Bitcoin

THE ORIGIN OF BITCOIN

The most important aspect of bitcoin may be the concept behind it. Bitcoin was created by developer Satoshi Nakamoto. Rather than trying to design a completely new payment method to overthrow the way we all pay for things online, Satoshi saw certain problems with existing payment systems and wanted to address them

Bitcoin is a cryptocurrency, a form of electronic money. It is a decentralized digital currency which is independent of banks and can be sent from user to user on the peer-to-peer bitcoin blockchain network without the need for intermediaries. Put another way; cryptocurrency is an exchange of digital information that allows you to buy or sell goods and services. The transaction gains its security and trust by running on a peer-to-peer computer network that is similar to Skype, or BitTorrent, a file-sharing system. Satoshi Nakamoto leveraged blockchain technology to allow bitcoin to gain decentralization, complete transparency, and immutability.

How Do Bitcoins Work?


Blockchain

Blockchains a distributed, decentralized, public ledger. Still haven’t gotten a gist? Allow us to simplify it for you. Blockchain is basically digital information(block) stored in a public database (chain). Blockchain takes into account the data of transaction taking place and hold it in a public ledger. The question that arises now is how do you know which block contains which information. How are blocks distinguished? The answer is “HASH”. Hashes are cryptographic codes which are created using special algorithms. Depending on the size of transaction a single block can actually store around 1 MB of data that’s house a few thousand transactions under one roof. So, how trades are stored in blockchain? Transaction must occur-transaction must be verified- transaction must be stored in a block- Block must be given a hash. Let’s see why blockchains are public and how secure are they. Anyone can view the transactions occurring on blockchain by setting up the computer as a node in the network, it simply works like the YouTube bell icon where you get information as soon as it is recorded in the network. Talking about the security threat if a hacker does indeed attempt to change the dollar amount of transaction of a block it will change the hash number of the block however the block succeeding this will have the initial hash number of the previous block along with its own hence the hacker will have to keep on changing hash blocks after blocks which is highly improbable and almost impossible to execute thus reducing cyber-attack chances considerably.

Bitcoin Mining

Bitcoin miners monitor that no duplicitous transactions have taken place called “double spending”. In this process the miners get a few bitcoins as a reward. The block reward is halved every 210,000 blocks or roughly every 4 years. Now how does this bitcoin mining work? In order to actually earn bitcoin, bitcoin miners must first verify 1-megabyte worth of transactions, depending on each transaction data and then in order to add a block of transactions to the blockchain, miners must solve a complex computational math problem, also called a "proof of work."


How do Transacitons in Bitcoin Work?

Bitcoin transactions are digitally signed for security and are sent to bitcoin wallets. For this to happen, your bitcoin wallet and a bitcoin network should go through several steps to help the recipient get the right amount of assets. Here’s the thing with Bitcoins: there are no physical traces of them as of dollars. All you have are only records of transactions between different addresses, with balances that increase and decrease in their records that are stored on the blockchain.


Example of a Bitcoin Transaction:

Rama wants to use her Bitcoin to buy pizza from Robert. She’ll send the bitcoin to Robert’s public address, which is like his bitcoin bank account. She signs off the transaction with her private key to verify that she is indeed the sender of the digital currency. Once the miners have verified the validity of her transaction, the bitcoin get sent to Robert’s public address. Robert can now unlock the bitcoin with his private key. At the same time, Rama’s transaction is broadcast to all the other network participants (called “nodes”) on the bitcoin blockchain and, approximately, ten minutes later, is confirmed, through a process of certain technical and business rules called “mining.” This “mining” process gives Robert a score to know whether or not to proceed with Rama’s transaction.

What if you need to send just a little part of Bitcoin?

Fortunately, you can cut bitcoins into very tiny pieces. The smallest part into which a bitcoin can be divided is called a satoshi, which equals to one hundred millionth of a bitcoin. Because it is too small, you cannot send this part to anyone as it will disrupt the network by breaking it into tiny transactions. The smallest transaction starts from 5340 satoshis, which is still quite insignificant.

Transaction Fees

Many bitcoin transactions require a transaction fee, meaning that you have to pay a certain amount on top. Otherwise, the transaction will fail. You should consider this if you decide to send a tiny fraction of a bitcoin

The Bitcoin Boom

In 2016 the price of bitcoin traded between $930 and $978 movements that perhaps set the stage for the cryptocurrency’s value to cross the $1,000 on New Year’s Day. Indeed, that headline-making development would be the first of many to come for 2017.
Bitcoin, which is a digital currency (cryptocurrency), saw a 2000% increase in value from January 1, 2017, to December 16, 2017. Today, cryptocurrencies are the world’s fastest-growing asset class.

Main Reason:

Bitcoin’s sudden and meteoric rise attracted unqualified investors, some of whom put everything they had into cryptocurrencies despite knowing little about them. The rush of unqualified investors to this new and hyper-volatile asset class is what alerted regulators in the United States and set off an all-in brawl by the media to cover the story. As the hysteria around Bitcoin grew, so did its value; one fed into the other and led to a value climb fuelled by greed and fear.

Legalities

One of the most common actions identified across the surveyed jurisdictions is government-issued notices about the pitfalls of investing in the cryptocurrency markets. These warnings are to educate citizens about the cryptocurrencies which are volatile. Most also warn citizens who invest in cryptocurrencies do so at their own personal risk. Many of the warnings issued by various countries also note the opportunities that cryptocurrencies create for illegal activities, such as money laundering and terrorism. Some of the countries have expanded their laws on money laundering, counterterrorism, and organized crimes to include cryptocurrency markets, and require banks and other financial institutions that facilitate such markets to conduct all the due diligence requirements imposed under such laws.

Some countries, while not recognizing cryptocurrencies as legal tender, see a potential in the technology behind it and are developing a cryptocurrency-friendly regulatory regime as a means to attract investment in technology companies that excel in this sector. In this class are countries like Spain, Belarus, the Cayman Islands, and Luxemburg.
In addition, some countries that have issued warnings to the public about the pitfalls of investments in cryptocurrencies have also determined that the size of the cryptocurrency market is too small to be cause for sufficient concern to warrant regulation and/or a ban at this juncture.
Here’s a short table about legalities of bitcoin in different countries:

Although Bitcoin is now almost 10 years old, Bitcoin remains in a legal gray area for much of the world

Some of the Biggest Bitcoin Scams:

One of the greatest strengths of bitcoin and the cryptocurrency industry is the fact that transactions can be conducted quickly and anonymously. But this also has its own consequences, while users feel that their security and privacy are greater when conducting transactions using cryptocurrency than they otherwise would be in the traditional banking world, some nefarious people have taken advantage of that anonymity through periodic hacks, thefts etc.

1. 2020 Twitter Scam

Potentially thousands of people were scammed out of money after hijacked accounts of prominent verified users such as Barack Obama, Bill Gates and even top companies like Uber, Apple, etc promised to double the money fans sent them in the cryptocurrency Bitcoin. Using Twitter's internal systems, the cyber-criminal’s messages had a reach of at least 350 million people across the globe and it made a whopping $110,000 in the few hours when the scam was active

Here are some pictures of what message was exactly posted along with a bitcoin link:

The hackers had a higher potential to cause more damage but it looked like the main motive was to make as much money as possible in less time. Many predicted that along with making money the intention was to spoil the reputation of Twitter by questioning their security policies.

2. DR RUJA BITCOIN

Ruja Ignatova is a convicted Bulgarian fraudster. She is best known as the founder of a Ponzi scheme known as One Coin, which The Times has described as "one of the biggest scams in history". The Times has also referred to her as a "scam queen" or the “Missing cryptoqueen" One coin was advertised as a better and more very similar and a powerful substitute to Bitcoin. The brand boasted of a member base of 1.7 million. OneCoin offered a variety of deals so that people invest more and hence they could widen their network.

Once at an event were many investors were supposed to gather, Ruja was being anticipated by its investors who wanted to discuss few concerns with her, however, she never showed up for the event and hence went missing. Later investigators discovered that the coins weren’t mined, unlike conventional cryptocurrency. Instead, programmers carefully programmed the coin to change their values. They even discovered that it didn’t really have blockchain, meaning the transactions could be easily tracked. In fact, the people running One Coin were actually allocating fake coins to its members that didn’t really exist.

Sources:
  • Investopedia.com
  • blockgeeks.com
  • cryptoboom.com
  • www.dummies.com
  • www.coindesk.com