Working in a bitcoin mine on Iceland is' absolutely terrible and fascinating'.
Rate and buy bitcoins
Why the bitcoin threatens the counterfeit euro more than the dollar?
The Bitcoin Protocol
Bitcoin is a complicated new technique: to fully understand it, you'll have to study it for a while. But how many people understand how the technology behind the Internet works? The most important thing is that you can use it: you don't have to be an expert to securely store or send bitcoins.
For those who want to know just a little bit more, we have written the technical explanation below. Not enough to call yourself a bitcoinexpert, but perhaps to impress in the pub ߘ? In our opinion, the frequent use of English terms is inevitable given the international character of bitcoin. (And also because translations such as 'delver rewards', 'block chain' and 'memory puddle' don't sound very good...)
The Blockchain & Mining
Bitcoins have been "created" since the beginning by users who can earn them by contributing computing power to the network and storing/approving bitcoin transactions. This is called mining. Anyone can participate in it, but nowadays you have to invest heavily in hardware in order to earn money.
Bitcoin transactions are digitally stored in pieces of data called blocks that are linked together like a chain. The transaction log is therefore called a blockchain. These blocks must meet strict cryptographic requirements, which can only be met by performing a lot of calculations. Finding a block becomes more and more difficult as more computers are included in the calculation. As a result, the speed at which they are discovered remains roughly constant. Since the beginning, a block that meets the conditions is discovered approximately every 10 minutes. You could think of it as searching for a needle in a haystack, where you can find the needle in an average of 10 minutes. If there are more searchers, the haystack will become larger over time.
The miner who discovers a block (finds the needle) determines which transactions will be included in the block and as a reward he gets new bitcoins, which are thus sent to his bitcoin address(es) from nowhere. This is called the block reward. In the beginning these were 50 bitcoins per block, currently 12.5. This decreases gradually with time: the reward halves every four years. Because of this, the total amount of bitcoins ever created is limited to 21 million. In addition, the miner also receives the voluntary fees of all bitcoin transactions he places in the block. In the long run, the transaction fees will completely replace the block-reward.
Some of my comments about that Bitcoin
Contrary to "ordinary"
currencies and precious metals, the value of the bitcoin does not show
any falling moments so far.
When could the bitcoin
Because minning bitcoins requires a lot of energy, the value of the bitcoin could decrease if that energy became much cheaper.
It's a bit like the law of conservation of energy.
Poor countries with a lot of sunshine could theoretically become rich if they put solar energy into it. Because the total energy of all bitcoins in circulation would decrease with that, inflation could occur.
If that would actually be the case, then the depreciation would benefit those poor sunny countries.
Then we would be just as far as we are now. Because the policy of the ECB ensures that there is an invisible flow of money from North to South.
More about that counterfeit euro, which is not what it seems.
In practice it will not be as bad as expected because the value will not drop immediately but the continuous increase will only be slowed down.
Continue with the
In addition to the creation of bitcoins, mining is essential for network security. The appearance of a block (confirmation) means that a certain amount of computing power has been spent. This principle is called proof of work. It prevents bitcoins from being spent twice and it raises a big threshold for malicious parties, because they will have to invest a lot of money to have more computing power than the rest.
Transactions en fees
As mentioned before, the
Bitcoin network is decentralized: there is no central authority or
server that has the power. Anyone who wants to join can do so. Every
computer that participates connects to a number of other computers.
Transactions are monitored by each computer, and if it meets the
conditions, forwarded to a number of others. In this way, transactions
spread all over the world within seconds. Each computer keeps a copy of
the transaction ledger (the blockchain) and the transactions still to be
recorded (the mempool). To get your transaction recorded in the
blockchain, you donate a small amount of bitcoin (e.g. 0.0002 bitcoin)
to the mineral. Your transaction competes with other transactions in the
mempool: in general, the transactions with the highest fee relative to
the transaction size are included first in a block. If the network is
busy, it may be advisable to use a slightly higher fee than normal,
otherwise your transaction may remain unconfirmed for a long time.
Bitcoin addresses consist of a combination of usually 34 digits and letters, starting with a 1. Contrary to what many people think, bitcoin addresses do not appear in the blockchain. A bitcoin address is actually just an agreed form of notation to indicate that certain bitcoins can be issued with a certain access code (the private key). A 3 also occurs as the first character, these are usually advanced transactions: the way in which these bitcoins can be issued is versatile and must be known to the receiver.
The private key (and thus the corresponding bitcoin address) is generated randomly. This is possible because there are as many bitcoin addresses as possible, that the chance of ever generating a duplicate is negligible. By using cryptographic techniques, about which we will tell more later, you can use a bitcoin address to check whether it belongs to a digital signature with which (for example) bitcoins are transferred.
Inputs and outputs
includes a proprietary scripting language that allows you to do much
more than just transfer bitcoins. A bitcoin transaction consists of a
number of inputs and outputs, to which a bitcoin value is linked. You do
not necessarily have to transfer an entire bitcoin or multiples of it:
you can split bitcoins into units of up to 8 decimal places. Unissued
bitcoins are divided into so-called unspent outputs. When you make a
bitcoin payment, you use one or more unspent outputs as inputs in your
transaction and create one or more new unspent outputs with associated
An unspent output can be seen as a stack of digital banknotes in a digital safe, where you have to meet the right conditions (solve the script) to be able to open the safe and spend the output. In a standard bitcoin transaction (where you use bitcoin addresses starting with a 1) these conditions are quite simple: you need the private key to open the safe by means of a digital signature. Next, you need the receiving bitcoin address to specify the conditions under which the receiver can issue the bitcoins. When you use an input in a transaction, you need to completely empty the digital safe. You can then split the total of the inputs to as many outputs (new vaults) as you want. Usually you put some of the bitcoins back in your own vault, because you don't want to transfer the exact amount of bitcoin on the used unspent outputs to someone else.
However, it is also possible to set completely different values. For example, a vault that requires two private keys, or two of three; this can and does happen, we call it multisignature transactions. These more advanced 'safes' can generally be recognized in block explorers at the bitcoin address that starts with a 3. In theory, you can also put bitcoins in a safe that anyone can open, in a safe protected with an extra password, a safe that cannot be opened at all (if you want to demonstrably destroy bitcoins), or in a safe with a time lock. You can also create transactions in which no bitcoins are moved, but with which you can, for example, secure a contract in the blockchain. The possibilities are endless.
The security of Bitcoin(transactions) is based on the cryptographic principle of public-key cryptography. The private key is linked to the public key, but cannot be traced by anyone who has the public key. You can use the private key to prove that the public key is yours. Secure internet traffic - recognisable by a lock and https in the address - uses a similar principle. However, Bitcoin does not involve encryption and decryption, all encryption goes one way: there is nothing to decrypt, only to check.
But actually, this representation is too simplistic. The bitcoin address is based on the hash of a public key. When sending bitcoins, you don't even need to know the public key of the recipient. When the receiver issues the bitcoins, he or she will have to reveal his or her public key. This is one of the reasons (in addition to privacy considerations) that strongly discourages the reuse of bitcoin addresses: it removes part of the security.
From private key to (P2PKH) address:
private key -> (ECDSA) -> public key -> (hashing) -> pubkeyhash -> (base58check) -> bitcoinadres.
Pffff... All in all quite complex, but you don't have to be an expert to safely store or send bitcoins. Bitcoin allows you to generate a bitcoin address, print out the private key and keep it in a safe place. You can then have bitcoins deposited at your address and in 10 years' time publish your bitcoins anonymously anywhere in the world using your printed key. And there's so much more possible!
Would you like to know more about the technique or the possibilities? Perhaps Bitonic Academy is interesting for you or your organization.