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Bitcoin 101

Ru
Love spending time in front of the computer! Addicted to semicolons and tea.
・Updated on ・2 min read

I've been reading up on bitcoin lately and I'm super pumped up by the ideals it advocates for - economic freedom (A new kind of money that is fair and open).

Some things which I found particularly fascinating:

  1. "One money for the whole world". Shouldn't we all measure value the same way no matter where we live?
  2. Protects against inflation - only 21 million bitcoin will ever exist. ( what happens if there are so many people that it isn't sufficient? )
  3. It's in our hands and we control it. No 3rd party banks.
  4. Private keys are used to identify us. No other identification like name, phone or address required.
  5. It's keeping money safe for the future.(talking about decades - currently lot of spikes due to uncertanity)
  6. It doesn't exist physically. It's virtual.
  7. Bitcoin is designed for everyone.
  8. Bitcoin has a lot of potential - invented just 12 years ago.
  9. New digital currency for the whole world that is universally accessible and politically neutral.

Each bitcoin can be subdivided into 100 million units, each called a "satoshi" (singular) or "satoshis" (plural).

3 questions before accepting digital money

  1. Can I trust that the money is authentic and not counterfeit?
  2. Can I trust that the digital money can only be spent once (known as the β€œdouble-spend” problem)?
  3. Can I be sure that no one else can claim this money belongs to them and not me?

History of Bitcoin

Satoshi Nakamoto combined prior inventions like b-money and HashCash to create a completely decentralized electronic cash system that does not rely on a central authority for currency issuance or settlement and validation of transactions. He used a distributed computation system (called a "Proof-of-Work" algorithm) to conduct a global "election" every 10 minutes, allowing the decentralized network to arrive at consensus about the state of transactions. This elegantly solves the issue of double-spend where a single currency unit can be spent twice.

Bitcoin wallet

  • bitcoin wallet: bitcoin system :: web browser : HTTP protocol
  • just like we have many web browser brands like Safari, Firefox we also have various bitcoin wallets.
  • bitcoin wallets(based on platform) - desktop, mobile, web, hardware, paper
  • bitcoin wallets provide a mnemonic phrase(12-24 English words) which are selected randomly by the software, and used as the basis for the keys that are generated by the wallet. They are used to restore all the transactions and funds in the wallet in the case of a lost mobile device, a software bug, or memory corruption.

Reference:

Mastering Bitcoin by Andreas M. Antonopoulos - an absolutely thrilling beginner friendly book. I've incorporated material from the 1st chapter in the book here.

Discussion (10)

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jmfayard profile image
Jean-Michel Fayard πŸ‡«πŸ‡·πŸ‡©πŸ‡ͺπŸ‡¬πŸ‡§πŸ‡ͺπŸ‡ΈπŸ‡¨πŸ‡΄

Two weeks ago, my wallet was stolen in Paris, and the thieves took 5.500 euros from my bank account.

When something like this happens - and it happens all the time - with bitcoin, that's the end of the story. Too bad for you, you lost your money, you are on your own.

But there I had a centralized institutiion called "the police" where I said my money was stolen. And just like that, a centralized institution called "my bank" gave me money back. Because a centralized institution called "the government" forces it legally to do so.

How is the bitcoin system better for common people?

If the killer feature is that you can't be catched by the police, no wonder what happens with bitcoin in practice.

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codebyru profile image
Ru Author

From what I understand, Bitcoin is almost impossible to steal. It would be much more expensive to attempt to find private keys than it would to just mine it.

However, yes bad security practices can lead to private keys getting stolen. This is definitely a big issue which needs to be addressed. Thanks a lot for sharing!

Looking from another perspective, there are use cases where transactions being kept secret can prove to be useful. (Ex: if the government is corrupt or if the government imposes huge fees on money sent from another country(especially if the transfer is done from a developed country to a developing county)). For common people, there's an issue of currency being devalued and high inflation could make hard earned savings worthless.

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jmfayard profile image
Jean-Michel Fayard πŸ‡«πŸ‡·πŸ‡©πŸ‡ͺπŸ‡¬πŸ‡§πŸ‡ͺπŸ‡ΈπŸ‡¨πŸ‡΄

In practice if you are in a country with super high inflation and a super corrupt government, people don't use bitcoin, they simply use fiat money from another country, ex the dolllar.

But inflation is a strange thing to worry about. In the last 15 years now, there are not been too much inflation, there have been not enough of it.

On the other hand what you really need from a currency is stability. Bitcoin lost 20% of its value in one day because Musk and Tesla said it was not so great. It never happens with the dollar or the euro that mean words from a billionaire makes it loose 20% of its value and that's a good thing.

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codebyru profile image
Ru Author

That's true. Bitcoin is in a pretty volatile stage - the fluctuations are super scary and not at all suited for public use now.

But the technology behind bitcoin is pure genius and the ideals it could advocate for - economic freedom in a "perfect world" is super great too. But yeah, real world is a different story. I hope that it develops in the right direction and we come up with solutions to stop it's misuse.

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mccurcio profile image
Matt Curcio
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codebyru profile image
Ru Author

Oh...this is super interesting to know! I hadn't thought about bitcoin from that perspective.

I had read about people using volcanoes to power bitcoin mining and was wondering why they needed so much power. This explains so much. Thanks a lot for sharing!

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mccurcio profile image
Matt Curcio • Edited

Crazy, right?
I read recently that all Bitcoin is using more energy than Argentina, the COUNTRY! It surpassed Ireland some time ago...
Others have called Bitcoin a huge Ponzi Scheme.
I am particularly worried about the use of Bitcoin to extort money for criminals to fund more ransom-ware attacks.

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codebyru profile image
Ru Author

Woah! More energy than a county? - That's insane!

Will the energy requirement become 0 after all bitcoin has been mined? Just wondering...

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lorenzo_perez_4fe30880532 profile image
Lorenzo Perez

I totally see a massive constraint in BTC to be globally adopted by everyone. If we equally divide the ammount of satoshis by the ammount of people right now living in the world. We have arround 273,000 sats per person... It's not a viable protocol to implement as a global currency. Consider the most expensive item in could find. - --- -Yacht History Supreme, 4.5 billion USD
And then 1 kg of wheat flour where I live costs about 0.5 - 1 USD and with a little bit of common sense you will understand my point.
Thats why we have to keep working on Layer 2 solutions and beyond to improve scalability of cryptocurrencies.

Another thing I would add that is key to understand the why of Andreas explanation on POW (It's older than bitcoin), and decentralization is the amazing math Satoshi used for developing this protocol. One of the most important incorporations he did for the crypto community is the incorporation of the Poisson distribution (en.wikipedia.org/wiki/Poisson_dist...) the protocol instead of the more known Binomial distribution.
This single incorporation is one of the thinks that made BTC become what it is today solving for good the double spending proble.

Good post. Thanks!

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codebyru profile image
Ru Author

That makes so much more sense and I loved the way u explained it with those examples! Thanks a lot for sharing.