Bitcoin. A simple explanation of Bitcoin and Block Chain technology


Scientific Essay, 2015
5 Pages, Grade: 10.0

Free online reading

Bitcoin

A simple explanation of Bitcoin
and
Block Chain technology

JANUARY 2015
RICHARD LEE TWESIGE

Keywords: Bitcoin, Internet, Protocol, Block Chain, Distributed network.

Abstract:

This paper is intended to enlighten curious minds, breakdown and explain what Bitcoin really is in the simplest ways possible. First I will introduce and define what Bitcoin really is and explain the Block Chain technology, give a simple comparison with the internet and why Block Chain will keep thriving, key features of the Block Chain, describe potential systems where the Block Chain technology could be utilised for improvement and finally the conclusion.

Introduction:

In 2008 October 31 when Satoshi Nakamoto released the Bitcoin white paper[1], he/she/they did not cater for the non engineers and mathematicians. Even though a good general description of what Bitcoin is meant to be and how it works was clearly explained. In most cases becaue of it's initial implementation in the finance sector, it has been known as "computer money" or "nerd money."

Bitcoin simply broken down is Bit-Coin, "Bit"[2] being the smallest unit of data in a computer which is also short for binary digit. A bit has a single binary value of either 1 or 0. While "Coin"[3] could be defined as money or unit that holds value. Now we know why Satoshi Nakamoto chose the name "Bitcoin." Though Bitcoin is the network on which the Block Chain protocol is built on top of.

The BlockChain:

Block Chain is the technology protocol that Bitcoin is built ontop of. Just like the internet that was introduced in the 1960s and late 1970s, is a communications protocol that governs the rules and regulations for information exchange over the network of networks, Block Chain is a protocol that governs the rules and regulations for value exchange. One is the internet of information, while the other is the internet of value. Internet is a communications protocol and Block Chain is value exchange protocol. With "value " [4] being broadly defined.

The same reasons that made and still make the internet a success, are the same ones that will make the Block Chain thrive. For example its fast, public, open to anyone, cheap and easy to utilize, transparent and programmable. Just like how the internet made it possible to transfer information instateniously from any part of the world, the Block Chain technology let's the users transfer value globally.

Block Chain features:

Fast: Communication between peers on the network is fast and in places where time is a vital factor for operations and trade, this feature comes in handy. Cheap: Using the Block Chain for reasons of payment and value exchange, is cheaper than any other system in place at the moment. Easyly Accesible and Public: Any one from all over the world can utilise the Block Chain technology via a Bitcoin client such as Amory, Bitcoin core, bitcoind and many more. Open Source and Programmable: It can be programmed to meet a particular need. For instance the need to have a finacial payment system (micro payments) and it can be programmed by anyone with software evelopment skills to meet a particular need. Transparent: These are the most brilliant features of the Block Chain, it's transparency makes it available for anyone on the network to view. Something like a legder accessible by everyone, likea " universal consesus"[5] so to say. Not only is it visible by every one, it is also time stamped. Distributed: The fact that the Block Chain utilises a distributed network, this makes it more secure than any other centralised institution like finanncial banks and the rest a like. This is because vital data likecryptographic keys used for online financial payments and trade are not kept in the same place. In case an attacker was to compromise the Block Chain, chases are very slim that he could have a successful attack.

Block Chain's potential implementation:

The Block Chain technology can be utilised in various fields today, even so like the internet the implementations are so vast that they cannot be thought of today. Just like when the internet, not many would have thought of social networks and online gaming even though the idea of electronic mail then was still a fantacy.

Finance: One of the core reasons Bitcoin was invented, was because of the financial crisis that keeps a lot of people in the world awake. With the BlockChain technology, the financial payment system can be remodeled. This new model can help improve micro payments to even the smallest fraction called a "satoshi" [6] which is the smallest unit of a Bitcoin. Fractions that cannot be handled with today's money. Funding: Fundraisers that want to raise funds to start a business, support a cause or pay for college can use the Bitcoin clients to do this with so much ease. This is because of the divisibility capability of Bitcoin. Trade: The Block Chain could be used to transfer value from one entitiy to another. For example with the use of " multisig" [7] a shipper and cosignee can agree on an arbitrary that will work with both parties in case one of the trade patners turns out to be dishonest. This system has a potential to massively change the e-freight[8] systems in import and export trade. Voting Systems: In democratic societies where the community is given the right to freely vote, a token can be issued and the voter has the ability to later submit to the candidates' " ballot box." Which can easily be done on a public distributed ledger that is uncorruptable. Monetary Systems: Bitcoin as a currency has the potential to eliminate fiat currencies that are being used. This is because Bitcoin is less volatile than most of the paper currencies that is printed out of thin air. Sending money from one place to another will not need a third party at all as easy and free as sending an email.

The opputinities are vast and cannot be all listed others include; Escrow transaction services, Smart contracts, Smart property and a lot more.

Conclusion:

The majority that has been exposed to Bitcoin always question why they really need it or why it is important. This is because this percentage of people live in the developed world like North America and Europe where they have already gotten mature systems in place like financial and payment systems and can conviniently make purchase or particitipate in trade.

But when you start to go south like Latin America, South East Asia and the African continent. One can start to comprehend how this open protocol has the ability to change the world, it has the ability to democratise most of the systems today on the planet. From a retail perspective, 20%[9] of the world has done trade online in 2013. Anyone with a mobile device will have equall access, which will expand the market multiple times. A substantial thing when expanding a business globally further than local markets. Today there has been $4Billion dollars[10] worth of trade that has taken place on the Bitcoin network.

Bitcoin network and its underlying Block Chain technology are in their very primitive stages, just like how the internet was in 1995[11], and you can see the questions that were asked by main stream then are quite similar today. Even though there is more to Bitcoin, Bitcoin as a digital currency(BTC) is already being adopted by users and merchnats have began accepting it.

The genie has been out of the bottle since 2008[12] and its not going back. Just like the internet and most technology, this technology paradigm shift will still grow exponetially regardless of regulation, litigation ecsetera and that is because technology can only be delayed but not stopped.

References:

[1] Nakamoto, Satoshi. Bitcoin: A Peer-to-Peer Electronic Cash System. N.p.: Bitcoin.org, Nov. 2008. PDF.

[2] "Bit (binary Digit)." TechTarget. N.p., Mar. 2010. Web. 02 Jan. 2015. http://whatis.techtarget.com/definition/bit-binary-digit.

[3] "Numismatics Definition I Investopedia." Investopedia. N.p., 13 Apr. 2008. Web. 02 Jan. 2015. http://www.investopedia.com/terms/n/numismatics.asp.

[4] "Economic Value Definition I Investopedia." Investopedia. N.p., 21 Nov. 2013. Web. 02 Jan. 2015. http://www.investopedia.com/terms/e/economic-value.asp.

[5] Losbar, Yannick. "How Can the Bitcoin Blockchain Help Humanity?" CryptoCoinsNews. CryptoCoinsNews, 16 Sept. 2014. Web. 02 Jan. 2015. https://www.cryptocoinsnews.com/how-can­the-bitcoin-blockchain-help-humanity/.

[6] "Satoshi (unit)." Bitcoin.it. Bitcoin.it, n.d. Web. 02 Jan. 2015. https://en.bitcoin.it/wiki/Satoshi %28unit%29.

[7] Ressler, Sansy. "I Sign, You Sign, We All Sign: Explanation of Multi-signature Transactions - Bitcoin Magazine." Bitcoin Magazine. Coin Publishing Ltd, 02 Apr. 2014. Web. 02 Jan. 2015. http://bitcoinmagazine.com/11848/multisig-explained/.

[8] Twesige, Richard L. E-FREIGHT Implementation of Electronic Documents in a Paper-based Environment. N.p.: Reasearchgate, 29 Dec. 2014. PDF.

[9] "E-COMMERCE: EVOLUTION OR REVOLUTION E-COMMERCE SHIFTS INTO HIGHER GEAR." E-COMMERCE: (n.d.): n. pag. Web. 2 Jan. 2014. http://ir.nielsen.com/files/doc financials/Nielsen-Global-E-commerce-Report-August-2014.pdf.

[10] "Bitcoin Watch." Bitcoin Watch. N.p., n.d. Web. 02 Jan. 2015. http://www.bitcoinwatch.com/.

[11] Plumer, Brad. "What the Internet Looked like in 1995." Washington Post. The Washington Post, 29 Mar. 2013. Web. 02 Jan. 2015. http://www.washingtonpost.com/blogs/wonkblog/wp/2013/03/29/what-the-internet-looked-like-in­1995/.

[12] Nirgunarthy, Amith. "Word Cloud: The Original Satoshi Nakamoto Bitcoin White Paper • IHB NewsT." IHB. The Bitcoin Card Co. LLC, 29 Apr. 2014. Web. 02 Jan. 2015. https://ihb.io/2014-04­29/news/word-cloud-original-satoshi-nakamoto-bitcoin-white-paper-5638.

"Bitcoin is to internet as post office is to email." - unknown

5 of 5 pages

Details

Title
Bitcoin. A simple explanation of Bitcoin and Block Chain technology
College
Indiana University of Pennsylvania  (Computer Science)
Course
Cryptography
Grade
10.0
Author
Year
2015
Pages
5
Catalog Number
V286736
File size
839 KB
Language
English
Tags
Bitcoin, Internet, Protocol, Block Chain, Distributed network.
Quote paper
Richard Lee Twesige (Author), 2015, Bitcoin. A simple explanation of Bitcoin and Block Chain technology, Munich, GRIN Verlag, https://www.grin.com/document/286736

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