Translated material
What are Bitcoins
How does cryptocurrency work?
Bitcoin is a virtual cryptocurrency that can easily be called electronic money. With their help, goods are already sold in stores, telephone or hosting are paid for. With all this, the system is considered anonymous and reliable, despite its complete openness. The technical director of TJournal tried to understand in detail the structure of this currency.
How it all happens
To store, receive and transfer bitcoins, you need a wallet, which consists of a public identifier (address), a balance, and a private key that allows you to manage funds from this wallet. To send a transfer, you only need to know the recipient’s address - an identifier of the form 19noTg4T9TeFpT4ZTASvQxf7a1LYLSJa38 , as well as have your own wallet with a positive balance and its private key. The address and key can be compared to the usual login and password - the login can be shared with everyone, but the password must be carefully guarded, because in the main system there is no way to restore it if it is lost.
Each user can create an unlimited number of wallets; creating them does not even require an Internet connection (the network will be required when trying to make a transaction). The process of creating a wallet involves generating a completely random private key. Having a private key, you can get the corresponding wallet address, but you cannot repeat this operation in the opposite direction - this is the responsibility of a cryptographic function called hashing . There is no center that would coordinate the creation of wallets, so such a system theoretically allows you to generate a wallet with a positive balance, although the probability of this is approximately 1.813595 * 10-62 - this is a vanishingly small number, so you don’t have to worry.
Transaction anonymity
Bitcoin is often called an anonymous means of payment, but this is not entirely true. Indeed, it will not be possible to uniquely identify the owner of any wallet, but if this wallet was replenished using exchange services or exchanges ( how to buy bitcoins ), then there is a good chance that your IP will be recorded, which means that in this case it will be possible to track the entire chain translations. To prevent this, special “mixers” ( mixing service ) are called upon - anonymous services that mix money from different clients in their accounts, and then transfer them to new, “clean wallets” so that it is extremely difficult to compare the original source of funds and the final recipient.
To maintain anonymity, it is recommended to create a new wallet for each incoming payment - this will complicate the identification task. Determining who is the owner of a wallet is quite a difficult task, and even then it can only be done if the user bought bitcoins by showing real documents somewhere. At the same time, there are quite a few ways to get bitcoins without revealing your identity, for example, you can simply exchange them on one of the forums.
Where is the data stored?
Bitcoin is a decentralized distributed system. This means that there is no single control center on the network that would store information about the balance on wallets and a list of transactions. This information is stored on the computers of ordinary Bitcoin owners. After installation, the wallet program downloads from other users of the system a complete database of all transactions ever made (several gigabytes). This means that no one will ever be able to break into some data center and destroy or change this information. By the way, you don’t have to download such a volume of data, but use one of the online wallets, which will store your private key.
It turns out that Bitcoin wallets are reliably protected, and all their data, except the private address, is available to any user. They are available in a form convenient for research on the Blockchain website . For example, you can view a list of recent major transactions.
How many bitcoins are there?
A very important difference between bitcoins and regular money is the absence of a single issuing center. It is known that, for example, US dollars can be issued in any quantity, but they are not backed by anything. That is, previously dollars were backed by gold, that is, they could be guaranteed to be exchanged for a certain amount of gold, and the total number of dollars could not exceed the accumulation of the United States of America in gold equivalent, which are stored in the famous Fort Knox . However, already in 1933, the Gold Standard was abolished, and in 1971, any backing of dollars in gold disappeared altogether, that is, the Federal Reserve System began printing dollars in such quantities that they could never be exchanged for gold and their value only lasts on America's authority in the world market.
This is the main difference between bitcoins and traditional currencies - the total number of bitcoins that will ever go into circulation is algorithmically limited to 21,000,000 pieces. At the same time, there is no need to worry that there will not be enough for everyone - each Bitcoin can be divided into 100,000,000 shares, one such share is called 1 Satoshi, in honor of the creator of Bitcoin. The final cost is determined by the companies or people accepting bitcoins as payment for goods or services, as well as the balance of supply and demand on numerous exchanges, the largest of which is Mt.Gox .
At the moment, a little more than 12 million bitcoins have been released into circulation, and all bitcoins will be released around 2140, while the number of virtual coins issued is decreasing every day.
Almost immediately after Bitcoin became popular, coins cast in metal with public and private keys hidden inside appeared, which is why most media portray them as cryptocurrencies. The coins are still available for sale on eBay.
How are they mined?
The release of bitcoins occurs thanks to people and companies engaged in mining - a special process, the complexity of which is algorithmically programmed and constantly increases in accordance with the number of technical resources employed in it ( technical details ). That is why those who started mining bitcoins several years ago could receive several tens of thousands of bitcoins, and the complexity of the calculation was constantly growing: at first it was possible to effectively use the resources of computer processors, then they began to use video cards, whose efficiency is much higher, and now they use it specifically designed devices (ASIC).
The mining process involves the calculation of mathematical problems, which also ensure the confirmation of all transactions - since the system is open, the same bitcoins cannot be allowed to be spent several times, but we will return to this later.
So, the number of bitcoins is limited, and new ones appear through mining - solving mathematical problems, the complexity of which is constantly growing. You can very simply compare the mining of bitcoins with the mining of gold - its quantity in the world is also limited, and due to its rarity, the difficulty of counterfeiting and mining, it has a high value, which made it possible to use it as the main currency for many centuries in a row.
Imagine that gold is scattered everywhere, there is a fairly large amount of it, and to get it you just have to bend down and collect as much as possible - this is similar to what Bitcoin miners did a few years ago. However, due to the ease of mining, gold is not yet highly valued.
Some time has passed and all the gold from the surface has been collected, now you need to buy an excavator to extract it from the upper layers of the earth, the difficulty of mining has increased, the cost of gold is also rising.
More time has passed and now it is necessary to hire scientists, develop deposits, buy expensive equipment and land - the cost is rising again, and those around them see that there is a new way to exchange goods for their equivalent in gold, it is convenient, hence the demand. Now people exchange gold for goods, goods for gold and its value already ensures supply and demand.
Similar processes occur with bitcoins.
System reliability
The reliability of Bitcoin lies in the fact that:
- There is no way to bypass the complex mining process to easily obtain unallocated bitcoins (at least the world's best cryptanalysts could not find such a way);
- It is extremely difficult to hack someone else’s wallet; it takes tens of thousands of years to check at least half of all possible pairs of private and public keys;
- It is not possible to spend existing Bitcoins more than once because each transaction must receive at least six confirmations from newly mined blocks - if an overspend is found, the excess transactions will be cancelled, so all services for Bitcoins are provided only after several confirmations (zero to six or more, depending on the service).
At the same time, you can add a commission to each transaction - this will increase the speed of its confirmation, since it will receive the highest priority in the queue for block mining. The commission can be even 1 Satoshi, or maybe even zero - in this case, the confirmation process can take several days. This commission is added to the miners' reward, so even when new bitcoins are issued very rarely, miners will be incentivized to continue mining - the commission will ensure the profitability of mining costs (equipment + electricity).
Irreversible transactions
Bitcoin transactions are irreversible, which is why it is almost impossible to buy Bitcoins using Paypal or credit cards. Many people call Bitcoin a pyramid or a bubble, but in reality it is not. In Bitcoin there is no central coordinating body, there are no promises of multiplying funds, unlike pyramids, not only early participants benefit, but also later - a common confidential means of payment becomes available to them. Apple or Google shares can be called a pyramid to exactly the same extent, because those who bought them for several tens of dollars apiece also made huge profits.
Is it profitable to do mining?
At the moment, mining without professional equipment has become almost unprofitable: the difficulty of mining new blocks is too high. We tried this on two Intel E5-2630 processors with 24 threads and were able to mine approximately 0.000001 bitcoin, approximately 3 kopecks at the current rate. Mining with video cards may also not pay off due to their cost and the cost of electricity. But investing in Bitcoin is still considered a profitable activity: the spread of Bitcoin, despite the hype, is still small and with the inclusion of large players in the race, its rate will inevitably increase. The only question is how much.
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