In this article, we learn about the basic concept of Bitcoin that are necessary to Understanding Block chain with Crypto currency. ​

I will try to explain some of the most important topics such as Bit coin and Block chain: Creation of coins, Payments and double spending, Bit coin Scripts, Bit coin P2P Network,

What is Bitcoin?

• Bitcoin (capital “B”) is a peer-to-peer network that maintains a public decentralized ledger of digital math-based assets known as bitcoins (lowercase “b”).
• Bitcoin is one of the blockchain technology that allows people to transfer funds between each other. it is separate from a central authority, government or bank, etc.
• The integrity of this ledger is supported by a computer’s sub-network (miners) that audits and stores its transactions for reward.
• Ownership cannot be changed within the ledger. Therefore digitally signed instructions from the current owner will be required.  It has been cryptographically authenticated by most nodes on the bitcoin network.
• In short, “sending a bitcoin” is to send secure instructions to the network so that the public ledger can be changed.

• These features make the Bitcoin network a financial network or “Internet of Money”.
• Bitcoin supply is fixed at 21 million, and each bitcoin can be divided into a hundred million pieces.
• Open to the public: anyone can join and participate in this unique money-transfer technique
• Connects people worldwide to form an international network of “buyers”, “sellers”, and “miners”
• The first decentralized digital currency- -A “Cryptocurrency”.

Blockchain vs Bitcoin Differences

Blockchain technology and Bitcoin have no commonality. Both are on the banks of the river.

• Blockchain is a distributed database, while Bitcoin is a cryptocurrency.
• So we can say the Blockchain is not Bitcoin, but it is the technology behind Bitcoin.
• Blockchain provides transparency But Bitcoin provides anonymity.
• Blockchain is a digital ledger where not only a digital currency but anything can be digitally placed and recorded but Bitcoin is a digital medium through which we can buy and sell.
• You can’t have Bitcoin without blockchain, but you can have a blockchain without Bitcoin.

Who created bitcoin?

• Bitcoin is the first “cryptocurrency”, which was first described in 1998 by Wei Dai.
• It was suggesting the idea of a new form of money that uses cryptography to control its creation and transactions, rather than a central authority.
• The first Bitcoin specification and proof of concept was published in 2009 by Satoshi Nakamoto.
• An anonymous software developer called Satoshi Nakamoto proposed bitcoin in 2009.
• It was an electronic payment system based on mathematical proof. The idea was to produce a currency independent of any central authority, transferable electronically, more or less instantly, with very low transaction fees.
• In simple words, bitcoin is an open source software to transfer money over the internet.
• Satoshi remained a visible member of the community until December, 2010 before disappearing.

Why Bitcoins?

• Bitcoins can be used to purchase goods anonymously.
• In addition, international payments easier and cheaper because Bitcoin are not subject to any country or regulation.
• Small businesses may like them because there are no credit card fees.
• Some people just buy Bitcoin as investment, expect that they will go up in value.

How does Bitcoin work?

From a user perspective, Bitcoin is nothing more than a mobile app or computer program that provides a personal Bitcoin wallet and allows a user to send and receive bitcoins with them. This is how Bitcoin works for most users.

1. In this case no bank / third party is involved.
2. User Request for the transaction. All the transaction is recorded in a public ledger(block), known as the Blockchain.
   • Person A transfers bitcoin to another person B
3. The request is transmitted to the network of peer to peer with the help of nodes and scattered across the world
   • The request is transmitted to every node in the network.
4. For transferring bitcoin, person A have its own private key of his own wallet and gets the public key of person B wallet
5. . Every bitcoin wallet can have one or many public keys that can be distributed to everyone but can have only one private key which only the owner of that wallet can know.
6. Both the keys are very long(27-51 characters long) and it’s impossible that two wallet have the same key combination.
7. When the transaction is valid then it is stored in a current block of transaction.
   • In this case your transaction is added in the block
8. The new block of the transaction is then ‘chained’ to the older block of transaction that is permanent.
   • “Chained’ to the older block of transaction
9. After complete this whole process then we can say that transaction is confirmed.
   • —-The Money move from Person A to Person B

Write a Advantages and Disadvantage of Bitcoin?

Advantages and Disadvantage of Bitcoin are following:

Advantages of Bitcoin:

• Payment freedom : No bank holidays. No borders. No imposed limits. Bitcoin allows its users to be in full control of their money.
• Very low fees : As these services are based on Bitcoin, they can be offered for much lower fees than with PayPal or credit card networks.
• Fewer risks for merchants :Bitcoin transactions are secure, irreversible, and do not contain customers’ sensitive or personal information
• Security and control : Bitcoin users are in full control of their transactions
• Transparent and neutral : No individual or organization can control or manipulate the Bitcoin protocol because it is cryptographically secure. This allows the core of Bitcoin to be trusted for being completely neutral, transparent and predictable.

Disadvantages of Bitcoin:

• Degree of acceptance : Many people are still unaware of Bitcoin.
• Volatility : The total value of bitcoins in circulation and the number of businesses using Bitcoin are still very small compared to what they could be
• Ongoing development : Bitcoin is still in the process of maturing.

What is Peer to Peer Networking? with Example

• On a peer-to-peer network, every computer is equal and can communicate with any other computer on the network to which it has been granted access rights.
• Essentially, every computer on a peer-to-peer network can function as both a server and a client; any computer on a peer-to-peer network is considered a server if it shares a printer, a folder, a drive, or some other resource with the rest of the network.
• This is why you might hear about client and server activities, even when the discussion is about a peer-to-peer network.
• Peer-to-peer networks can be as small as two computers or as large as hundreds of systems and devices.
• Although there is no theoretical limit to the size of a peer-to-peer network, performance, security, and access become a major headache on peer-based networks as the number of computers increases.

• In a peer-to-peer network, a group of computers is connected together so that users can share resources and information.
• There is no central location for authenticating users, storing files, or accessing resources.
• This means that users must remember which computers in the workgroup have the shared resource or information that they want to access.
•  It also means that users must log on to each computer to access the shared resources on that computer.
•  In most peer-to-peer networks, it is difficult for users to track where information is located because data is generally stored on multiple computers.
• This makes it difficult to back up critical business information, and it often results in small businesses not completing backups. Often, there are multiple versions of the same file on different computers in the workgroup. peer peer peer peer 0 peer peer

P2P Network Examples

Common uses of P2P: file sharing, instant messaging, voice communication, collaboration, backup, sensor nets, distributed computing, defense

For Example

BIT TORRENT

A protocol that supports the practice of  peer-to-peer file sharing and is used for distributing large amounts of data over the Internet.

SKYPEA

The service allows users to communicate with peers by voice using a microphone, video by using a webcam, and instant messaging over the Internet.

What is a Bitcoin P2P Network?

What is a DoS attacks?

Denial-Of-Service Attack = DOS Attack is a malicious attempt by a single person or a group of people to cause the victim, site or node to deny service to it customers.

 • DoS = when a single host attacks

Bitcoin P2P Network

• Connect over unencrypted TCP channel
• Each node keeps a list of IP addresses
• To avoid DoS attacks:

• Bitcoin protocol minimizes amount of information forwarded by peers
  • Valid blocks relayed, invalid blocks discarded
  • Uses a reputation-based protocol
• Reputation-based protocol:
  • When malformed message is sent, node increases penalty score
  • Bans misbehaving IP address for 24 hours when penalty reaches 100
• Servers can accept incoming connections while clients cannot
• All Bitcoin peers maintain 8 outgoing connections
• Servers can accept up to 117 incoming connections.

Read More

• Introduction of Blockchain (Notes)
• Applications of Blockchain Technology (Notes)
• How Blockchain Transaction Works? (Notes)
• Digital Signature (Notes)
• Types of Blockchain & Smart Contracts (Notes)

Reference

Bitcoin