Bitcoin was launched in January 2009 by a programmer or a group of programmers going by the name Satoshi Nakamoto. It started simply as a decentralized electronic cash. Decentralization was an important aspect, because all previous attempts to establish a digital cash with a central authority had failed.
The sole motivation for Bitcoin’s creation seems to be the desire for a better payment system for ecommerce. A system that’s more secure, faster and reliable compared to the system of deposit and credit cards overviewed by a central authority. Plus the transaction costs are incomparably smaller and stay the same regardless of the amount sent or received. Bitcoin can be sent and received anywhere in the world, right away. The big advantage of Bitcoin, as a currency, is its absolute independence of governments, banks and any central authorities.
Andreas Antonopoulos https://twitter.com/aantonop
Has a very influential, if not the leading role, in the bitcoin industry. He works as an advocate and evangelist for bitcoin. Advisor to many prominent bitcoin companies and organizer of campaigns to raise public awareness of the digital currency.
Wladimir J. van der Laan https://twitter.com/orionwl
Bitcoin Core lead maintainer of the Github code repository - a conservative keykeeper to the Bitcoin code who believes in the decentralized nature of decision making over the code.
Gavin Andresen https://twitter.com/gavinandresen
Bitcoin Core leader from 2010 to 2014, Gavin had put a lot of effort into the research and development of Bitcoin and remains its advocate, spreading his knowledge of the technology. Gavin is considered the voice of reason in the industry.
Paralelní Polis https://twitter.com/Paralelni_polis
A unique space focused on new technologies, decentralization and parallel structure building. Paralelní Polis organizes annual Hackers Congress and many other talks about cryptocurrencies, decentralized economics and stateless society. Paralelní Polis accepts payments in Bitcoin and Litecoin only. Paralelni Polis was founded in Prague, Czech Republic in 2014 and has been growing worldwide (coming next to - Bratislava, Slovakia in 2018).
How is security and reliability achieved in a decentralized peer-to-peer network with no authority (central server) overlooking it to make sure everything works as intended? It’s done by the users themselves. They form nodes in the network that confirm and validate every transaction to prevent double-spending. Every validated transaction is then recorded in a public ledger which contains every move of every satoshi since the first transaction was made; the ledger is called a blockchain. The currency is not based on trust, as the classic banking system, but instead relies on math and hard data. Every bitcoin is divisible down to 8 decimal places, the smallest unit is called "satoshi" - according to the name of the Bitcoin creator.
Blockchain relies heavily on cryptography and the theoretical groundwork for its existence was laid in 1991 by Bayer, Haber and Stornetta, before Satoshi turned it into reality in 2009. Blockchain consists of timestamped blocks that include the transaction data and a hash (encrypted) pointer that links them to the previous block. Once added to the blockchain, a block cannot be retroactively modified without having to alter all subsequent blocks - which would require to beat the majority of the Bitcoin’s peer-to-peer network power, which already in 2013 had a combined might of 500 supercomputers.
Besides its use in Bitcoin and other cryptocurrencies, the blockchain is a revolutionary piece of technology that could be used to record any important events, data, documents or transactions. Major banks and financial institutions are already experimenting with the blockchain technology. Many experts consider it the biggest invention since the Internet. Cryptocurrencies younger than Bitcoin, such as Ethereum, have started using the blockchain to automatically execute smart contracts, pay for invoices, etc. The advanced use of the blockchain technology is sometimes called Blockchain 2.0.
Tip: How to buy Bitcoin with PayPal?
Since the blockchain is spread across the whole network and not centrally stored in one place it cannot be attacked, altered or deleted; it is an ideal database for digital voting, copyright protection, digital identity storage, birth, citizenship and ownership certificates and more. Further and wider use of the blockchain technology is expected.
Public and Private Keys
In order to trade or even own Bitcoins, users need to create a wallet for the Bitcoin currency. The wallet works with two keys. The public key serves as the address to which other users can send Bitcoins. As was mentioned before, every transaction is permanently stored in the blockchain and can be tracked - with details of how many Bitcoins were transferred and between which addresses - public keys.
The private key on the other hand, is kept secret and used for signing transactions. The private key signature serves as a mathematical proof that the transaction originated from the correct source (your wallet) and can be processed and added to the blockchain. Signature with the private key also makes sure nobody else can alter the transaction details as the transaction spreads across the peer-to-peer network making its way to the blockchain.
Validating Blocks AKA Mining
So far, you’ve heard about adding blocks with transactions to the blockchain, but how exactly is this done? The underlying mechanics of the concept are difficult to grasp for non-programmers, so let’s just focus on what happens.
As every transaction is broadcasted to all nodes (Bitcoin users), each node collects new transactions and tries to put them into a block. The node runs a difficult mathematical operation over the transactions (using the SHA-256 hash functions) to validate the transactions and create a block with a proof-of-work. If a block that complies with the very strict cryptographic rules is created, it is broadcasted to the network and when enough nodes verify that the transactions are valid and not double-spent, the block is added to the chain and its hash is then used for the block that’s to come after it, creating a never-ending chain of transactions - the blockchain. It is easy for other nodes to verify the proof-of-work, but extremely time-consuming to generate one.
To motivate users to keep creating blocks (and thus verifying all transactions in the network) the node that creates the block is rewarded with a certain amount of Bitcoins. As of July 2016, the reward equals 12.5 newly created Bitcoins per block. The number is halved after every 210,000 blocks - this happens approximately every 4 years, as a new block is created every 10 minutes.
The mining analogy refers to the Gold Rush. With no central authority to issue them, Bitcoins are mined from a given amount of 21 million Bitcoins. Once all those are mined (roughly in 2140), the creation of new blocks will be rewarded solely by transaction fees. Transaction fees are currently optional and used only to speed the verification of a transaction.
- No inflation - without a central authority (bank) governing the currency and a fixed total number of coins inflation is not going to happen.
- Secure - with its decentralized distribution, the blockchain and the transactions stored within cannot be modified.
- Global currency with negligible transaction costs.
- 8-years or proven work
- Most accessible of all digital-coins
- Most reliable due to the number of users, developers and businesses using Bitcoin
- Not yet accepted everywhere
- Users need to learn how to use the coin, make and accept payments and use their wallet
- Price fluctuates heavily
- Still under development (changes in functionality)
- Scalability problems - number of transactions and verification times
- Older and less secure SHA256 cryptography, which was subject to manipulation
- Mining (creating) bitcoins embodies significant energy consumption
The establishing whitepaper for Bitcoin is an eight pages long document conceived by the currency founder(s), which explains how the digital currency works in all its aspects. How transactions are time-stamped and verified, how the network works together and is collectively aware of all transactions stored in the blockchain. There are also calculations of the probability of an attacker manipulating a transaction.
Real examples of use
What’s the use of Bitcoin other than speculative investment? It can be used to pay for goods, even physical products.
Many Subway franchises accepts bitcoins too.
Map of merchants accepting Bitcoin (you can add yourself): http://coinmap.org/#/
Technically speaking, the way Bitcoin was devised and designed stood the test of time since its introduction in 2009. The only technical mistake was the expectation of the blockchain growing by 4.2MB per year, while in fact the blockchain size reached 120GB in 2017.
The simpler SHA256 algorithm has been subject to attacks by ASIC miners that manipulated the way Proof-of-Work is calculated and rumored to have gained a 20%-30% advantage over other mining hardware. There was also an instance where a single miner had almost reached more than 50% total network hash-power. This would allow them to be able to manipulate new transactions and perform double-spending.
However, the algorithm stands strong for now and can be changed for a more robust one in the future. The blockchain size is also getting addressed by the Bitcoin development community.
Bitcoin and cryptocurrencies have been the most discussed technologies of 2017. With its 9-year history and strong position on the market, Bitcoin remains the largest cryptocurrency despite new contenders emerging every day. The community of developers and users behind Bitcoin are already devising ways to catch up on smart contracts and overcome the challenges of scalability that Bitcoin has been facing with the amount of transactions exploding.
With the revolutionary technology of the blockchain, the solid history and all the advantages of a digital currency, Bitcoin is here to stay. The saying has become somewhat of a cliché lately, but that makes it no less true.
There are hundreds of developers contributing to the Bitcoin’s code, but the three most active devs include Wladimir J. van der Laan, Jonas Schnelli and Marco Falke along with Pieter Wuille and Gavin Andresen have the most commits to the code.
It´s very important to keep your private keys really private and to not share them with any third party user. There are many online services that require your private key (e.g. online wallets). You have to keep in mind that once you share your private key with someone, you actually grant them a full access to your coins. If the third party user steals them or becomes a victim of an attacker that steals them, there is no way of getting your coins back.
The same stands for a stock market. Once you send your coins to the stock market, its provider becomes the owner of your coins. That´s why you should choose your stock market wisely and use only the trustworthy ones. It is strongly recommended to have your coins on the stock market only when necessary for a short time and not leave them there for a long time. Even if you trust the provider, there is always the risk of losing your coins due to stock market´s technical vulnerability.
Absence of central authority means that there is noone else responsible for your coins but you. If you lose access to your coins there is nothing like your bank´s hotline you can call for help. In the world of cryptocurrencies, you are your own bank and its your only responsibility to keep your coins safe from others and accessible to yourself. Never forget this.
It´s essential to secure your hardware or mobile wallet with seed, also called passphrase. This is a chain of words that can be used to restore your wallet and recover your coins. It´s a way of getting to your account if your mobile phone is broken or stolen or when you just need to move your wallet to another device. Be careful about the seed, make sure you won´t lose it and keep it safe from other people. The knowledge of your seed makes you able to access all your coins.
Co-founder of Andreessen Horowitz (along with Ben Horowitz), a private venture capital firm founded in 2009. The firm invests in technology companies and has over $4 billion in assets under management. It’s invested in two different bitcoin companies: Coinable, which is a bitcoin wallet company, and TradeBlock, a financial services company involved with bitcoin.
Barry Silbert is the CEO and founder of Digital Currency Group. The company's mission is to accelerate the development of the global financial system, and it accomplishes this mission by building and supporting bitcoin and blockchain companies. The firm has invested in more than 75 bitcoin-related companies overall and is the world's leading firm for investing in bitcoin-related companies.
A former managing director at J.P. Morgan Chase & Co, currently the CEO of Digital Asset Holdings. The company has raised $60 million in funding, and interestingly, its first client is J.P. Morgan Chase, which is testing the technology of blockchain to settle transactions more quickly.
The founder and CEO of R3, which is a financial innovation firm from New York, leading a consortium of over 50 financial institutions. R3 focuses on banks interested in using the bitcoin blockchain technology in their operations, to this day some very large and well-known banks have signed up.
Co-founder and president of Blockstream, a firm developing new ways to accelerate innovations and use of cryptocurrencies such as bitcoin. The company has created a large and powerful technology team and raised over $76 million as of August 2016. On the company website it states that, "Blockstream is the first company extending capabilities at the protocol level to support the application of Bitcoin and blockchain technology to a broad range of asset types."
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