How transaction works? - Recap {Post-31}

If you didn’t pay attention to the last posts then you’ve gotten another chance at understanding the Bitcoin transaction.
Let’s say you want to purchase some product with Bitcoins. When you surf the product page you will be given a QR code to scan. The reason a QR code is given is that the addresses to which you have to send are rather long and have jumbled letters so the possibility of entering the wrong address
is very much there. This is why the entire process has been simplified with the use of QR codes. Once you scan the QR code into your wallet software, the QR code is analysed to give you the address and cost of the item along with the label column where you can see the particulars of the transaction. If
you’re into shady transactions then all you will see is the address and the amount, labels are optional. Once you hit “send”
in your client, the details are patched to
the nearest node of the Bitcoin network, this is then multicast till the address to which you want to send the money is located.

This may take a ridiculous amount of time depending on where the receiving address is
and what kind of network it is situated in. High-privacy networks like Tor take a much longer time for transactions to reach their final destination. Moreover, there is often a transaction fee which the sender has to pay for which is minimal. All transactions can be easily tracked in the Bitcoin ecosystem. Each Bitcoin that has ever been generated can be tracked right down to the current owner. Which is why scamming the system is very difficult but scamming people is quite easy. The decimal trick is the easiest, Bitcoin
transactions take place in numbers that have 8 decimals. So by shifting the decimal point scammers make quite the buck, so all clients now have an exchange index which shows the actual value in dollars at the moment so any foul play with the decimal pops up instantly.

Bitcoin-Reliability {Post-30}

The whole centralized aspect of Bitcoins brings a debilitating effect to it and that is reliability. The wallet is the one place where your Bitcoins stay, there is no backup unless you make one. Real world has banks that offer insurance but none of the applications you download or the web-services
you opt for gives you any guarantee. Quite simply because they can’t, while the transactions can be tracked easily the identity of the person owning the account cannot be unless they choose to. So that being said, the software based clients hosted on your machines are the safest. You can make plenty of backups and sync them whenever you make a transaction. The probability of losing all backups simultaneously is pretty low. Mobile apps are similarly reliable but certain apps were removed from their respective stores [Coinbase was removed from the App store] so that’s there. This doesn’t mean loss of Bitcoins but those who’d downloaded it could still use it. Also losing your mobile phone meant you’d lose your Bitcoins to some lucky pickpocket.
Websites can go down at any moment and should be used as an intermediary if you care about privacy. Hosting your Bitcoins solely on a web service is the least recommended option.

Storing Bitcoins - Wallets {Post-29}

Image taken from Coindesk

Now that the gloomy, boring and rather discouraging part about trading is over, let’s get into the thick of the whole trading business. Before you start with anything you’d want someplace to store your Bitcoins. While real world currency has a whole centralized system in place the digital currency is more decentralized.

The first step is to get a wallet for yourself. The wallet is from where you
send and receive Bitcoins. There are multiple websites and software that allow you to set up a wallet. But you need to remember that with all the crackdown on various services a third party system could go down any day and with that all your Bitcoins will disappear. That’s a worst case scenario but something that has been happening. There are three types of wallets you can go with.

1. Software based
These are software that you download onto
your system and let’s you start immediately. There are plenty of software available with Bitcoin-Qt, MultiBit, Armory

and Electrum being the most popular ones.

2. Mobile wallets
Adding an extra layer of flexibility gives
you the option of carrying your Bitcoin
wallet around with you on your smartphone. Most of these clients are free and
some of them link up to your NFC so you
can pay using the same at stores that
accept Bitcoins.

3. Web-service
If you don’t want to worry about hosting
your precious Bitcoins on your personal
computer or mobile device then you have
the option of web-services where all you
need to do is make an account.

Indian situation of Bitcoins {Post-28}

While mining and trading has been going on for quite some time and that too at a level similar to what most countries have, the prospect of exchanging Bitcoins into real world cash has been more or less difficult.
Ever since the whole hullabaloo over black money, trading is somewhat risky as it does put traders under the scrutiny of the authorities. There wouldn’t be anything wrong with it but reports of Bitcoins being used for funding the cause of anti-social elements has led to some inconvenience. The recent notice by the RBI [can be read here https://rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=30247 
has led to a lot of Indian Bitcoin exchanges shutting shop or temporarily suspending services. Few of them said services have restarted their services but the uncertainty of trusting a new player in the market always exists.

Why Bitcoin is a good investment? {Post-27}

There are multiple factors to something being a good investment, while we aren’t investment gurus it isn’t rocket science to figure out what could possibly be a good thing to invest in. Let’s take a look at the facts, this is a
cryptocurrency that has been around for slightly over 6 years now and in this period it has grown immensely. So it’s a well performing concept. The number of coins that can be mined is limited to 21 million coins. So there is never going to be a dilution as is the case with stocks. In fact the parameter of difficulty which we went into in the last chapter ensures that the mining
process is maintained at a constant pace till all 21 million coins are in circulation. 

Also since the quantity is limited the rate per Bitcoin is only going to go up. This makes it similar to ever natural resource we have on earth which happens to be limited and thus gains value over time. The final aspect that adds value to something is acceptance; and Bitcoin has been well received over the years. Online retailers have started accepting Bitcoins, donation services have started accepting Bitcoins. Even the Singapore government is currently planning to tax Bitcoins so even official channels have opened up and finally Bitcoin ATMs are now being rolled out. What more of a justification could one need to deem Bitcoins as worthy of investment.

Trading Bitcoin {Post-26}

This new crypto-currency doesn’t
adhere to the normal system that we
have in place. Here is how it works.

we don’t really have to say that something which appreciated in value by approximately 850% over the last six months is one of the best investments you can get into. However, the valuation of Bitcoins has gone up and down like a roller coaster ride over the same period. Very similar to a stock market this
commodity has had severe ups and downs with the worst in recent times being a drop of 61% If you wish to picture that in your mind then think of Wiley E. Coyote falling off a cliff. And just like the fantastic Mr. Coyote even Bitcoins have risen just as easily. Bitcoins gained immense publicity last year which was the most well performing year for the currency. Billionaires have arisen and disappeared with the inventor of the cryptocurrency being the first billionaire having a net worth of $1.1 Billion. Unfortunately, he isn’t featured on the Forbes list since he is only a billionaire each time the bitcoin exchange rate touches $1000. Also, there is the likely possibility

that this person doesn’t exist since the name Satoshi Nakamoto has been hailed as pseudonym.

Mining Bitcoin cgminer example {Post-25}

Let’s say you’ve finally got the hardware together and are ready to mine a few bitcoins. We’ll walk you through a simple cgminer command line. At each pool you’ll get a pool URL and a PORT. Aside from that you need to get the following ready.

-->Hardware [GPUs/FPGA/ASIC]

-->Appropriate drivers installed

-->For GPUs you need to install the OpenCL package from the respective manufacturer

AMD

http://developer.amd.com/tools-and-sdks/opencl-zone/amd-accelerated-parallel-processing-app-sdk/

If your cgminer windows looks likes this once you run the command then you’ve got it right!

NVIDIA

https://developer.nvidia.com/opencl

Have cgminer installed Command line: For mining in a single pool all you need to do is use the following command line and replace the pool:port with the url given to you and the username and password with the appropriate worker ID and PASSWORD.
cgminer -o http://pool:port -u username -p password For multiple pools you need to chain the commands one after the other and create a huge command with all URLs, worker IDs and PASSWORDs. Multiple pools: cgminer -o  http://pool1:port -u pool1username -p pool1password -o http:// pool2:port-u pool2usernmae -p pool2password Press enter and if all goes well, you should start mining and see something like the image on the previous page. There are a lot more clients and covering each and every usage scenario for all of them wouldn’t be possible so it would be best to join an online Bitcoin community and find out if others with your same hardware have found a convenient software to use. That’s about it for generating bitcoins. Once you’ve started on this you need to figure out how to use that currency. The next posts will focus on usage of bitcoins and other cryptocurrencies.

Mining Bitcoin Join a pool {Post-24}

If the numbers weren’t convincing enough then we’re letting you know that solo mining is as good as dead. You need to join a pool in order to actually get something out of all the effort you’re going to be putting in. There are plenty of pools out there but you need to join up in a pool with a lot of participants. The following four have the highest number of participants and the highest output.

--> Slush’s pool (mining.bitcoin.cz)

-->BTC Guild

-->Eligius

-->GHash.IO

When you register an ID at each pool, you will be given a worker ID and PASSWORD. For each worker [i.e. individual machine] you need to create a new worker ID and PASSWORD. If you own 5 ASIC machines then 5 IDs and
PASSWORDS will be needed, one for each. You can join multiple pools as well and then gather different worker IDs and PASSWORDS from each pool.

Software for mining Bitcoins {Post-23}

The hardware is just one part of bitcoin mining. You need to worry about the software as well. There are quite a few software but we’ll mention the more popular ones that are widely supported.1. BFG            
2. BitMiner       
3. BTCMiner       
4. cgminer        
 5. Diablo          
 6. EasyMiner       
7. gMinor         
8. GroupFabric    
 9. MPBM            
 10. Phoenix          
 11. poclbm                    
Not all of them support GPUs and ASIC and lastly, FPGA mining. One that does all three is cgminer, however, it may be a bit difficult for beginners to fiddle with since there is a fair bit of tweaking involved in getting it to work. We don’t know if you’ve noticed but the GPU lists in the previous
posts did not feature recent GPUs, that is because the high end GPUs have undergone a slight architectural change and it will be a short while before these software start working on those GPUs. If you are going to be using ASIC or FPGA then you need to figure
out which software out of these is supported by your hardware. As for those you wish to mine on their computers, cgminer should be more than sufficient.

Mining Bitcoins solo-Pool-Rental {Post-22}

Mining is by no means an easy task. In the next few lines you will come to know how difficult mining solo is so why don’t we look at some numbers. Let’s say you have a good rig which can handle three AMD HD 7970 cards in CrossFire configuration. Each card gives an estimated 700 MHash/s but the CrossFire configuration will give you 1950 MHash/s on an average. The electricity cost per kWh in India is roughly 20 paise / kWh when generated. Consumer rates are even higher and vary from place to place.The current Bitcoin generation difficulty is at 1,789,546,951. Under these conditions we
can calculate the rate of generation.

As you can see, with such a configuration that has three GPUs totaling  USD 1520.68 you only end up with USD 0.01 per day after subtracting electricity costs. This is ridiculously depressing for someone who spent close to USD 1520.68 for purely mining these coins. If you aren’t part of a pool then your profitability goes down even further since you will only generate one block every 124 years. That’s right, more than a century is needed and that is why solo mining is only for those who have a supercomputer(s) at their disposal. Pool mining is another aspect where you do have the same rig but there are a lot many folk just like you who come together to form the pool. This pool then cumulatively works to solve one block and thus the success rate is much higher and increases as the number of participants in the pool goes up. While this also means that the share that each user gets is way low, it does guarantee to certain extent that you will mine some bitcoins out of the venture rather than solo mining wherein uncertainty looms over you for 124 years. The last option is to rent processing power. Imagine that there are people who can get you the hardware resources but don’t have the money to fund themselves. They turn to consumers and start offering rental services. In this method, you pay to get a certain processing power. They do everything for you so that all you need to worry about is getting your money’s worth in time. That is the problem with upcoming hardware and services. There isn’t any guarantee and some only accept payment in Bitcoins, so there is

no way of getting your money back. Butterfly Labs is one company that has delivered on their promises and are now seeking customers to buy into the rental business. They charge USD 10.53 / [GHash/s]. So if you do spend the
same amount as for the triple crossfire AMD setup then you pay close to USD 2,499. Let’s run the calculation again now. 

Now power costs are irrelevant since you are not paying for that and all you are investing is for the processing power. This means that in just 49 days you will mint enough bitcoins to break even. Everything after that is pure profit. The rental agreement lasts for one year so that means USD 16,817 of profit over a year. Seems too good to be true? Well, these calculations are based on the current difficulty rate and as time goes by this will

increase and you will find it more difficult to mine. That means that the returns reduce significantly. There are plenty of tools available online to help you get estimates on your hardware. Check out http://www.bitcoinx.com/ for a well thought out calculator.

Mining Bitcoin ASIC {Post-21}

Application-Specific Integrated Circuit” are basically designed from the ground up
to do just one particular task. They are absolutely useless for any other function. These are the fastest sort of mining hardware at the moment. There are some manufacturers like Avalon, ASIC Miner, Butterfly Labs etc, who have released hardware based on ASIC chips which are

highly evolved for bitcoin mining. For a little comparison on which hardware is better

you can check the following link https://en.bitcoin.it/wiki/Mining_hardware_comparison

Mining Bitcoin-GPU {Post-19}

The Graphics Processing Unit is the processor that sits in the heart of your graphics card or more recently on your main CPU itself in the form on on-chip GPU. GPUs are more focused towards mining since they have a reduced instruction set compared to CPUs. CPUs are designed to calculate a wide variety of instructions hence the focus is more on compatibility and less on volume. GPUs on the other hand have a much reduced instruction set in comparison and can crunch out a lot of numbers in a short amount of time.

Needless to say, AMD cards are way better than NVIDIA’s offerings and this is because of the architecture they have. AMD’s GPUs have many simple shaders that run at low clock frequency while the NVIDIA design has a lot lesser CUDA cores which run at a relatively higher frequency.So AMD gets

the upper hand by having way more parallel processing throughput, when we compare the AMD 6990 to the NVIDIA 590 we can see that   --> AMD Radeon HD 6990: 3072 ALUs x 830 MHz =2550 billion 32-bit instruction per second
-->  Nvidia GTX 590: 1024 ALUs x 1214 MHz = 1243 billion 32-bit instruction per second 

Right off these numbers we can see that AMD is ahead by twice the margin. Another factor is how the instruction sets are implemented in the two competing devices. AMDs instruction set is capable doing what NVIDIA’s instruction set does in number of steps. This significant advantage in terms of time combined with the sheer raw output puts AMD ahead of NVIDIA.

Mining Bitcoin- CPU {Post-18}

The CPU is simply the Central Processing Unit or your computer’s processor. This is
the easiest and the most commonly obtainable hardware. Also it would be prudent to
mention that you don’t need to go and get a separate processor at this moment. The problem with using your CPU is that it isn’t designed for the volume of calculations involved. You will be able to mine coins in the long run but the costs associated with
it will be astronomical and in no way will you be able to break even. The only place where CPU based mining becomes feasible
is for criminals who have botnet that mine Bitcoins on all infected computers.

Few models of CPU's are mentioned bellow 

remember "Mhash/s higher is better"

Mining Bitcoin {Post-17}

Anybody can mine bitcoins, there is a lot of material available online which
can guide you through your choice of hardware and software. We’ve gone through some of them to curate all the methods and the time taken to generate bitcoins with each of them. First, we will look at the different hardware
that is available in the market for mining bitcoins. There are different types of hardware available in the market. You can
use your ordinary computer [or your super-awesome-rig, whatever you call it] to mine or you can purchase specialized hardware made for mining and nothing else. The hash calculation process is very simple but the sheer volume of calculations is quite taxing on the system. We have four popular options on a broad scale. Along with each hardware type will be a chart detailing different models of each hardware available in the market and the hash rate it offers in MHash/second(higher is better).

Important terms related to Bitcoins-2 {Post-16}

Hash: The output generated by a hash function is called a hash. 

Hash Function: It is a computer algorithm which takes any input data

and then runs it through a few calculations and shifting processes before generating a fixed length output called the hash. Passwords are commonly stored as a hash so that your actual password is never stored anywhere.Depending on the algorithm used, the probability of two inputs having the same hash does exist. In the Bitcoin system, a hash is difficult to produce but easy to verify and forms the backbone of the whole mining process.

Hash Rate: The number of hashes calculated by the hardware is the hash rate. Commonly used indices are Megahashes/second and Gigahashes/second.

Miner: It is a computer software or a hardware that is designed to calculate the hashes needed for the inception of a new block. The miner also

gets a reward in the form of bitcoins and transaction fees for aiding in the

creation and the maintenance of the bitcoin blockchain.

Node: Every participant is a node in the bitcoin network, certain client allow you to save a copy of the blockchain on your computer while some don’t. Nevertheless, they are both nodes.

Satoshi: The smallest unit of a Bitcoin which amounts to 0.00000001 BTC is called a Satoshi after the creator of Bitcoin i.e., Satoshi Nakamoto.

Transaction free:This is a fee that is added voluntarily to any transaction so as to add the transaction to the block. The fee also determines whether a transaction will be added or not since a higher transaction fee gains priority over lower transaction fee. Since it is voluntary it may be added with

any transaction but it is the sender who always pays the fee since bitcoin transactions are always one sided. For transactions that are large which means a high addition needs to be done to the blockchain a fee is expected and charged by most online services.

Virgin Bitcoin: When a miner generates a block that has never been spent a Virgin bitcoin is produced as a reward. Thus it is the only true anonymous portion of the bitcoin system. All subsequent transactions can be traced back to the virgin bitcoin.

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}

For more information about the image visit  here.

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.