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Understanding Bitcoin: Origins and Future

Bitcoin is a digital currency created in 2009 by an anonymous group known as Satoshi Nakamoto. Bitcoins exist as digital entries in a blockchain ledger maintained by a network of computers. New bitcoins are generated by miners who validate transactions in the blockchain through solving complex math problems. While bitcoins aim to function as a currency, commercial use remains limited and legal status varies by country. The future of bitcoin is uncertain but it could transform digital payments and financial asset exchanges.

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Shivaani Aggarwal
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28 views4 pages

Understanding Bitcoin: Origins and Future

Bitcoin is a digital currency created in 2009 by an anonymous group known as Satoshi Nakamoto. Bitcoins exist as digital entries in a blockchain ledger maintained by a network of computers. New bitcoins are generated by miners who validate transactions in the blockchain through solving complex math problems. While bitcoins aim to function as a currency, commercial use remains limited and legal status varies by country. The future of bitcoin is uncertain but it could transform digital payments and financial asset exchanges.

Uploaded by

Shivaani Aggarwal
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

BitCoins

Introduction
In the year 2009, a peer-to-peer payment system was developed by "Satoshi Nakamoto". This
was coined as "bitcoin" and represented the creation of digital currency, virtual currency or
electronic money. Bitcoin is a kind scattered disseminated currency and does not meet the
generally identified norms of a national currency, neither it is controlled by some centralized
authority like central bank. Bitcoins came as a relief to merchants who were otherwise burdened
by the transaction processing fees of 2-3% by credit card processors. It has started coming in use
as a payment option for products and services but commerical use of bitcoins is still to be
realized.
One bitcoin carries a worth of around $600 US dollars and there happen to be around $1.9 billion
USD worth of bitcoins in existence by now. Bitcoins became a subject of legal perusal and
concerns in United States. Around 144,000 bitcoins worth US$28.5 million were seized by the
United States FBI by shuttind down Silk Road, an online black market. But still US have
extended its support to bitcoins much more than many other countries of the world. For instance,
China restricted money exchange in form of bitcoins for local currency and imposed many new
restrictions. Bitcoins are created by some conscientious mathematical calculations and policed by
millions of computers called as miners. In layman's terms, bitcoins are electrical signals
converted into very long strings of codes that have a monetary value associated with them.
Bitcoins are used in a way that no involvement of banks is required to circulate these virtual
coins that are self-contained for their value. When a user owns a bitcoin, they behave like having
a physical coin with gold value in his/her pocket and can be traded for anything he/she wishes
for. Usually, bitcoins are used for purchasing products or services from online market places or
are enfolded away with a hope that their value will increase over the years. Bitcoins get
exchanged from one personal "wallet" to another. In context of bitcoin technology, wallets are
small databases that are saved on user's personal computer's drive, smartphone's memory, tablet
devices or on a drive in the cloud. Bitcoins servers are hosted over the Internet that broadcast
messages of the form "payer A wants to send X bitcoins to payee B". Some readily availble
applications read these transaction processing messages and add them to their copy of the
"ledger" after thorough validations, and then broadcast these messages again over the Internet. In
this manner, multiple copies of the same transaction exist almost everywhere on the Internet and
these get updated real-time as and when any change happens. The ledger file which maintains the
records of bitcoins is also called as a "block chain".
Where did Bitcoins came from?
Bitcoin protocol was developed by a group of developers called as Satoshi Nakamoto, who also
later developed its reference software, Bitcoin-Qt in the year 2008. First introduction to the
technology was pubished in a paper on "The Cryptography Mailing List" by this group. B the
next year, in 2009, the group released the first Bitcoin software in which first units of currency
called Bitcoins were essentially utilized. The identity of Satoshi Nakamoto has been
controversial as the team had continued to contribute to the technology initially but faded away
in mid-2010. Dan Kaminsky, who could read the code of Bitcoin protocol, had commented that
Nakamoto could either be a "team of people" or "one single genius".
Bitcoin Mining
Bitcoin Mining is essentially creation and maintenance of the block chains in a manner that
bitcoin miners get some new bitcoins and transaction fees for doing the job. The past transactions
of a payer or a payee are recorded in a public ledger and thus there occurence gets confirmed to
all. Machines acting as bitcoin miners use special software to distinguish legitimate bitcoin
transactions from other kind of attempts to re-send bitcoins that may have got spent somewhere
else. The miners basically maintain the security of networks by approving any valid transactions
and this process ensures fairness to high extent by making Bitcoin networks safe, reliable and
secure.
Future of Bitcoins
Bitcoin technology has not seen its best days yet. It may not enjoy the luxury of being a full
fledged currency, but shall surely get utilized as a candidate for a bright and innovative platform
for money exchange. Bitcoins carries a potential of becoming a revolation in itself by changing
the way people own and pay for their purchases over the Internet. Bitcoins never move around in
any physical state but just get stored as entries in a gaint block chain which is maintained in an
open way by wonder computers with amazing computing powers. The system is secured and has
no reason for hackers to be interested in. In my view, bitcoins must be used for transfering
ownership both in currencies and of any kind of financial assets where asset holders can trade
directly with each other considering the existence of decentralized money exchanges.

References
1. Nakamoto, Satoshi (24 May 2009). "Bitcoin: A Peer-to-Peer Electronic Cash System".
Retrieved 5 March 2014.
2. Nakamoto, Satoshi (31 October 2010). "Bitcoin P2P e-cash paper". Retrieved 5 March
2014.
3. "Satoshi's posts to Cryptography mailing list". [Link]. Retrieved 2013-12-14.
4. Davis, Joshua. "The Crypto-Currency: Bitcoin and its mysterious inventor.". The New
Yorker.
5. Penenberg, Adam. "The Bitcoin Crypto-Currency Mystery Reopened". Fast Company.
"A New Yorker writer implies he found Bitcoin's mysterious creator. We think he got the
wrong man, and offer far more compelling evidence that points to someone else entirely."

Common questions

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The Bitcoin network ensures transparency and prevents fraudulent activities through its blockchain, where all transactions are publicly recorded and validated. Miners verify these transactions, ensuring that they are legitimate and flagging any attempts at double-spending or other fraudulent activities .

Challenges for Bitcoin in becoming a fully-fledged currency include regulatory uncertainties, price volatility, legal restrictions in various countries, and the need for broader acceptance and understanding by consumers and businesses for everyday transactions .

Miners play a critical role in the Bitcoin economy by maintaining and securing the blockchain through verifying transactions. They are incentivized with newly created bitcoins and transaction fees, which reward their computational efforts and ensure the continued stability and reliability of the network .

Bitcoin reduces transaction fees compared to traditional credit card processors, which typically charge 2-3% for transactions. This offers a relief to merchants who face these fees with traditional payment methods .

The integrity and fairness of the Bitcoin network are maintained through the process of mining, where machines verify and approve legitimate transactions. This ensures the network's security against attempts to re-send bitcoins that may have been spent elsewhere, thus maintaining a reliable and secure system .

Bitcoin can be seen as revolutionary by offering a decentralized, transparent, and secure way to perform transactions without the need for central banks. It paves the way for new forms of financial interactions, allowing direct asset transfers and ownership changes across decentralized platforms, potentially transforming traditional financial systems .

Bitcoin can be considered similar to physical commodities like gold in that it is self-contained for its value, which means it can be traded directly for goods and services without the involvement of banks. Furthermore, like gold, it can be held with the expectation that its value will increase over time .

The blockchain enhances Bitcoin's decentralized nature by acting as a distributed ledger of all transactions. It ensures that every transaction is publicly recorded and validated by a network of computers rather than a centralized authority, making the system transparent and resistant to manipulation .

The lack of control by a centralized authority means that Bitcoin operates independently of national monetary systems and is not subject to government control or intervention. This decentralization offers users freedom from traditional banking systems but also poses challenges in terms of regulation and legal status across different countries .

The identity of Satoshi Nakamoto has remained controversial because it is unclear whether it represents a single individual or a group of developers. This anonymity has fueled speculation and debate, impacting legal, philosophical, and financial perspectives of Bitcoin, influencing its adoption and trust within communities .

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