Running the Toronto Cryptocurrency Conference, the number one questionsI get asked is What is Bitcoin?
Where Does Bitcoin Come From?
As a matter of fact, Bitcoin first appeared and is defined in the white paper Bitcoin: A Peer-to-Peer Electronic Cash System. The white paper, published by the mysterious Satoshi Nakamoto of course, in October 2008. Arising out of the disrupt wall street movement. With the focus to free the public from the centralized authorities, banks and governments. Allowing for the efficient anonymous and secure transfer of currency.
What is Bitcoin?
In the first place, Bitcoin is a Cryptocurrency. Read What is a Cryptocurrency? Bitcoin is also a system of payment. It’s important to differentiate between Bitcoin the Token and Bitcoin the protocol behind the payment system network. The lightning network is now online, it is not discussed in this article.
What is Cryptocurrency?
Cryptocurrency is sometimes called crypto currency. It is a chunk of code, or a digital asset used as unit of exchange. Additionally, Cryptocurrency is based on cryptography. Cryptography is used secure the transactions, Validate the transactions, and to create new tokens. As mentioned, cryptocurrencies use decentralized control, this happens via something called the Blockchain. Read what is the Blockchain?
What is the Blockchain?
The Blockchain is a public transactional database. By the same token, it has the additional benefit of being an immutable distributed ledger. Bitcoin transactions are recorded in the Blockchain. The blockchain is what allows for transactions without a trusted central authority (bank). The blockchain is a distributed database using miners to track and verify ownership and transactions. Each node on the blockchain stores its own copy of the database. Miners add a new block about every 1o minutes. This is a group of accepted transactions that the network has verified and come to consensus on.
Decentralized vs Centralized
Bitcoin is decentralized by design. Avoiding the need for an authority (bank) to be involved. Decentralization means that no one miner controls more than 50% of the computing power. If someone were able to get 51% or more of the power than they would be able to double spend, prevent others from getting coins from ming or transactions. So far this has been avoided and is something that is monitored and discussed heavily in the community. In contrast to Ripple XRP is more centralized, read What is Ripple XRP. Equally important is Ripple XRP Price (1 XRP to USD) page.
Correspondingly Bitcoins are registered as bitcoin addresses in the blockchain. The address is a random valid private key used to calculate the bitcoin address. Calculations such as these are completed extremely quick. Doing the reverse is the key to the cryptography part of it and is near impossible. As long as you keep your private key to yourself, your bitcoin is safe. You can share the public address. The Bitcoin network only accepts the private key and will not take anything else to prove ownership. If you lose your private key you lose your Bitcoin, unless you have a back up key. Many exchanges will hold your cryptocurrency in their accounts and you need to do your research about how to secure your Bitcoin.
A scripting language defines transactions. With this in mind transactions consist of at a minimum, one input and one output. When a transaction takes place both a source and destination address is specified. Together with the amount being sent. Here is where the digital currency double spend problem comes in to play. For every bitcoin going into the transaction needs to point to an unspent output. a transaction can have multiple inputs which usually means different coin types. Multiple output means multiple people can split the coins. If there is excess it is returned to the sender.
When it comes to fees miners are rewarded to move the traffic from those who pay higher fees to the front of the queue. The miners can pick the transactions to process. The miners usually are concerned about storage size as a result of size of mined blocks, and tend to have a ratio of fee to storage size to prioritize transactions. With this in mind transaction fees are determined by bitcoin per byte.
What is Bitcoin Mining
Ok I get bitcoins, transactions, and fees. What the heck is Bitcoin mining? In the first place, mining is record keeping. As a matter of fact, miners provide this record keeping through computing power. The Block chain is maintained by miners. They gather the transactions into a block and then broadcast the block to the other miners on the network to verify and reach consensus. These verified blocks become an unalterable part of the Blockchain. The Blockchain is distributed among all the miners. Miners must reach consensus for transactions to be verified confirmed and committed to the Blockchain. Furthermore each new block must contain proof of work. Proof of Work means miners must find the nonce. When the block content is calculated along with the nonce, the result is smaller than the difficulty target. This is how Bitcoins are created or mined. Proof is easy to verify but computationally intensive to generate. Testing values over and over to find the nonce. A Bitcoin is produced approximately every 12 minutes by miners.
What is Bitcoin – Wallets
Equally important to what is Bitcoin is how to obtain Bitcoin is how do I store Bitcoin. That is where the Cryptocurrency or Bitcoin wallet comes in. In light of the hacks of exchanges and online cryptocurrency storage, offline or cold storage is becoming more and more popular. So what is a bitcoin wallet? They store the information necessary for you to use your cryptocurrency. These are often mis describes as where you store cryptocurrency. It is more accurate to think about them as a key ring. Holding the keys to access your assets, house, car, office. Not the asset it self. Bitcoin is stored and exists on the blockchain. They are inseparable. Many Bitcoin and cryptocurrency enthusiast like to use a wallet to ensure that no one can access the cryptocurrency whose keys are on it.
Now you know what is Bitcoin, you may want to buy Bitcoin or other cryptocurrency in Canada? I work with CoinSquare but you may want to Check out one of the other Canadian Cryptocurrency Exchanges
The Toronto Cryptocurrency Conference brings together the people changing the industry in Canada monthly for great speeches, panels, and networking. You should join us and find out what is happening with the latest altcoins, regulations, and investing.
TorontoStarts is Toronto’s Startup & Entrepreneur Community advancing Toronto’s entrepreneurs, founders, funders, innovators, hustlers, and incurable risk takers. With a very active cryptocurrency and blockchain community TorontoStarts’ monthly networking event Startup Social Open Bar Open Pitch Open Network, now includes a cryptocurrency corner! Into Bitcoin, Ethereum, or blockchain? Come grab a beer and network with blockchain founders, or special guests like our friends from Bitcoin Bay or CryptoChicks.
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