Bitcoin: Difference between revisions
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== Economics == |
== Economics == |
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{{Infobox Currency |
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|iso_code = BTC ([[Currency_code#Unofficial_codes|unofficial]]) |
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|using_countries = Supranational, Internet-based |
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|inflation_rate = Approximately predetermined<ref name="Whitelist pg. 4">{{cite book|last=Nakamoto|first=Satoshi|title=Bitcoin: A Peer-to-Peer Electronic Cash System|year=2009|url=http://www.bitcoin.org/sites/default/files/bitcoin.pdf|accessdate=14 December 2010|page=4|date=24|month=May}}</ref> |
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|symbol = |
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|issuing_authority = None; decentralized, distributed |
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The basis of this economy is that users can buy and sell services to one another in a free market without expensive fees or central authority. Because transaction fees are optional, there is the ability to carry out [[micropayment|micro-transactions]].<ref>[http://pastecoin.com PasteCoin.com, example of micropayment business]</ref>{{Verify credibility|date=December 2010}} Additionally users can mint new coins through mining which strengthens the network by processing transactions.{{fact|date=December 2010}} |
The basis of this economy is that users can buy and sell services to one another in a free market without expensive fees or central authority. Because transaction fees are optional, there is the ability to carry out [[micropayment|micro-transactions]].<ref>[http://pastecoin.com PasteCoin.com, example of micropayment business]</ref>{{Verify credibility|date=December 2010}} Additionally users can mint new coins through mining which strengthens the network by processing transactions.{{fact|date=December 2010}} |
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===Monetary differences=== |
===Monetary differences=== |
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As opposed to conventional [[fiat currency]], the bitcoin differs in that no overseer can control the currency due to its decentralised nature,<ref name=FAQ>[http://www.bitcoin.org/faq Bitcoin FAQ]</ref>{{Self-citation|date=December 2010}} mitigating possible [[Austrian business cycle theory|instability]] caused by central banks. There is a limited controlled inflation hardcoded in the Bitcoin software, but it is predictable and known to all parties in advance.<ref name= |
As opposed to conventional [[fiat currency]], the bitcoin differs in that no overseer can control the currency due to its decentralised nature,<ref name=FAQ>[http://www.bitcoin.org/faq Bitcoin FAQ]</ref>{{Self-citation|date=December 2010}} mitigating possible [[Austrian business cycle theory|instability]] caused by central banks. There is a limited controlled inflation hardcoded in the Bitcoin software, but it is predictable and known to all parties in advance.<ref name="Whitelist pg. 4"/> Inflation cannot therefore be centrally manipulated to effect redistribution of value from general users. The predetermined growth of bitcoins protects the system against wild supply swings due to externalities as can happen with traditional commodity currencies.{{fact|date=December 2010}} |
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Transfers are facilitated directly without the use of a financial processor between nodes. This type of transaction makes [[chargeback]]s impossible. The Bitcoin client broadcasts the transaction to surrounding nodes who propagate the payment across the network. Corrupted or invalid transactions are rejected by honest clients. Transactions are mostly free, however a fee may be paid to other nodes to prioritize transaction processing. |
Transfers are facilitated directly without the use of a financial processor between nodes. This type of transaction makes [[chargeback]]s impossible. The Bitcoin client broadcasts the transaction to surrounding nodes who propagate the payment across the network. Corrupted or invalid transactions are rejected by honest clients. Transactions are mostly free, however a fee may be paid to other nodes to prioritize transaction processing.<ref name="Whitelist pg. 4"/> |
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The total supply of bitcoins tends to 21 million BTC over time. The money supply grows as a [[geometric series]] every 4 years; by 2013 half of the total supply will have been generated, and by 2017, 3/4 will have been generated. As it approaches that mark the currency will begin to deflate due to the lack of new introduced currency. However as bitcoins are divisible to eight decimal places, there are no practical limitations to downward price adjustments in a deflationary environment.<ref name=lwn /> Rather than relying on the incentive of newly created bitcoins to package transactions, nodes in this period should depend more on their ability to competitively collect transaction fees to process transactions. |
The total supply of bitcoins tends to 21 million BTC over time. The money supply grows as a [[geometric series]] every 4 years; by 2013 half of the total supply will have been generated, and by 2017, 3/4 will have been generated. As it approaches that mark the currency will begin to deflate due to the lack of new introduced currency. However as bitcoins are divisible to eight decimal places, there are no practical limitations to downward price adjustments in a deflationary environment.<ref name=lwn /> Rather than relying on the incentive of newly created bitcoins to package transactions, nodes in this period should depend more on their ability to competitively collect transaction fees to process transactions.<ref name="Whitelist pg. 4"/> |
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==Technical== |
==Technical== |
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Revision as of 14:08, 14 December 2010
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| Developer(s) | Satoshi Nakamoto |
|---|---|
| Stable release | 0.3.19
/ December 12, 2010 |
| Written in | C++ |
| Operating system | Windows, Linux, Mac OS X |
| Type | Electronic money |
| License | MIT License |
| Website | www |
Bitcoin is digital currency created in 2009 by Satoshi Nakamoto. It is also the name of the open source software for using this currency.
The main properties of bitcoin are a full decentralisation via a peer-to-peer network, and the use of cryptographic functions in order to establish confidence in the currency. Unlike most other currencies, bitcoin does not rely on any trusted central issuer.[1]
Bitcoin is one of the first implementations of a concept called cryptocurrency, which was first described in 1998 by Wei Dai on the cypherpunk website.
Basis
 |
Basically bitcoin is a peer-to-peer network where all the nodes share a list of transfers of token values called bitcoins. A transfer occurs between ECDSA key pairs. Knowledge of a private key is required in order to transfer the corresponding amount stored in the network. Therefore, ownership of bitcoins consists in storing those private keys in a file on any digital storage device.
Cryptographic principles are used in order to prevent double spending. To do so, the network elects a specific node on regular time intervals. This node then has the task of validating current known transactions. Election process involves the execution of a CPU consuming task, based on the proof of work concept crated by David Chaum. Each elected node is granted a certain amount of bitcoins, as a reward for its participation in the network. This is the only way bitcoins are created in the system.
The system is designed to create a fixed amount of 21 million bitcoins. This amount is hard-coded in the source code, and any modification of this amount would result in rejection by other nodes of any transaction emitted by such a modified program.
Economics
| ISO 4217 | |
|---|---|
| Demographics | |
| User(s) | Supranational, Internet-based |
| Issuance | |
| Central bank | None; decentralized, distributed |
| Valuation | |
| Inflation | Approximately predetermined[2] |
The basis of this economy is that users can buy and sell services to one another in a free market without expensive fees or central authority. Because transaction fees are optional, there is the ability to carry out micro-transactions.[3][unreliable source?] Additionally users can mint new coins through mining which strengthens the network by processing transactions.[citation needed]
When a client wishes to send a sum of bitcoins, the software broadcasts the transaction to surrounding nodes. Clients that are mining then pickup the transaction and individually work it into the blockchain being computed. Other clients download this blockchain and independently verify its validity. Invalid blockchains are rejected and do not propagate.[citation needed][further explanation needed]
Bitcoin services exist for ranges of goods including both online services and physical goods.[4][5][self-published source?] The EFF, accepts bitcoin donations.[6] Traders exchange US dollars, Russian rubles, and Japanese yen for bitcoins through exchange sites.[7][self-published source?] Writing for PCWorld magazine, Keir Thomas speculated that Bitcoin could rival centralized payment processors such as PayPal.[8]
Monetary differences
As opposed to conventional fiat currency, the bitcoin differs in that no overseer can control the currency due to its decentralised nature,[9][self-published source?] mitigating possible instability caused by central banks. There is a limited controlled inflation hardcoded in the Bitcoin software, but it is predictable and known to all parties in advance.[2] Inflation cannot therefore be centrally manipulated to effect redistribution of value from general users. The predetermined growth of bitcoins protects the system against wild supply swings due to externalities as can happen with traditional commodity currencies.[citation needed]
Transfers are facilitated directly without the use of a financial processor between nodes. This type of transaction makes chargebacks impossible. The Bitcoin client broadcasts the transaction to surrounding nodes who propagate the payment across the network. Corrupted or invalid transactions are rejected by honest clients. Transactions are mostly free, however a fee may be paid to other nodes to prioritize transaction processing.[2]
The total supply of bitcoins tends to 21 million BTC over time. The money supply grows as a geometric series every 4 years; by 2013 half of the total supply will have been generated, and by 2017, 3/4 will have been generated. As it approaches that mark the currency will begin to deflate due to the lack of new introduced currency. However as bitcoins are divisible to eight decimal places, there are no practical limitations to downward price adjustments in a deflationary environment.[10] Rather than relying on the incentive of newly created bitcoins to package transactions, nodes in this period should depend more on their ability to competitively collect transaction fees to process transactions.[2]
Technical
Bitcoin is an implementation of Wei Dai's b-money proposal on Cypherpunks in 1998 and Nick Szabo's Bitgold proposal. The principles of the system are described in the Bitcoin White Paper.[11]
Each user on the network has a wallet containing a number of cryptographic keypairs: a public key that is called an address used to receive payments and a private key, stored only on the user's computer to authorize payments from the user. Addresses contain no information about their owner and are generally anonymous.[10] Somebody holding the private key can transfer the bitcoins to another public key by signing a transaction with the bitcoin's earlier public key and broadcasting the interaction to the network as an authorized transaction and requests that the transaction be placed into the block chain. This way, the block chain contains the cryptographic ownership history of each block of coins from the creator of the coin to its current owner.[citation needed]
To prevent users from double-spending their coins (signing the same coin for many recipients), transactions are timestamped by the network with a proof-of-work system. Some of the nodes on the network, called miners by the bitcoin community, collect and record new transactions into candidate blocks for inclusion into the main cryptographic block chain. To be recognized as a valid block to be included other nodes require a proof-of-work and validation of the transactions to prevent double spending. An expected SHA-256 hash against the previous block, produces a new hash containing a certain amount of leading zero bits for this expected proof. Validation of a particular block is computationally trivial compared to creating the block in the first place.[citation needed]
The incentive for running the system is that newly created coins are assigned to the node that manages to complete the new block first, analogous to gold and silver mining.[12] Once a node successfully creates a block, it broadcasts the block to the network. Other nodes receive the block, perform a proof-of-work check, and add it to their chain if it is valid. As more transactions occur, blocks are created and added ad infinitum. The longest proof-of-work block chain is acknowledged to be the oldest and most reliable account of the transaction history. This mechanism is highly tamper-resistant.[11][self-published source?] For an attacker to manipulate the record, he must outpace all other nodes to produce the longest proof-of-work. This becomes exponentially more difficult as time passes, because tampered chains would be rejected by nodes attempting to build a valid chain.[citation needed]
Bitcoin is a completely distributed network, and every node is able to enter or leave the network at will. When a node joins the network, it automatically accepts the longest proof-of-work as the most reliable one.[citation needed]
See also
References
- ^ Maymin, Phil (2010-07-08). "Is It Time For Digital-Only Dollars?". Hartford Advocate. Retrieved 2010-07-23.
- ^ a b c d Nakamoto, Satoshi (24). Bitcoin: A Peer-to-Peer Electronic Cash System (PDF). p. 4. Retrieved 14 December 2010.
{{cite book}}: Check date values in:|date=and|year=/|date=mismatch (help); Unknown parameter|month=ignored (help) - ^ PasteCoin.com, example of micropayment business
- ^ Bitcoin traders list
- ^ Merchants accepting Bitcoin
- ^ EFF Bitcoin donation page
- ^ Bitcoin Charts
- ^ Thomas, Keir (2010-10-10). "Could the Wikileaks Scandal Lead to New Virtual Currency?". PC World. Retrieved 2010-10-10.
- ^ Bitcoin FAQ
- ^ a b Nathan Willis (2010-11-10). "Bitcoin: Virtual money created by CPU cycles". LWN.net.
- ^ a b Nakamoto, Satoshi. Bitcoin: A Peer-to-Peer Electronic Cash System. 2009-05-24
- ^ Luongo, Thomas (2010-07-23). "The FED's Real Monetary Problem". LewRockwell.com. Retrieved 2010-10-12.