Bitcoin Academy ( Lesson 2 ) – Bitcoin

Mining

Semi-log plot of relative mining difficulty.[c][43]

Mining is a record-keeping service done through the use of computer processing power.[d] Miners keep the blockchain consistent, complete, and unalterable by repeatedly verifying and collecting newly broadcast transactions into a new group of transactions called a block.[40] Each block contains a cryptographic hash of the previous block,[40] using the SHA-256 hashing algorithm,[3]:ch. 7 which links it to the previous block,[40] thus giving the blockchain its name.

To be accepted by the rest of the network, a new block must contain a so-called proof-of-work.[40] The proof-of-work requires miners to find a number called a nonce, such that when the block content is hashed along with the nonce, the result is numerically smaller than the network’s difficulty target.[3]:ch. 8 This proof is easy for any node in the network to verify, but extremely time-consuming to generate, as for a secure cryptographic hash, miners must try many different nonce values (usually the sequence of tested values is 0, 1, 2, 3, …[3]:ch. 8) before meeting the difficulty target.

Every 2,016 blocks (approximately 14 days at roughly 10 min per block), the difficulty target is adjusted based on the network’s recent performance, with the aim of keeping the average time between new blocks at ten minutes. In this way the system automatically adapts to the total amount of mining power on the network.[3]:ch. 8

Between 1 March 2014 and 1 March 2015, the average number of nonces miners had to try before creating a new block increased from 16.4 quintillion to 200.5 quintillion.[48]

The proof-of-work system, alongside the chaining of blocks, makes modifications of the blockchain extremely hard, as an attacker must modify all subsequent blocks in order for the modifications of one block to be accepted.[49] As new blocks are mined all the time, the difficulty of modifying a block increases as time passes and the number of subsequent blocks (also called confirmations of the given block) increases.[40]

Supply

Total bitcoins in circulation.[43]

The successful miner finding the new block is rewarded with newly created bitcoins and transaction fees.[50] As of 9 July 2016,[51] the reward amounted to 12.5 newly created bitcoins per block added to the blockchain. To claim the reward, a special transaction called a coinbase is included with the processed payments.[3]:ch. 8 All bitcoins in existence have been created in such coinbase transactions. The bitcoin protocol specifies that the reward for adding a block will be halved every 210,000 blocks (approximately every four years). Eventually, the reward will decrease to zero, and the limit of 21 million bitcoins[e] will be reached c. 2140; the record keeping will then be rewarded by transaction fees solely.[52]

In other words, bitcoin’s inventor Nakamoto set a monetary policy based on artificial scarcity at bitcoin’s inception that there would only ever be 21 million bitcoins in total. Their numbers are being released roughly every ten minutes and the rate at which they are generated would drop by half every four years until all were in circulation.[53]

Wallets

Electrum bitcoin wallet

Bitcoin paper wallet generated at bitaddress.org

Trezor hardware wallet

wallet stores the information necessary to transact bitcoins. While wallets are often described as a place to hold[54] or store bitcoins,[55] due to the nature of the system, bitcoins are inseparable from the blockchain transaction ledger. A better way to describe a wallet is something that “stores the digital credentials for your bitcoin holdings”[55] and allows one to access (and spend) them. Bitcoin uses public-key cryptography, in which two cryptographic keys, one public and one private, are generated.[56] At its most basic, a wallet is a collection of these keys.

There are several types of wallets. Software wallets connect to the network and allow spending bitcoins in addition to holding the credentials that prove ownership.[57] Software wallets can be split further in two categories: full clients and lightweight clients.

  • Full clients verify transactions directly on a local copy of the blockchain (over 136 GB as of October 2017),[58] or a subset of the blockchain (around 2 GB).[59][better source needed] Because of its size and complexity, the entire blockchain is not suitable for all computing devices.
  • Lightweight clients on the other hand consult a full client to send and receive transactions without requiring a local copy of the entire blockchain (see simplified payment verification – SPV). This makes lightweight clients much faster to set up and allows them to be used on low-power, low-bandwidth devices such as smartphones. When using a lightweight wallet however, the user must trust the server to a certain degree. When using a lightweight client, the server can not steal bitcoins, but it can report faulty values back to the user. With both types of software wallets, the users are responsible for keeping their private keys in a secure place.[60]

Besides software wallets, Internet services called online wallets offer similar functionality but may be easier to use. In this case, credentials to access funds are stored with the online wallet provider rather than on the user’s hardware.[61][62] As a result, the user must have complete trust in the wallet provider. A malicious provider or a breach in server security may cause entrusted bitcoins to be stolen. An example of such security breach occurred with Mt. Gox in 2011.[63]

Physical wallets store the credentials necessary to spend bitcoins offline.[55] Examples combine a novelty coin with these credentials printed on metal.[64] Paper wallets are simply paper printouts. Another type of wallet called a hardware wallet keeps credentials offline while facilitating transactions.[65]

Reference implementation

The first wallet program – simply named “Bitcoin” – was released in 2009 by Satoshi Nakamoto as open-source code.[11] Sometimes referred to as the “Satoshi client”, this is also known as the reference client because it serves to define the bitcoin protocol and acts as a standard for other implementations.[57] In version 0.5 the client moved from the wxWidgets user interface toolkit to Qt, and the whole bundle was referred to as Bitcoin-Qt.[57] After the release of version 0.9, the software bundle was renamed Bitcoin Core to distinguish itself from the underlying network.[66][67] Today, other forks of Bitcoin Core exist such as Bitcoin XTBitcoin ClassicBitcoin Unlimited,[68][69] Parity Bitcoin,[70] and BTC1.[71]

Decentralization

Bitcoin creator Satoshi Nakamoto designed bitcoin not to need a central authority.[15] According to the academic Mercatus Center,[8] US Treasury,[5] IEEE Communications, Surveys & Tutorials,[9] The Washington Post,[72] The Daily Herald,[73] The New Yorker,[74] and others, bitcoin is decentralized.

Privacy

Bitcoin is pseudonymous, meaning that funds are not tied to real-world entities but rather bitcoin addresses. Owners of bitcoin addresses are not explicitly identified, but all transactions on the blockchain are public. In addition, transactions can be linked to individuals and companies through “idioms of use” (e.g., transactions that spend coins from multiple inputs indicate that the inputs may have a common owner) and corroborating public transaction data with known information on owners of certain addresses.[75] Additionally, bitcoin exchanges, where bitcoins are traded for traditional currencies, may be required by law to collect personal information.[76]

To heighten financial privacy, a new bitcoin address can be generated for each transaction.[77] For example, hierarchical deterministic wallets generate pseudorandom “rolling addresses” for every transaction from a single seed, while only requiring a single passphrase to be remembered to recover all corresponding private keys.[78] Additionally, “mixing” and CoinJoin services aggregate multiple users’ coins and output them to fresh addresses to increase privacy.[79] Researchers at Stanford University and Concordia University have also shown that bitcoin exchanges and other entities can prove assets, liabilities, and solvency without revealing their addresses using zero-knowledge proofs.[80]

According to Dan Blystone, “Ultimately, bitcoin resembles cash as much as it does credit cards.”[81]

Fungibility

Wallets and similar software technically handle all bitcoins as equivalent, establishing the basic level of fungibility. Researchers have pointed out that the history of each bitcoin is registered and publicly available in the blockchain ledger, and that some users may refuse to accept bitcoins coming from controversial transactions, which would harm bitcoin’s fungibility.[82] Projects such as CryptoNoteZerocoin, and Dark Wallet aim to address these privacy and fungibility issues.[83][84]

Governance

Bitcoin was initially led by Satoshi Nakamoto. Nakamoto stepped back in 2010 and handed the network alert key to Gavin Andresen.[85]Andresen stated he subsequently sought to decentralize control stating: “As soon as Satoshi stepped back and threw the project onto my shoulders, one of the first things I did was try to decentralize that. So, if I get hit by a bus, it would be clear that the project would go on.”[85] This left opportunity for controversy to develop over the future development path of bitcoin.[68]

Scalability

The blocks in the blockchain are limited to one megabyte in size, which has created problems for bitcoin transaction processing, such as increasing transaction fees and delayed processing of transactions that cannot be fit into a block.[86] On 24 August 2017 (at block 481,824), Segregated Witness went live, increasing maximum block capacity and making transaction IDs immutable.[87][better source needed][88] SegWit also allows the implementation of the Lightning Network, a second-layer proposal for scalability with instantaneous transactions.[89][better source needed]

Economics

Classification

Bitcoin is a digital asset[90] designed by its inventor, Satoshi Nakamoto, to work as a currency.[15][91] It is commonly referred to with terms like digital currency,[8]:1 digital cash,[92] virtual currency,[4] electronic currency,[18] or cryptocurrency.[93]

The question whether bitcoin is a currency or not is still disputed.[93] Bitcoins have three useful qualities in a currency, according to The Economist in January 2015: they are “hard to earn, limited in supply and easy to verify”.[94] Economists define money as a store of value, a medium of exchange, and a unit of account and agree that bitcoin has some way to go to meet all these criteria.[95] It does best as a medium of exchange; as of February 2015 the number of merchants accepting bitcoin had passed 100,000.[13] As of March 2014, the bitcoin market suffered from volatility, limiting the ability of bitcoin to act as a stable store of value, and retailers accepting bitcoin use other currencies as their principal unit of account.[95]

General use

Liquidity (estimated, USD/year, logarithmic scale).[43]

According to research produced by Cambridge University, there were between 2.9 million and 5.8 million unique users using a cryptocurrency wallet, as of 2017, most of them using bitcoin. The number of users has grown significantly since 2013, when there were 300,000 to 1.3 million users.[14]

Acceptance by merchants

In 2015, the number of merchants accepting bitcoin exceeded 100,000.[13] Instead of 2–3% typically imposed by credit card processors, merchants accepting bitcoins often pay fees under 2%, down to 0%.[96] Firms that accepted payments in bitcoin as of December 2014 included PayPal,[97] Microsoft,[98]Dell,[99] and Newegg.[100]

Payment service providers

Merchants accepting bitcoin ordinarily use the services of bitcoin payment service providers such as BitPay or Coinbase. When a customer pays in bitcoin, the payment service provider accepts the bitcoin on behalf of the merchant, converts it to the local currency, and sends the obtained amount to merchant’s bank account, charging a fee for the service.[101]

Financial institutions

Bitcoin companies have had difficulty opening traditional bank accounts because lenders have been leery of bitcoin’s links to illicit activity.[102] According to Antonio Gallippi, a co-founder of BitPay, “banks are scared to deal with bitcoin companies, even if they really want to”.[103] In 2014, the National Australia Bank closed accounts of businesses with ties to bitcoin,[104] and HSBC refused to serve a hedge fund with links to bitcoin.[105] Australian banks in general have been reported as closing down bank accounts of operators of businesses involving the currency;[106] this has become the subject of an investigation by the Australian Competition and Consumer Commission.[106] Nonetheless, Australian banks have keenly adopted the blockchain technology on which bitcoin is based.[107]

In a 2013 report, Bank of America Merrill Lynch stated that “we believe bitcoin can become a major means of payment for e-commerce and may emerge as a serious competitor to traditional money-transfer providers.”[108] In June 2014, the first bank that converts deposits in currencies instantly to bitcoin without any fees was opened in Boston.[109]

Plans were announced to include a bitcoin futures option on the Chicago Mercantile Exchange in 2017.[110]

As an investment

Some Argentinians have bought bitcoins to protect their savings against high inflation or the possibility that governments could confiscate savings accounts.[76] During the 2012–2013 Cypriot financial crisis, bitcoin purchases in Cyprus rose due to fears that savings accounts would be confiscated or taxed.[111]

The Winklevoss twins have invested into bitcoins. In 2013 The Washington Post claimed that they owned 1% of all the bitcoins in existence at the time.[112]

Other methods of investment are bitcoin funds. The first regulated bitcoin fund was established in Jersey in July 2014 and approved by the Jersey Financial Services Commission.[113] Forbes started publishing arguments in favor of investing in December 2015.[114]

In 2013 and 2014, the European Banking Authority[115] and the Financial Industry Regulatory Authority (FINRA), a United States self-regulatory organization,[116] warned that investing in bitcoins carries significant risks. Forbes named bitcoin the best investment of 2013.[117] In 2014, Bloomberg named bitcoin one of its worst investments of the year.[118] In 2015, bitcoin topped Bloomberg’s currency tables.[119]

According to bitinfocharts.com, in 2017 there are 9,272 bitcoin wallets with more than $1 million worth of bitcoins.[120] The exact number of bitcoin millionaires is uncertain as a single person can have more than one bitcoin wallet.

Venture capital

Venture capitalists, such as Peter Thiel‘s Founders Fund, which invested US$3 million in BitPay, do not purchase bitcoins themselves, instead funding bitcoin infrastructure like companies that provide payment systems to merchants, exchanges, wallet services, etc.[121] In 2012, an incubator for bitcoin-focused start-ups was founded by Adam Draper, with financing help from his father, venture capitalist Tim Draper, one of the largest bitcoin holders after winning an auction of 30,000 bitcoins,[122] at the time called ‘mystery buyer’.[123] The company’s goal is to fund 100 bitcoin businesses within 2–3 years with $10,000 to $20,000 for a 6% stake.[122] Investors also invest in bitcoin mining.[124] According to a 2015 study by Paolo Tasca, bitcoin startups raised almost $1 billion in three years (Q1 2012 – Q1 2015).[125]

Price and volatility

Price[f] (left vertical axis, logarithmic scale) and volatility[g] (right vertical axis).[43]

According to Mark T. Williams, as of 2014, bitcoin has volatility seven times greater than gold, eight times greater than the S&P 500, and 18 times greater than the US dollar.[126] According to Forbes, there are uses where volatility does not matter, such as online gambling, tipping, and international remittances.[127]

The price of bitcoins has gone through various cycles of appreciation and depreciation referred to by some as bubbles and busts.[128][129] In 2011, the value of one bitcoin rapidly rose from about US$0.30 to US$32 before returning to US$2.[130] In the latter half of 2012 and during the 2012–13 Cypriot financial crisis, the bitcoin price began to rise,[131] reaching a high of US$266 on 10 April 2013, before crashing to around US$50.[132] On 29 November 2013, the cost of one bitcoin rose to a peak of US$1,242.[133] In 2014, the price fell sharply, and as of April remained depressed at little more than half 2013 prices. As of August 2014 it was under US$600.[134]

In January 2015, noting that the bitcoin price had dropped to its lowest level since spring 2013 – around US$224 – The New York Timessuggested that “[w]ith no signs of a rally in the offing, the industry is bracing for the effects of a prolonged decline in prices. In particular, bitcoin mining companies, which are essential to the currency’s underlying technology, are flashing warning signs.”[135] Also in January 2015, Business Insider reported that deep web drug dealers were “freaking out” as they lost profits through being unable to convert bitcoin revenue to cash quickly enough as the price declined – and that there was a danger that dealers selling reserves to stay in business might force the bitcoin price down further.[136]

According to an article in The Wall Street Journal, as of 19 April 2016, bitcoin had been more stable than gold for the preceding 24 days, and it was suggested that its value might be more stable in the future.[137] On 3 March 2017, the price of a bitcoin surpassed the market value of an ounce of gold for the first time as its price surged to an all-time high of $1,268.[138][139] A study in Electronic Commerce Research and Applications, going back through the network’s historical data, showed the value of the bitcoin network as measured by the price of bitcoins, to be roughly proportional to the square of the number of daily unique users participating on the network. This is a form of Metcalfe’s law and suggests that the network was demonstrating network effects proportional to its level of user adoption.[140]

Ponzi scheme concerns

Various journalists,[73][141] economists,[142][143] and the central bank of Estonia[144] have voiced concerns that bitcoin is a Ponzi scheme. In 2013, Eric Posner, a law professor at the University of Chicago, stated that “a real Ponzi scheme takes fraud; bitcoin, by contrast, seems more like a collective delusion.”[145] In 2014 reports by both the World Bank[146]:7 and the Swiss Federal Council[147]:21 examined the concerns and came to the conclusion that bitcoin is not a Ponzi scheme. In July 2017, billionaire Howard Marks referred to bitcoin as a pyramid scheme.[148]

On 12 September 2017, Jamie Dimon, CEO of JP Morgan Chase, called bitcoin a “fraud” and said he would fire anyone in his firm caught trading it. Zero Hedge claimed that the same day Dimon made his statement, JP Morgan also purchased a large amount of bitcoins for its clients.[149] On 13 September 2017, Dimon followed up and compared bitcoin to a bubble, saying it was only useful for drug dealers and countries like North Korea.[150] On 22 September 2017, hedge fund Blockswater subsequently accused JP Morgan of market manipulation and filed a market abuse complaint with Swedish Financial Supervisory Authority.[151]

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Bitcoin’s Status as Digital Gold Confirmed

Bitcoin Digital Gold First, Payment Utilization Second

The failure of the Segwit2x hard fork suggests that the popular cryptocurrency known as Bitcoin will be going down it’s own path from now on. There was a lot of lost faith in the currency and it shows with the market crashing just a little bit. It’s unclear as to where Bitcoin might be headed next, but with  backing by Wall Street investors and a possible move into futures, there is still plenty to get excited about with Bitcoin. It’s far better to establish a solid foundation before trying to force it’s evolution into a payment system.

When 10,000 Bitcoins were used to buy two pizzas, the digital currency was a truly decentralized peer-to-peer payment network that operated across the globe instantly. Today, the price has risen nearly a million-fold, but the network is no longer quite as functional as it was back in those days. A single dollar invested in Bitcoin on the original Bitcoin pizza day would be worth over $3 mln today. SegWit2x’s Failure Confirms Bitcoin’s Status As Digital Gold

Bitcoin Hits $13,500 in Zimbabwe as Tanks Roll Through the Capital

Bitcoin in Zimbabwe is more expensive than anywhere else in the world. But even by the developing nation’s usual standards, the current dollar price is eye-watering, with BTC touching $13,500 at Zimbabwe’s only exchange. The cause for the sudden spike is easy to attribute: with tanks rolling through the capital Harare and President Mugabe nowhere to be seen, the country is in meltdown.

Sell also: Citizens of Zimbabwe Use Bitcoin to Access International Markets

World War Z

Bitcoin flourishes in times of conflict, be they regulatory, market-based, or military. Whether it’s global banking crises or increasing tensions between North and South Korea, when the world is at war, bitcoin becomes a safe haven. For citizens in countries such as Zimbabwe, bitcoin isn’t just a means of electronic cash or a store of wealth – it’s a lifeline.

Bitcoin Hits $13,500 in Zimbabwe as Tanks Roll Through the CapitalOn November 14 it was revealed that the maligned Robert Mugabe was nowhere to be found as a full-blown military coup got underway. An army major at the head of the revolt has since appeared on national TV to confirm that the aging president, who’s been in power since 1980, is safe. That’s more than can be said for the finances of the millions who’ve endured Mugabe’s dictatorial reign.

Inflation, Meet Deflation

Hyperinflation has ran rampant through Zimbabwe on a scale not seen since the Weimar Bitcoin Hits $13,500 As Tanks Roll Through ZimbabweRepublic years in Germany. There aren’t many countries in the world where you can pay for breakfast with a 100 trillion dollar note. Bitcoin, with its deflationary model, is the very antithesis of the Zimbabwean economy and, for a growing number of citizens, the antidote.

The country’s Golix exchange has handled over $1 million in transactions in the past 30 days – a ten-fold increase on the entirety of last year. After hyperinflation rendered the Zimbabwe dollar useless, Golix – along with many other businesses – was forced to start accepting US dollars or the South African rand.

Regulation? What Regulation?

Golix is an unregulated exchange, but in a country that ranks 154th in the Human Development Index, and whose people struggle to obtain food, gas, and electricity, that’s to be expected. Under Mugabe, Zimbabwe has been reduced to a dystopian state whose people are forced to fend for themselves. Many of them have no qualms about using an unregulated exchange to store what little assets they have.

The notion of paying over $13,000 for a bitcoin seems outlandish, but with a bitcoin divisible to eight decimal places, that still leaves plenty of scope for snapping up small units of the digital currency. In a country where 95% of the workforce is unemployed and bond notes trade on the black market, bitcoin – even at 100% mark-up – seems like a safe option.

Bitcoin Hits $13,500 As Tanks Roll Through Zimbabwe

Given that the US dollar and South African rand also trade for around twice their normal price within Zimbabwe, $13k bitcoin is within ‘normal’ parameters. The arbitrage opportunities, were Golix susceptible to such mischief, would be enormous. At the time of publication, a bitcoin on the African exchange was trading at $11,850. As shots reverberate through the capital Harare, bitcoin is one of the few safe ports in the storm that’s threatening to engulf the beleaguered country.

What do you think about the prospect of paying $13,500 a bitcoin? And do you think bitcoin can provide a lifeline for people in developing nations? Let us know in the comments section below.


Images courtesy of Shutterstock, and Golix.

Shitshow or Success? Bitcoin Gold’s Launch Has Been Anything But Smooth

Bailey Reutzel   
 Nov 15, 2017 at 09:00 UTC

FEATURE

An attack, a chain split and general chaos on social media aren’t getting the developers behind bitcoin’s latest fork down.

The bitcoin gold cryptocurrency, which split from bitcoin in October, at the time touting a new mining scheme, has had a rocky start since it launched its live network on Nov. 12.

Within the first day after its release, one of the network’s mining pools, “pool.gold,” suffered a denial-of-service attack that took it offline for an hour and a half. Shortly after, the blockchain split when pool.gold and another mining pool called Suprnova found blocks at the same time.

Eventually, one chain was ruled as the ledger of record, but not before mining was halted on the other chain and pool.gold reset, erasing funds for some unlucky miners.

“It’s just been a mess with the opening – nodes not syncing and different heights of the blockchain and then restarting nodes and resetting and erasing miner’s totals,” said a bitcoin gold miner who wished to remain anonymous.

He added candidly:

“[It’s] just a shitshow.”

Still, observers might have a different reaction, as the difficulties appear to validate criticisms of the bitcoin gold developer team, which has come under scrutiny for deciding to set aside the first round of block rewards for the developer team.

Even MinerTopia, a crypto mining community that opened access to bitcoin gold, threw shade at the developers, tweeting, “It’s been sad since the day it launched. Very poor quality devs. They made their money now and ran and left the mess to all the pool owners and miners.”

‘No pump and dump’

That said, many in the bitcoin gold community remain optimistic that these early issues will be overcome with persistence and ingenuity.

One of the main complaints in the aftermath of the pool.gold chain split, for example, came from miners wondering what happened to the bitcoin gold they had mined.

About $70,000-worth of bitcoin gold was lost in the decision to migrate to just one of the two chains, and in response, bitcoin gold developer Martin Kuvandzhiev said the miners who lost out are being given funds from the developer team’s own “pre-mined” stake.

He told CoinDesk:

“The miners deserve it. The decision was taken to recover all the funds because this is the way to treat this kind of situation.”

In this way, the developers behind the project argue the distribution shows their capacity to properly allocate the funds they set aside and that have proven so contentious.

Kuvandzhiev said 40 percent of the 100,000 bitcoin gold coins (less than 1 percent of the total 21 million) the development team mined before the network was opened to the public are available to be spent. And to spend any of the coins, four of six developers must sign a transaction.

As for the other 60 percent of the coins? Those are time-locked, meaning they are to be released gradually over the next three years for development costs.

“There’s no way to pump-and-dump,” Kuvandzhiev said. “We’re taking all the measures required just to make sure we’re doing the things right.”

Room for enthusiasm

And although it’s had a slow start, bitcoin gold does seem to be faring relatively well.

Yavor Todorov, a bitcoin gold developer who provides support for the cryptocurrency’s miners, acknowledged that, despite the “chaos on social media,” the network itself is stable.

More than 50,000 machines are mining bitcoin gold within a handful of mining pools, according to Kuvandzhiev. And crypto exchange HitBTC has begun supporting bitcoin gold trading, while wallet provider Coinomi has added support, hinting at early business adoption.

The bitcoin gold team also supports a core wallet, and hardware wallet provider Trezor released code that allows users to download the software to store bitcoin gold. Kuvandzhiev also expects Ledger, another hardware wallet provider, to add support in the coming weeks.

Furthermore, the development team is working with other exchanges and wallets to add support for the new coin.

According to the bitcoin gold block explorer, transactions are happening also, just not at regular intervals yet. An account that hadn’t made a transaction with bitcoin for nearly seven years even claimed about $5 million-worth of bitcoin gold after its release.

Based on this early activity, the anonymous miner that spoke to CoinDesk said he expects everything to calm down and start running normally in the next few days, given what he positioned as the strength of the project’s value proposition.

“I’m sure the people that are actually excited to have a bitcoin chain that’s back to mining without ASICs will stick around,” he said.

Finger pointing continues

But first, those on the development team have to settle the confusion and contention.

And that isn’t looking easy. For one, scam wallets have popped up to bilk users; in response, the development team is currently doing reconnaissance to put together a list of known scams.

Secondly, on Monday afternoon, Todorov stated on the project’s official Slack channel that Suprnova had gained 51 percent of the network’s mining power, a centralization that bitcoin gold launched to eliminate.

And lastly, several users are incensed by a 0.5 percent “hidden fee” for mined blocks that Kuvandzhiev integrated into the mining pool software he developed.

According to Kuvandzhiev, he told miners about the fee, which could be manually removed from the open-source code, in Slack chats, but because he didn’t list the addition in the GitHub code repository, some thought the addition was a trick.

Kuvandzhiev suggested the outrage was caused by the one mining pool that hadn’t removed the fee line in the code. Either way, he has since merged a pull request to delete the fee altogether.

To him, however, the incident just goes to show how delicate a process launching a new cryptocurrency can be, and how transparency rules on the open, public ledger.

“For a single miner with one mining rig this [fee] is $1 per month, which is nothing I think,” he told CoinDesk, adding:

“I hoped people will just appreciate that I have spent this time to make a product for them.”

Bitcoin Academy ( lesson 1 ) – Bitcoin

Bitcoin is a worldwide cryptocurrency and digital payment system[8]:3 called the first decentralized digital currency, as the system works without a central repository or single administrator.[8]:1[9] It was invented by an unknown person or group of people under the name Satoshi Nakamoto[10] and released as open-source software in 2009.[11] The system is peer-to-peer, and transactions take place between users directly, without an intermediary.[8]:4 These transactions are verified by network nodes and recorded in a public distributed ledger called a blockchain.

Bitcoins are created as a reward for a process known as mining. They can be exchanged for other currencies,[12] products, and services. As of February 2015, over 100,000 merchants and vendors accepted bitcoin as payment.[13] Bitcoin can also be held as an investment. According to research produced by Cambridge University in 2017, there are 2.9 to 5.8 million unique users using a cryptocurrency wallet, most of them using bitcoin.

Terminology

The word bitcoin first occurred and was defined in the white paper[15] that was published on 31 October 2008.[16] It is a compound of the words bit and coin.[17] The white paper frequently uses the shorter coin.[15]

There is no uniform convention for bitcoin capitalization. Some sources use Bitcoin, capitalized, to refer to the technology and networkand bitcoin, lowercase, to refer to the unit of account.[18] The Wall Street Journal,[19] The Chronicle of Higher Education,[20] and the Oxford English Dictionary[17] advocate use of lowercase bitcoin in all cases, a convention which this article follows.

Units

The unit of account of the bitcoin system is bitcoin. As of 2014, tickers used to represent bitcoin are BTC[a] and XBT.[b] Its Unicodecharacter is ₿.[25]:2 Small amounts of bitcoin used as alternative units are millibitcoin (mBTC)[1] and satoshi. Named in homage to bitcoin’s creator, a satoshi is the smallest amount within bitcoin representing 0.00000001 bitcoin, one hundred millionth of a bitcoin.[4] A millibitcoin equals to 0.001 bitcoin, one thousandth of a bitcoin.[26]

History

On 18 August 2008, the domain name bitcoin.org was registered.[27] In November that year, a link to a paper authored by Satoshi Nakamoto titled Bitcoin: A Peer-to-Peer Electronic Cash System[15] was posted to a cryptography mailing list.[27] Nakamoto implemented the bitcoin software as open source code and released it in January 2009.[28][11] The identity of Nakamoto remains unknown, though many have claimed to know it.[10]

In January 2009, the bitcoin network came into existence after Satoshi Nakamoto mined the first ever block on the chain, known as the genesis block, for a reward of 50 bitcoins.[29][30] Embedded in the coinbase of this block was the following text:

The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.[11]

One of the first supporters, adopters, and contributors to bitcoin was the receiver of the first bitcoin transaction, programmer Hal Finney. Finney downloaded the bitcoin software the day it was released, and received 10 bitcoins from Nakamoto in the world’s first bitcoin transaction.[31][32] Other early supporters were Wei Dai, creator of bitcoin predecessor b-money, and Nick Szabo, creator of bitcoin predecessor bit gold.[33]

In the early days, Nakamoto is estimated to have mined 1 million bitcoins.[34] Before disappearing from any involvement in bitcoin, Nakamoto in a sense handed over the reins to developer Gavin Andresen, who then became the bitcoin lead developer at the Bitcoin Foundation, the ‘anarchic’ bitcoin community’s closest thing to an official public face.[35]

The value of the first bitcoin transactions were negotiated by individuals on the bitcointalk forums with one notable transaction of 10,000 BTC used to indirectly purchase two pizzas delivered by Papa John’s.[29]

On 6 August 2010, a major vulnerability in the bitcoin protocol was spotted. Transactions were not properly verified before they were included in the blockchain, which let users bypass bitcoin’s economic restrictions and create an indefinite number of bitcoins.[36][37] On 15 August, the vulnerability was exploited; over 184 billion bitcoins were generated in a single transaction, and sent to two addresses on the network. Within hours, the transaction was spotted and erased from the transaction log after the bug was fixed and the network forked to an updated version of the bitcoin protocol.[38][36][37]

On 1 August 2017 bitcoin split into two derivative digital currencies, the classic bitcoin (BTC) and a hard fork, Bitcoin Cash (BCH).[39]

Design

Blockchain

Number of unspent transaction outputs

The blockchain is a public ledger that records bitcoin transactions.[40] A novel solution accomplishes this without any trusted central authority: the maintenance of the blockchain is performed by a network of communicating nodes running bitcoin software.[8] Transactions of the form payer X sends Y bitcoins to payee Z are broadcast to this network using readily available software applications.[41] Network nodes can validate transactions, add them to their copy of the ledger, and then broadcast these ledger additions to other nodes. The blockchain is a distributed database – to achieve independent verification of the chain of ownership of any and every bitcoin amount, each network node stores its own copy of the blockchain.[42] Approximately six times per hour, a new group of accepted transactions, a block, is created, added to the blockchain, and quickly published to all nodes. This allows bitcoin software to determine when a particular bitcoin amount has been spent, which is necessary in order to prevent double-spending in an environment without central oversight. Whereas a conventional ledger records the transfers of actual bills or promissory notes that exist apart from it, the blockchain is the only place that bitcoins can be said to exist in the form of unspent outputs of transactions.[3]:ch. 5

Transactions

Number of bitcoin transactions per month (logarithmic scale)[43]

Transactions are defined using a Forth-like scripting language.[3]:ch. 5 Transactions consist of one or more inputs and one or more outputs. When a user sends bitcoins, the user designates each address and the amount of bitcoin being sent to that address in an output. To prevent double spending, each input must refer to a previous unspent output in the blockchain.[44] The use of multiple inputs corresponds to the use of multiple coins in a cash transaction. Since transactions can have multiple outputs, users can send bitcoins to multiple recipients in one transaction. As in a cash transaction, the sum of inputs (coins used to pay) can exceed the intended sum of payments. In such a case, an additional output is used, returning the change back to the payer.[44] Any input satoshis not accounted for in the transaction outputs become the transaction fee.[44]

Transaction fees

An actual bitcoin transaction including the fee from a webbased cryptocurrency exchange to a hardware wallet.

Paying a transaction fee is optional.[44] Miners can choose which transactions to process[44] and prioritize those that pay higher fees. Fees are based on the storage size of the transaction generated, which in turn is dependent on the number of inputs used to create the transaction. Furthermore, priority is given to older unspent inputs.[3]:ch. 8

Ownership

Simplified chain of ownership.[15] In reality, a transaction can have more than one input and more than one output.

In the blockchain, bitcoins are registered to bitcoin addresses. Creating a bitcoin address is nothing more than picking a random valid private key and computing the corresponding bitcoin address. This computation can be done in a split second. But the reverse (computing the private key of a given bitcoin address) is mathematically unfeasible and so users can tell others and make public a bitcoin address without compromising its corresponding private key. Moreover, the number of valid private keys is so vast that it is extremely unlikely someone will compute a key-pair that is already in use and has funds. The vast number of valid private keys makes it unfeasible that brute force could be used for that. To be able to spend the bitcoins, the owner must know the corresponding private key and digitally sign the transaction. The network verifies the signature using the public key.[3]:ch. 5

If the private key is lost, the bitcoin network will not recognize any other evidence of ownership;[8] the coins are then unusable, and effectively lost. For example, in 2013 one user claimed to have lost 7,500 bitcoins, worth $7.5 million at the time, when he accidentally discarded a hard drive containing his private key.[45] A backup of his key(s) might have prevented this.[46]

Bitcoin hits record above $7,800 after developers call off SegWit2x November 9, 2017

  • Bitcoin was scheduled to upgrade around Nov. 16 following a proposal called SegWit2x, which would have split the digital currency in two.
  • However, more and more major bitcoin developers dropped their support for the upgrade in the last few months.
  • Developers behind SegWit2x announced Wednesday they are calling off plans for the upgrade until there is more agreement in the bitcoin community.

Bitcoin developers call off SegWit2x upgrade, avoiding hard fork

Bitcoin developers call off SegWit2x upgrade, avoiding hard fork  

Bitcoin jumped Wednesday after the developers behind an upcoming split in the digital currency through an upgrade called SegWit2x announced they were suspending plans for the upgrade.

The digital currency hit a record high of $7,879.06, according to CoinDesk. Bitcoin gave up much of those gains Wednesday afternoon to trade near $7,212 after hitting a session low of $7,078.96.

The SegWit2x upgrade was scheduled to take effect around November 16 in an effort to increase the speed and cost of bitcoin transactions. However, more and more major bitcoin developers dropped their support in the last few months.

Bitcoin in the last 24 hours

Source: CoinDesk

“Our goal has always been a smooth upgrade for Bitcoin,” a group of leaders in bitcoin development told members of the SegWit2x mailing list Wednesday. “Unfortunately, it is clear that we have not built sufficient consensus for a clean blocksize upgrade at this time. Continuing on the current path could divide the community and be a setback to Bitcoin’s growth. This was never the goal of Segwit2x.”

As fees rise for bitcoin transactions, the developers said they hoped the digital currency community could find agreement on how to solve the problem. “Until then, we are suspending our plans for the upcoming 2MB upgrade.”

The statement ended with the names of six major figures in the bitcoin business community:

BitGo CEO Mike Belshe, Xapo CEO Wences Casares, Bitmain co-founder Jihan Wu, BloqInc co-founder Jeff Garzik, Blockchain CEO and co-founder Peter Smith and ShapeShift CEO Erik Voorhees.

For most of this year, investors have had a negative view on bitcoin splits out of uncertainty over the digital currency’s future. However, since bitcoin rose to record highs after its August split into bitcoin and bitcoin cash, investors began betting that subsequent splits would send the price of the original bitcoin higher. Investors at the time of a split also technically receive an equivalent amount of the offshoot currency.

Bitcoin cash traded mildly higher near $619 Wednesday, according to CoinMarketCap. Another digital currency, ethereum, rose about 4.5 percent to $307.55, according to CoinDesk.

WATCH: Bitcoin’s origin story remains shrouded in mystery. Here’s why it matters

Here's why the mystery founder of bitcoin matters

Bitcoin’s origin story remains shrouded in mystery. Here’s why it matters