CASE 465 - Bitcoin and the future of currency

Bitcoin is a cryptocurrency and a payment system invented by an unidentified programmer, or group of programmers, under the name of Satoshi Nakamoto. Bitcoin was introduced on 31 October 2008 to a cryptography mailing list, and released as open-source software in 2009. There have been various claims and speculation concerning the identity of Nakamoto, none of which are confirmed. The system is peer-to-peer and transactions take place between users directly, without an intermediary. These transactions are verified by network nodes and recorded in a public distributed ledger called the blockchain, which uses bitcoin as its unit of account. Since the system works without a central repository or single administrator, the U.S. Treasury categorizes bitcoin as a decentralized virtual currency. Bitcoin is often called the first cryptocurrency, although prior systems existed and it is more correctly described as the first decentralized digital currency. Bitcoin is the largest of its kind in terms of total market value and is a cross between a stock and a form of payment. It’s a form of payment because you can use Bitcoins to pay for things. You can buy computers on Tigerdirect.com, you can buy pretty much get anything on Overstock.com OSTK -1.97%, and apparently, some enterprising young California girls are letting you buy cookies with them. You can also send small amounts of currency to people in other countries, without worrying about exchange rates or currency conversion fees. And this last is pretty important. No currency conversion or exchange rates.

It’s a stock because there’s a fixed number of “Bitcoins” in the universe. The value of each Bitcoin fluctuates based on the law of supply and demand. The more people that want to use them, the higher their value. One friend anecdotally reported Bitcoins bought in 2009-2010 for $1 (USD) each were recently sold for $1,200. That’s a lot of appreciation. But it’s not what Bitcoin’s people focus on.

Fiat currency ($£) is created through bank loans and mortgages (debts), out of thin air without having to have physical cash or it be backed by anything. This allows central banks to expand and influence money in circulation without regulation. As long the debter pays off the inflation and minimum requirement payment. There will never be enough money in society to ever pay all the debts off so a disequilibrium occurs where people become detached from their original debt and society constantly has to compete for labor in order to pool enough money out of the continual growth economy money supply and it's not backed or pegged by anything other peoples faith and trust and our national insurance, also u can get mugged in the street with cash or through your bank account or stick it in the Cayman Islands to avoid paying tax. Where as bitcoin it's not impossible but you would need a quantum computer to hack the encryption that it uses, which is also regulated and taxed in units of transactions and it essentially does away with the central bank model and tax evaders, I can buy something off a person on the other side of the world without having to go through say PayPal and then my bank



Blockchain

Number of unspent transaction outputs

The blockchain is a public ledger that records bitcoin transactions. A novel solution accomplishes this without any trusted central authority: maintenance of the blockchain is performed by a network of communicating nodes running bitcoin software. 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, 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. This allows bitcoin software to determine when a particular bitcoin amount has been spent, which is necessary in order to prevent double-spending in an environment without central oversight. Whereas a conventional ledger records the transfers of actual bills or promissory notes that exist apart from it, the blockchain is the only place that bitcoins can be said to exist in the form of unspent outputs of transactions.

Units

The unit of account of the bitcoin system is bitcoin. As of 2014, symbols used to represent bitcoin are BTC, XBT and BitcoinSign.svg. Small amounts of bitcoin used as alternative units are millibitcoin (mBTC), microbitcoin (µBTC, sometimes referred to as a bit), and satoshi. Named in homage to bitcoin's creator, a satoshi is the smallest amount within bitcoin representing 0.00000001 bitcoin, one hundred millionth of a bitcoin. A millibitcoin equals to 0.001 bitcoin, one thousandth of bitcoin. One microbitcoin equals to 0.000001 bitcoin, one millionth of a bitcoin.

A proposal was submitted to the Unicode Consortium in October 2015 to add a codepoint for the symbol. As of November 2016, it is in the pipeline for position 20BF in the Currency Symbols block.

Ownership

Simplified chain of ownership. In reality, a transaction can have more than one input and more than one output.

Ownership of bitcoins implies that a user can spend bitcoins associated with a specific address. To do so, a payer must digitally sign the transaction using the corresponding private key. Without knowledge of the private key, the transaction cannot be signed and bitcoins cannot be spent. The network verifies the signature using the public key. If the private key is lost, the bitcoin network will not recognize any other evidence of ownership; the coins are then unusable, and thus effectively lost. For example, in 2013 one user claimed to have lost 7,500 bitcoins, worth $7.5 million at the time, when he accidentally discarded a hard drive containing his private key.

Transactions

A transaction must have one or more inputs. For the transaction to be valid, every input must be an unspent output of a previous transaction. Every input must be digitally signed. The use of multiple inputs corresponds to the use of multiple coins in a cash transaction. A transaction can also have multiple outputs, allowing one to make multiple payments in one go. A transaction output can be specified as an arbitrary multiple of satoshi. As in a cash transaction, the sum of inputs (coins used to pay) can exceed the intended sum of payments. In such a case, an additional output is used, returning the change back to the payer. Any input satoshis not accounted for in the transaction outputs become the transaction fee.

Mining

Mining is a record-keeping service. Miners keep the blockchain consistent, complete, and unalterable by repeatedly verifying and collecting newly broadcast transactions into a new group of transactions called a block. Each block contains a cryptographic hash of the previous block, using the SHA-256 hashing algorithm, 7 which links it to the previous block, thus giving the blockchain its name. In order to be accepted by the rest of the network, a new block must contain a so-called proof-of-work. The proof-of-work requires miners to find a number called a nonce, such that when the block content is hashed along with the nonce, the result is numerically smaller than the network's difficulty target. 8 This proof is easy for any node in the network to verify, but extremely time-consuming to generate, as for a secure cryptographic hash, miners must try many different nonce values (usually the sequence of tested values is 0, 1, 2, 3, ... 8) before meeting the difficulty target.

Every 2016 blocks (approximately 14 days), the difficulty target is adjusted based on the network's recent performance, with the aim of keeping the average time between new blocks at ten minutes. In this way the system automatically adapts to the total amount of mining power on the network.

Between 1 March 2014 and 1 March 2015, the average number of nonces miners had to try before creating a new block increased from 16.4 quintillion to 200.5 quintillion.

The proof-of-work system, alongside the chaining of blocks, makes modifications of the blockchain extremely hard, as an attacker must modify all subsequent blocks in order for the modifications of one block to be accepted. As new blocks are mined all the time, the difficulty of modifying a block increases as time passes and the number of subsequent blocks (also called confirmations of the given block) increases



We need to maintain and improve upon our already-powerful open-source, cryptographic algorithms and enhance the programs , start ups and ideas being brought forward by young people. We need to fight to encode privacy and our human rights into the very fabric of the world. Edward Snowden said so himself. It is actually part of what spurred him on in divulging the crimes of the NSA and other government agencies

Snowden’s goal for us is to create a more free and equal internet. In an earlier interview with Laura Pointras, Snowden explained:

“The shock of this initial period [after the first revelations] will provide the support needed to build a more equal internet, but this will not work to the advantage of the average person unless science outpaces law. By understanding the mechanisms through which our privacy is violated, we can win here. We can guarantee for all people equal protection against unreasonable search through universal laws, but only if the technical community is willing to face the threat and commit to implementing over-engineered solutions. In the end, we must enforce a principle whereby the only way the powerful may enjoy privacy is when it is the same kind shared by the ordinary: one enforced by the laws of nature, rather than the policies of man.”

By implementing these new cryptographic systems, we may move one step further towards what Snowden envisioned: distributed and secure math-based ecosystems that enhance our privacy and allow us to innovate further in all areas — in government, in finance, in communications, agriculture, building and journalism, etc. Even if you inherently trust our government — I would argue that the price of non-action here is great: Dictators around the world, future corrupt leaders of America, they all stand to benefit if citizens are denied these tools. The old democratic 2 or 3 party highest voted party wins system or constant growth fractional reserve centralized banking systems has and never will work or be fair for everyone and its so expensive, wasteful, uneconomic, creates a higher rich/poor gap and political actions always take years to implement, but an open source cryptographic governence/financial world were absolutely everyone has a say and input, everything is transparent and there to be Search Results analyzed by anyone if they want to could.