What are bitcoins? 1

If you use internet and surf on websites other than Facebook and Twitter, you must have come across the term ‘Bitcoin’. Recently the hacker who stole images from iCloud of many A grade celebrities was also asking for bitcoins. You might have seen somewhere an option to pay in bitcoins. But what is this Bitcoin? In this post, we will discuss on this vast and amazing topic of bitcoins. You can literally write a whole book on the working of bitcoins. We will see what actually is a bitcoin, how is it used, who controls it and how it works.As pointed out earlier, it is a very vast topic and we will only learn about the basics and fundamentals of bitcoins and not dive deep into it. We will fiddle around the surface of this technology.

What is Bitcoin?

Bitcoin, simply put is an internet currency. Bitcoins are nothing but digital coins that you can send through the internet. Just like you need to know the e-mail address of the recipient, to send a bitcoin you need to know the bitcoin address of the receiver. Sending bitcoin is as simple as sending an e-mail. Enter address, hit send and its gone. You can buy stuffs online or exchange them for bitcoins or convert it into real currency. So in short, Bitcoin is nothing but an internet currency generally used for transaction on internet.

Why use Bitcoin?

You must be wondering when I have PayPal or credit card or debit card, why should I go for bitcoins? Well there are many reason why you should.

1. Direct transaction.
   You can directly send the bitcoins from person to person without involvement of any bank or third-party or merchant whatsoever. You send and the receiver receives it. No central authority will check or look after the transactions.
2. Lower transaction fees.
   With  third-party’s absence, each transaction fee is much lower as compared to our normal transactions.
3. Accessible everywhere.
   Since it is an internet currency, you can use and access your bitcoins from anywhere in the world. There is no location or language restriction.
4. No pre-requisites.
   With-in seconds you’ll have your bitcoin address. There are no prerequisites or minimum balance or age condition to create a bitcoin account

How Bitcoins work?

Well to start with bitcoins, you’ll need to convert your country currency into bitcoins. There are various currency exchange services over the internet where you can buy and sell bitcoins. Once you have bitcoin, you can exchange bitcoins for anything that is available on the internet. The cool part about bitcoin is you can send it as you’re sending some email or text. All the bitcoins you have is inside a wallet app in your PC or mobile. You can send, receive or manage bitcoins only from this app.
To send bitcoin, you need the recipient’s address. A bitcoin address will be a long string of unique alphanumeric characters. Each user will have his own public bitcoin address on which other users can send bitcoin. Once a user sends bitcoin, that amount is deducted from his account and added into the recipient’s account. Looks easy right? But it is not that easy. There are various factors in play during this simple transactions.

• Ledger: A ledger is a table containing all the details of a bitcoin address and number of bitcoins in that account. Whenever any transaction takes place, the ledger table gets updated. When the user hits send, a transaction message is sent to all the ledgers containing sender’s account number, his signature, recipient’s account number and the amount of money being transferred thus informing them how to update their current table.
• Maintainer: Maintainers are people who voluntarily decide to look after the transactions in process . Each maintainer keeps a personal copy of ledger and update it when they receive a transactional message.
• Signature: To avoid fake transaction message, each sender has to create a signature while transferring bitcoins. He can do that by using his private key. The signature is unique for each transaction, created using complex mathematical algorithms and is cryptic . Ledgers try to decrypt the signature in the transactional message and if they succeed, they understand that the rightful owner is carrying out the transaction.
• Each transaction generates a new unique signature which can only be decrypted using the person’s private key.
• Since every maintainer residing anywhere in the world has a copy of ledger, inconsistency may occur within then. In such cases, maintainers are given a special problem to solve using their own ledger. The one who solves the problem first broadcasts his solution and everyone has to update their ledger table accordingly.
• The problem given to solve the inconsistency in a way to favor majority of maintainers carrying the same ledger.
• The mathematical problem given to resolve inconsistency is based on the previous problem’s answers. You’ll need the previous answers while solving the current, hence no attacker with forge a signature, send a transactional message, join the race of solving the problem and win it.
• As stated above, to favor  majority of maintainers these problems are created, so no individual can manipulate the problem.

How are bitcoins created?

Bitcoins are created by using a technique called mining. Miners are given mathematical puzzles to solve. These puzzles need a lot of electricity and high processor speed. Recently a special processor is in the market just to help users with mining. Each time you solve a puzzle, you’ll get few bitcoins in your account.
You can also work in groups of 2-4 users working simultaneously on one problem, solving it quickly. If the puzzle is solved, each user gets the rewarded with bitcoins proportionate to the contribution he made in the problem solving. Mining is specially a good option for people residing in countries where the value of 1 bitcoin is higher than the other countries. However the real job of miners are to look after and maintain the ledgers of all the maintainers.
Maintainers are also rewarded with bitcoins when they carry out any transaction, thus keeping the currency flowing on the internet.
Since Bitcoins are open source technology and there is no central authority looking after this, the creation and maintaining of this process is very complex.

Some facts about Bitcoins:

1. The bitcoin creator goes by ta pseudo name of  ‘Satoshi Nakamoto’, which is Japanese for “thinking clearly inside the foundation”.
2. The mining of bitcoins will supposedly end by 2140. Fees will supply the compensation for maintainers.
3. At the beginning of bitcoin, a user bought two pizzas for 10,000 bitcoins. Those pizzas would have been worth millions of dollars by today.
4. Only 36% bitcoin accounts are now active. 64% bitcoins are in accounts that haven’t been opened since its creation.
5. James Howells one of the few buyers who bought bitcoins in the beginning, accidentally threw away his hard-disk containing 7500 bitcoins. Its current value is $7.5 Million. He never found the hard-disk.
6. Wikileaks started accepting bitcoins after various companies and PayPal declined to help them with donations.
7. The owner of Silk Road made a fortune with commissions after using bitcoins for payments on his site.
8. Billionaire Richard Branson now accepts payments in Bitcoins.
9. You can buy sandwiches using bitcoins in one of the branch of Subway in the United States.
10. Bitcoins transactions are anonymous. No one can trace it back to you, hence it is used in various website where anonymity is a high priority.

If you want to learn more about bitcoins, please visit http://www.bitcoins.org. They have great demos and tutorials about everything.