Cryptocurrency is a virtual and decentralized digital cash that is generated as a means of exchange. it is a replacement for fiat currency. The term “crypto” in cryptocurrency is taken from cryptography for verification and security purposes during transactions. this is also called a peer-to-peer electronic cash system.
bitcoin is the first cryptocurrency based on blockchain, the most valued and popular. Nowadays, there are thousands of cryptocurrencies available in the market with various specifications. some of them are clones of bitcoin and others are new cryptocurrencies that are part of the existing ones.
Reading: Bitcoin tutorial for beginners
bitcoin tutorial for beginners
- what is bitcoin?
- what is fiat currency?
- cryptographic techniques used to generate bitcoins
- bitcoin history
- how does bitcoin work?
- Bitcoin benefits
- Bitcoin disadvantages
- Who can take the bitcoin course?
what is bitcoin?
bitcoin or btc is an online financial system or digital currency. these are often referred to as virtual currency or cryptocurrency. Cryptocurrency is a digital information exchange that allows you to buy and sell goods and services.
these also follow similar transaction rules like checks, cash and dds but bitcoins are not visible (fiat currency). bitcoin has generated a lot of buzz in recent years around the world.
in india, after demonetization, bitcoin has completely changed the view towards virtual currency. After the dramatic economic events that occurred in the United States, the vision of cryptocurrencies has changed. For example, we need to send money (currency) from India to the United States.
We use services like paypal to send money or our bank transfer service. To understand this better, we need to know what exactly currency means.
what is fiat currency?
Money created by the government is known as “fiat currency.” will have official authorization.
To know how btc is generated we need to have some knowledge of cryptography.
cryptography: the process of converting plain text into cipher (unintelligible) text and vice versa. Previously, cryptography was efficient with encryption, but now, cryptography is truly based on computer science and mathematical functions.
cryptography is applied in the banking sectors for transactions, electronic commerce transactions, credit or debit cards and computer passwords.
cryptographic techniques used to generate bitcoins
Bitcoin is a digital currency or cryptocurrency, so there are no printed paper or coins. it is decentralized, which means that no government, financial institution or any other authority has to control it. people who own bitcoins are anonymous, there are no names, social security numbers, account numbers, or any other identifying characteristics that can connect bitcoins to their owners.
bitcoin works with blockchain technology and encryption keys to connect sellers and buyers. bitcoin can be “mined” like gold.
bitcoin is known as “cryptocurrency” since they are obtained digitally through mathematical techniques based on elliptic curves. each user of the system generates a pair of keys: a private key and a public key for the digital signature. these keys are mathematically related to each other.
The following are the methods where the public key and private key are used
- digital signatures
encryption: if alex wants to encrypt and send a short message to louis, alex uses louis’s public key for encryption, and then louis uses his private key to decrypt the message he received from alex .
digital signatures: if alex wants to digitally sign a short message and send it to louis, alex uses his private key to generate a signature, and then anyone who knows alex’s public key can evaluate the digital signature key, since it can only be produced by someone who knows alex’s private key.
In the case of the bitcoin ledger (blockchain), each transaction that is not spent as output (utxo) is usually combined with a public key.
if alex has an utxo combined with his public key and wants to send the money to louis, then alex uses his private key to sign his transaction and spends the unspent result of the transaction, creating a new utxo associated with the public key from louis .
To this day, the founder of bitcoin is a mystery. An article was published on the “crypto mailing list” under the alias name “satoshi nakamoto” in October 2008. To date, the true identity of satoshi nakamoto is unknown.
In the month of January 2009, the first free source bitcoin software was released and the first bitcoin was issued. the method to find bitcoin is called mining. mining the first block of bitcoin known as the genesis block rewarded 50 bitcoins.
Bitcoin was the first cryptocurrency (digital property) that can be used as a currency to exchange digitally and is protected with cryptography.
there are other versions of cryptocurrencies released, but bitcoin came to the public in 2009. the anonymous satoshi nakamoto can be an individual or a group whose identity is not revealed.
The goal of the unknown is to bring technology to create “virtual currency” that is completely decentralized with no central authority. in 2010 around 10,000 bitcoins were traded. if they were not traded, the value of bitcoin would be worth over $100 million today.
in 2011, nakamoto shared the domains and source code with the bitcoin community and since then there is no news of him/her.
how does bitcoin work?
bitcoin is usually a file that is stored on a computer or smartphone in the form of a ‘digital wallet’ app. people can send, receive and store bitcoins in a digital wallet with a unique address generated by the bitcoin software for each transaction.
every transaction is recorded in a public ledger called a “blockchain”. Through blockchain, it is possible to track bitcoin transaction history to prevent overspending of coins. Before learning how to earn bitcoins, you need to know what is mining?
what is bitcoin mining?
The process of extracting bitcoins from a network block is called bitcoin mining. As we all know, currency printing is done by central banks, bitcoins are also mined on the network (internet). for example, gold mining in various areas, similar to bitcoin mining on the internet.
As gold mining consumes a lot of energy and is expensive, bitcoin mining is also too intensive as it is limited and rare to find. each bitcoin varies in design and protocol. gold is mined by gold miners, similarly bitcoins are also mined by miners and the mining process will add new bitcoins.
new bitcoins are generated only when miners mine bitcoin blocks that are accepted globally. after successful mining, they earn new bitcoins as block rewards. this process is the same as the lottery because winning new coins only happens when the miners guess the correct one.
However, this is not just random or simple guesswork. a person who is highly educated and who has the ability to make restricted guesses is preferred. every conjecture is even tested, and a considerable amount of energy and time is spent on it. even after trying and spending a lot of time and energy, most guesses fail.
other than that, for every 10 minutes, a miner in the world gets to guess. that means the miner has guessed a valid block.
Before you got your guess right, you may have tried several attempts to burn off a lot of power. after a successful mining, you receive a blockchain reward in the form of bitcoins that you can sell or trade online at the current market price.
To date, the reward for finding a valid block on the bitcoin network is 10.5 bitcoins. while in the beginning, the block reward was about 50 btc. to keep inflation in check, the reward is halved every 4 years
To technically understand what bitcoin mining is and how it works on a higher level, let’s take a look at the following technical methods used in mining:
- bitcoin hash function
- merkel tree and merkel root
- target & difficulty
- bitcoin nonce
bitcoin hash function: bitcoin uses the sha-256 algorithm which accepts input every time and produces a fixed length output. the generated output is called a hash or bitcoin hash.
merkel tree and merkel root: the merkel tree represents a hash tree, while the last hash of the tree is called the root hash or merkel root. Below is the graphical representation of the bitcoin block tree.
objective and difficulty: these are the characteristics of a bitcoin network. the goal is a 256 bit input (extremely large input) and is obtained by encoding the header of the last block in a particular method that all bitcoin clients have the same difficulty measuring and finding a hash that is almost equal to or less than given target. hashing speed is measured in hash rate.
bitcoin nonce: is a 32-bit (4-byte) input to the sha-256 hash function whose value must be set such that the hash output must include zeros that are equal to or less than the objective. this is necessary for a miner to generate the desired output.
for example, let’s know how a miner wins the lottery.
To successfully mine a block containing bitcoins, the miner must generate a hash in the block header equal to or less in number than the “target”. by encoding all transactions in a block, the block header is created by forming a merkel tree with a merkel root.
Later, this root is combined with a nonce and a hash of the last block. Finally, this raw data of timestamp + merkel root + nonce + previous hash is provided as input to the sha-256 function to generate a particular hash output depending on the target.
steps to earn bitcoins:
These are some of the steps to earn bitcoins through mining
Understanding Bitcoins: Bitcoin is a cryptocurrency. currency can be stored and exchanged between peers virtually. bitcoin is transferred from one computer to another and all transactions are verified by blockchain.
Set up a wallet: This step involves the process of installing the “wallet” software. this wallet will function similarly to the real wallets we use to store all of our currency and in this case the currency is bitcoins.
test your new bitcoin wallet: is a step to test whether the wallet software works or not. we are supposed to generate wallet addresses to send and receive bitcoins. To test, paste the generated bitcoin address in the middle of the app and uncheck the checkbox option for delayed payment, enter the captcha and click the submit button.
If the transaction is successful, open the wallet and we can see the bitcoins we have earned as a reward for installing the wallet software. this is the way we can earn money, but it is a very slow process.
Understanding the types of mining: Now that we have gained knowledge about bitcoins, a wallet installed to store them and how to earn a part of bitcoin, we can earn real money either by mining or exchanging the amount in the wallet. By giving our wallet addresses to others, we can start making money by sending and receiving bitcoins either by speculating or investing in them.
There are two types of mining:
- solo mining
- group mining
Solo mining: In this type of mining, anyone can mine bitcoins with the basic hardware requirement and it would take several years to earn a real bitcoin. but once we succeed, we can earn a reward of 50 bitcoins. so, it is not instructable.
pool mining: this is generally a method for mining. it is done by registering an account with any of the companies. By using its hardware and software, a group of people together put their mining efforts across computers within the network. each person within the group earns some bitcoins, which can be the decimals of a bitcoin.
setting up a mining account: there are different mining pools available on the market, and the most used is bitminter. it is easy to use and easy to use. It comes with built-in software that makes mining much easier.
configure workers: computers connected to the network require their own workers to be integrated into the bitminter server. the software installed on each computer will be linked to another worker so that the bitminter server will not face any problems while transmitting or receiving mining work.
Install java: Most people already have java installed on their desktops or laptops, but if they haven’t installed it before, follow these steps to install the software:
- url: www.java.com/download.
- click “java free download”.
- click “accept and start free download “.
- depending on the operating system, the version of the file will be downloaded.
- follow the instructions carefully to continue the installation process.
- click Finish button after installation.
proceed to the next step to set up a miner.
set up a miner: to set up a miner, we need a java web launcher. after installation, click “engine start” button, and then java web starter downloads the actual program. after download, install the miner setup.
mine: In this step, several systems are connected within a network and work simultaneously applying various mining algorithms to extract bitcoins from the blocks. the mining technique is applied all night since the blocks have greater availability.
spend your bitcoins: bitcoins can be spent on many virtual platforms instead of fiat currency. There are many ways to spend bitcoins including investments, forex, gambling, speculation, stocks, and product payments.
how are bitcoins used?
Besides mining, bitcoins can be obtained by other methods. First of all, people should accept bitcoins as a method of payment for products, goods or services. bitcoin wallet can be installed just like paypal or any other payment gateway account and is the only method to store bitcoins and track the spending of digital money.
coinbase is a free provider of bitcoins. Once bitcoins are free, there are many ways to lend and earn interest. There are also other methods to earn bitcoins like trading, stock exchange, etc.
virtual method to use btc:
bitcoin (btc) can be spent virtually. to spend cryptocurrencies, the virtually generated address must be digitally verified and signed. the generated address is digitally encrypted with long lines of security code using 16 different symbols.
then the buyer decodes it with the smartphone to get their cryptocurrency. Transactions are safe and secure as they run on a peer-to-peer computer network that is similar to a file sharing system, skype, or bittorrent.
what are the risks?
Although mining bitcoins is too risky, it is a great opportunity to earn bitcoins. Due to lack of regulation, criminals take advantage of bitcoin for its anonymity. Since it is decentralized, it is difficult to resolve issues if bitcoins are lost or stolen.
bitcoin transactional properties:
- irreversible: once the transaction is confirmed, it cannot be reversed. no one can reverse the process as it is virtual and decentralized. once the money is sent even for a wrong wallet address, no one can help you. if you share your wallet address or send your funds to a hacker, they will steal all your bitcoins stored in the wallet as there is no internet security.
- pseudonym: any of The two accounts or transactions are not connected to real-world identities like banks or government organizations (post offices). bitcoins are received with randomly generated addresses that are combinations of about 30 characters. we can only track or analyze transactions that are made using the same wallet address, otherwise they are invisible.
- fast and global: transactions through bitcoin wallets are they spread instantly on the network and are done in a few minutes. since the transactions occur on the global network, computers are required but not the physical location.
- example: the location of the bitcoin shipment is not an issue. we can send bitcoins to our neighbors or to another side of the world.
why do people want bitcoins?
- people like bitcoin as it is controlled neither by banks nor by the government.
- people can spend their bitcoins fairly without revealing their identity. Although all transactions are recorded in a public ledger, no one will know the account details until we disclose them.
how do people get bitcoins?
the following are the main ways people can earn bitcoins.
- you can sell things and let people pay you with bitcoins.
- can be created using a computer.
- you can buy bitcoins using ‘real money’.
- stock trading
how to protect bitcoins?
To save more bitcoins, they must be stored carefully, as we do with our normal wallets. we have to store only small amounts of bitcoins on our server or computer for daily use and keep the rest of the funds in a safe place. methods to secure bitcoins are listed below:
- encrypt the wallet and back up the wallet regularly, and on smartphones, protect them with a password. Unfortunately, don’t use keylogging software or hardware.
- To add extra security to your bitcoins, store some of them in an offline wallet that isn’t connected to the network. just like saving in banks, we usually take only a certain amount to store in the wallet.
- constantly update the wallet software for extra protection. the multi-signature function allows independent transactions to spend a bitcoin.
Bitcoins have many benefits and some of them are listed below:
anonymous and private: all bitcoin transactions are truly and completely private and anonymous. Unlike banks, where every transaction can be identified and traced, bitcoin transactions cannot be traced or identified.
We only need the bitcoin address to send or receive bitcoins for payments. the wallet address of these transactions is not identified. but if the same bitcoin address is used for each transaction over a long period of time, there is a chance that the wallet address can be traced
freedom of payment: payments through bitcoins are easy and free. can be transferred across many continents without mediators (third parties). no limits or borders, payment limits, bank strikes or holidays can affect bitcoin transactions.
minimum or low transaction fees: Payments via bitcoin are very low, and sometimes zero transaction fees apply. transaction fees depend on how fast the transaction needs to be. a person has to pay the transaction charges if he wants the transaction to be completed quickly.
but these charges are much lower compared to digital wallets like paytm, mobikwik and freecharge.
Less risk for merchants: Bitcoin transactions are secure, irreversible, and will not retain any customer’s personal information. this feature protects sellers from losses caused by fraudulent activities.
faster transactions: bitcoin transactions are very fast compared to banking sectors. they are faster than emails and can be processed instantly in 5 minutes. accepting transactions that are not confirmed by the bitcoin block chain will have an associated risk. these are called “zero confirmation” transactions.
Confirmed transactions will take at least 10 minutes to process. credit card or digital wallet services typically charge more to provide instant approval of transaction services. bitcoin has very low transaction fees even though it is fast in terms of processing.
Central governments have no control over bitcoins: government-generated “fiat currency” holds value and can be used until the currency is banned. the value of the coin earned is lost once the particular note is banned. The end result is that consumers lose their financial credibility and value.
this is not applicable to bitcoins. the government has no right to recover the bitcoins as it is decentralized. the maximum step a government can take is to ban bitcoin. but still, bitcoins have some value in those countries or places where it is legal and therefore can be redeemed.
people cannot steal your payment information: this is the biggest advantage of bitcoin. all online purchases today are done through debit cards or credit cards which require you to enter all the secret information like card number, cvv, etc, in a web form.
This is why credit and debit card details are regularly hacked by intruders. but in the case of bitcoin transactions, we do not need to reveal any secret information. instead, these wallet details are generated using an encrypted or digital signature, and use two keys for encryption: a private key and a public key.
The public key is the bitcoin address, actually anyone can see it, but the private key is secret. to send a bitcoin, we need to apply a mathematical function with a combination of public and private keys to “sign” the transaction.
how to create your own money?
The central government has the right to print their own money, in the same way, anyone can also generate bitcoins by themselves. they can earn bitcoins through mining using basic computers connected to the internet. bitcoin mining is simple, we need to turn on the computer and allow the bitcoin mining software to run.
disadvantages of bitcoins
the following are some of the disadvantages of bitcoin.
Degree of acceptance: even today, many people are not strangers to bitcoin. nowadays, very few companies accept bitcoins. more businesses should start accepting bitcoins to increase their mobility or fluidity.
volatility: Bitcoin prices are very uncertain as they rise or fall at a faster rate. speculators will take advantage of this, while real investors think it’s risky, and not everyone invests in bitcoin.
Ongoing Development: Bitcoin software has many features that are incomplete, but the software is in the development stage. Once the services, tools, and features in development are available to people, bitcoin mining will become more convenient, accessible, and secure.
Government Interference: Since bitcoins are decentralized, the government has no right to take them away. but possibly, it may ban bitcoin in all countries, which may affect companies that generate bitcoin wallets. then it becomes difficult to access the bitcoins as they are frozen in the wallets.
deflationary: being evolutionary bitcoin can add benefits to the economy. but one negative factor with bitcoin is that it is deflationary. once it reaches the hands of speculators, a huge recession ensues. bitcoins are limited and if most of it is in the hands of investors or speculators, it will no longer release them to the market and hold onto them.
when the supply of bitcoins decreases and the demand increases, the price of bitcoins also increases proportionally, and then the speculators or investors make a profit.
lack of resources: if we lose a bitcoin wallet, we will lose all the bitcoins stored in that wallet and we will not be able to recover them. once lost, it is lost forever unless and until we have a backup of the wallet via a backup code. the backup code can be used to recover lost wallet balance.
On the contrary, if the debit or credit card is lost or stolen, we can call the particular bank to cancel the card and request a new card. but this is not possible in the case of bitcoins since we don’t have any personal (decentralized) organization to report.
Black market and money laundering: In the early stages, bitcoins were used for money lending and black markets, and by people who did not want to reveal their identity and get secure payments without personal information. In money laundering, intermediaries would collect money from one person and transfer it to another via bitcoins.
who can take the bitcoin course?
everyone can take this course with minimal knowledge about cryptocurrencies and btc: students from various fields, future engineers, industrial experts, potential students with an open mind, etc. as it is global currency mining students of any age, from any country can take the course as it is a practical session.
job opportunities and future scope
btc has completely changed the vision of the coin. There are many btc mining job opportunities around the world. We can expect that in the next few years, BTC will be accepted globally. The currency exchange of each country can be made simple and accessible with the help of bitcoin.
To conclude, bitcoins have many advantages and disadvantages. Ultimately, it is up to society and individuals to use it in the right way to avoid economic crashes (demonetization). Many developed countries like the UK and the US have been using bitcoins as fiat currencies. Japan also declared bitcoin as its official mode of transaction and implemented tax policies. trading in the future gives new investors hope to bet against bitcoin and also increase their liquidity (usage).