Category: Bitcoin

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

Bitcoin – Trading Bitcoin trading can be highly profitable for professional investors as well as beginners. The market is new, highly fragmented and has huge spreads. It is open to arbitrage and margin trading. Thus, it is possible for many people to make money trading bitcoins. Arbitrage in bitcoins Arbitrage is basically buying a security or asset like bitcoin in one market and simultaneously selling it in another market at a higher price, making a profit from the temporary difference in prices. Margin trading in bitcoins Margin trading is the process in which a trader borrows money from the broker to either buy or sell more stock or bitcoins than that trader would have been able to with his funds. It is like a short-term loan that increases the leverage and buying power of the trader. Each bitcoin bubble drums up a hype that puts Bitcoin in the news. The media attention makes more people interested in bitcoins, and the price rises until the hype dies down. Trading in bitcoins Trading in bitcoins is simple as bitcoin is global currency and easy to send anywhere. Bitcoin has very little barrier to entry. In many cases, even verification is not required for trading in bitcoins. Because of steep increase in bitcoin prices, investors and speculators are attracted to trading to make profits. There are no official bitcoin exchanges or official bitcoin price. This makes arbitrage trading possible. Unlike other stock trading, bitcoin trading works 24/7. Bitcoin trading is exciting because of Bitcoin”s wild price movements, its global nature, and 24/7 trading. It is important, however, to understand and remember the risks that come with trading in Bitcoins. Types of trading When we enter the trading system, there are two ways we work. One is trading on a day-to-day basis or doing long term investing, where there is buying and then waiting for their value to appreciate over time. These two strategies can be followed simultaneously by day-to-day trading in some bitcoins while investing in some other bitcoins for long term gains. In both cases, we have to open an account on one of the several crypto-currency exchanges. Coinbase and trading One of the best options is to open an account on Coinbase, a safe and reliable crypto currency exchange. On Coinbase, we can buy Bitcoin (BTC), Ethereum (ETH) and Litecoin (LTC) currencies either by making a transfer in Euros, or by direct purchase using a credit card. The fee for each transaction is a nominal 4%. Coinbase is extremely simple and intuitive, and this makes it the perfect choice to start trading in important cryptocurrencies now on the market. mt.gox used to be a popular Japanese exchange in bitcoins till a scam led to its closure.

Bitcoin – Features We have seen that bitcoins are becoming more and more popular and their usage is increasing at accelerated pace geographically. We will understand this process if we study different useful features of bitcoin that make them what they are. Features of bitcoins One of the most direct benefits of Bitcoins is that they are out of purview of governments, banks and other intermediaries who cannot interrupt user transactions or freeze Bitcoin accounts. The users experience greater freedom vis-à-vis dealing in national currencies. There cannot be inflation in case of bitcoins by printing more money as in the case of fiat currencies. By design, the number of bitcoins that can be minted is limited. Since there is no way to identify, track or intercept bitcoin transactions, one of the major advantages of bitcoin usage is that taxes are not added onto any purchases. Bitcoin transactions are relatively faster as compared to bank transfers in traditional currencies. Bitcoin transactions are done with nominal or sometimes zero transaction charges. These transactions are anonymous with no names involved. Every transaction is a public record which anyone can see. Your private key is the only link between you and your bitcoins. As long as the private key is secure, your money is safe. It is very easy to send and receive bitcoins because of ease of operation of bitcoin accounts. Small amounts of bitcoin that are used as alternative units are: millibitcoin (1 mBTC = 0.001 BTC), and satoshi (1 sat = 0.00000001 BTC) which is a millionth of a biticoin in value. You can use different wallets and tools for transacting in bitcoins. Drawbacks of bitcoins Let us examine the cons or drawbacks of bitcoins. These limitations of bitcoins make them less attractive and makes us seek better options. We have to somehow overcome or eliminate these limitations of bitcoins to make them user friendly. Bitcoins are a new emerging currency whose work is still in progress. Their value is highly volatile and unstable seeing wild fluctuations. It is internet-based, without which it cannot function. It is totally virtual currency and money can be lost due to computer breakdown or the absence or failure of a backup. Losing your private key can result in losing your bitcoins. There is no way that the transactions can be reversed or cancelled once completed. There can be misuse of anonymity of bitcoin transactions for criminal activities. The benefits of bitcoins are skewed highly in favor of early adopters. Bitcoin can be replaced with a better similar product and there is uncertainty regarding its continuation over a long period of time. Governments can ban bitcoins and make transactions in bitcoins difficult. The slowness of transaction verification is also an issue. The current version of bitcoins is not fit to handle very high volume of transactions.

Bitcoin – Wallet As we have already discussed, Bitcoin is a virtual currency made up of 0s and 1s. They are collected and stored in a software portfolio called a wallet. A wallet identifies amount of cryptocurrency with unique addresses that are used to send and receive money. A cryptocurrency wallet is a digital wallet that is used to store and transact in different cryptocurrencies. The crypto wallet doesn”t exactly “store” the currency as real-world wallets do. Instead, it stores public and private keys which help in sending and receiving money. Bitcoin owners save bitcoins in either an online wallet or a paper wallet which are similar to a physical wallet. Wallet holds keys to each bitcoin, securing them and preventing any fraud. What are public and private keys? The public key is the address to which others can send you the money, while the private key is that which you will use to send money to anyone. It is important that ONLY you should know your private key; otherwise anyone who knows your private key can steal your money. You should not lose or reveal your private key come what may. Otherwise, losing your private key is similar to losing your money. You should use at least two different techniques to save and store your private keys. As of now, let us discuss two methods of storage that can be used to store crypto money; hot storage, and cold storage. As a recap, a wallet is used to − Send and receive money as cryptocurrency Collect and store coins created by the miner Synchronize blockchain with all nodes of the network Opening a wallet is fairly simple; one can download free and paid bitcoin wallets from internet. Some deal only in bitcoins while others handle multiple cryptocurrencies. A Bitcoin wallet is simply an app, software, website, or device that manages Bitcoin private keys for you. Types of Bitcoin Wallets There are several types of wallets available in the market. They can be of several types as follows Hardware Paper Mobile Desktop Web Paper Wallets A paper wallet is a piece of paper on which the public address and private address are printed, usually in the form of QR code. Public address is used to receive bitcoins, and the private address is used to send or transfer the bitcoins stored at that address. The paper wallet should be used securely and not revealed or lost. The paper wallet can be generated by using services like Bitcoinpaperwallet or Bitaddress, and then can be printed out. Mobile, Desktop and Web Wallets These are software apps available on mobile phones, desktops, laptops or websites that allow bitcoin transactions. For those people who use Bitcoins frequently, paying for goods and services, a mobile bitcoin wallet is a necessary tool. A mobile app runs on your smartphone, has your private keys and allows making payments directly from your phone. A full Bitcoin client would require access to the complete Blockchain ledger, which needs several gigabytes of storage. Therefore, mobile wallets use simplified payment verification (SPV) technology which works with very small subsets of the Blockchain. In spite of being a convenient on-the-go solution for Bitcoin transactions, mobile wallets are very susceptible to hacker attacks and also if the mobile is lost, others can access the wallet. Hardware Wallets A hardware wallet is a physical electronic device to secure bitcoins. The hardware wallet must be connected to your computer or smartphone, before bitcoins may be spent. The three most popular and best Bitcoin hardware wallets are as follows − Ledger Nano S TREZOR KeepKey Hardware wallets are the preferred choice if large amounts of bitcoins need to be stored and are secure, reliable, and convenient. Bitcoin hardware wallets isolate private keys from internet-connected devices that are vulnerable to hackers. Your private keys are held in a secure offline environment on the hardware wallet. Hot Wallets Hot wallets are Bitcoin wallets that run on internet connected devices like a computer, mobile phone, or tablet. Private keys are secret codes that hot wallets generate on an internet connected device. As such we cannot say these private keys are completely secure. Hot wallets are like your physical wallets which you use to store some cash, but not your life savings. Hot wallets are useful if you make frequent and small payments, but are not suitable to store a large amount of bitcoins. Software wallets allow us to send and receive bitcoins and are mostly free. There are some paid software wallets which provide some extra value-added services. Opening a Bitcoin Wallet Account We can go to sites like coinbase.org and sign up with our name, email id and phone number. Opening a wallet account is like opening a bank account where we can send, receive and store money in bitcoins. In Coinbase, we can create multiple wallets which is a great way to organize the record of your expenses and savings. By default, there are following wallets in Coinbase, namely, Bitcoin BTH wallet, Bitcoin Cash BCH wallet, Ethereum ETH Wallet and Litecoin LTC Wallet. You have a wallet in US dollars as well so that you can buy and sell the cryptocurrencies using US dollars. Each account on Coinbase is a bunch of addresses. New addresses are generated for each transaction on Coinbase automatically and stay mapped with your account forever and it is secure to reuse them. Each wallet account is associated with an address and QR code as displayed. For example, selecting bitcoin wallet and then clicking on the BTC wallet address shows below address along with its QR code. We can download bitcoin software client which might take a few hours to download all blocks to our computer that now acts as a node in the network. We have to ensure that there is enough bandwidth and storage for full block chain size which is over 145 GB. It is also possible to use a wallet without downloading the bitcoin client.

Bitcoin – Mining With Bitcoins, the process of creating the currency is called mining. Bitcoin miners use specialized software and hardware to verify bitcoin transactions and to solve complex math problems and are compensated by a certain number of bitcoins in exchange. This is how bitcoin currency is issued and anyone can mine bitcoins. We can use mining to create or earn our own bitcoins. Presently, a successful miner is rewarded with 25 bitcoins for every new block that is created roughly for every 10 minutes. This mutually agreed value will halve after every 210,000 blocks are added to the chain. Bitcoin mining involves verifying and adding transaction records to Bitcoin”s public ledger of past transactions or blockchain. The blockchain is used to confirm transactions as having taken place to the rest of the network. Bitcoin nodes use the blockchain to legitimate or validate genuine Bitcoin transactions and prevent double spending of bitcoins, that is, stop re-spend of coins that have already been spent elsewhere. Bitcoin mining is willfully designed to be resource-intensive and difficult so that the number of blocks mined each day by miners remains moderate and steady. Individual blocks are also required to contain a proof of work to be considered valid. This proof of work is verified by other Bitcoin nodes every time they receive a block. Bitcoin employs the hashcash proof-of-work function for its working. The primary goal of mining is to facilitate Bitcoin nodes to reach a secure, tamper-proof consensus. Mining is also the mechanism used to introduce Bitcoins into the bitcoin eco system: Miners earn (if any) transaction fees as well as a “reward or bounty” of newly created bitcoins. This both serves the purpose of distributing new coins as well as motivating people to secure the system. Proof of work A proof of work is a piece of data which was resource-intensive and time-consuming to produce so as to satisfy certain requirements. Producing a proof of work is usually a random process with low probability, and a lot of trial and error is required before a valid proof of work is generated. Bitcoin uses the Hashcash type of proof of work. Additionally, the miner is awarded the transaction fees paid by users. The fee is a sort of incentive for the miners to include the transaction in their block. In the future, the fees will make up a significant percentage of mining income. There are two main types of mining: Solo and Pool. Solo Mining Solo mining is done alone or on your own. With the configuration of a normal desktop or laptop, it would take years to earn actual bitcoins as mining requires enormous computing power. Pool Mining The second method we can use is pool mining. It involves signing up for an account with any one of the different pooling sites. Using their software and hardware, these sites pool the mining efforts of a lot of people”s computers. Every person in the pool gets small number of bitcoins as his share as a reward. For individuals, pooling is preferable over solo mining. BitMinter BitMinter is a bitcoin mining pool that aims to make it easy for anyone to make bitcoins. It is one of the oldest pools. Since its opening in 2011, over 450000 people have registered accounts with it. In the earlier period, CPUs and GPUs were used for bitcoin mining. Now we need to have specialized Application Specific Integrated Circuits (in short ASIC) machines for bitcoin mining. The speed of these machines is given by their hash rate which is presently of the order of tera hashes/second or T H/s. ASICs took over mining in 2013. Mining just one bitcoin with an ordinary PC would take quite lot of time. You will need a 1 TH/s or faster ASIC machine to start a small mining operation at your home. Using BitMinter for Mining Below is the process to use BitMinter for mining − Step 1 − First, we signup with BitMinter site using our google or yahoo mail accounts and then confirm our mail id by clicking on the link in our mail received from BitMinter. Step 2 − We set up a Worker account with a worker name and worker password besides the username created when creating BitMinter account. We link the Bitminter Client to the worker account. Step 3 − Then we log in by filling up account details as shown below. Step 4 − After this by opening the BitMinter Client application, we get following console as shown below − Step 5 − We press the Engine Start button to start mining. We have to ensure that our machine clocks a hashrate speed of atleast 25 million hashes/second or 25 M H/s. Step 6 − We will also need to change a few settings regarding automation. We can leave our machine on all day and all night. Step 7 − We can go to Settings > Options to change these settings. Automated devices are a list of devices that you set so that they start automatically when the software starts. Step 8 − We will let our machine run at night increasing the prospect of making more number of bitcoins. Mining secures the transactions by finding random strings that make the block to hash to a value with lot of leading zeros. The more the zeros, the more difficult it is to decrypt. Mining bitcoins does not mean finding new bitcoins; these are awarded by the network for completing validation of all outstanding transactions of a block and solving some complex math puzzle. Ways to Earn Bitcoins The best way to earn bitcoins is to find and execute work paying in bitcoins. We can purchase the bitcoins as well. Lastly, if we want to earn them the hard way, we should go for mining. To mine bitcoins, we can buy some cheap hardware on sites: ebay.

Bitcoin – Cryptocurrencies Cryptocurrency is digital currency that uses cryptography to secure its transactions. It is difficult to make counterfeit crypto currency because of this security feature. A remarkable feature of any cryptocurrency, is the fact that it is not issued by any central bank or government authority, making it immune to any government manipulation. There are over 17 million bitcoins in circulation as of May 2018, with a total market capitalization of over $140 billion. Bitcoin”s success has given rise to a number of similar cryptocurrencies called altcoins: Namecoin, Litecoin, PPCoin, etc. Pros and Cons of Cryptocurrencies Cryptocurrencies make it possible to transfer funds between parties and these transfers are effected through the use of public and private keys as a means of security. These fund transfers are carried out with nominal or zero processing fees, allowing users to avoid the exorbitant fees charged by most banks and other financial intermediaries for the transfers. Apart from the fact that prices of cryptocurrencies are based on supply and demand, it has been found that the exchange rates of cryptocurrency fluctuate widely due to a host of reasons. The anonymous feature of cryptocurrency transactions renders them vulnerable to illegal transactions, such as money laundering, drug and weapons dealing, terror funding and tax evasion by criminals. However, anonymity of transactions has its own host of plus points. Cryptocurrencies are also considered by some economists to be a passing phenomenon or a speculative bubble that can burst any moment because of their virtual or digital nature. Bitcoin has indeed seen some exponential surges and sudden collapses in value. Cryptocurrencies are also not totally secure from hacking. In Bitcoin”s short life-span, the currency has been subject to over 40 hackings, including few that topped $1 million in value. Still, many see cryptocurrencies with hope as a medium of exchange that preserves value, facilitates easy exchange, is more liquid and portable than bullion, and is outside the purview of central banks and governments. Through many of their unique properties, cryptocurrencies allow exciting applications that could not be provided by any traditional payment systems. There is no physical cryptocurrency, but balances are secured with public and private keys. These balances are maintained on public ledgers, along with all transactions, that are verified by a huge amount of computing power. In early 2014, the Inland Revenue Service of the US declared that all crypto-currencies, including Bitcoin, would be taxed as property rather than currency. It was stated that all gains or losses from such currencies held as capital will be treated as capital gains or losses, while those held as inventory will attract ordinary gains or losses.