EVERY THING BITCOIN IN EASY LANGUAGE
With a lot of powerful processors on the bitcoin network having the ability to perform millions of hashes in one second, it will mean that blocks will get resolved before 10 min and this will go against the Bitcoin network design that specifies that a block is releasedevery 10 min. If more than one block is released in 10 minute period it means more than 25 bitcoins are minted in 10 minutes. If this continuesthere will be excess bitcoinsin circulation and as a result the value of bitcoin will decline because it is no longer scarce.
Any way the bitcoin network automatically addresses this issue by increasing the network difficulty as more powerfuldevices begin to hash. This is achievedin such a way that the processorsare made to perform more hashes to verify a single transaction.
Most Bit-coiners suck a lot when it comes to explaining bitcoin; they start with “Bitcoin is a cryptographic”, “Bitcoin is a decentralized” WTF!! Is that what the layman wants to hear?
Bitcoinis a new kind of currency that isn'tregulated by any government.
Bitcoin is gold that resides on the internet.The value of 1 bitcoin will depend on how much people need bitcoins. So just as the scarcityof gold and the difficulty involved in mining gold makes it very valuable, the scarcity of bitcoin and the difficulty to mine bitcoin it also makes it very valuable.
I describe bitcoin as “a digitalversion of gold.” eGold.
BITCOIN AS A CURRENCY
Bitcoin is an electronic currency (eCurrency) as people have begun to accept it as a form of exchange for goods and services. Unlike any other normal modern day currency; USD, EUR, GBP etc. where there is a centralauthority that controls the printing of these currenciesand inflation rate bitcoin is de-centralized (there is no central authority/bank/server) Again, just like gold. There is a fixed amount of gold in this world (Planetearth) we just keep mining maybe we can find all. Also there is a fixed amount of bitcoins that can exist. We just keep mining maybe we can reach the limit.
HOW DOES BITCOIN MINING WORK AS THERE IS NO SOIL TO DIG ON THE INTERNET.
Bitcoin Miners are like the Central Bank of bitcoins. BITCOINS are mined with software called Bitcoin Miners, it sounds funny right? One of the most common points of confusionfor new Bitcoiners is the concept of mining. Well there are a lot of technicalterms you need to understandbefore you can understand bitcoin mining but i will try to make this explanation as simple as possible.
BITCOIN MINI NG is the process by which some users put their computers to work verifying transactions in the bitcoinnetwork. These users are rewarded with new bitcoinswhen they successfully completethe work of verification. These miners are like the Central Bank of bitcoins because they are the one who release more bitcoinsinto the economy by distributing the coins they mined by spending it.
The miner’s computersolves very very complex calculations that have the ability to overheat your computer processor. The result of this calculation is called HASH. A hash cannot be reversed. These calculations to confirm
transactions that happen on the network is called miningbecause it slowly makes new currencyavailable at a rate that resemblesthe rate at which commodities like gold are mined from the ground.
Some ComputerProcessing Units or external processing unit can performthese computer calculations (HASHING) faster than others and this speed is rated in HASHRATES e.g. 1H/s means the processorperforms one hash in one second 1KH/s means the processor performs 1000 hashes in one second, 1 MH/s means that the processor performs1,000,000 hashesin one second.
Once again is the hashing term is beginning to cloud your brain and make you feel dizzy?. A hash is the solution to a complex mathematical puzzle solved by a processor to verify transactions that happened on the bitcoin network. Some processors are faster than other processors when it comes to solving the math and this is measured in hash-rates. A higher hash-rate means the processor computes more hashes in less time. These types of processors are betterfor mining as you will be rewardedwith more bitcoins.
How Bitcoin Mining works to Mint new coins
People are sendingcoins to each other over the bitcoin network every second, but someone keeps a record of all these transactions right? Yes, this happens so that we know who had paid what? The bitcoin network handles this by bundlingall of the transactions made during a short period (10 minutes)into a chunk of data, called a BLOCK
These blocks (or grouped transactions) are linked such that each new block proves that older blocks were valid. Linked blocks are called BLOCK-CHAIN
The Bitcoin networkwas designed in a way that only 6 blocks will be solved in 60 minutes(1hr) Which means that in every 10 minute interval a new block is created for processors to HASH(verify transactions contained in the block)
The first transaction in a block is a special transaction that produces new bitcoins (25) owned by the creator of the block.
The creator of the block is the miner or the computerthat bundled the transactions together,verified them and put them in the block chain (where older blocks were kept.)
Block Chain
The block chain is simply a databasewhere records of all the transactions that ever happenedon the bitcoin network are kept. Since there is no central server on the bitcoinsystem, where exactly is this block chain stored. Every user on the bitcoin network is a server and a client. The bitcoin network is a peer-to-peer network.
PEER-TO-PEER NETWORK
When bitcoins are sent from one address to another the transaction is broadcasted (sent out) to all other nodes directly connected to the node that performed the transaction those other nodes still broadcast what they receive and in no time everybody on the network hears about the transaction.
Because of the blockchain that everybody on the network has a copy of, now everybody knows about every transaction that has ever happened on the network so everybody will know what every other persons account balance should be by simple plus and minus. Example bitcoin account 1FdPFc6bWdPiz2UP18jorvbuP6sZZ31LU2 hasreceived only 3 bitcoins in his entire history and has sent out 1 bitcoin in his entire history so his balance must be 2 bitcoins. Everyone on the bitcoin network knows this. So your bitcoins are not stored on your PC as per say but on the network.
So the basic concept on mining is once a transaction (true or false) happens on bitcoin network,the terminal that performed that transaction broadcasts that transaction is to all other nodes (computers) on the bitcoin
network connected to him. Each Miner node or computer involved in bitcoin mining bundles these transactions into a block. Each block will contain some meaningless data and false transactions like double-spend attempts. The mining computers now put this block through ahash (complex math) and an output will be gotten normallyit’s just a sequence of numbers and alphabets.
Example of a hash b666f26b0f364886b8fe9127920fd9202315e9fe but what makes the bitcoin network unique and difficult is that the bitcoin network will not just accept any hash value the network demands that a block’s hash has to look a certain way; it must have a certain numberof zeroes at thestart so the processorsinvolved in mining bitcoins have to work that out. When a miner
finds out correct hash value, it immediately broadcasts the new block. Also every computeron the network has its own copy of the block chain (record of transactions) so he simply adds the newly found block to the block chain.
The first transaction in a block is a special transaction that produces new bitcoins (25) owned by miner that discovered the block bysolving it. The owner of these new coins distributes his new coins into the bitcoin economy by spending.
If a Mining pool was used the members of the pool share the new bitcoinsin ratio of the hash power he/she donated to the pool. If you are a solo-miner you keep all 25 bitcoins to yourself.
In other words a block is a list of transactions written on an A4 sheet; the BlockChain is these A4 Sheets arranged in a file folder according to the order in which they were received.
Mining Pool
With a lot of powerful processors on the bitcoin network having the ability to perform millions of hashes in one second, it will mean that blocks will get resolved before 10 min and this will go against the Bitcoin network design that specifies that a block is releasedevery 10 min. If more than one block is released in 10 minute period it means more than 25 bitcoins are minted in 10 minutes. If this continuesthere will be excess bitcoinsin circulation and as a result the value of bitcoin will decline because it is no longer scarce.
Say for example normally 4096 hashes verifiesa 1 block of transactions as the deviceson the network become more powerful, in order to ensure that only 6 blocks are calculated in an hour the network then adjusts the difficulty to ensure that 12288 hashes verify 1 block of transactions.
Common software’s that can help you begin mining are BFG miner, CG Miner. and a host of others.
If you wish to begin mining it is usuallyadvised that you start with a mining Pool
What is a Mining Pool.
As the network difficulty continues to increase it becomes impossible for you to use your CPU to mine because it may take your months of none stop hashing to find a block. People came together,formed a team and used the collectivecomputing power of their CPU for mining.
Common Bitcoin Terminologies
There are a lot of terms you hear when you get into bitcoin. I mean a whole lot of terms. We will start with the most common terms.
1) Hash: - is the output of a hash function. A hash function is simply defined as complex math performedby processors butthat definition will be misleading so a hash function is a mathematical function that takes an input of any possible length of charactersand transforms it into an output of a fixed length of characters. A hash output is normally it’s just a sequenceof numbers and alphabetslike this b666f26b0f364886b8fe9127920fd9202315e9fe . The bitcoin network demands that the hash output of a block must resemble00000febfe912ca920 because it increasesthe network difficulty by increasing or reducing the number of zeros it demands at the start there by increasing or decreasing the number of times a processor will have to solve the complex math.
2) Address: - A bitcoin address is similar to bank account number.It is the only information you need to provide if you wish to receive bitcoins. It is like the referencenumber to the container where your bitcoinsare stored which makes it your bank account number inside the bitcoineconomy.
It is not a wallet.Every bitcoin addressis directly linked to a private key. You can calculate the bitcoin address if you have the private key. You can transfer money from an address if you have the private key.
Example of a bitcoin address: 1FdPFc6bWdPiz2UP18jorvbuP6sZZ31LU2.
3) Wallet: - A bitcoin wallet can contain one or more bitcoin addresses. When you downloadthe bitcoin client for your PC or Android then your PC or Androiddevice it becomes a wallet. A wallet holds your private key. Simply the wallet is a programwhich stores the private keys.
Websites like blockchain.info provides a free and very secure wallet service (An Online Wallet.) which makes it easy to send and receiveBitcoins without needingto download a Bitcoin client.
4) Private Keys: - Every Bitcoin address (account)has a unique private key attached to it. This key is what allows you to maintain control of those bitcoins inside the Bitcoin address. A private key must always be kept secret. Anyone with your private keys can spend your Bitcoins!!! . The private key is a secret code which allows the user to prove his ownershipof his bitcoins. It is like your ATM CARD PIN or OnlineBanking account Password.
E.g. of a privatekey: 5JZB4ewYsbJhej6Psb5gL1h5BL26EoA49EzwoLSSXB8rtEDX8su
5) Bitcoin (BTC): - Simply put is a new kind ofcurrency that is not regulated by any government. A difference exists between the terms 'Bitcoin' and 'bitcoin'. Bitcoin writtenwith capital ‘B’ refers to the entire system; the bitcoin economywhile Bitcoin writtenwith small ‘b’ is used to describethe unit of account, the currency itself. eg: 0.001, 0.01, 1.00. Asat Feb 6th 2015 a person will give you $223 for 1.0BTC.
6) Block & BlockChain: - All of the transactions that happen on the bitcoin network at the same time span are bundled into one chunk of data, called a block. These blocks are linked such that each new block proves that older blocks were valid; they have reference to the previousblock. These linked blocks are called BLOCK-CHAIN.
The blockchain is a databasethat has recordsof all the transactions that ever happened in the bitcoin economy.Every bitcoin client PC has its owncopy of the blockchain.
Genesis Block is the very first block that was created and the beginningof the blockchain.
7) Confirmation:- When bitcoins are sent from one address to another the transaction is broadcasted(sent out) to all other nodes directly connected to the node that performed the transaction those other nodes still broadcast what they receive and in no time everybody on the network hears about the transaction. Within each transaction that happens there is a mathematical relationship betweenthe ID of the coins involved, the ID of the address involved, and the ID of the transaction.
All transactions that occur are bundled into a chunk of data called block and MINERS process each block to verify transactions by hashing to verify that a mathematical relationship exists between the coins, address and transaction that occurred.
A confirmed transaction, is simply a transaction has been put into a block and validated by the network (By Miners).
8) Miners and Mining: - Miners are people who put their computers or any other processing unit like ASIC and FGPA into work to verify transactions that happen on the bitcoin network. Mining is the term used to describe what miners do because every 10 minutes a new block is created and difficult calculations are performed to verify transactions. The first transaction in a block is a special transaction that manufactures 25 bitcoins. This new 25 bitcoins belongsto the people (computers) that created the block.
Anyone on the bitcoin networkcan opt-in and become a miner by just groupinga set of unordered transactions it received from other nodes into a block, and broadcast the block to the network as a suggestion for the next block. It also tries to verify the transactions by verifying that the mathematical relationship that exists between the ID of the coins involved the ID of the addressinvolved, is consistentwith the ID of the previous transactions that the coin has been involved in.
Before a miner broadcast’s a block, he must hash it and make sure that the output of the hash starts with a certain number of zeros.
9) FPGA: - Field Programmable Gate Array, An FPGA is an integrated circuit whose function can be changed as it can be reprogrammed. FGPAs used in bitcoin mining are specifically modifiedto perform hash calculations and produce new bitcoins from mining.
10) GPU: - Graphical Processing Unit, a GPU (or commonly just referredto as a graphics card) was previously the dominant way of Bitcoinmining. It’s far more efficientthan a CPU. With the increase in the difficulty CPUs became obsoletefor mining but it has recently become inefficient too. FGPAs and ASIC chips are used.
11) Hash (Rate):- is simply the speed at which a processor can perform hashing but as it relates to Bitcoin, the Hash Rate is the speed at which a processing unit is completing an operation in the Bitcoincode. Example-1H/s means the processor performsone hash in one second 1KH/s means the processorperforms 1000 hashes in one second, 1 MH/s means that the processor performs 1,000,000hashes in one second.
1) How do I get started?
Five Common Bitcoin Questions.
To get started in the bitcoin economy what youneed is an account number (Wallet Address). To get a bitcoin wallet address you need to download and install bitcoin client softwareon your PC or install Android wallet on your phone.
In order to operate a bitcoin wallet yourself you must have a significant knowledge of computersand internet however for ease and convenience, coinbase.com offers a very secure online wallet where you can just register and get a bitcoin wallet.
Registering on coinbase.com as easy as opening a Facebookaccount. Just registeron coinbase.com and you be given a bitcoin address immediately. Think of coinbase.com as PayPal.com.
2) How do I acquire bitcoins?
You can accept Bitcoins for goods and services or seek them out via Bitcoin Exchanges;you can start mining bitcoins yourself.
Accepting bitcoins for goods and services
Do you have an existingbusiness; well the world is now going bitcoins so your businessneeds to start accepting bitcoins and fortunately it is not as difficultas accepting PayPal. You can also use coinbase.com to start accepting bitcoin payments on your website. Bitpay.com as also a perfect alternative.
Buying Bitcoinson exchanges
Well if you live in the USA, coinbase is your best option althoughyou can buy bitcoins from many other websites like CoinMama they accept Western Union and Credit Card. People in the UK can buy bitcoins from bitbargain.co.uk. BitCoin is really popular and you can buy them from anywhere really. Just make sure to trust who you are dealing with before you give your cash to get the coins transferredto your bank account.
Mining bitcoins
If you have the hardwareyou can acquire bitcoins by mining. You cannot mine Bitcoins with your normal PC because the networkdifficulty is very high, you need to use special processing units like ASIC, FPGA and High End GPU,s . There are lots of reliable mining pools out there. You can also decide to be a solominerif you have powerful enough hardware.
Some reliable mining platforms include ghash.io, bitminter.com. Some other websites like hashop.io will lend you their powerful hardware for a fee.
Earning bitcoins
There are a lot of websites that pay you in bitcoinsfor carrying out small tasks but seriously,a lot of them are crap. The best I can recommend for now is cointasker.com.
3) What are bitcoins worth
Bitcoins are like any other currency: they fluctuate in value relativeto other currencies. The value of a bitcoin is constantlychanges. There is no 'fixed'price. Usually what determines the value of bitcoins is how many people need bitcoins to how many bitcoins are available. The value of bitcoin fluctuates through supply and demand. The present worth of bitcoinscan be found on Preev.com
4) How do I transfer bitcoinsto my bank account?
Typically you can transfer bitcoins to your bank account with the help of an exchanger. There are exchangers in every country just do a search on Google like this “bitcoin exchangers in “your-country-name” To avoid been defrauded its best to use exchange companies not individuals.
It works like this - Transfer your bitcoins to the address (bitcoin account)of the exchanger and the exchanger will pay in the equivalent value into your bank account. Example- As at 06 Feb 2015 the value in 1.00BTC equals $223 so if you transfer1btc to the exchanger he will transfer $223 to your bank account.
5) How difficult is it to use bitcoin
Using bitcoins is easier than using credit or debit cards and PayPal. To open an account just go to coinbase.com, blockchain.info or download the Android or windows app. You can make payment by simply entering the recipient's address,the payment amount, and pressing send.
You can prove that a payment was sent or received by checking http://blockchain.info/address/YOURADDRESS you will be able to see the records of the coins that were sent to or from your address.
There are Over 9,000 Places to Spend Your Bitcoins go to http://www.spendbitcoins.com
How to set-up BFGminerto begin miningbitcoins.
Typically 70% of people who mine bitcoinstoday do so with a mining pool and it is nearly impossible to mine bitcoinswith your CPU no matter how powerfulit is so for this tutorial we will assume you have an externalmining device.
Download Latest version of BFGminerfrom this link 64bit here http://uploaded.net/file/vhhhezr6
It is assumed that you should have the driversof your external mining hardware
READY TO BEGIN
1. Plug in your USB miners to your USB port
RED FURY
1. Right-click bfgminer.exe and Create Shortcut
2. Right click the shortcutto bfgminer-shortcut and click on Properties
1. Right-click bfgminer.exe and Create Shortcut
2. Right click the shortcutto bfgminer-shortcut and click on Properties
3. Find the “target” box, and add the following information:
· -o YOUR POOL MINING ADDRESS
· -u YOUR USERNAME
· -p YOUR PASSWORD
· -G (if not using a graphicscard on the same machine)
· -S all
· –icarus-options 115200:1:1 –icarus-timing 3.0=100
The actual values you put in should look like this
-o http://stratum.btcguild.com:3333 -u username_workername -p 123 -G -S all –icarusoptions 115200:1:1 --icarus-timing 3.0=100
You can then move the shortcut to your desktop for easier access. To access your BFGMiner, double click on the shortcutyou made and your miner should start.
You should read though the README.TXT file that came with the BFGMiner zip file to get to know how the miner works and it’s functions if you’re not familiar with BFGMiner program.
Thebitcoins are not actually stored in the address; they are still on the web. In fact, the address is just the bank account number and the private key is the bank login.
The bitcoins are not stored on your computer’s hard disk or on your phone storage; the private key is stored on your computer hard disk so if your PC crashes and you know your private key maybe because you have copied it out, you have no problem you can still access your coins.
YourBitcoins are stored on the internet inside the blockchain and every computer on the bitcoin network has a copy of the blockchain or database of records.
PrivateKeys(bank logins) are tied to every address(Bank AccountNumber) and the private keys now help you prove that you are the owner if the bitcoinstied to an address.
Allbitcoins in the system are stored in the blockchain and a copy of the blockchain is stored on every PC on the bitcoin network.If you install the Bitcoin PC application [Windows or Mac] your private keys are saved inside the wallet.dat file.
Creating a secure bitcoinwallet
While some people will tell you that the best place to store your bitcoins is with yourself,they say instead of using online wallets like blockhain.info and coinbase.com is best you download the bitcoin client for your PC and store your bitcoins yourself. They stated that what if one day blockcchain.info website goes down with all your coins inside your online wallet stored intheir system you lose all your bitcoins.
Well, installing the PC bitcoin client and storing your bitcoins yourself is not also safer you could also loose all your bitcoins in one day.
HOW?
When you install the bitcoin client, a wallet.dat file is created and that file contains some information about your wallet;the information the wallet.dat file contains includesyour private keys and rememberthat anyone with your private keys can steal all your bitcoins. What if your PC is hacked and the hacker gets access to your wallet.dat file and extracts your private key from it, what if a close friend or family whom you trust accessesyour PC and steals your wallet.dat file. What if your hard disk crashes,what if your PC is lost or stolen. Here some people recommend copying your wallet.datfile into a flash/thumb drive and keeping the flash/thumb drive in a safe locationin case your PC gets lost or stolen. You never know what if the flash/thumb drive gets damagedor missing.
There is a popular way most people recommend creating a secure bitcoin wallet that method involves installing a Linux operating system on a usb drive or hard disk to eliminate the risk of viruses and now they boot into the Linux OS and install the bitcoin client app for Linux. Any time they need to access their wallet they plug in the usb drive or hard drive into their PC, boot into linux and use it. When they are through they disconnect the flash/thumb drive and takeit back to their safe secure and undisclosed location. Some even keep backups of their wallet.dat file in 3 – 4 different drives the length you go to secure your wallet depends on how much bitcoins you have to protect. This method explainedabove is really safe but what if there is a fire? Okay i am being ridiculous.
I recommend brain wallets. Wallets that is stored in your head. As at the time I wrote this article 75% of the bitcoin world is against using brain wallets to store large amountsof bitcoins because brain walletsis about thinking of a set of words and these words are run through a certain algorithm to generate your private key and wallet address. They say that if someone can guess the exact words that you used, he can generateyour private key and seal all your bitcoins.
This is true and this highlights the a very big danger with brainwallets which in turn highlights’ the importance of not using simple words to generate brain wallets
ü Don’t use words like “fuck you”
ü Don’t use Keyword generatorsas they always repeat phrases for example“correct horse battery staple”
ü Think up your own words but make sure that it is a sentence.
ü Don’t use sentences’ like “This is my secret brain wallet”
ü You can write the names of your children together and spice It up with something at the end example -----
“AshleyTomPeytonBradley%%%China” people don’t easily guess this.
How to create a Secure Bitcoin Wallet using brain wallets
1) Choose your keywords or passphrase(Use a sentence) in your mind, for example,I chose correct horse battery staple
a. Go to brainwallet.github.io, https://www.bitaddress.org
2) Put in your keywordsand it will calculate your PrivateKey and bitcoin addressfor you.
1) Give out your bitcoin address or mine into it and copy your private key and keep it safe or better still copy your keywords and keep it safe in differentlocations ;it will mean nothing to someoneelse unless you tell them that it is your brainwallet keyword.
2) Anytime you need to retrieve the private key you can simply go back to http://brainwallet.github.io and put in those keywords again.
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