7/23/2015 BankersAdda:RePost:Bitcoins

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RePost:BitcoinsIn the recent days, we are hearing a lot about a new type of currency,"Bitcoin". It is basically a "virtual currency", which ismaking quite hype inmarket today. There are various myths and speculations surrounding thiscurrency.So,herewearepresentingtoyouthebriefabout"Bitcoins".Hopeyoulikethepost!!!

WhatisBitcoin?

Bitcoin is a distributed peertopeer digital currency that can be transferredinstantlyandsecurely

betweenany twopeople in theworld. It's like electronic cash that you canusetopayfriendsormerchants.

Whocreatedbitcoins?According to various newspaper article, a 64yearold JapaneseAmericanphysicistSatoshiNakamotoisspeculatedasthecreaterofBitcoin.

Whatarebitcoins?Bitcoins are the unit of currency of the Bitcoin system. A commonly usedshorthand for this is BTC to refer to a price or amount (e.g. 100 BTC).Therearesuchthingsasphysicalbitcoins,butultimately,abitcoin is justanumber associatedwith a Bitcoin Address. A physical bitcoin is simply anobject,suchasacoin,withthenumbercarefullyembeddedinside.SeealsoaneasyintrotoBitcoin.

HowcanIgetbitcoins?The entire bitcoins currency is generated by algorithms, it is very easy tomake sure that once the 21 million mark is reached there are no morebitcoins to be issued. Bitcoins, their issue and their maximum circulationhavebeenpredeterminedfromthebeginningandthereinliesitsinnatevalue.

YoucanobtainBitcoinsbypurchasingthemfromsomeoneelseusingregularcurrencyorbyearningthemthroughasystemcalledBitcoinMining.Bitcoins

7/23/2015 BankersAdda:RePost:Bitcoins

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are stored inBitcoinwalletswhichalsomanageaddresses fromwhich youcan send and receive payments. New and different addresses can begenerated for different transactions and can be done as many times asrequired.

Howdoesitwork?As a new user, you can get startedwith Bitcoinwithout understanding thetechnicaldetails.OnceyouhaveinstalledaBitcoinwalletonyourcomputerormobilephone,itwillgenerateyourfirstBitcoinaddressandyoucancreatemore whenever you need one. You can disclose your addresses to yourfriendssothattheycanpayyouorviceversa.Infact,thisisprettysimilartohowemailworks,exceptthatBitcoinaddressesshouldonlybeusedonce.

Balances block chains The block chain is a shared public ledger onwhich the entire Bitcoin network relies. All confirmed transactions areincluded in the block chain. This way, Bitcoin wallets can calculate theirspendable balance and new transactions can be verified to be spendingbitcoins that are actually owned by the spender. The integrity and thechronologicalorderoftheblockchainareenforcedwithcryptography.

Transactions private keys A transaction is a transfer of value betweenBitcoinwallets thatgets included in theblockchain.Bitcoinwalletskeepasecret piece of data called a private key or seed, which is used to signtransactions, providing amathematical proof that they have come from theownerof thewallet.Thesignaturealsoprevents the transaction frombeingalteredby anybodyonce it has been issued.All transactions are broadcastbetween users and usually begin to be confirmed by the network in thefollowing10minutes,throughaprocesscalledmining.

ProcessingminingMiningisadistributedconsensussystemthat isusedto confirm waiting transactions by including them in the block chain. Itenforces a chronological order in the block chain, protects the neutrality ofthe network, and allows different computers to agree on the state of thesystem. To be confirmed, transactionsmust be packed in a block that fitsvery strict cryptographic rules that will be verified by the network. These

7/23/2015 BankersAdda:RePost:Bitcoins

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rules prevent previous blocks from beingmodified because doing sowouldinvalidate all following blocks. Mining also creates the equivalent of acompetitivelotterythatpreventsanyindividualfromeasilyaddingnewblocksconsecutivelyintheblockchain.Thisway,noindividualscancontrolwhatisincluded in the block chain or replace parts of the block chain to roll backtheirownspends.

Howdowedobusiness?Usingbitcoins!

YouoffertopaymeformyservicesviabitcoinsandIacceptthesame.Whybitcoins?Becausebitcoinsareanonymousandarenottraceablebyanyone.Theyare theperfectway forpeople todobusinesswitheachotherwithoutrevealing identities. They don't leave any digital footprints like credit cardrecords,banktransactions,etc.

So let'ssay thatweagree toa 'deal'andyouagree tosendmebitcoins inadvancetopaymeformyjob.Isetthepriceat3bitcoinsformywork.ThecurrentrateisaboutRs38,000perbitcoin.So,youarepayingmeaboutRs1.15lakhforthiscovertoperation.

Whyarebitcoinssovaluable?Theabsolutebrillianceofbitcoinsisthatonly21millionbitcoinswilleverbemadeavailableinthemarket.(Sofar13millionareincirculationand8millionmorewill begradually released into the systemby theendof 2140).Giventhattheentirebitcoinscurrencyisgeneratedbyalgorithms,itisveryeasytomake sure that once the 21 million mark is reached there are no morebitcoinstobeissued.

DoesBitcoinguaranteeaninfluxoffreemoney?Since Bitcoin is a new technology, what it is and how it works may beinitiallyunclear.Bitcoinissometimespresentedasbeingoneofthreethings:A.Somesortofonline'getrichquick'scam.B.A loophole in themarketeconomy, the installationofwhichguaranteesasteadyinfluxofcash.C.Asureinvestmentthatwillalmostcertainlyyieldaprofit.Infact,noneoftheaboveistrue.

IsBitcoina'getrichquick'scheme?

Ifyou'vespentmuchtimeontheInternet,you'veprobablyseenadsformany'getrichquick' schemes. These ads usually promise huge profits for smallamountsofeasywork.Bitcoinisinnowaysimilartotheseschemes.Bitcoindoesn'tpromisewindfallprofits.Thereisnowayforthedeveloperstomakemoney from your involvement or to take money from you. Bitcoin is anexperimental,virtualcurrencythatmaysucceedormayfail.

Asaninvestment,isBitcoinasurething?Bitcoinisanewandinterestingelectroniccurrency,thevalueofwhichisnotbackedbyanysinglegovernmentororganization.Likeothercurrencies,it is

7/23/2015 BankersAdda:RePost:Bitcoins

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worth something partly because people arewilling to trade it for goods andservices.Itsexchangeratefluctuatescontinuously,andsometimeswildly.Itlacks wide acceptance and is vulnerable to manipulation by parties withmodestfunding.AnyonewhoputsmoneyintoBitcoinshouldunderstandtherisktheyaretakingandconsideritahighriskcurrency.

Howarenewbitcoinscreated?Newbitcoinsaregeneratedby thenetwork throughtheprocessof"mining".Inaprocessthat issimilar toacontinuousraffledraw,miningnodesonthenetwork are awarded bitcoins each time they find the solution to a certainmathematicalproblem(andtherebycreateanewblock).Creatingablockisaproof of work with a difficulty that varies with the overall strength of thenetwork. The reward for solving a block is automatically adjusted so that,ideally,everyfouryearsofoperationoftheBitcoinnetwork,half theamountofbitcoinscreatedintheprior4yearsarecreated.

Blocksareminedevery10minutes, onaverageand for the first four years(210,000 blocks) each block included 50 new bitcoins. As the amount ofprocessing power directed atmining changes, the difficulty of creating newbitcoinschanges.

IsBitcoinaPonzischeme?InaPonziScheme,thefounderspersuadeinvestorsthattheyllprofit.Bitcoindoesnotmakesuchaguarantee.There isnocentralentity, just individualsbuildinganeconomy.

Aponzi scheme is a zero sumgame.Early adopters can only profit at theexpense of late adopters. Bitcoin has possible winwin outcomes. Earlyadoptersprofitfromtheriseinvalue.Lateadopters,andindeed,societyasawhole,benefitfromtheusefulnessofastable,fast, inexpensive,andwidelyacceptedp2pcurrency.

FactsaboutBitcoin Bitcoin is a real currency that fluctuates in price and which can beexchangedtoconductrealbusiness.Thebusinessof transactingbitcoinsandearningbitcoins inreturn is reallythenervecentreofthisesotericcurrency,andthisiswhatmakesitunique. Bitcoin is a work of not one butmany geniuses. Satoshi Nakamotomayhave been the chief blueprint architect whose master design many othersupercleverarchitectsusedtobuildon. Bitcoins will get harder and harder to earn. Hence they will only keepgrowinginvalueastheyearsrollby.Bitcoin is vulnerabledespitebeingproclaimedasadigital currencywithapermanenttrace.Butitstheftonlypointstothefactthatitispotentiallyveryvaluable. Bitcoin is here to stay. It may have its share of troubles, but itsacceptabilityisgrowingleapsandbounds.

7/23/2015 BankersAdda:RePost:Bitcoins

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