sent to anyone anywhere for much lower transaction fees than current money transmitters such as Western Union

 

  • Crowdfunding:  Since it is so easy to use bitcoin online, it can easily be used for crowd funding . People can choose to donate anonymously, donate micro amounts, or set a condition on their donation, allowing the money to remain in their wallet until a certain threshold has been reached to the cause.
 
  • Provably fair gambling: Online gambling and betting is also made much easier using bitcoin. No credit card details are needed, and users can check that the site that they are on is using provably fair odds.
 
  • Bitcoin 2.0: Developers and thinkers in the Bitcoin space are already envisioning what is possible in the future with Bitcoin. Some of their ideas, whilst not yet a reality, are pretty damn cool/scary. For more information, take a look at:

 


We hope you have enjoyed your introduction to the world of cryptocurrency, please feel free to... Comment, Donate, or Tip, & give feedback.

Source: BraveNewCoin.com



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