BitCoin-Why and What? YouTube Lecture Handouts

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Watch Video Lecture on YouTube: Bitcoin: Creation, Circulation, Usage, Problems & Advantages - Currency of Internet

BitCoin: Creation, Circulation, Usage, Problems & Advantages - Currency of Internet

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General Studies Bitcoins – Cryptocurrency

Image of Bitcoins - Cryptocurrency

Image of Bitcoins - Cryptocurrency

Images of Cutting Out The Middleman For General Studies Bitc …

Eliminating the Middle Man

"If You Can't Explain It Simply, You Don't Understand It Well Enough." - Albert Einstein

Why Use BitCoin?

  • Peer to peer

  • Account can’t be closed

  • On digital wallet

  • Simple as email

  • Secured by Miners (rewarded for maintaining ledger)

  • Changing finance

  • Minimize transaction fee

  • Cannot be frozen & blocked

Cryptocurrency – Anonymous

  • Crypto = Hidden

  • Key

  • Signature

  • BitCoin/Altcoins – 1st decentralized Cryptocurrency in 2009

Double Spending Problem

Image of Main Problem With The Digital Money

Image of Main Problem with the Digital Money

Open Ledger

  • Chain of transactions

  • Open & public

  • Decide valid/not valid

  • Centralized place

  • Who is doing is private

Distributed Open Ledger

  • Each can have copy of the ledger

  • Many Copy – All synchronized (have same version)

Miners

  • Special nodes that can hold ledger

  • Miners compete among themselves – to validate and add to ledger (check funds)

  • Find key – take previous transaction & lock new transaction

  • Invest computational power & time

  • Gets financial reward (when solved)

Block Chain

  • New group of accepted transactions

  • 6 times every hour – blocks made

  • Nonce: Arbitrary number may only be used once

Image of Block Chain

Image of Block Chain

Block Chain – Public Distributed Ledger

  • Its not bitcoin but backend of bitcoin

  • Ledger is open and public

  • Ledger exists in many nodes - decentralized

  • Removes dependency on 3rd party

  • No trusted entity

  • Faster/Immediately

  • Cheaper

  • For new block – 12.5 BTC

  • Every hour BTC

  • After 2.1 lakh block (4 years), amount of BTC is halved – ultimately zero BTC – only transaction fee

Bitcoin Circulation

  • 21 million bitcoins in 100 years

  • About over 13 million bitcoins in circulation by 2014

  • 8 million bitcoins will be mined in next 95 years

Image of Bitcoin Circulation

Image of Bitcoin Circulation

History of Cryptocurrency

  • 1998: We-Dai – b-money – distributed electronic cash system

  • BitGold by Nick Szabo

  • 2009: Bitcoin - used SHA-256, a cryptographic hash function, as its proof-of-work scheme

  • 2011: Namecoin

  • 2011: Litecoin - used scrypt as its hash function

  • Peercoin: proof-of-work/proof-of-stake hybrid

  • 2014: Treasury

Algorithms

  • SHA-2 (Secure Hash Algorithm 2) by NSA - cryptographic hash functions

  • Scrypt: Password-based key derivation function – make it difficult to do hardware attacks

Bitcoin (BTC, XBT Or

The Bitcoin

The Bitcoin

)

  • Key and Signature

  • Signatures are unique

  • By Satoshi Nakamoto

  • 31 May 2017: 1 bitcoin = $2257.96 or Rs. 143126.45

  • Mathematically limited to 21 million bitcoins

Satoshi

  • Satoshi / Austrian – one hundred million of BTC (smallest unit)

  • Japanese character シ ("shi") - proposed

  • Katakana symbol サ ("sa") - proposed

  • Circled shi (㋛)

  • Hiragana shi (し)

Why Bitcoin Fluctuates?

  • Rate in 2010 ($0.08)

  • USA (buy – uptick)

  • Zambia (sell – downtick) 30 minutes later

  • Decrease in Bitcoin rate by:

    • Merchants accepting Bitcoin

    • Miners “cashing out” to pay bills with fiat

    • Redemption of transmission bitcoin

    • Conversion of bitcoin salaries to fiat (increase in unused bitcoin)

Who Accepts?

  • More than 1 lakh retailers

  • Wallet applications

  • Apple

  • Dell

  • Newegg

  • e-Bay

  • Dish Network

Global Scenario

  • Japan – Bitcoin made legal (law passed)

  • Australia – removed double tax on bitcoin users

  • Bangladesh – Illegal – 12 years in jail

  • Kyrgyzstan – Illegal (no prohibition from buying and selling)

  • Ecuador – banned (creating its own virtual currency)

  • Bolivia – Banned

  • Vietnam – prohibits credit institutions from dealing in cryptocurrency

Bitcoin in India

  • BTCXIndia: 1st bitcoin exchange in India with KYC and AML guidelines

  • Unocoin

  • Zebpay – 5 lakh app downloads & 2,500 users per day are added

  • Fiat is needed to purchase Bitcoin to enter market in India – entry by donations, services or mining

  • Still researching on bitcoin to make it legal

  • Market acceptance, customer trust, investment security, money laundering, hawala

Bitcoin Thefts

  • Mt. Gox –mtgox.com, short for "Magic: The Gathering Online eXchange’ in 2006. World’s leading bitcoin exchange in 2013-14 - 850,000 bitcoins were stolen which amounted to $450 million & finally bankruptcy declared

  • Bitfinex - $72 million stolen in Hong Kong based exchange - customers would forfeit 36% of their holdings and be given "BFX tokens" instead that could be redeemed by the exchange or converted to shares in its parent company iFinex.

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