BitCoin- Why and What? YouTube Lecture Handouts
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BitCoin: Creation, Circulation, Usage, Problems & Advantages - Currency of Internet
General Studies Bitcoins – Cryptocurrency
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
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
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
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
- Key and Signature
- Signatures are unique
- By Satoshi Nakamoto
- 31 May 2017: 1 bitcoin = $ 2257.96 or ₹ 143126.45
- Mathematically limited to 21 million bitcoins
Satoshi
- Satoshi ⟋ Austrian – one hundred million of BTC (smallest unit)
- Japanese character ( “shi” ) - proposed
- Katakana symbol ( “sa” ) - proposed
- Circled shi
- Hiragana shi
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.
✍ Mayank