Assessment 2 Bitcoin
SIT124 Cooper Mathews: 218241231
Pt 1
Introduction
One of the biggest markets of the 21st century has and still is the crypto currency market. This decentralised form of currency has offered the ability for people to use an online, self-controlled currency to buy goods or store their wealth. This differs to normal banks, in that if they were to fail, people would lose money and wealth. Yet crypto currency comes with its own drawbacks, because of the volatile and unregulated nature of the currency, prices can fluctuate massively. Therefore it can end up losing its original value. But because of its recent surge in popularity, this disruptive technology has paved the way for new and exciting possibilities for the future. With the huge market of over 1598 different crypto currencies, according to coinmarketcap.com, there are so many to choose from. The biggest and most popular is Bitcoin. To understand Bitcoin and how it works you have to first understand: where it comes from; how it is obtained; and how both parties benefit.
Pt 2
The History of Bitcoin
- Bitcoin has been around since 2009 and was the first commercially successful crypto currency. However, the idea has been around since 1998. Some of these early crypto currencies were B-Money and Bit Gold, but these never took off as they were under developed and not fully embraced. Also, the hash function used for Bitcoin was developed by the US National Security Agency.
- In 2008 a paper was posted to a mailing list discussing crypto currencies with the topic of ‘Bitcoin – A Peer to Peer Electronic Cash System’. It was posted by illusive Satoshi Nakamoto.
- On January 8th 2009, Bitcoin was first released to the public and the service went live. Mining has started. Bitcoin is an emerging technology.
- 2010 marked the first use of Bitcoin in a monetary sense. 10000 Bitcoins were used to buy 2 piazzas. Up until this year Bitcoin was only ever mined.
- 2011 the first different crypto currencies emerge and the idea of decentralised currencies take off.
- 2013 the price of Bitcoin reaches $1000 but then very quickly crashes to $300 dollars – the first major drop in price.
- 2016 Bitcoin’s first major competitor Ethereum, steals Bitcoin’s thunder as the Hash function can only be mined buy using GPUs, not specialised machine.
How It All Works.
Understanding how most crypto currency works can be quite difficult. Most work using transactions. The transaction, or exchange, of online currency goes through what is called a peer to peer network. This network allows the exchange of a certain crypto currency throughout the world. This exchange is recorded on a huge global ledger called the block chain. Then because of the decentralised nature of the block chain, a huge network of volunteer computers is used to verify each transaction. This, because each one has a copy of the transaction, allows the system to find whether anyone has rigged or scammed the system. When you send an amount of the currency to someone else you give the network of people your account number, the account of the person you are sending the currency to and how many. This allows the block chain to be updated and the transaction to be verified.
However, this may seem like you are giving away personal details to everyone on the network! But not quite. The way this is achieved is through the use of keys. You store all of your currency on what is known as a ‘wallet’. This wallet contains two keys, a public and a private key. Your private key which only you have access to, allows you to take a transaction and sign/verify it. Then all the computers on the network use your public key to verify the transaction, therefore adding it to the block chain. The network also checks your other transactions to see whether you have enough currency to begin with.
But herein lies another problem. Due to vast expanse of the network, each individual computer receives the transaction in a different order. So now there are a bunch of different computers with different blocks on them. The way the program solves this is by solving maths problems. Each computer maintaining a ledger has to solve a special maths problem known as the cryptographic hash function. The problem goes like this:
A hash function is easy to solve the output:
2+3+5=10
But really hard to find the input that equals 10. It could equal be
5,5
1,2,3,4
7,3
2,3,1,4
And so on.
So, each computer essentially guesses the answer until it gets it right. For Ethereum’s case the type of hash function it uses is SHA-256, which was developed by the US National Security Agency. These can be solved by using GPUs (general processing units) or specialised devices to mine these inputs. The 256 means that it is a 256-bit algorithm. So, it contains 2^256 bits of information, that’s 1.157920892373×1077. So, each computer on the network guesses until the answer is found. The more people on the network the faster the answer is found. Once the answer is found its corresponding block is added to the block chain. The computer that found the answer is then rewarded a certain amount of Bitcoin. Other contributors also get a very small amount of Bitcoin. These contributors are often called miners as they are essentially mining for code.
As far as the software goes it just uses a command line that uploads the output onto the GPU/CPU depending on what the miner selects. The processor then mines until an answer is found. The program can be run on any OS as long as the program can be run.
The Impact of Bitcoin Pt3
Bitcoin has completely changed the way people exchange and pay for things. But Bitcoin has mainly revolutionised the crypto currency market. It has done this by being profitable to mine and fairly rare compared to other crypto currencies. This, in turn, has increased the price dramatically and with the public interest increasing it has become very popular to trade. This has turned it from an emerging technology to a disruptive technology. But not only has it a disruptive technology in itself, it has also paved the way for different block chain technologies. Companies also have started up from the crypto currency craze, specialising in trading coins.
The Crypto currency market is estimated to be around 700 Billion US dollars and has become a huge part of people’s lives in 2018. The main plan for bitcoin and other crypto currencies is for them to be the main decentralised currency of the world.
Bibliography Pt4
WILL MARTIN
JAN 3, 2018, 9:57 PM
https://www.genesis-mining.com/the-history-of-bitcoin
No Author or upload date
https://www.youtube.com/watch?v=kubGCSj5y3k&t=242s
Sci Show
21 Dec 2016
Bernard Marr
DEC 6, 2017 @ 12:28 AM
https://www.youtube.com/watch?v=L-Qhv8kLESY
Techquickie / Linus Sebastian
30 Jan 2018