TREATISE ON BITCOIN

TREATISE ON BITCOIN

Bitcoin is a modern money that was created in 2009 by an unknown person using the alias Satoshi Nakamoto in which transactions are made with no middle men ( that is  no banks! )There are no transaction fees and no need to give your real name. More merchants are beginning to accept them: You can buy webhosting services, pizza or even manicures.Bitcoins can be used to buy merchandise anonymously. In addition, international payments are easy and cheap because bitcoins are not tied to any country or subject to regulation. Small businesses may like them because there are no credit card fees. Some people just buy bitcoins as an investment, hoping that they’ll go up in value.People compete to “mine” bitcoins using computers to solve complex math puzzles. This is how bitcoins are created. Currently, a winner is rewarded with 25 bitcoins roughly every 10 minutes.Bitcoins are stored in a “digital wallet,” which exists either in the cloud or on a user’s computer. The wallet is a kind of virtual bank account that allows users to send or receive bitcoins, pay for goods or save their money. Unlike bank accounts, bitcoin wallets are not insured by the FDIC. Wallet in cloud: Servers have been hacked. Companies have fled with clients’ Bitcoins.Wallet on computer: You can accidentally delete them. Viruses could destroy them.Though each bitcoin transaction is recorded in a public log, names of buyers and sellers are never revealed – only their wallet IDs. While that keeps bitcoin users’ transactions private, it also lets them buy or sell anything without easily tracing it back to them. That’s why it has become the currency of choice for people online buying drugs or other illicit activities.No one knows what will become of bitcoin. It is mostly unregulated, but that could change. Governments are concerned about taxation and their lack of control over the currency.Senate takes a close look at Bitcoising computers to solve complex math puzzles. This is how bitcoins are created. Currently, a winner is rewarded with 25 bitcoins roughly every 10 minutes. Owning Bitcoins Bitcoins are stored in a “digital wallet,” which exists either in the cloud or on a user’s computer. The wallet is a kind of virtual bank account that allows users to send or receive bitcoins, pay for goods or save their money. Unlike bank accounts, bitcoin wallets are not insured by the FDIC. Wallet in cloud: Servers have been hacked. Companies have fled with clients’ Bitcoins. Wallet on computer: You can accidentally delete them. Viruses could destroy them. Anonymity Though each bitcoin transaction is recorded in a public log, names of buyers and sellers are never revealed – only their wallet IDs. While that keeps bitcoin users’ transactions private, it also lets them buy or sell anything without easily tracing it back to them. That’s why it has become the currency of choice for people online buying drugs or other illicit activities. Future in question No one knows what will become of bitcoin. It is mostly unregulated, but that could change.
Who created it? : A software developer called Satoshi Nakamoto proposed bitcoin, which was an electronic payment system based on mathematical proof. The idea was to produce a currency independent of any central authority, transferable electronically, more or less instantly, with very low transaction fees.
Who prints it? : No one. This currency isn’t physically printed in the shadows by a central bank, unaccountable to the population, and making its own rules. Those banks can simply produce more money to cover the national debt, thus devaluing their currency.Instead, bitcoin is created digitally, by a community of people that anyone can join. Bitcoins are ‘mined’, using computing power in a distributed network.This network also processes transactions made with the virtual currency, effectively making bitcoin its own payment network.
So you can’t churn out unlimited bitcoins? : That’s right. The bitcoin protocol – the rules that make bitcoin work – say that only 21 million bitcoins can ever be created by miners. However, these coins can be divided into smaller parts (the smallest divisible amount is one hundred millionth of a bitcoin and is called a ‘Satoshi’, after the founder of bitcoin).
What is bitcoin based on? :Conventional currency has been based on gold or silver. Theoretically, you knew that if you handed over a dollar at the bank, you could get some gold back (although this didn’t actually work in practice). But bitcoin isn’t based on gold; it’s based on mathematics.Around the world, people are using software programs that follow a mathematical formula to produce bitcoins. The mathematical formula is freely available, so that anyone can check it.The software is also open source, meaning that anyone can look at it to make sure that it does what it is supposed to.
Features of Bitcoin:
Bitcoin has several important features that set it apart from government-backed currencies.
1. It's decentralized : The bitcoin network isn’t controlled by one central authority. Every machine that mines bitcoin and processes transactions makes up a part of the network, and the machines work together. That means that, in theory, one central authority can’t tinker with monetary policy and cause a meltdown – or simply decide to take people’s bitcoins away from them, as the Central European Bank decided to do in Cyprus in early 2013. And if some part of the network goes offline for some reason, the money keeps on flowing.
2. It's easy to set up :Conventional banks make you jump through hoops simply to open a bank account. Setting up merchant accounts for payment is another Kafkaesque task, beset by bureaucracy. However, you can set up a bitcoin address in seconds, no questions asked, and with no fees payable.
3. It's anonymous:Well, kind of. Users can hold multiple bitcoin addresses, and they aren’t linked to names, addresses, or other personally identifying information. However…
4. It's completely transparent: bitcoin stores details of every single transaction that ever happened in the network in a huge version of a general ledger, called the blockchain. The blockchain tells all. If you have a publicly used bitcoin address, anyone can tell how many bitcoins are stored at that address. They just don’t know that it’s yours.There are measures that people can take to make their activities more opaque on the bitcoin network, though, such as not using the same bitcoin addresses consistently, and not transferring lots of bitcoin to a single address.
5. Transaction fees are miniscule: Your bank may charge you a £10 fee for international transfers. Bitcoin doesn’t.
6. It’s fast : You can send money anywhere and it will arrive minutes later, as soon as the bitcoin network processes the payment.
7. It’s non-repudiable : When your bitcoins are sent, there’s no getting them back, unless the recipient returns them to you. They’re gone forever.So, bitcoin has a lot going for it, in theory. But how does it work, in practice? Read more to find out how bitcoins are mined, what happens when a bitcoin transaction occurs, and how the network keeps track of everything.

Who developed the idea of bitcoins? : The idea of Bitcoin was conceptualised by Satoshi Nakamoto, an anonymous figure. In May 2008, he shared a white paper [PDF] about Bitcoin, a peer-to-peer cryptocurrency.Without disclosing who he was, Satoshi outlined how the currency would work: bitcoins would be ‘mined’ by computer software, transferred directly amongst users and recorded in an untamperable ledger without the need of a third party.Part of Bitcoin’s appeal is Satoshi Nakamoto’s anonymity, who many view as a selfless act towards a new era of financial revolution. Online detectives have identified a few candidates, including a real-life Japanese person sharing the same name. Some even theorised that Satoshi Nakamoto is a pseudonym for a collective.In May 2016, the Bitcoin community was shocked when Australian entrepreneur Craig Wright identified himself as Satoshi Nakamoto. Some people believe his claim, some didn’t, but on the whole the Bitcoin community is unaffected – the Bitcoin ecosystem is decentralised, and cannot be controlled by any person(s), including the creator.
What is so special about bitcoin?: Bitcoin is a peer-to-peer currency and runs on a system which allows you to send and receive bitcoins without a third party.To put simply, fiat currencies rely on third parties, such as banks or payment processors like Visa, to verify the transaction. This is how you and I can ensure payment sent was indeed received.However, bitcoin transactions are recorded in a public ledger called the bitcoin blockchain. This information are permanent and publicly viewable on Blockchain.info and cannot be edited or deleted.This means that the transaction records act as proof of transaction. Bitcoin is also programmed to be non-duplicable, which means double spending is highly unlikely. What is decentralised currency? :Bitcoin is also a decentralised currency, as in no one government, individual or group holds authority over it. This makes bitcoin spendable anywhere in the world as long as the receiver accepts bitcoins as payment.Decentralised currencies are a unique concept. Similar to the internet, it is free from geographical boundaries – this is why bitcoin is also dubbed ‘the currency of the internet’. Due to lack of control and regulations, many countries are understandably wary of bitcoin – and other cryptocurrencies in general – but some progressive countries such as Japan have started to recognise it as currency.

 Is bitcoin anonymous? :Bitcoin’s anonymity is a myth. Or rather, it is now much harder to make anonymous transactions with Bitcoin. Because as the ecosystem matures, many bitcoin service providers have started implementing KYC/AML regulations.KYC/AML stands for know your customers/anti-money laundering . This requires users to submit proof of identity and proof of residence.It is also fairly easy to trace bitcoins. Bitcoins are usually bought from bitcoin exchanges, received as payment, or donated. With transaction details publicly viewable online, it is possible to trace where the bitcoin came from.How do you use bitcoins?Bitcoin can be used for spending, similar to money. Some people also keep them for investment purposes, while others prefer to use them as a method to make international money transfer. Bitcoin exists electronically and is kept in ‘bitcoin wallets’. There are many types of bitcoin wallets: desktop wallet, mobile wallet, online/web-based wallet, hardware wallet and even paper wallet.To read more about bitcoin storage, check out this article by CoinDesk. You can have as many wallets and bitcoin addresses (where you receive money from others) as you like.

How many people are using bitcoin? : Estimates vary – it is hard to find out the exact number of people who use Bitcoin. One way to measure number of bitcoin users is by measuring the number of bitcoin wallets.According to CoinDesk’s State of Bitcoin and Blockchain 2016 report, bitcoin wallets doubled to 12.77 million in one year, from the end of 2014 to the end of 2015. Even though many bitcoin users have more than one wallet (it is common to hold a few wallets), this is an indication that the number of bitcoin users worldwide is increasing.Another way to estimate bitcoin usage is by the number of bitcoin transactions, which has steadily increased. Although this could mean that the same people are simply making more bitcoin transactions, it is fair to assume that there are new bitcoin users in the mix, too.

How do I acquire bitcoins? : There are three main ways to get bitcoins: mine them, buy them, or work for them. Bitcoin Mining: Bitcoin mining used to be really profitable. However at the current time it is no longer cost effective for the average individual. One will need to buy specialised Bitcoin mining equipment, get/rent dedicated spaces for them, and pay their associated costs (rental, electricity and cooling costs).
Buy Bitcoins: You can buy bitcoins from many online exchanges. There are a lot more options now than ever before – there are global bitcoin exchanges and also country-specific bitcoin exchanges. You can also buy them from other people via Localbitcoins.

Coinality : There are other less effective ways to acquire bitcoins. You can get (very) small amounts of bitcoins from bitcoin faucets, which pay you to look at advertisements. You can get them as donations. There are also bitcoin ‘investments’ but if you wish to not lose money, avoid companies that are listed in Badbitcoin Badlist.Bitcoin wallets come with bitcoin addresses, which represent a destination, similar to an email address. Bitcoin addresses are alphanumeric, between 27-34 characters in length.Many bitcoin service providers have user-friendly user interface which allows users to generate bitcoin addresses, send and receive bitcoins. To send bitcoins, users simply have to ensure positive balance in their bitcoin wallets, insert the receiver’s bitcoin address, and hit send. There is a small miner’s fee to process the transaction – miner’s fees are given as a reward and incentive to Bitcoin miners for maintaining equipment.Bitcoin transactions usually take less than an hour to arrive, but it can take longer or shorter depending on the fee amount and the bitcoin service provider.You can spend bitcoins anywhere that accept bitcoins as payment. You can also use a Visa/Mastercard-linked bitcoin debit card issued by companies like Wirex or Coinbase.Depending on who you ask, you’ll get different answers. Coders and programmers might argue that bitcoin is already an outdated network, compared to some of the newer cryptocurrency networks available.Bitcoin can be stolen in many ways. It is the bitcoin owner’s responsibility to keep them safe, and this meant implementing additional layers of security such as 2-factor authentication. The biggest names have failed the Bitcoin community. Who can forget the Mt. Gox incident in 2014. It was the biggest bitcoin exchanger at the time and practically disappeared overnight along with almost 745,000 bitcoins.More recently in 2016, thieves stole almost 120,000 bitcoins during the Bitfinex hack – and experts still don’t know how they did it. Cold hard cash is still the widest and most used form of payment – it’s acceptance is second to none. By contrast, bitcoin is only accepted at a handful of shops. However, bitcoin debit cards help to address this issue – linked to payment processors, they help make bitcoin spending a bit easier. In general, bitcoin is not considered legal in most countries around the world. Therefore, theft or scam victims have almost no option for recourse. However, the legal landscape is ever-changing and one of the best spots to update yourself on where bitcoin is acceptable many countries around the world mainly cautioned the public against the risky nature of Bitcoin, some politicians or political parties have extreme views about bitcoin. Russian and French lawmakers are considering banning it altogether. Bitcoin is cool, but the underlying technology behind it – the blockchain – is even cooler. Turns out, having a method to record data in a way that cannot be tampered or deleted is a good thing. It is also a cost-effective method to store information. Many companies including major banks have expressed interest in the blockchain technology.

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