All about bitcoin

Presented to:
Nawaraj Paudel
Head, Department of Bsc. CSIT, Tribhuvan University

Presented by:
Amir Tamang
MBA IIITrimester

Mar 02, 2018

What’s bitcoin?
Bitcoin is a virtual currency,a crypto currency created by programmers, which is
produced at a predetermined and knowable rate to simulate a limited resource. Its value is
derived from the trust of its users and is protected by its limited nature and the
cryptography by which the currency is secured and authenticated. It is an electronic or
digital currency that works on a peer-to-peer basis. This means that it is decentralized and
has no central authority controlling it. Like currency notes, it can be sent from one person
to another, but without a central bank or the government attempting to track it. The
system depends on cryptography to control the creation of the currency. While no one
authority controls the generation of the coins or tracks them, the system itself is designed
in such a way that the network maintains a foolproof system of the record of every
transaction as well as tracking issuance of the currency.
Crypto currency, an encrypted, peer-to-peer network for facilitating digital barter, is a
technology developed eight years ago. Bitcoin, the first and most popular cryptocurrency,
is paving the way as a disruptive technology to long standing and unchanged financial
payment systems that have been in place for many decades. While cryptocurrencies are
not likely to replace traditional fiat currency, they could change the way Internet-
connected global markets interact with each other, clearing away barriers surrounding
normative national currencies and exchange rates. Technology advances at a rapid rate,
and the success of a given technology is almost solely dictated by the market upon which
it seeks to improve.

Bitcoin History:

1998 – 2009 The pre-Bitcoin years

Although Bitcoin was the first established crypto currency, there had been previous
attempts at creating online currencies with ledgers secured by encryption. Two examples
of these were B-Money and Bit Gold, which were formulated but never fully developed.

2008 – The Mysterious Mr Nakamoto

A paper called Bitcoin – A Peer to Peer Electronic Cash System was posted to a mailing
list discussion on cryptography. It was posted by someone calling themselves Satoshi
Nakamoto, whose real identity remains a mystery to this day.
2009 – Bitcoin begins

The Bitcoin software is made available to the public for the first time and mining – the
process through which new Bitcoins are created and transactions are recorded and
verified on the blockchain – begins.

2010 – Bitcoin is valued for the first time

As it had never been traded, only mined, it was impossible to assign a monetary value to
the units of the emerging cryptocurrency. In 2010, someone decided to sell theirs for the
first time – swapping 10,000 of them for two pizzas. If the buyer had hung onto those
Bitcoins, at today’s prices they would be worth more than $100 million.

2011 – Rival cryptocurrencies emerge

As Bitcoin increases in popularity and the idea of decentralized and encrypted currencies
catch on, the first alternative cryptocurrencies appear. These are sometimes known as
altcoin and generally try to improve on the original Bitcoin design by offering greater
speed, anonymity or some other advantage. Among the first to emerge were Namecoin
and Litecoin. Currently there are over 1,000 cryptocurrencies in circulation with new
ones frequently appearing.

2013 – Bitcoin price crashes.

Shortly after the price of one Bitcoin reaches $1,000 for the first time, the price quickly
begins to decline. Many who invested money at this point will have suffered losses as the
price plummeted to around $300 – it would be more than two years before it reached
$1,000 again.

2014 – Scams and theft

Perhaps unsurprisingly for a currency designed with anonymity and lack of control in
mind, Bitcoin has proven to be an attractive and lucrative target for criminals. In January
2014, the world’s largest Bitcoin exchange Mt.Gox went offline, and the owners of
850,000Bitcoins never saw them again. Investigations are still trying to get to the bottom
of exactly what happened but whatever the story, someone dishonestly got their hands on
a haul which at the time was valued at $450 million dollars. At today’s prices, those
missing coins would be worth $4.4 billion.
2017 –Bitcoin reaches $20,000 and falls down slightly

A gradual increase in the places where Bitcoin could be spent contributed to its continued
growth in popularity, during a period where its value remained below previous peaks. It
surpassed $20,000 and now the price has fallen down to $11,000.

How bitcoin works?

As a new user, we can get started with Bitcoin without understanding the technical details.
Once you have installed a Bitcoin wallet on our computer or mobile phone, it will generate
your first Bitcoin address and we can create more whenever you need one. You can disclose
your addresses to our friends so that they can pay our or vice versa. In fact, this is pretty
similar to how email works, except that Bitcoin addresses should only be used once.

Balances - block chain

The block chain is a shared public ledger on which the entire Bitcoin network relies. All
confirmed transactions are included in the block chain. This way, Bitcoin wallets can
calculate their spendable balance and new transactions can be verified to be spending
bitcoins that are actually owned by the spender. The integrity and the chronological order
of the block chain are enforced with cryptography.

Transactions - private keys

A transaction is a transfer of value between Bitcoin wallets that gets included in the
block chain. Bitcoin wallets keep a secret piece of data called a private key or seed, which
is used to sign transactions, providing a mathematical proof that they have come from the
owner of the wallet. The signature also prevents the transaction from being altered by
anybody once it has been issued. All transactions are broadcast between users and usually
begin to be confirmed by the network in the following 10 minutes, through a process
called mining.
Processing - mining

Mining is a distributed consensus system that is used to confirm waiting transactions by

including them in the block chain. It enforces a chronological order in the block chain,
protects the neutrality of the network, and allows different computers to agree on the state
of the system. To be confirmed, transactions must be packed in a block that fits very strict
cryptographic rules that will be verified by the network. These rules prevent previous
blocks from being modified because doing so would invalidate all following blocks.
Mining also creates the equivalent of a competitive lottery that prevents any individual
from easily adding new blocks consecutively in the block chain. This way, no individuals
can control what is included in the block chain or replace parts of the block chain to roll
back their own spends.

Bitcoin and the Bitcoin Blockchain:

A Bitcoin unit is divisible and can be divided into 100 million “Satoshis,” the smallest
fraction of a Bitcoin. The Bitcoin Blockchain is a data file that carries the records of all
past Bitcoin transactions, including the creation of new Bitcoin units. It is often referred
to as the ledger of the Bitcoin Goods Stone ownership Buyer Seller Communication
Payment System with a Distributed Ledger. The Bitcoin Blockchain consists of a
sequence of blocks where each block builds on its predecessors and contains information
about new Bitcoin transactions. The average time between Bitcoin blocks is 10 minutes.
The first block, block #0, was created in 2009. Because everyone can download and read
the Bitcoin Blockchain, it is a public record, a ledger that contains Bitcoin ownership
information for any point in time. The word “ledger” has to be qualified here. There is no
single instance of the Bitcoin Blockchain. Instead, every participant is free to manage his
or her own copy of the ledger. As it was with the stone money, there is no central
authority with an exclusive right to keep accounts. Instead, there is a predefined set of
rules and the opportunity for individuals to monitor that other participants adhere to the
rules.
Four Reasons Why Bitcoins Are Such a Big Deal

There is a lot of controversy around bitcoins. These are the top reasons why:
1) Bitcoins are not created by any central bank, nor regulated by any
government. Accordingly, there are no banks logging your money movement,
and government tax agencies and police cannot track your money. This is bound to
change eventually, as unregulated money is a real threat to government control, taxation,
and policing.
Indeed, bitcoins have become a tool for contraband trade and money laundering,
precisely because of the lack of government oversight. The value of bitcoins skyrocketed
in the past because wealthy criminals were purchasing bitcoins in large volumes. Because
there is no regulation, however, you can lose out immensely as a miner or investor.
2) Bitcoins completely bypass banks. Bitcoins are transferred via a peer-to-peer network
between individuals, with no middleman bank to take a slice.
Bitcoin wallets cannot be seized or frozen or audited by banks and law
enforcement. Bitcoin wallets cannot have spending and withdrawal limits imposed on
them. For all intents: nobody but the owner of the bitcoin wallet decides how their wealth
will be managed.
This is really threatening to banks, as you might guess.
3) Bitcoins are changing how we store and spend our personal wealth. Since the advent of
printed (and eventually virtual) money, the world has handed over the power of currency
to a central mint and various banks. These banks print our virtual money, store our virtual
money, move our virtual money, and charge us for their middleman services.
If banks need more currency, they simply print more or conjure more digits in their
electronic ledgers. This system is easily abused and gamed by banks because paper
money is essentially paper checks with a promise to have value, with no actual physical
gold behind the scenes to back those promises.
Bitcoins are designed to put the control of personal wealth back into the hands of the
individual. Instead of paper or virtual bank balances that promise to have value, Bitcoins
are actual packages of complex data that have value in themselves.
4) Bitcoin transactions are irreversible. Conventional payment methods, like a credit card
charge, bank draft, personal checks, or wire transfer, do have the benefit of being insured
and reversible by the banks involved. In the case of bitcoins, every time bitcoins change
hands and change wallets, the result is final. Simultaneously, there is no insurance
protection of your bitcoin wallet: If you lose your wallet's hard drive data or even your
wallet password, remember: your wallet's contents are gone forever.

Conclusion
The Bitcoin creators’ intention was to develop a decentralized cash-like electronic
payment system. In this process, they faced the fundamental challenge of how to
establish and transfer digital property rights of a monetary unit without a central
authority. They solved this challenge by inventing the Bitcoin Blockchain. This novel
technology allows us to store and transfer a monetary unit without the need for a central
authority, similar to cash. Price volatility and scaling issues frequently raise concerns
about the suitability of Bitcoin as a payment instrument. As an asset, however, Bitcoin
and alternative blockchain-based tokens should not be neglected. The innovation makes it
possible to represent digital property without the need for a central authority. This can
lead to the creation of a new asset class that can mature into a valuable portfolio
diversification instrument. Moreover, blockchain technology provides an infrastructure
that enables numerous applications. Promising applications include using colored coins,
smart contracts, and the possibility of using fingerprints to secure the integrity of data
files in a blockchain, which may bring change to the world of finance and to many other
sectors.

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Berentsen, Aleksander and Schär, Fabian. Bitcoin, Blockchain und Kryptoassets: Eine
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Furness, William H. The Island of Stone Money: Uap of the Carolines. Philadelphia: J.
B. Lippincott, 1910.
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Bovaird, C. (2016, June 24). Bitcoin Rollercoaster Rides Brexit As Ether Price Holds
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