Bitcoin
The Basics, May 15, 2018
What is Bitcoin?
In the following sections below I give a brief explaination of what Bitcoin is, how it works and some facts and history. Most of the information contained was gleamed from two books Bitcoin The future of money? by Dominic Frisby and cryptocurrency the future of money by Paul Vigna. As a non technical person I have kept most of the information quite light, I hope that it will help other people interested in finding out more about this new technology.
There is a common and widespread misconception in the belief that the Internet and the Web are synonymous. A good way to think about it is a railway metaphor. Think of the Internet as the tracks and signalling technology of the system - the infrastructure on which everything runs. In a railway system different kinds of traffic run on the infrastructure: high-speed express trains, slow stopping trains, freight trains and repair trains etc. In the Internet context, web pages are just one of the many kinds of traffic that run on the infrastructure. Other kinds of traffic include: music files being exchanged via peer-to-peer networking; software updates; email; instant messages; phone conversations via Skype and other VoIP services; streaming media. There will be other types of traffic, things we haven't dreamed of yet. The web is huge and very important but the network is much bigger and far more important than anything that runs on it.
Bitcoin with a capital B is a protocol to send and receive payment information (like HTTP for websites and SMTP for email), bitcoin with a small b is the unit of money on the Bitcoin system. So Bitcoin is two things - a protocol and a unit of money.
How do you get bitcoins?
There are three ways, you can get paid in bitcoins, you can buy bitcoins and you can make bitcoins. To buy bitcoins you can use a bitcoin exchange transferring your dollars or euros. To create bitcoins, you run the Bitcoin software on your computer. It's called mining, mining has now progressed to the point at which regular computers are no longer much good.
You keep your money in a digital wallet. There are hundreds of places to get a wallet, just as there are to get an email address. You wallet can be kept on your phone, on an exchange or offline on a hard drive.
Each wallet has its own address - a sequence of different numbers and letters. To make a payment, you click on your wallet, type in the number of coins you wish to pay, copy and paste the payee's wallet address, hit send and the payment is made. To receive a payment in bitcoins, all the person paying needs your wallet address.
With QR codes you can open your wallet on your smart-phone, photograph the QR code, hit send and the payment is made.
Currently accepting donations 
Timeline
October 2008
Bitcoin was released just one month after the Lehman collapse into a world of broken trust in banks.
First official exchange rate by New Liberty Standard: BTC 1,309.03 for $1 based on the cost of electricity for mining.
July 2010
Mt Gox started trade, first major bitcoin exchange.
Feb 2011
"Silk Road" created, anonymous online market using Tor network and bitcoin. The site lasted about two years. Oct 2013 FBI arrested Ross Ulbricht founder in a San Francisco library. In August 2012 Forbe's Andy Greenberg estimated $22million in annual sales. Silk Road played a key role in developing bitcoin by expanding its community of users.
The blockchain
The blockchain is a public ledger that records bitcoin transactions.
Transactions take place between users directly, without an intermediary (from wallet to wallet). These transactions are verified by network nodes and recorded in a public distributed ledger (basically a database) called the blockchain.
Transactions of the form payer X sends Y bitcoins to payee Z are broadcast to this network using readily available software applications. Network nodes can validate transactions (making sure double spend does not occur), add them to their copy of the ledger, and then broadcast these ledger additions to other nodes. The blockchain is a distributed database � to achieve independent verification of the chain of ownership of any and every bitcoin (amount), each network node stores its own copy of the blockchain. Approximately six times per hour, a new group of accepted transactions, a block, is created, added to the blockchain, and quickly published to all nodes.
Mining
Each machine or node competes for the opportunity to mine a block by solving a complex algorithm. If the node solves the puzzle they are awarded the mining of the block receiving a set amount of bitcoins as a reward. This is the only way in which bitcoins are created or awarded. The algorithm will become easier or more difficult based on the computational power available on the network, so that one block is mined roughly every 10 minutes. Each two weeks the difficulty of the algorithm is adjusted. Nodes with more computational power are more likely to win more of the mining, similar to a lottery, the more tickets you have the greater chance you have of winning. A block is made up of a set of transactions on the network. Each block is then added to the block chain which comprises all the transactions ever carried out on the network since the beginning. (Every transaction ever created is stored and can be viewed.)
Inside a Chinese bitcoin mining operation:
Bitcoin Facts:
- Total Number of bitcoins 17,035,600 (as of 16/05/2018)
- Market Cap $145.054B (total dollar market value as of 16/05/2018)
- The rate of coins awarded is set to decrease by 50% every 210,000 blocks (1 block mined every 10 minutes x 210,000 blocks = every 4 years approx)
- The number of bitcoins in existence is not expected to exceed 21 million.
- Satoshi Nakamoto the founder/s of bitcoin has the largest amount of coins (estimated to have mined 1 million bitcoins in the currency’s early days.)
- The wallet with the largest number of bitcoins is owned by the FBI 144,000 bitcoins (much of the seized Silk Road bitcoins). (144,000 x $1015.30 = $146,203,200) (As of 03/02/2017)
- Bitcoin, capitalized, refers to the technology and network
- bitcoin, lowercase, refers to the unit of account.
- A Satoshi is the smallest fraction of a Bitcoin that can currently be sent: 0.00000001 (that is, a hundredth of a millionth BTC)
- Bitcoin can handle only 7 transactions a second (against Visa's 10,000) 2
- Fees are imposed on the smallest of transactions designed to make it prohibitively expensive for a nefarious actor to launch a massive distributed denial of service DDOS attack.
- The IRS treats bitcoin as "property" like real estate or stocks and so is subject to the same capital gains tax (10%) rather than a currency.
- The first bitcoin ATM was located in a cafe in downtown Vancouver on October 29, 2013.3