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Bitcoin is an implementation of Wei Dai's b-money proposal on [[Cypherpunks]] in 1998 and Nick Szabo's Bitgold proposal.<ref>[http://www.bitcoin.org/smf/index.php?topic=342.msg4508#msg4508 Bitcoin author on external references]</ref> The principles of the system are described in the Bitcoin White Paper.<ref name=Whitepaper>[http://www.bitcoin.org/sites/default/files/bitcoin.pdf Bitcoin White Paper]</ref>
Bitcoin is an implementation of Wei Dai's b-money proposal on [[Cypherpunks]] in 1998 and Nick Szabo's Bitgold proposal.<ref>[http://www.bitcoin.org/smf/index.php?topic=342.msg4508#msg4508 Bitcoin author on external references]</ref> The principles of the system are described in the Bitcoin White Paper.<ref name=Whitepaper>Nakamoto, Satoshi. [http://www.bitcoin.org/sites/default/files/bitcoin.pdf Bitcoin: A Peer-to-Peer Electronic Cash System].
Bitcoin White Paper] 2009-05-24</ref>


Each user on the network has a [[wallet]] containing a number of cryptographic keys. The public keys are called ''addresses''. The private key, stored only on the user's computer, is used to authorize payments from the user. Addresses contain no information about their owner and are anonymous.<ref>{{cite news |author=Nathan Willis |date=2010-11-10 |title=Bitcoin: Virtual money created by CPU cycles |publisher=[[LWN.net]] |url=http://lwn.net/Articles/414452/ }}</ref>
Each user on the network has a [[wallet]] containing a number of cryptographic keys. The public keys are called ''addresses''. The private key, stored only on the user's computer, is used to authorize payments from the user. Addresses contain no information about their owner and are anonymous.<ref>{{cite news |author=Nathan Willis |date=2010-11-10 |title=Bitcoin: Virtual money created by CPU cycles |publisher=[[LWN.net]] |url=http://lwn.net/Articles/414452/ }}</ref>

Revision as of 20:57, 11 December 2010

Template:Article Incubator

Bitcoin
Developer(s)Satoshi Nakamoto
Stable release
0.3.18 / December 9, 2010; 13 years ago (2010-12-09)
Written inC++
Operating systemWindows, Linux, Mac OS X
TypeElectronic money
LicenseMIT License
Websitewww.bitcoin.org

Bitcoin is an open source peer-to-peer electronic cash system. The system is decentralized with no central server or trusted parties.[1] Bitcoin relies on cryptographic principles to create unique tokens of value called bitcoins. Users hold the cryptographic keys to their own money and transact directly with each other, with the help of the network to check for double-spending.[2]

Users typically run the Bitcoin client on their computer through which they conduct transactions. Currency is issued through this client as a node in a wider peer-to-peer network. Running the client is not a requirement as users can place their trust in a third party provider.[3]

Basis

Bitcoin software running under Windows 7

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.[4] Additionally users can mint new coins through mining which strengthens the network by processing transactions.

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.

Bitcoin services exist for ranges of goods including both online services and physical goods.[5][6] The EFF, accepts bitcoin donations.[7] Traders exchange US dollars, Russian rubles, and Japanese yen for bitcoins through exchange sites.[8] PCWorld speculates that Bitcoin could rival centralized payment processors such as Paypal.[9]

Monetary differences

Bitcoin
ISO 4217
Unit
Symbolⓑ, ฿, ฿TC[10]‎
Demographics
User(s)Supranational, internet based
Issuance
Central bankNone; decentralized, distributed
Valuation
InflationApproximately predetermined[11]
Total Bitcoin supply over time.

As opposed to conventional fiat currency, the bitcoin differs in that no overseer can control the currency due to its decentralised nature[12], 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.[11] 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.

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.

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 points, there are no practical limitations to downward price adjustments in a deflationary environment.[13] 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.[14]

According to the author, the design also supports a variety of possible transaction types that have yet to be implemented within the currently available client. These include escrow transactions, surety bond contracts, third party arbitration, and multi-party signatures.[15]

Technical

Bitcoin is an implementation of Wei Dai's b-money proposal on Cypherpunks in 1998 and Nick Szabo's Bitgold proposal.[16] The principles of the system are described in the Bitcoin White Paper.[17]

Each user on the network has a wallet containing a number of cryptographic keys. The public keys are called addresses. The private key, stored only on the user's computer, is used to authorize payments from the user. Addresses contain no information about their owner and are anonymous.[18]

Each bitcoin has its owner's public key on it. The owner can transfer it further by adding the recipient's public key on it, signing it with his private key and broadcasting the transaction to the network. This way, each coin contains it's cryptographic ownership history from the creator of the coin to it's current owner.

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. The network collects and records new transactions into a chain of blocks. Nodes of the network race to complete these blocks by finding a value, that summed up with the block and the hash of the previous block, produces an SHA-256 hash containing a certain amount of leading zero bits. The average work required by this operation can be calculated and used to timestamp the block's transactions, so that they cannot be invalidated by later double-spending.

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.[19]. 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.[17] 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.

Bitcoin is a completely peer-to-peer 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.

See also

References

  1. ^ Maymin, Phil (2010-07-08). "Is It Time For Digital-Only Dollars?". Hartford Advocate. Retrieved 2010-07-23.
  2. ^ McAllister, Neil (2010-05-24). "Open source innovation on the cutting edge". InfoWorld. Retrieved 2010-07-23.
  3. ^ MyBitcoin Online Bitcoin interface
  4. ^ PasteCoin.com, example of micropayment business
  5. ^ Bitcoin traders list
  6. ^ Merchants accepting Bitcoin
  7. ^ EFF Bitcoin donation page
  8. ^ Bitcoin Charts
  9. ^ Thomas, Keir (2010-10-10). "Could the Wikileaks Scandal Lead to New Virtual Currency?". PC World. Retrieved 2010-10-10.
  10. ^ Official Bitcoin Unicode Character?
  11. ^ a b Expected production of bitcoins
  12. ^ Bitcoin FAQ
  13. ^ Divisibility of Bitcoins
  14. ^ Incentive to Collect Transactions
  15. ^ Predicate Transactions
  16. ^ Bitcoin author on external references
  17. ^ a b Nakamoto, Satoshi. Bitcoin: A Peer-to-Peer Electronic Cash System. Bitcoin White Paper] 2009-05-24
  18. ^ Nathan Willis (2010-11-10). "Bitcoin: Virtual money created by CPU cycles". LWN.net.
  19. ^ LewRockwell.com article: The FED’s Real Monetary Problem

External links


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