Important terms related to Bitcoins-1 {Post-15}

Bitcoins: It is a crypto currency that is generated and used within the Bitcoin ecosystem.

Block:Blocks are individual links in a chain of transactions verification.Transactions that are outstanding get added into a block and are verified approximately every ten minutes.Each new block generated helps with the verification of all previous blocks since it adds upon the previous one. Data is permanently recorded in the Bitcoin distributed network through files called blocks.

Block Chain: Each block that is generated has the hash of the previous block included in it. This creates a link to every coin ever mined in the Bitcoin network. When a lot of such blocks come together you get a block chain. A block chain can also considered as history of transactions which is shared by all nodes that are mining or participating in the Bitcoin ecosystem or basically a digital ledger. A complete copy of the Bitcoin blockchain of a will have every movement of every coin ever mined.

Difficulty:About every 2016 blocks that are realised,the Bitcoin ecosystem adjusts the difficulty of verifying the blocks depending upon the time taken for the previous 2016 blocks. This is roughly considered to be increment of 20-30% of the previous value.

The difficulty parameter is adjusted so as to keep average Bitcoin generation rate static and only one block will verified on an average of ten minutes for the next 2016 blocks.This "difficulty" parameter is usually expressed as a number.The difficulty is designed to be inversely proportional to the target.

   

  Double Spending:Trying to spend Bitcoin or any digital currency that has already been spent in previous transaction.

Generate Bitcoin: When a miner finally finds a block,it gets virgin Bitcoins as a reward. The number of bitcoin awarded for verifying a new block is 25 BTC for each segment of 210000 blocks.It is used to be 50 BTC per block but this number goes down every subsequent 210000 blocks or so.It has been 4 years since the inception of Bitcoin when the first 210000 were verified and since the rate of generation is constant, it will be another 4 years before the number of BTC is halved again .The total amount of Bitcoins that will ever be mined has been calculated to be approximately 21 million BTC.

     

Bitcoin Generation {Post-14}

Basically, you are crunching an awful lot of numbers to get bitcoins as a reward in return. But since it is digital you'll need some mechanism so that people just don't copy a set of Bitcoins and then try to spend it all over again. After all, double spending is a characteristic of digital currency. This is where the whole proof-of-work function comes into the picture. Bitcoin uses the hashcash proof-of-work function as the backbone of it's mining algorithm. Every mining software that is working endlessly is trying to create a proof-of-work which makes their work unique and thus entitles them to a set of coins. So basically, Bitcoin uses an algorithm called hashcash to generate proof-of-work. It is costly in terms of time and energy consumed to produce for the pre-defined parameters. But at the same time it shouldn't require as much time to verify a proof-of-work as it takes to produce it. This is why the entire process revolves scanning for a value that when it is hashed two times with the SHA-256 hashing algorithm, the resulting hash begins with a pre-defined number of zero bits. The average effort need to hash such numbers increases exponentially with an increase in the number of zero bits required. This same generated hash however,can be easily verified by rehashing the number with a single pass of the double SHA-256 algorithm. So it is easy to verify but difficult to generate.

Then a simple question arises, if it was difficult to create for one machine then maybe two can do the job better. This is undoubtedly true, adding adding more hardware to the mix will give you more Bitcoins but only for a short while. When you increase the number of zero bits you increase the difficulty. And the Bitcoin network has its difficulty parameter readjusted every two weeks so that as time passes and more powerful computers join the network, the rate of creation is kept static. So the more popular it gets, the harder it becomes to generate Bitcoins. So much that normal computers can no longer generate Bitcoins at a profit. The amount spent for the electricity will far outweigh the value of the generated Bitcoins. yet people continue to mine. This is because of the specialised hardware that has been released which can generate Bitcoins at a pace far greater than ever before but while consuming far lesser amount of electricity.

Whenever anyone generates a proof-of-work it becomes part of the blockchain. The blockchain then serves as a ledger for every transaction that ever takes place. This is why all your transactions in the Bitcoin ecosystem can be traced from the very origin. Only after verification is the Bitcoin transaction happen. So if anyone would've programmed a Bitcoin wallet to show a balance of Bitcoins that never existed it couldn't ever be used. This is called the double spending problem and the concept of Bitcoins was conceived in order to solve the double spending problem. Whenever digital currency is generated, there is the possibility of copying that currency. And thus creating a duplicate which can be used like the original currency. Bitcoin does not have this issue thanks to the blockchain. Any person trying to scam the system needs to rewrite a good portion of the blockchain and that can only be done via a consensus. That is, a majority of clients hosting the blockchain must be convinced that a new addition /modification is infact been seen by a majority of clients. Unless this happens the new addition/modification is rejected. So it would take a few of the world's fastest supercomputers to actually change the balance of the Bitcoin economy. All of this makes the Bitcoin system very difficult to scam.   

   

Is Bitcoin a revolution? {Post-13}

Bitcoin is the youngest currency in the world. It is also the world's first and fastest emerging currency of trust. Pure mathematical certainty. And that trust is what makes Bitcoin a force to be reckoned with more than any of its other features. It represents not only security and efficiency but also a dynamic form of democracy.

And even though it is based on a man-made open source software system, the system can't be changed without majority approval from those who make up the system. This distribution and decentralisation give Bitcoin its greatest strengths as they free participants from having to trust each other or a central agency. They just have to trust the math. Faced with numerous large scale financial meltdown over the last 20 years, it isn't unusual for people to seek certainty when it comes to their money. After watching governments plunder, waste and in efficiently use national currencies, the idea of a digital currency free from the flawed clutches of government are a source of peace.

This fees is a form of liberty that many Bitcoiners embrace with great passion and conviction. By taking the control out of governments and private agencies, individuals are able to not only reduce costs of currency transactions(as compared to other forms of online transactions)but also increase the value of the currency over decentralised currency exchanges. The currency attains value as a unit of exchange as well as a speculative investment that can grow. All without having to pay governments any form of tax, fees or other shares of profits. And if libertarian philosophy doesn't motivate people to participate, then surely denying the government any shares of profits is incentive enough for a revolution.       

Foundations of Bitcoin's value {Post-12}

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Bitcoins in most physical forms contain an inscribed motto- Vires in numbers- Latin for "Strength in numbers". The philosophy and design of the Bitcoin is based on this saying and uses it to uphold the system within which Bitcoins function.

For any currency to have usefulness they need to have value, which in the case of the Bitcoins comes from its scarcity.The system ensures a limit on the number of Bitcoins and scarcity in its production. As the community of the Bitcoin users move to further adopt the currency. The faith placed by the first adopter, the miners who worked to generate the currency.Bitcoins are a unit of trust. Their trust and subsequently the trust of all users is in the mathematical perfection of the system that allows users the comfort of knowing that their Bitcoins are unique,valuable and represent value. 

Similar to the older gold standard, which was supposed to allow currencies to be redeemed for gold as backing, Bitcoins are based on the premise that people within the network- retailers, merchants and individuals- will continue to accept them and trade value will be retained.

At its very core Bitcoins are based in trust and faith in the currency itself, which is similar to most modern fiat currencies with the exception of an institutional or governmental support. The faith usually given to central banks and governments is given to the purity of the code that runs Bitcoin in insuring that it remains secure and safe in the digital wallets of the users. The value of the Bitcoin also can't be controlled or manipulated by the governments as is the case with the fiat currencies and the effects of inflation are negligible in the long run since the supply of the currency can't be increased. Bitcoins value solely in the hands of its users and based on the foundational laws of supply and demand, clear of any external manipulations.

This raw dependency on market forces the lack of any correctional or protectionist third party (government) is considered by many as both a blessing as well as a curse. Since the trading of Bitcoins takes place across digital platforms there is a rapid and global influence from a large number of users reacting to a vast verity of reasons such as rumours, fear, confidence issues,  local laws and other behavioural factors.These variations in motivations, without corrective measures in place, makes the value of Bitcoins fluctuate rapidly, causing further fears of it being being nothing more than a bubble. However, this phenomenon isn't untrue for fiat currencies as history has shown. Bubbles are common in free market currencies such as the dollar and euro but they are always seen to normalise in the-long run, which is the exception from Bitcoin as well. 

Bitcoin as a decentralised digital currency {Post-11}

Many users of digital currencies, specially Bitcoin, express concerns relating to it being a fraudulent scheme designed to fool people into exchanging real currency for alpha-numeric sequences that have no actual value. But as we have observed value is generated through community trust in the system of the currency itself. The use of Bitcoins within the system doesn't assure any participant unfair gains or profits. the currency benefits from its decentralized nature which ensures that no individual or institution is at the core of it and positioned to unfairly benefit from its use.

 

The Bitcoin system is based on early reward efforts leading to long term community benefits. The first person to mine for Bitcoins were not at a significant advantage as the value of Bitcoins at the time was negligible or close to 10,000 BTC for a pizza(I don't know which one).At todays rates just 1 BTC could easily purchase 100 pizzas. But for the system to be functional in the early days the Bitcoins needed to be used in transactions that didn't value the Bitcoins very highly - a reflection of its nascent trustworthiness.

 

There was no government or agency that could artificially increase the value of the Bitcoin due to its decentralized nature. The value had to evolve from continuous usage and proliferation of the user network both in the digital and the real world. Bitcoins are now accepted in over one thousand locations across the world including real world locations such as cafes and restaurants.

 

Another unique aspect of this decentralized nature is that unlike other fiat currencies, Bitcoin isn't an inflationary currency with its value being dwindled by increasing supply, however it is the reverse. Bitcoin is predicated to experience deflationary forces over time due to its pre-determinedly limited supply. As Bitcoins are lost due to technical issues, accidents or seizure(government)the value of the Bitcoin will more rapidly stabilize and find a normal level. However there is also the possibility that with occasional and continuous losses due to random events, the supply of Bitcoins in circulation with always remain significantly lower than the total supply created. And unlike normal currency this defilation will effect the laws of supply and demand in unpredictable ways. The likely outcome is that the value of Bitcoins will increase as scarcity will relatively increase over time which will in effect cause aberrant trading behavior causing Bitcoin value to fluctuate.

 

In order to resist this possibility the system is designed for infinite divisibility of unit. In practice, while at one point 10,000 BTC could buy a pizza, today only a fraction of one Bitcoin is needed. By continuously being able to engage a lower unit of Bitcoin, a centicoin or an ucoin for trading the problem of deflation could also be managed. By dividing he Bitcoins to its lower denominations indefinitely usage could evolve in a practical and manageable way within the decentralized system.     



Bitcoin as currency-2 {Post-10}

The system is designed on a transparent mathematical system that can be predicted to create a finite number of Bitcoins in its running time. The approximate number of Bitcoins generated in first four years of operations or 210,000 blocks, from January 2009 to November 2012 was 10,499,889.80231183 and will result in half as many more by December 2016. By this count the currency supply will gradually and incrementally keep increasing until it hits a fixed ceiling beyond which more Bitcoins won't be created irrespective of mining efforts. The total number of Bitcoins that can ever be in existence are just less than 21 million at around 20,999,839.77085749 when using the determined 8 decimal point. 

The system is designed to reveal blocks every 10 minutes with the initial value of 50 Bitcoins per block. Along with the runtime reduction in Bitcoin pay-off, another aspect of the system is that it adaptively changes the difficulty of the mining process based on the rate at which processing power is dedicated to the task. This adaptive reiteration tasks place every 2016 blocks based on the time taken to solve that many blocks. 

At the current time (April 2014) there are 12650750.00000000 BTC in existence with a steady rate of increase. The number of Bitcoins in existence can be easily checked here. And as the network runtime increases the number of Bitcoins mined will half to 12.5 after the next 210,000 blocks and then 6.25 and so on. 

Bitcoin as currency {Post-9}

Bitcoin is the name given to the units of money or currency used on the Bitcoin protocol. Its abbreviation is "BTC" i.e 1BTC, like 1USD for United states Dollar. unlike analogue currency Bitcoins do not exist in physical form, rather only as numbers associated with a Bitcoin address that identify their value. This number can be replicated in physical tokens such as physical coins, paper print outs or card like objects but are only identifiable as genuine currency on the Bitcoin peer-to-peer distributed network by the authenticity of their numbers. This form of currency coding, unlike serial numbers on paper currency, is highly secure due to its unique identification on the Bitcoin registry that validates the coin instantly for online transfers. 

Bitcoins are created on the Bitcoin network through the act of "mining". The term "mining" refers to the act of discovering Bitcoins through applied effort(computational) on the Bitcoin network similar to the act of mining for gold on other precious commodities. The computational effort taken by "miners" on the network is reflected by the solving of complex mathematical problems which requires brute force processing power and therefore is an investment of time and energy. 

The mathematical problem is a "proof of work" solution that result in the awarding of bitcoins to the miner and the creation of new blocks. The difficulty of these problems can vary based on the strength of the network as well as the proportionate reward of Bitcoins. The network is based on an open source peer distributed software that has rigid parameters that govern the pay-off. The system is designed to be easier during the start of the process, resulting in large pay-offs , and reduces by half by every four years that the Bitcoin network is active. So a solution in 2010 would have yielded twice as many Bitcoins as it does in 2014 and will yield half as many Bitcoins in 2018 and so on.