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Bitcoin Becoming the Replacement for Digital Transactions

Updated on December 28, 2013

Introduction

There was a time when we used to trade livestock for some other item to survive. We ended up moving from livestock and found shiny objects called gold and silver. The american dollar was based on gold for some time before we ended up needing to print more money than what gold we had. Now we are on a digital horizon that is still a bit shy to fully show its sun to the world. The horizon that I am speaking of, is called Bitcoin.

What is Bitcoin?

Bitcoin has once poked its head to the public a few years ago. Some may see it on the news but not really know what it is all about. Most of the news that most people have heard is mainly negative. I hope that today I can share some information that will give a better understanding of what this new digital currency is aiming to be. I also hope that instead of denying the currency because of how it was made, thus bringing fear, it can spark interest and hopefully help improve this system.

Below is a well made video on the summary of what a Bitcoin is. Take a peek at this and we will continue.

Enjoy

Vocab

As for learning anything in this world, you need to understand what everyone else is speaking. So below I have provided a list of Vocab that will be brought up throughout this article that should be helpful.


Bitcoin (BTC) - A digital currency that has its own set value and can be traded across any other type of currency as long as it is accepted.
Bitcoin Block - Data that is permanently recorded on the bitcoin network. (The ledger)
Bitcoin Miner - Data miner that processed Bitcoin Blocks. They verify the network transactions and solves hash problems to generate more bitcoins until the 21 million limit has been reached.
Bitcoin Network - A network of computers that talk to each other and share information about the bitcoin ledger.
Bitcoin Transaction - A system that takes place between you and another address, which is verified by several Bitcoin miners.
Genesis Block - The first Bitcoin Block processed by Bitcoin Miners.
Public Key - A key that can be given publicly to anyone for the purpose of transferring bitcoins to. A public key is almost always associated with a private key or passphrase so that you can send money with this key. Otherwise it is only for viewing.
Private Key - A key for unlocking a public key so that you can access any bitcoins associated with the public key.
Pooling - A group of bitcoin Miners working together to accomplish a hard task. BTC guild is one of such pools.
Hash Chain - a method to produce many one-time keys from a single key or password.
Fiat Currency - currency that is given value by an organization or group of people.

45 min Complete Detail of Bitcoins

History of Bitcoins

The Central idea of how Bitcoins work was first thought up by a guy named Adam Back. What he invented was a system called the Proof-of-Work. In one of the videos below, one of the people speaking gave this example.
Email spammers send out tons of emails at a time. What this system would do is give the computer some problem that it would have to solve. Based on the complexity of the problem the computer would take some time to do it. Which in the example the speaker gave, the computer would have to generate a number that has 6 zeros at the beginning of a hash. The computer would generate the hash, and check to see if it has met the criteria. If it has not, it would then re-generate the same hash but with slightly different values. it would repeat this process until it has successfully met the goal.
In total this would take about 2 seconds. Now for one email waiting 2 seconds before sending it, isn't that bad, but when sending 10,000 emails, you must multiply that by the number of seconds it takes to solve the problem and wait that many seconds.
This whole system is very similar to CAPTCHAs which lets a server know that a Human actually filled out this form rather than a computer.

Stats on Bitcoins

All these stats are based on the date of (5/19/2012). Links are provided for current statistics.
Bitcoins in Circulation: 9042400 BTC
Market price for a Bitcoin (USD): $5.10
Total Bitcoin market Price (USD): $46 M
Total Volume in trades: 100 - 400 M
Mining profit Margin: 21%
Collective Miner revenue per day (USD): $37k

Reason Mag review

Bitcoins over other Currencies

  • No middlemen
  • Transactions are irreversible
  • Transactions are Fast and Secure
  • Transactions are P2P
  • Transaction Fees are minimal
  • BTC is not a Fiat Currency
  • The ledger is known by the entire network.
  • Since it is digital you can just make more if you want

Peter Schiff 1st Half

Peter Schiff, 2nd Half

The Good

There are no middlemen, which essentially means that if the United States Government wanted to shut you off from your money. They could easily go to banks or credit card companies and tell them you freeze your account. With Bitcoins, there is no way that they can do that. Since essentially, everything is anonymous and you can create any number of public keys. It would be very hard to stop. If such a feature were to be implemented, we could possibly have a corrupt money system. With one person being in control of who gets what.
Transactions are Irreversible, meaning that only if there is a problem with your wallet. No one transaction can be undone. Another transaction has to take place in order for that person to receive a refund - if permitted.
Transactions are Fast and Secure. Each transaction is processed within an hour. Which the transaction is verified over several bitminers in order to make sure your wallet has sufficient funds to complete the transaction and that the receiving address is correct. These transactions are also secured with encryption and hashes to be processed.
Transactions are Peer to Peer - Every client on the network gets the ledger. Everyone knows about every single transaction since 2009. That means no one can fudge the system. Even if one person was able to get a lot of the processing power on the network ( which would have to be greater than 50% of the network) it still has to be verified by several other clients on the network.
Transaction Fees are minimal - For most transactions that take place you can but don't have to pay a nominal fee of .005 bitcoins to get it processed quicker. Which at the current price of a bitcoin would be $0.025 pennies.
BTC is not a Fiat Currency - Bitcoins are given value because people have decided that they are valuable. Not like a Fiat currency where an agency or a government says this is worth what it is. Bitcoins are valued based on the people who trade them.
The ledger is known by everyone - Every transaction is known by the network. This means no one can fudge the system. Everyone can see that ā€˜0023dā€™ made a transaction to 454ff for the amount of 5 BTC on 12/21/11.
You can't just make more Bitcoins - There is a mathematical equation in place that makes it so that there will only be 21 million bitcoins ever on the network. It is also hard to make your own bitcoins that the network will accept. Forgery is not a problem.

Common Concerns of those who don't know much about Bitcoins

  • There is no backing for Bitcoins
  • The anonymity causes problems
  • The Bitminers could be used for cracking other software. Or be used for bad.
  • You can't earn any money like you can with putting it in a bank

The Addressed Concerns

There is nothing backing up the bitcoin Exchange - There is no system in place to back up those who are investing into bitcoins. So if the system ends up crashing it will and it will take some time to recover if it ever does. As this being a beta type currency or a newer type currency this is one of those problems that should be in place to help this succeed.
The anonymity causes problems - With it being so anonymous it is kind of hard to remember all the numbers you generate. It also causes problems with the government if they need to freeze some bad guys account for buying illegal things. This basically enhances the black market.
Bitminers could possibly be used for harm - Bitminers could process algorithms for cracking into banks. I would assume this could be a concern. However This was addressed by the Bitcoin inventor Satoshi Nakamoto, there was a Bitcoin protocol that established when it first began. The Devs on the project do contribute a little to what Bitcoin does, however since version .3 has had minimal changes to it and it is always in agreement with the community.
You can't earn interest off bitcoins - There is no way currently to earn bitcoin interest. Like with any other system, you can put your money in a bank and you will earn interest off that bank. With bitcoins being new not much has been implemented.

Conclusion

If you still don't quite understand what a bitcoin is, after reviewing most of these videos and going over most of this information. I would like to recommend watching one last video. This is a seminar that was held 5/18/2012. It was a guy speaking about how Bitcoin was not a currency in his own mind. This is primarily because other currencies have different characteristics about them that bitcoin does not have. However Bitcoin is very different compared to the regular system and so with speculation it very well could look like it isn't a currency.
In my opinion I believe that Bitcoins can cause some problems with the current system that we have based most countries on. I believe that there may have to be regulations in place for the bitcoin system to work. I could see that the bitcoin market could help the black market a ton with it being so anonymous. But like bittorrents, I don't think there is going to be a way for it to be stopped. Since it is shared only between those who participate and if you shut down 1 or 15 bitminers. Everyone still has the ledger on their computer.

So What do you think? Can bitcoin be a currency everyone can accept?

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BK Tech - Bitcoin isn't a currency

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    • monicamelendez profile image

      monicamelendez 4 years ago from Salt Lake City

      I have a friend who is really into mining bitcoins. He has a pretty large operation. I beed to talk to him and see how it's going

    • Colten Rouska profile image
      Author

      Colten Rouska 4 years ago from South Jordan, Utah

      It sounds kind of silly, Although for those who don't really understand what Bitcoin miners do, It would seem very scary to think the Bitcoin network has that kind of processing power.

    • profile image

      Bit 4 years ago

      "Bitminers could process algorythms for cracking into banks." - the craziest counterargument I have ever heard :D

    • Colten Rouska profile image
      Author

      Colten Rouska 4 years ago from South Jordan, Utah

      Thank you!

    • profile image

      edward 4 years ago

      Great article

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