BITCOIN - The birth of Internet of Money

Has any one imagine

WHAT IS GOING TO BE THE FUTURE OF MONEY?

Nowdays we have lot of Smart Gadgets, Smart Phones But its time for Money to be SMART.

BITCOIN is end of dumb money.

Yes Thanks to Bitcoin. Now Money is also programmable!

WHAT IS BITCOIN?

Bitcoin is a distributed peer-to-peer decentralized digital crypto currency that can be transferred instantly and securely between any two people in the world

Peer to Peer: This currency is directly transferred from person to person . In this case there is no bank or any third party in between .Thus Bitcoin protocol flips automation upside down. From now on automation within companies can start top down, making the white-collar employees obsolete

Decentralized: There is no central authority controlling it. Its not owned by any one.Its by itself. In fact it funds its own growth.

If there is no central authority controlling it, there is no bank then  How can we make sure whether the transactions are secure, people cant steal from one another, or impersonate one another and so on 

In our world  we achieve security with devices such as locks, safes, signatures etc. In the world of bits we achieve this kind of security with cryptography.

And hence a crypto currency, working on the principles of cryptography

Digital: Here‘s the funny thing about bitcoins. Actually There are no bitcoins, only records of bitcoin transactions between different addresses. For eg if u want to calculate one person’s balance.You have to go through all his past transactions and work out how much bitcoins he have

How Bitcoin works for most users?

 Bitcoin is nothing more than a mobile app or computer program that provides a personal Bitcoin wallet and allows a user to send and receive bitcoins with them.

Bitcoin transactions are sent from and to electronic bitcoin wallets, and are digitally signed for security. Everyone on the network knows about a transaction, and the history of a transaction can be traced back to the point where the bitcoins were produced.

HOW A BITCOIN TRANSACTION LOOKS LIKE?

At a very basic level, Bitcoin is just a digital file or ledger(called block chain) that contains addresses and balances, and when people exchange money this file is updated
When Bob sells Carol a book for 10 Bitcoins, Bob’s balance goes up by 10, and Carol’s down by 10.

So the question is who maintains a block chain and makes sure no one cheats?

One goal of Bitcoin is to avoid any centralized control, so every participant maintains their own copy of the ledger called block chain. One surprising consequence of this is that everyone can see everyone else’s balances, although the real system only uses wallet addresses and not names, so there’s some level of anonymity

If everyone maintains their own block chain, how are all the block chain kept in sync as money is transferred?

At a basic level, when you want to send money, you simply tell everyone else by broadcasting a message with your address, the receiver’s, and the amount. Everyone across the entire world then updates their ledger(block chain).

If sending money is as simple as creating a message with some address, How can you stop a thief, Alice, from spending Bob’s money by using his address?  

 When a new wallet  is created, it comes along with a private key mathematically linked to that wallet. With these key you can create  signatures.
To create a signature, a private key and the text from a transaction are fed into a special cryptographic function.  Another function allows other people to check the signature, making sure it was created by the account owner, and that it applies to that specific transaction.To send bitcoins, you need two things: a bitcoin address and a private key. The private key is another sequence of letters and numbers, but unlike your bitcoin address, this is kept secret.Think of your bitcoin address as a safe deposit box with a glass front. Everyone knows what is in it, but only the private key can unlock it to take things out or put things in.

When Alice wants to send bitcoins to Bob, she uses her private key to sign a message with the input (the source transaction(s) of the coins), amount, and output (Bob’s address).

While the mathematical signatures prove who sent a transaction, they can’t prove when it was sent, and this turns out to be problematic.

 Bitcoin prevents this by providing a way for the entire world to decide on transaction order.

As new transactions are created, they go into a pool of pending transactions. And from here, they’ll be sorted into a giant chain that locks in their order.
To select which transaction is next, a kind of mathematical lottery is held. Participants select a pending transaction of their choice, and begin trying to solve a special problem that will link it to the end of the chain. The first person to find a solution wins, and gets to have their transaction selected as the next in block chain.

So the lottery provides a way for the entire world to decide which transaction is next, but the math behind it also helps ensure that everyone agrees about past transactions, too.

 Suppose you’re joining the network for the first time, and request a copy of the transaction chain to get caught up, but receive several different versions. Which one should you trust?

Ideally, you would trust the one that the majority of people are using, but determining this on the internet is difficult. What would stop a single person from voting millions of times? Bitcoin prevents this by requiring people to solve math problems to vote. This causes each vote to have a cost in computing power, making it unlikely that a single person or group could ever afford to outvote or out-compute the majority of users.
The transaction ordering process described before actually provides the voting system. Part of the input to the linking problem is a transaction from the end of a chain, so each guess is effectively a vote for that chain. But how are all the votes tallied?
Because the cryptographic hash function has well defined statistical properties, you can look at any given answer and estimate how many guesses it took to find it, just like estimating how many coin flips it would take to get 100 heads in a row. So the links in a chain not only put transactions in order, but also act as an effective vote tally, making it easy to see which chain most people are using.

  
 MONEY CREATION
 

Finally, how does the money get created?

The nodes in the bitcoin network that participate in the mathematical lottery ie solving the cryptographic puzzle so that their block gets selected to enter the block chain are in turn rewarded bitcoins. Thats how new bitcoins are created.The nodes are called miners and the process is called mining.

Anybody can become a Bitcoin miner by running software with specialized hardware.

Verifying the Solving this problem is commonly called “mining,” as this is how money enters the system, but the main purpose of the math is to make sure everyone’s ledgers agree. The system simply provides a convenient way to randomly distribute money into the world.

Mining software listens for transactions broadcast through the peer-to-peer network and performs appropriate tasks to process and confirm these transactions. Bitcoin miners perform this work because they can earn transaction fees paid by users for faster transaction processing, and newly created bitcoins issued into existence according to a fixed formula.

SOMETHING YOU WANT TO KNOW ABOUT BITCOIN

Who Is Satoshi Nakamoto, Mysterious Bitcoin Founder?

 No one knows. Satoshi Nakamoto is the potentially pseudonymous name associated with the person or group of people who released the original  Bitcoin software in 2009.

 What determines Bitcoin's price?
The price of a bitcoin is determined by supply and demand.When demand for bitcoins increases, the price increases, and when demand falls, the price falls.

Is Bitcoin really used by people?

Yes. There is a growing number of businesses and individuals using Bitcoin.This includes brick and mortar businesses like restaurants, apartments, law firms, and popular online services such as Namecheap, WordPress, Reddit and Flattr.

Getting Started with Bitcoin

Step 1 - Get a wallet

Step 2 - Get Bitcoins through Purchasing Bitcoins or Mining Bitcoins

 BEWARE THE MANIA FOR BITCOIN , THE TULIP OF 21st CENTURY

Recently its price collapsed because the largest exchange on the network did not handle a known design flaw in bitcoin properly, which caused widespread disruption and possibly some loss of bitcoin. As a precaution, several exchanges had to close their virtual doors till further notice.

 

 Most importantly, Bitcoin is still in its infancy, just as 20 years ago when the internet protocols TCP/IP, SMTP and HTTP were introduced. Their impact was not understood at the time. And that’s not so strange.

Talking about bitcoin, there are basically two camps. The economists are dismissing bitcoin as a new ponzi scheme, while technologists view bitcoin as the biggest invention of this decade.

I would like to end by a quote by Futurist Peter Schwartz in his book ‘The Art of the Long View’:  

 “The single most frequent failure in the history of forecasting has been grossly underestimating the impact of technologies. […] The reason we underestimate the impact of science and technology is that they are so difficult, if not impossible, to foresee.”