AN ANALYSIS OF THE BITCOIN WHITEPAPER
{quick facts}
- a peer-to-peer platform, in which electronic cash would be transferred between parties without going through a financial institution.
- Established: 2009
- Current market cap: $318,158,631,101
- Highest market cap: $1,200,000,000,000
- Regarded as digital gold, potential storer of value
BEGINNINGS OF BITCOIN
The idea of Bitcoin came about as a means for a peer-to-peer platform, in which electronic cash would be transferred between parties without going through a financial institution. Thus, starting the idea of having independence from going to a bank to initiate a transfer and pay frivolous costs.
This notion that a financial institution (or trusted third party) is needed for authenticating transfers is understood and well accepted. The Bitcoin platform and future blockchain platforms have formed a solution for this through digital signatures on a peer-to-peer network that timestamps immutable data processed. The idea being that nodes can leave and rejoin the network at will and reviewing past recorded transactions on the proof-of-work chain.
Basically, provide a peer-to-peer platform in which immutable transactions are processed in chronological order. This allows anybody in the chain to review any past transactions and avoid any double-spending.
[From the Bitcoin Whitepaper]
TRANSACTIONS
We now examine how transactions on the chain function. The whitepaper defines an electronic coin as a chain of digital signatures. For example, an owner transfers a digital coin to the next owner by digitally signing a hash of the previous transaction and the public key of the new owner.
This becomes all fine and good until the issue of double-spending arises. How do you monitor and account for any double-spending? Well here, we focus on using a timestamp server. Transactions added to a block are provided with a timestamped hash. Multiple hashes are then connected to form the blockchain. Meaning that transactions that happened before the newly added hash can be seen and reviewed as well.
PROOF-OF-WORK
The next topic of discussion is proof-of-work, which adds that layer of trust and security. A system that allows majority vote (1 CPU = 1 vote) to record a chain of verified blocks of transactions. Here we encounter a major issue of first generation blockchain technology; where; energy consumption is high whilst competing computing power exists when processing transactions. Whereas newer blockchain have solved this by having a dedicated CPU or known also as node record the block to the chain. Here it important to remember that nodes always consider the longest chain to be the correct one. This helps to create incentive as well, because nodes receive transactions fees and can introduce new coins to the chain by correctly computing new blocks.
There are other great benefits that we shall name but not discuss because they are relatively understood: reclaiming disk space, simplified payment verification, and lower probability of a successful attacker. One we shall, however, discuss further is privacy and security. All transactions become public knowledge as each one needs to be verified by a majority of CPUs or nodes to be added to the chain. Each transaction is in this instance tagged with a public key. You as the owner will know who the owner of the public key is, but no personal information is released to the public. Basically, you are assigned a digital key that becomes your digital signature for transactions allowing you to retain a level of anonymity.
Future research and analysis over the references listed in the whitepaper including, W. Dai, W. Feller, A. Back, S. Haber and W.S. Stornetta. I shall also publish my stance on Bitcoin and what it means in todays society. Is it an investment or nah?
Some current use cases for Bitcoin include:
Peer-to-peer transactions: Bitcoin can be used for fast, secure, and low-cost transactions without the need for intermediaries such as banks.
Online and offline merchants accepting Bitcoin as a form of payment.
Use as a store of value or as a speculative investment.
Use in decentralized applications (dApps)
Some potential future use cases for Bitcoin include:
Increased adoption in countries with high inflation rates, as Bitcoin offers a more stable store of value compared to fiat currency.
Bitcoin’s transparent and decentralized nature could make it suitable for use in various financial and non-financial applications, such as remittances, micropayments, digital identity, and more.
Increased use in institutional investment and hedge funds.
Bitcoin’s blockchain technology could be used for various use cases like supply chain management, voting systems, and more. Let’s continue this journey by now taking a look at Ethereum.
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