Bitcoin

CONTENTS

  1. Bitcoin: How the Long Journey Began
  2. Creators of Bitcoin
  3. The Essence and Structure of Bitcoin
  4. Mining and Miners
  5. Let’s Talk About the Price
  6. First Strike – Withstood Successfully
  7. So Who the Creator of Bitcoin Was?

For a few past years, Bitcoin has been one of the most popular words on the Internet. You must have heard that it is an expensive, popular, and electronic currency. To fill the gaps in your bitcoin knowledge, find out more about it: how it appeared, which way it went, and who were its creators.

Bitcoin: How the Long Journey Began

The name bitcoin comes from English words “bit” and “coin”. Sometimes it is cut and instead of “bitcoin currency” abbreviated as BTC. This entry is similar to real currency codes, but this code is not yet approved by the international standard ISO 4217. Therefore, if you meet the abbreviation BTC, you will know that BTC is bitcoin.

Bitcoin currency and crypto-currencies in general appeared after a series of large-scale studies in the field of encrypted transactions. Back in 1983, David Chaum, an employee from the University of Santa Barbara, decided to come up with something to combine transparent payments and payment anonymity, which would be a mutually beneficial tool for all participants. That time he was working on the development of a “blind signature” – an algorithm that allowed for a two-way deal to be anonymous and secret, although third-party observers might have been aware of the fact of its implementation.

Some time later, Chaum met like-minded people from Israel and developed “electronic cash” protocols with them. With the help of such protocols, the selling party approves the transaction only when it receives confirmation of a genuine payment from a third party. For the buyer, it was enough to just have a proof of sending virtual money. Such principle has become a basic rule for implementing transactions with bitcoins. So now let’s dig deeper into such transactions.

Creators of Bitcoin

So the year 1997 came, when the prototype of the No1 crypto currency in the world was introduced. The authorship belongs to Adam Beck, who was the first to propose the use of an anti-spam system in transactions where the buyer verifies authenticity of transactions and the seller implements them several times. The defense was called Hashcash.

A year later another researcher, whose name Nick Szabo, started working on “digital gold”, a decentralized monetary system. He believed that electronic, or virtual money, would allow saving Internet users from many threats – from fakes, thefts and inflation. The work was neither easy nor fast. Even in 2005, when Szabo completed the project, he could not launch it.

Still, the two people’s job has found its way. A person who realized this appeared also. The exact name of this man is not known until now. Moreover, we do not know if the one is a person or a group of people. One way or another, the first crypto currency was created by Satoshi Nakamoto, who let the world know about it in October 2008. That time the Internet got acquainted with Bitcoin’s original version and its technical characteristics.

The Essence and Structure of Bitcoin

So what bitcoin is and why it is better than fiat money?

If fact, bitcoin is a piece of program code which is mined by miners and which can be sent to any person without a third party between. Let’s say one more time: there is no any third party here. As such, there is no “owner” of the bitcoin system like US Fed or any other central bank. As there is no “central power”, there can’t be centralized influence on bitcoin on the part of any particular organization or a commercial company. This is just one of the benefits of bitcoin.

When a transaction is completed, it is recorded into a global data base, namely, blockchain. Copies of this base are stored on PC’s of every system member (miners). Transactions are put into a block which is a basic “brick” of the entire blockchain. Each block stores information about preceding block. And here we see yet another benefit of bitcoin: if the last block (say, it is the 100th) stores information about the previous (99th), the 99th stores data about 98th and so on, we can conclude the last block in fact has information about all the previous blocks created to date. And this means that to hack the bitcoin chain, one has to hack each and every block in the system, which is impossible to complete. In other words, the network is secured against hacking, and it is not possible to steal all bitcoins at once.

Bitcoin stands out of fiat currencies by the fact that it is a deflationary currency, not an inflationary one like all fiat currencies. If we try to analyze how the US Dollar has fallen in the course of, say, 20 years, you can easily conclude that the greenback is definitely not a means of saving and hoarding. Speaking about bitcoin, it has risen by more than 24 times during just one 2017 year. Some people say during the next 3 years the price will climb to $400 thousand. According to other analysts, it will hit the $1 mln mark by the end of 2020.

So we see all the bitcoin benefits as compared to fiat money:

  • bitcoin is a deflationary currency meaning it price will be rising in course of time and you will be able to buy more with your bitcoins;
  • bitcoin is a so much convenient currency to keep. Using your wallet, you can keep as many bitcoins as you want, unlike traditional money which require safes or bank account to store and access them;
  • bitcoin can be easily sent from one person to another. By doing so, you don’t depend on any bank, financial organization etc.;
  • bitcoin is a supernational currency. And this might be the main and coolest feature of BTC. Bitcoin will survive any nation and political regime. Bitcoin will live as long as there are people who trust and consider it as a means of payment and money hoarding. Even if in the future many countries disappear, bitcoin will last.

Mining and Miners

But the main place in the system is occupied by the miners as they create all the new blocks out from transaction records. Have you hear the term “mining”? Literally, it means extraction of minerals, which in essence is similar to the job bitcoin miners do in the system. Creation of new blocks requires solution of complex mathematical problems, so you need to use powerful computers. The process was named mining also. Miners work on a new block and, if successful, get for each of them a nice bonus, the commission, or a newly created bitcoin. Complexity of mining is adjusted automatically depending on the number of blocks that have appeared in the last two weeks.

Let’s Talk About the Price

We paid special attention to the price of bitcoin in a separate article, therefore, now we will briefly recall some key points, dates and figures. Basically, we would like to talk about the eventful 2010. Let’s start with February as that month Bitcoin Market appeared, the first service that allowed buying bitcoins. Then let’s remember May, the month when a programmer boasted buying two pizzas for ten thousand bitcoins. Further, in July of the same year 2010, Slashdot portal detected a sharp increase of the amount of cryptocurrency holders. August: 600 dollars can be spent on 10 thousand bitcoins. It’s already quite a good price, isn’t it? At the same time, the first active miners appeared who independently managed to create themselves bitcoins. Then the first exchange of #1 crypto currency, MtGox, appeared.

Let’s move on in 2011 and recall briefly that in the cold February of that year, bitcoin was already on par with the dollar. March: small exchange points of bitcoin are opened. Curiously, a Swedish entrepreneur in the IT field, Ricard Falkwinge (representative of the pirate party), invested in bitcoins that time, and spent all his money. Wikileaks, a well-known site of compromising materials, managed to accept donations in bitcoin. Time magazine published an article about bitcoin. Against this background, it is not surprising that the total volume of the e-currency market went beyond 10 million US dollars.

First Strike – Withstood Successfully

However, bitcoin did have hard time finding its way in the world of crypto currency. He had to endure a series of attacks by hackers, which of course tangibly hit at the rate. Here and there, bitcoin users complained about the loss: one lost 25,000 coins, and then 60,000 users reported their passwords / logins to their wallets were stolen. Well, to completely finish off the system, hackers managed to obtain credentials for an administrator account on the site. That time they lowered the rate to 1 cent and made an attempt to buy a couple of thousand coins. The stock exchange closed for a week and soon the prices were normalized.

Yes, the negative sludge was felt, but the system continued to work, and at the first bitcoin conference in New York in the framework of the World Expo program, it took off all fears about is future. And then the same event was held in the Czech capital, Prague. The materials published in the authoritative editions of The Economist, New York Times and Forbes helped restore the reputation of bitcoin. Yet, a Nobel prize winner Paul Krugman wrote an article on bitcoins in a separate column.

Today we have forgotten that hard time and are already talking about bitcoin as an alternative to the real currencies. Google even tried to create an analogue. Google-bucks. Unsuccessfully.

So Who the Creator of Bitcoin Was?

Along with the highest interest in the currency, there are still attempts to find out, who is behind the name of Satoshi Nakamoto? According to experts, the stake of Satoshi Nakamoto can be estimated in more than 1 million bitcoins – for this he would have to use a network of dozens of powerful computers. It is known that since 2010 he has ceased to participate in the development of his brainchild and completely transferred the tools to the development and rights to the domain of Bitcoin.org colleagues. He communicated with them with the help of Peer to Peer Foundation, where he noted he was thirty-seven years old and lived in Japan. At the same time it turned out that he spoke English perfectly, and for some reason the technical specification for bitcoin had not been localized for Japanese. A mystery man…

The first serious attempt to look behind the curtain was made by Skye Grey, a researcher. He analyzed the textual predispositions of Nakamoto, the key turns of speech from the technical documentation and deduced that this name hides none other than Nick Szabo, the creator of Bit Gold. The latter refuted this version.

#2 attempt had been waited for until 2014, when journalist Leah Goodman of Newsweek magazine suggested that Bitcoin was created by 64-year-old Dorian Prentice, a Yankee with Japanese roots. Although the biography of Prentice was provided correctly by the journalist, it was the next day when Prentice also refuted suspicions, noting that he had heard about bitcoin quite recently, a couple of weeks ago.

Finally, in 2015, The Wired magazine went to search for the truth on Satoshi Nakamoto. According to their assumption, Bitcoin’s creator is an Australian businessman Craig Wright. The journalists said that back in 2008 Wright mentioned a major study of crypto-currency in his blog, and the email address used for communication through PGP-encryption differed by 1 letter only from the address of Nakamoto. On top of that, the magazine added that Wright had a discussion on investments in bitcoin servers with his business partner, an owner of the fund of 1 million David Kleiman. Hardly had Wright excused himself, the police came to him with a search – on the case of non-payment of taxes.

Yet that was the trouble: on the eve of the arrival of unexpected guests, the owner of the house and his family left Australia. Then Wright appeared in Las Vegas, where he attended a profile conference of bitcoin investors. When asked about bitcoins, Craig Wright replied he has been dealing with crypto currency for a long time, but prefers to stay in the background. The answer is, of course, unconvincing, streamlined, but we still do not have more clear evidence that he (or anyone from the above individuals) is the creator of the No1 crypto currency in the world. Maybe Wright was involved in it, but only as one of the first miners? But most likely we still do not know the name and history of the one who initiated the BTC currency.

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