Category: Bitcoin

Bitcoin – Applications The following is a list of applications of bitcoins Bitcoins are being used to buy goods and services as more and more stores across the world are accepting bitcoin payments. Bitcoin transactions provide a customized level of anonymity and it is relatively difficult to trace their trail. So bitcoins are being used to transact anonymously. International payments can be made easily and cheaply as bitcoins are not related to any country or subject to any government regulation. There is the freedom of the fact that there is no need of permission from any authority for your transactions. Bitcoins provide a way to transact securely online as they use very strong cryptographic algorithms. Users and businesses like bitcoin payments because there are no credit card fees to pay. Bitcoins can be as an investment, expecting that their value will appreciate significantly in future. Bitcoins can be used to gamble on online sites like SatoshiDice, RoyalBitcoin, Bitzino, Peerbet, etc. Bitcoins are being used to shop online as increasing numbers of vendors are allowing bitcoin transactions. Users now can make payments in bitcoins on their smartphones through bitcoin wallet apps. Unlike credit card or bank payments, there is no need to provide personal information to complete the transactions. So the hassle of providing identity can be avoided.

Discuss Bitcoin The tutorial begins by introducing what bitcoins are, then proceeds with the installation of the bitcoin client software and wallets to make bitcoins transactions possible. It also discusses bitcoin mining, exchanges, and trading. Finally, it moves on to applications and future of bitcoins. After reading this tutorial, you will have learned all the basics of bitcoins; enough to use bitcoins and make money by trading and investing in bitcoins.

Bitcoin – Useful Resources The following resources contain additional information on Bitcoin. Please use them to get more in-depth knowledge on this topic. Useful Links on Bitcoin − Wiki page giving brief description about Bitcoin. Useful Books on Bitcoin To enlist your site on this page, please drop an email to [email protected]

Bitcoin – Quick Guide Bitcoin – Introduction Bitcoin emerged out of the 2008 global economic crisis when big banks were caught misusing borrowers” money, manipulating the system, and charging exorbitant fees. To address such issues, Bitcoin creators wanted to put the owners of bitcoins in-charge of the transactions, eliminate the middleman, cut high interest rates and transaction fees, and make transactions transparent. They created a distributed network system, where people could control their funds in a transparent way. Bitcoin has grown rapidly and spread far in a relatively short period of time. Across the world, companies from a large jewelry chain in the US, to a private hospital in Poland, accept bitcoin currency. Multi-billion dollar corporations such as Dell, PayPal, Microsoft, Expedia, etc., are dealing in bitcoins. Websites promote bitcoins, magazines are publishing bitcoin news, and forums are discussing cryptocurrencies and trading in bitcoins. Bitcoin has its own Application Programming Interface (API), price index, trading exchanges and exchange rate. However, there are issues with bitcoins such as hackers breaking into accounts, high volatility of bitcoins, and long transaction delays. Elsewhere, particularly people in third world countries find Bitcoins as a reliable channel for transacting money bypassing pesky intermediaries. How to use Bitcoins? We can make bitcoin transactions as we do with our familiar fiat currencies. While we use Bitcoin, the purchaser is actually referenced to our digital signature, which is a security code encrypted with sixteen different symbols. The purchaser decrypts the code with his device to get the cryptocurrency. Therefore we can say that cryptocurrency is an exchange of digital information that permits us to buy or sell goods and services. The transaction is secured and made trustworthy by running it on a peer-to-peer network that is akin to a file-sharing system. How does Bitcoin handle double spending problem? For digital cash system, a payment network necessarily should have valid accounts, balances and transaction records. The biggest bottleneck common to every payment network is the double spending problem which is the case when same money is used multiple times to do transactions. To prevent double spending, all transactions have to be recorded and validated every time in a central server where all the balance records are kept. However, in a decentralized network, every node on the network has to do the job of a server; it has to maintain list of transactions and balance records. Thus, it is compulsory for all nodes/entities in the network to keep a consensus about all these records. This was achieved by using the blockchain technology in bitcoins. So we can say that bitcoins like other cryptocurrencies are mere token entries stored in the decentralized databases that keep consensus of all balance and account records. It is to be noted that cryptography is used extensively to secure the consensus records. Bitcoins and other cryptocurrencies are secured by math and logic more than anything else. Bitcoins and cyptocurrencies have gained recognition and adoption based on their perceived value by their creators and users. Bitcoin works on the same concept, the more people participate; the more value is created. History of Bitcoins The first Bitcoin protocol and proof of concept was published in a Whitepaper in 2009 by a shadowy individual or group under the pseudonym Satoshi Nakamoto. Eventually Nakamoto, who remained mysterious, left the project in late 2010. Other developers took over and the Bitcoin community has since grown exponentially. While Satoshi Nakamoto”s real identity remains shrouded in mystery, it is on record that he communicated extensively in Bitcoin”s early days. Let us speculate on questions like when he started working on Bitcoin, to what extent he was inspired by similar ideas and what was the motivation for bitcoin. Creation of the first bitcoin domain It is believed that Satoshi started coding Bitcoin around May 2007. He is said to have registered the domain bitcoin.org in August 2008. Around that time, he started sending emails to a few individuals he thought might be interested in the idea of bitcoins. In October 2008, he publicly published a white paper that dwelt on the Bitcoin protocol, and released the Bitcoin code as well. Then he stayed in contact for about two years, during which he interacted actively in forums, communicated with several developers and later he also submitted patches to the initial code. He maintained the source code along with other developers, tackling issues as they happened. By December 2010, as others had slowly taken over, he quietly left the scene. Entities The entities involved in the implementation and maintenance of Bitcoins are − The Blockchain platform Cryptographic algorithms Bitcoin miners which are computers or specialized machines that mint the currency and make possible transactions People who participate in the transactions and thus help to move the payment system The philosophy of Bitcoin, and in general, of all cryptocurrencies is that they are distributed systems where there is no central entity that manages the activities such as transactions, among others. It is a peer-to-peer (p2p) system that operates at the level of participants. Bitcoin Transactions We shall now see how a new block of bitcoin transaction is created. A bitcoin miner creates a block by using the following steps − Gathering pending transactions, preferentially those with transaction fees first, and then the free ones Verifying the transactions for their validity Solving a hashing problem According to the statistics, in October, 2015, blockchain.info site stated that, the average number of transactions per block was 411, and as of May 2018, the current number of pending unconfirmed transactions is around 2495. Reward and cost per bitcoin transaction Assuming that one bitcoin is worth $400, the reward of 25 bitcoins per block is worth around $10,000, ignoring negligible amount of transaction fees. Taking average number of transactions per second as 2, and the number of transactions per block as 1200, the reward per transaction works out to $8.33. It is found that the cost of electricity consumed in mining is close to the reward which makes mining bitcoins not

Bitcoin – Exchanges Cryptocurrency exchange is where users can come together and trade in different cryptocurrencies and fiat currencies. Online currency exchanges are websites that are used for trading, that is, buying or selling bitcoins for dollars or any other currencies like Euros, Pounds, Yen, etc. We can transfer money through any online currency transfer services to trade in bitcoins on these exchanges. Exchanges of Bitcoin The following exchanges dominate Bitcoin market − Bitfinex − Bitfinex is the world”s #1 Bitcoin exchange if trading volume in US dollars is considered. Here about 25,000 BTC are traded every day. Bitstamp − Bitstamp, founded in 2011, is one of the oldest exchanges of Bitcoins. It is presently the second largest exchange in the world based on USD volume, with around 10,000 BTC traded per day. OKCoin − This bitcoin exchange is based in China but trades in US Dollars. Coinbase − This was the first regulated Bitcoin exchange in the United States. About 8,000 BTC are traded daily on this exchange. Kraken − Kraken is the #1 trading exchange in Euros handling nearly 6,000 BTC transactions per day.

Bitcoin – Future Since Bitcoin is a new emerging technology which is underway, unforeseen developments can make its existence and continuation difficult. Concerning its security and future, there are numerous questions which no one can answer. How far can we trust Bitcoins? Are they a bubble that is going to burst? Are they a passing phenomenon and a fad that would fizzle out over a period of time? Or are they going to stay put and perhaps dominate other currencies in future? As of now, bitcoins are mostly unregulated, however this may change. Governments are worried about losing taxes and control over the currency. They may bring legislations to regulate bitcoin which may hugely impact the advantages that bitcoins have over other currencies. The volatility of bitcoin prices is one huge issue. The wild fluctuations in its index is sign of such volatility. In recent years, bitcoin prices have risen exponentially and after some corrections have dipped but still they are on the high side. Many expect that the price will further increase. Favoring Growth Factors The things that favor the growth of bitcoin adoption are as follows − There are limited number of bitcoins. The awareness about bitcoins is growing and so their acceptance and adoption. The number of bitcoin transactions is increasing day by day. A large number of wealthy people do not want government”s regulations on their wealth and would rather prefer storing in bitcoins. Next halving is scheduled to occur in 2020. This will further decrease the rate of supply of bitcoins while bitcoin usage would have increased manifold by 2020. As of now, the number of bitcoin transactions is way behind the number of credit card transactions and the former has to significantly increase to realize the full potential of bitcoins. Some of the issues which have to be tackled to help bitcoin”s growth are as follows − Bitcoin transaction time or the time required to get confirmations is still on the high side as compared to credit or debit card transactions. The security of Bitcoins has become a major issue. As the usage of Bitcoin is increasing, hacking of bitcoin wallets and even exchanges has been more widespread. As of now Bitcoins are too technical for common people and are not so user friendly. It is difficult for people to understand why bitcoin prices are so volatile, why transaction time is so high and how they should safeguard their bitcoins. Governments of several countries including India are discouraging legal use of Bitcoins as they understand that Bitcoin is a parallel financial system beyond their control. However, countries like Japan, Australia and several European countries have made Bitcoin legal as they realized that they cannot stop the usage of bitcoins. Some countries have banned bitcoin exchanges. People are using global exchanges to hide their transactions. Meanwhile India and China have been discouraging Bitcoin transactions. China has tried to ban all Bitcoin Exchanges in their country while India has not banned any exchange. Zebpay and Unocoin are Bitcoin Exchanges that are under operation in India. They require submission of KYC documents before executing any Buy or Sell transaction.

Bitcoin – Environmental Setup Satoshi Nakamoto released the first bitcoin software as open source code in January 2009. He later renamed it to “Bitcoin Core” to differentiate it from Bitcoin network. Bitcoin Core is a bitcoin implementation. It is a full Bitcoin client and is backbone of the network which provides high levels of security, stability, and privacy. It also assists network in relaying transactions. It requires at least 50 GB of hard disk space and is not recommended for new Bitcoin users who can opt for lightweight mobile or desktop wallets. What is a Bitcoin full node? A full node is a software program that fully validates transactions and blocks. Most full nodes also assist the network by accepting and validating transactions and blocks from other full nodes, and then relaying them further to other full nodes. Bitcoin Core full nodes need to have certain requirements. If a node is run on weak hardware, it may work − but with a host of issues. It will be an easy-to-use node, if the following requirements are met − Desktop or laptop hardware running latest versions of Windows, Mac OS X, or Linux About 150 Gb of free disk space, accessible at a minimum speed of 100 MB/s 2 GB of RAM memory A broadband internet connection with upload speed of at least 50 kilobytes per second Preferably, an unmetered connection, a connection with high upload limits. It is common for full nodes on high-speed connections to use 200 GB upload or more a month. Download usage is around 20 GB a month, plus an additional 150 GB the first time you start your node 6 hours a day of full node running Bitcoin Core can be downloaded from the site Apart from downloading bitcoin client, we have to set up several accounts. Going further in this tutorial, we will learn how to open accounts in bitcoin sites and to create accounts in bitcoin wallets, bitcoin exchanges, bitcoin mining sites, faucet sites, and sites that offer bitcoin tools and value added services. Java Installation To run a mining software like BitMinter client, we need to have latest compatible version of Java installed. BitMinter client can be downloaded from To install Java, you can follow these steps − Go to www.java.com/download. Click on the button “Free Java Download“. Click on “Agree and Start Free Download” button. Select the version that is compatible with your operating system. Follow the onscreen instructions to continue installing the software. Once the installation is completed, click on Finish button. Continue on to the next step to set up a miner.

Bitcoin – Blockchain Technology It is believed that Blockchain is a new age technology that is solution waiting for a host of problems. There is no doubt that it is a new wonder in the field of computing. What is a blockchain? A blockchain is basically a perpetually growing list of records, called blocks. These blocks are linked and secured by using cryptography. Each block generally contains a cryptographic hash of the previous block along with timestamp and transaction data. By its design, a blockchain does not allow modification of the data. It is an open, distributed ledger that records transactions between different parties efficiently and in a verifiable and permanent way. A blockchain, as shown in figure below is typically managed by a p2p or peer-to-peer network collectively following a protocol for communication between nodes and for validating new blocks. Once recorded, the data in any given block cannot be altered without consensus of the network majority. In case of bitcoins, the blockchain is a public ledger that records bitcoin transactions. It is implemented as a chain of blocks. Each block contains a hash of the previous block up to the genesis block which is the first block of the bitcoin blockchain. This is however achieved without any trusted central authority: the working of the blockchain is performed by a network of communicating nodes running bitcoin software. Transactions of the type payer A sends B bitcoins to payee C are broadcast to this network using existing software applications. Nodes in the network validate new transactions, add them to their copy of the ledger, and then convey these ledger additions to other nodes. Each network node stores its own copy of the blockchain. Roughly every 10 minutes, a new group of validated transactions, a block, is created, and added to the blockchain, and then quickly published to all network nodes. This makes it possible for bitcoin software to determine when a particular bitcoin amount has been spent, and this prevents double-spending in a decentralized environment. It is noted that the blockchain is the only place where bitcoins can be said to exist in the unspent form. Blockchain technology has led to the development of new, digital currencies like Bitcoin and Litecoin that are not issued or managed by government or any central bank of a country. This frees individuals from any kind of control and intermediaries like banking systems that are scam and subject to collapses. It has also led to distributed computing technologies like Ethereum, which has introduced smart contracts. Blockchain is a replicated, shared ledger technology that allows any participant in the network to see ledger and make changes. It is open source, bringing down costs, improving efficiencies, increasing accessibility, addressing exciting and topical business challenges across a broad spectrum. Linux Foundation”s Hyperledger is a project developing an open source, open standards shared ledger technology. Nowadays, consumers demand transparency regarding products and their making. Governments require more information about corporate supply chains, with penalties for non-compliance. In such scenario, blockchain technology promises to deliver such expectations. It enables secure digital transfer of value or property across supply chains. Advantages of Blockchain Technology The following are the advantages of Blockchain Technology − Transactions are now verifiable, disallowing any party from making changes Greater efficiencies are being achieved through greater transparency Consumers have been empowered to make informed purchases Now governments are able to procure reliable information. Many experts believe that blockchain technology can be used in online voting, crowdfunding and other emerging technologies and novel ideas. Major financial institutions such as JP Morgan Chase are confident that cryptocurrencies can lower transaction costs and make payment processing more efficient. Bitcoin is one of the most popular and successful implementations of blockchain technology. It is an open source cryptocurrency that uses distributed peer-to-peer computing. There is no need of a central authority to manage bitcoin network. It was created by a person or group under the pseudonym of Satoshi Nakamoto. The transactions on this network are verified by proof-of-work algorithms on computers running a mining software.

Bitcoin Tutorial Job Search The tutorial begins by introducing what bitcoins are, then proceeds with the installation of the bitcoin client software and wallets to make bitcoins transactions possible. It also discusses bitcoin mining, exchanges, and trading. Finally, it moves on to applications and future of bitcoins. After reading this tutorial, you will have learned all the basics of bitcoins; enough to use bitcoins and make money by trading and investing in bitcoins. Audience This tutorial has been prepared for professionals aspiring to learn all the essentials of Bitcoins and develop a habit of buying products and services using bitcoins and lastly making money by trading in this brand new cryptocurrency. Prerequisites Before you start proceeding with this tutorial, we assume that you have basic computer skills, knowledge of downloading and installing software like Java and other applications. Prior exposure to the Linux operating system flavors would be an added advantage.

Bitcoin – Glossary In this chapter, we shall learn bitcoin glossary which describes over 50 bitcoin terms. Address A bitcoin address allows us to send and receive bitcoins on the bitcoin network. It is also the public key or address that is used to transact in bitcoins. Altcoin Altcoin is a group of ”alternate” cryptocurrencies other than bitcoins. Examples of altcoins include Ethereum, Litecoin and PPcoin. Asic An Application Specific Integrated Circuit (ASIC) is built specially to process the SHA- 256 hashing equations that are used in mining bitcoins. Asic miner An ASIC miner is the latest mining hardware used in bitcoin mining. It is used to calculate the SHA-256 equation faster than a CPU or a GPU. ASIC miners are custom-built and connect to the network through a wireless or Ethernet connection. Bitcoin Price Index (BPI) The Bitcoin Price Index, designed by Coin Desk, shows the average bitcoin prices across the top global currency exchanges. Bitcoin Whitepaper The Bitcoin Whitepaper dubbed as the Bible of the Bitcoin ecosystem, was submitted by the currency”s mysterious founder, Satoshi Nakamoto, in 2008. It gives a detailed description of the bitcoin protocol, and is a good reference material for newbies and experienced people alike. Block Chain This chain contains the records of all bitcoin ”blocks” that have been mined since the start of the currency. The chain is designed such that each block contains the hash of the preceding block, which makes the chain secure against counterfeit mining operations. Block Reward A reward is given to each miner who completes a transaction block. It can be in the form of coins or transaction fees; Bitcoin network currently rewards 25 coins for each completed block. Once the threshold of blocks has been mined (which currently stands at 210,000 blocks) the reward is halved; such an event as described above is called halving. The next halving is due to take place in 2020. Then the reward would become 12.5 coins for mining one block. BTC BTC is the abbreviation of bitcoin, similar to USD and GBP for US dollar and Great. Bitcoin Client This is the software program that connects a device, whether a desktop computer, laptop or mobile phone to the bitcoin network. Confirmation A confirmation of a transaction is its successful hashing into the block of a blockchain. It can take up to ten minutes, though larger transactions may require up to 6 confirmations. Coloured Coins Coloured coins is a proposed new feature of bitcoins that allows users to define their own attributes of the currency. It is intended that users could mark a bitcoin as a physical asset, which could then be exchanged as a token for other property. Coinbase The name of a bitcoin wallet operator that offers payment processing for merchants, and acts as an intermediary in bitcoin exchanges. Coin Age A coin”s age is calculated by the product of the currency amount and the period of time it has been owned. Cryptocurrency A cryptocurrency is considered legal tender by consensus and is secured by using cryptography based on mathematical formulas. Cryptography It is the field where math formulas and algorithms are used to create the codes that encrypt and decrypt information. Double Spending This is the criminal act of spending the same bitcoins more than once. The user completes a transaction using his bitcoins and then makes a second transaction with some other party using the same bitcoins. So confirmation is necessary to validate a transaction and prevent double spend. So zero-confirmation transactions are risky as they could involve double spending. Dust Transaction This is a transaction that has a record in the block chain but has very little worth. Steps are being taken to minimise the number of dust transactions that take place by introducing a minimum transaction amount. ECDSA ECDSA is the name of a code and an abbreviation for Elliptic Curve Digital Signature Algorithm. It is used in the Bitcoin protocol to sign transactions. Escrow An escrow is a kind of third party online wallet that stores funds securely during a transaction between two parties. It is used in cases where two parties cannot transact bitcoins till certain conditions are met, and want to ensure that their money is not ”stolen” digitally. Faucet A faucet is the method of mining a certain number of coins when launching a new cryptocurrency, and then giving these away in order to promote interest in the new currency. There are several bitcoin faucet sites that give away very small amounts of bitcoins to promote them Fiat Currency A Fiat currency is another name for token money used across the world that has been declared legal tender by governments and central banks and is not backed by a physical commodity. Fork A fork in a blockchain is said to occur when one group of miners starts hashing a different set of transaction blocks. It can also happen when a new version of the bitcoin client is introduced. A fork is deemed successful if it becomes the longer version of the chain. Genesis Block The original block in a chain. GPU This is a graphical processing unit, as found in standard PC graphics card. As GPUs are designed to process huge data at faster speeds in pixel-heavy computer games, they are also perfect for processing calculations required in cryptocurrency mining. Hash A hash is the mathematical processing done during bitcoin mining. It is a complex process that makes the currency secure and renders decryption very difficult and alteration of the output detectable. Hash Rate Hash rate counts the number of hash calculations done in a second. This generally indicates how fast and successful a mining operation is. Input Input shows where a bitcoin transaction has originated, and is generally a bitcoin address, unless it is a generation transaction meaning that the bitcoin has been newly-mined. Litecoin It is a type of alternate crypto currency that uses the Scrypt hashing formula. Megahashes/SEC It is the number of hashes per second measured in