When asked what an irony is, I always like to say ‘Bitcoin came into the world’. Why irony you wonder? Well, Bitcoin came into the world in November 2008 as an academic paper sent by Satoshi Nakamoto to his friends in a forum of familiar cryptographers. Bitcoin: A Peer-to-Peer Electronic Cash System said its title - a digital cash system based on a peer-to-peer network. The irony lies in the fact that 2008 was the opening shot for one of the biggest financial crises the world has seen, affecting us even today, almost 10 years later - and here now, comes a decentralized digital currency that brings back some of the power to the public.
Imagine that you are sitting with me on a bench in a public garden, and on the bench opposite even sit 2 adults watching us. I hold an apple and you have two shekels. You are interested in buying the apple from me for two shekels. I agree to the deal, we both know it happened - and we even have two more witnesses to it. Now, imagine that the apple is a digital apple. You correspond with me by e-mail, and offer me 2 digital shekels in exchange for my digital apple. At no point, you can know for sure that I do not have the same interaction with 2 other people, and that I can not encrypt the digital apple in any way, so I will receive 6 digital shekels (from the three negotiators with me), but at the same time I sent the digital apple to the three of you. And only one got it. This problem is called the double waste problem, and until Bitcoin - no solution has been found.
Bitcoin exchange rate and amount of currencies
As of this writing, the rolling Bitcoin supply is about 17.6 million coins out of a total of 21 million coins. You'm probably wondering why there's a maximum supply of 21 million coins, but the answer is pretty clear and lies in the reality we live in, and it's called inflation. Immediate inflation is an increase in prices, but the actual significance behind it is even greater. Inflation means (mostly) an economic policy of printing money and in most governments in the world today, there is no maximum limit on this printing. Since governments print money indiscriminately, the value of the money we hold goes down, which is interpreted for us as rising prices.
Suppose we are now in a kindergarten that contains 20 children. The nice kindergartener opens a trading market of only one product, apples. Ten children receive an apple, while the remaining ten receive one shekel, each. Since there are ten apples and ten shekels on the market, it can be concluded that the price of each apple is only one shekel. Now, the kindergarten teacher 'prints money', and randomly distributes ten shekels to some of the children. Now, there are twenty shekels on the market - but only ten apples. This means that the addition of the new funds to the market caused the price of the apple to rise by one weight - to two shekels. Satoshi Nakamoto in his genius created a coin that could no longer be printed from so that Bitcoin holders could know for sure that there is no centralizing factor that can instantly decide that it is lowering the monetary value they hold.
Let's get back to business. Currently, about 83% of the coins have gone into circulation, which means that 17% still need to emerge, through the mining process that will be explained later in the article. At trial, bitcoin coin mining is meant to reward the bitcoin miners who operate the network. The reward that miners receive is precisely the inflation in bitcoin currencies. Today, each block mined contains a reward of 12.5 Bitcoin coins received by the miner. In a quick calculation, about 1800 bitcoin coins are added per day (block every 10 minutes). However, in the Bitcoin protocol there is a law called Halving (from the language cut in half). This law means that every 4 years on average the remuneration for miners will be cut in half, so that the rate of inflation will decrease over the years. This means that in 2020 the remuneration for miners will decrease from 12.5 coins per block, to 6.25 and so on. Finally, in 2140 the last Bitcoin is expected to join the circulation.
$ 18,433.17 Supply18.57M BTC Volume$28.86B Market Cap$342.45B Change1.09%
Another issue that is important to highlight (and concerns we need to remove) is the division of Bitcoin into units. Just as one shekel is divided into 100 cents, so one bitcoin can be divided into 100,000,000 Satoshis (named after Satoshi Nakamoto). This means that you do not have to purchase their Bitcoin (as an investment or for daily use), but you can also purchase parts of it. By the way, there is already a process going on today in the international Bitcoin community of the transition from using Bitcoin to using Millie-Bitcoin.
mBTC = 0.001 BTC
Agreed with me that it would be much friendlier to hear that the price of Milli-Bitcoin is $ 4, instead
Who is behind the Bitcoin currency?
Behind Bitcoin is a huge community of users, developers and miners. Since the Bitcoin software code is open and exposed to the public, anyone can join and help develop it. All you have to do is research the Bitcoin code, find something you want to improve, and make an improvement proposal called the Bitcoin Improvement Protocol or BIP for short.
The proposal will be put to a vote, with the participation of any member of the community (you and I are included in the list), and if 95% or more approval is obtained, the improvement will be entered into the minutes. By the way, the most common developer community and bitcoin software is called Bitcoin Core. However, in addition to Bitcoin Core, over 10 different development teams operate and offer improvements on a daily basis.
Recently, the founder and CEO of Twitter and the payments app Square, Jack Dorsey, announced that he would fund 4 full-time developers who will work transparently on the Bitcoin code.
How does Bitcoin work?
In order to understand how the problem of double spending has been solved and how Bitcoin works, we will first need to explain what blockchain technology is. Well, the blockchain is a scattered log. Scattered, because it is based on a peer-to-peer network (P2P) which means that it is not managed in one place under a centralized entity / infrastructure / server, but on the computers of the participants in the network. Anyone can run the blockchain software on their computer, thus joining the thought forces that run it. As mentioned, this diary is online, on users' computers and is updated in real time globally - for everyone.
The Bitcoin blockchain is not just a diary, but an accounting diary. Each block in the block chain is a page in this accounting journal, and contains all the money transfers made in the last 10 minutes. The money transfer (transaction) is actually a registration: My wallet address sent X Bitcoin to your wallet address. But the main essence of the blockchain, and the reason it is so unique, is the encryption behind it. Each page in the log is encrypted using extremely strong encryption, to the page in front of it. So from the first block created (the Genesis block) to the last block that just opened, there is a pious mathematical connection. Encryption means preventing log history from being rewritten. If someone tries to scroll back in the accounting journal and change the transfer amount he made to 0 (double waste), the mathematical relationship will automatically be damaged. The system will detect that there is a rewritten attempt, and the rewrite attempt will soon be deleted and the chain will continue as usual.
When I say 'system' in this case, I mean miners. The Bitcoin blockchain is built on the mining mechanism, called 'Proof of Work'. The function of the mechanism is to keep the encrypted mathematical connection from being damaged. How does this happen? The miners operate computing forces, competing with each other for the signature and approval of the block created. The competition is a 'target shooting' competition. Through manipulations and changes in the block title and content, the stacking function of the current block is changed. The miners must perform these manipulations until the resulting stacking function is the same as that defined by the system. The first miner to win the competition and sign the block - receives a reward from the protocol in the form of bitcoin coins (inflation of new coins) and the transfer fees included in the block.
Another thing that is important to emphasize in the context of cryptographic stacking functions, is that they are unidirectional. The intention is to reach the goal set by the system a long and tedious way, but if you have the goal, it is very easy to restore the input that was inserted to reach it. This way, users and other miners can verify that the work of the miner who signed the block is truly reliable. By the way, as soon as a block is cut and your transaction is included in it - you will receive first approval for your transaction. Any additional confirmation is a confirmation of the cryptographic connection between Block and its predecessor.
So in conclusion, the blockchain is a distributed network log that is on users' computers, updated globally in real time by everyone and based on cryptography for system security and transactions. Bitcoin is a distributed digital currency (without centralized control), which aims to be a means of transferring value using a blockchain to secure the system and transactions.
The Pros and Cons of Bitcoin Currency
Benefits
Decentralization - The real meaning behind Bitcoin, is the freedom we get. Governments and banks control our money, forcing us to use it only for what they see fit. The perfect example of this is in the world of Bitcoin itself - when banks like Leumi stop transfers to trading venues or money changers and do not allow their customers to buy freedom, ahem sorry… Bitcoin.
Accelerating transaction speeds - Today, if we want to send money abroad, we usually have to wait between three days and a week. With Bitcoin you can transfer money anywhere in the world even in a quarter of an hour.
Reduction of transfer fees - For the same bank transfer that we make abroad and will take several days, we will also have to add a draconian fee of over 6% in most cases. In Bitcoin, the commission protocol is structured in such a way that the commission will be minimal in relation to the transaction. If you want to understand how the commission mechanism works, click here.
Can not be forged - thanks to the cryptographic connection between Block and its predecessor.
Increased transparency and trust - the fact that the accounting diary (blockchain) is online, updated in real time and exposed to the eyes of all - indicates that it is more transparent and reliable than systems that exist in the world today.
Disadvantages
Bitcoin is not really anonymous - it is pseudo-anonymous. That is, when we as Bitcoin holders make a money transfer, our wallet address is exposed to the blockchain diary. The system can not link the wallet address to us directly. However, since we are in a 'hybrid' world - a combination of the old reality of centralization and monopoly with a new reality of decentralization and delegation of authority, we are still assisted by mediators in daily life. In order to trade in the digital currency exchange for example, we will need to verify our identity. In order to purchase Bitcoin through a money changer, we will need to disclose our credit card. Through these ways it will be possible to associate our public wallet address with our personal identity.
Scalability - the ability to handle larger dimensions (with greater use and demand). Bitcoin is still in its infancy, and while credit card companies like MasterCard Visa can handle about 7,000 transactions per second, Bitcoin can now only handle about 5-7 transactions. However, there are many technological improvements some of which have already been implemented (but not yet made accessible) and some in their own way, and they have completely changed the picture.
Regulation and Taxation - Since Bitcoin and the world of cryptocurrencies are in their infancy, there is a lot of uncertainty and fog surrounding the big question - how will governments treat it in terms of legislation, enforcement and taxation? Let's start in an orderly manner, legislation - there is currently no clear legislation in the field and many governments (including Israel) are holding discussions and trying to understand how to approach this field. Enforcement - Not really right now, which leaves this market hacked into a wide variety of scammers and thieves who will try to steal your money in the most creative ways. Taxation - As of this writing, the state treats Bitcoin as an asset and therefore must declare profits at the time of realization and pay capital gains tax (25%).
Additional information - The image of Bitcoin in the world
In its early years, Bitcoin emerged into the public consciousness thanks to two controversial platforms in which currency was used as a means of payment. One platform was the Wikileaks leaks organization led by Julian Assange. WikiLeaks leaked information and documents obtained from giant corporations, governments and intelligence agencies in order to shock and reveal how things are going behind the scenes. Following threats of leaks from US government documents, the US decided to impose huge economic sanctions on all of the organization's financing methods: credit, banks, clearing systems and more. After more than half a year of public discussions on the subject, one of which was even attended by Satoshi Nakamoto himself, Assange decided to open a Bitcoin wallet to be used for donations to the organization.
Since then, thousands of people have donated Bitcoin coins to the organization, and in November 2017 when Bitcoin first crossed the $ 10,000 mark, Assange thanked the US administration on Twitter for the economic sanctions, thanks to which the organization was able to fund much more than it expected to fund Thousands of percent).
The second platform was Silk Road. Silk Road was an e-commerce platform on DarkNET (a hidden internet network that is mostly used by criminals). The platform was the Amazon of fake identities, drug prescriptions, marijuana and more. It operated from 2011-2013 and accumulated a huge database of users, all "consumers" of Bitcoin, until its founder was arrested and banned.
On the one hand, both platforms are indeed to blame (mainly) for the negative image attached to Bitcoin in the media, as a currency used for money laundering, terrorist financing, drug buying and criminal financing (an unjustified image as today only a few percent of transactions are attributed to crime). On the other hand, it was the first proof that Bitcoin could be used as a means of payment (and currency) for all intents and purposes, and of course the user base and the huge exposure that Bitcoin received helped its further development.
Hope you enjoyed reading and found the material helpful for further smart and successful investments
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