Bitcoin: New generation of digital money.

Student: Group B, Amer Helail Professor: Wu Yun

Content:
Introduction

1 Overview 2 Technical details o 2.1 Address o 2.2 Transactions o 2.3 Block chain o 2.4 Emissions o 2.5 Fees o 2.6 Program interface o 2.7 Other realizations 3 Economy o 3.1 Difference from other currencies o 3.2 Aftermath 4 Critics o 4.1 Inequality between early and late users o 4.2 Technical complexity o 4.3 Deflation o 4.4 Steal o 4.5 Hidden mining

Introduction
Bitcoin, Engl. bit - a unit of information "bit", Eng. coin - coin - electronic currency created in 2009 by Satoshi Nakamoto. This title also refers to the software open source, created by it, and ad-hoc network formed by this program. Storage means is the image of the purse, which is stored on your computer. Bitcoin can be sent to any user on the network using the address Bitcoin. Unlike other currencies, Bitcoin does not depend on a center devoted to the issue of currency. Data on the movement of cash stored in a distributed database. Unable to dispose of other people's money and spend the same money twice for security uses cryptographic techniques. The principle of an ad hoc network and the lack of administrative center make it impossible to state regulation and manipulation by changing the rate of the money supply. Emission Bitcoin algorithmically limited. Bitcoin assumes anonymous ownership and transfer of funds. Bitcoin - one of the first implementations crypto-currency described in 1998 by Wei Dai in newsletter.

1. Overview
Bitcoin recording based on movements of funds using asymmetric encryption. All transactions are public and stored in a distributed database. To prevent multiple spending the same amount of network implements something like a distributed time server, using the idea of hash chain, each of which is calculated based on the previous one. To reduce the size of the database used hash tree.

2. Technical details
Bitcoin - the suggestions Wei Dai called b-money and Nick Szabo (Nick Szabo) called Bitgold. Principles of the system are set out in the work of Satoshi Nakamoto in 2008.

2.1. Addresses
Each participant has a network called Bitcoin wallet containing an arbitrary number of key pairs. Public keys or Bitcoin addresses function as endpoints for sending and receiving funds. Corresponding private keys authorize the sender. Addresses do not contain any information about their owner, and generally are anonymous. Addresses in text form are a string of about 34 characters, consisting of letters of the Latin alphabet and numbers, for example 1AUwPZ6SVkgRoiW6tEi64Lm124igTtE9EJ. There are variations of the submission addresses Bitcoin as QR- codes and other two-dimensional bar code reader suitable for mobile devices. Bitcoin user can have multiple addresses, creating their own initiative. Creating a new address is the creation of a new key pair and does not even require a network connection. Create addresses for only one transaction or one correspondent helps preserve anonymity.

2.2. Transactions
Virtual "coins" contain the public key of the owner. When user A sends some amount of user B's public key is changed to User B's public key and signed by a private key member A. This information is then sent to a broadcast request Bitcoin network. The remaining members of the network signature check before making the transaction to be processed.

2.3. Block chains

Basic frame sequence (black) is the longest of the initial (green) to a current. Side branches (gray) truncated. Transactions are not confirmed until the collective efforts of the network are packed in a sequence of blocks. Confirmation is based on the fact that the work done on the package can be quickly verified that eliminates multiple spending the same money and counterfeiting. Each network node (the node is any computer with a program Bitcoin), taking part in the generation , known to him collects actual transaction candidate block which contains among other information known to him the previous hash valid block. Then generating unit should lead candidate block to such a state that its hash meet certain requirements (in particular, it must contain a given number of zero bits). This process requires multiple rounds of trial and error, as the result of a hash function (SHA- 256) is practically unpredictable. When the problem is solved, the node sends the received block all connected nodes. Other nodes check block, and if it is correct, taking it as a next valid, that is added to the chain. Thus the chain of blocks contains cryptographic ownership history certain portion of Bitcoin. If the user tries to once again receive Bitcoins, the network will not accept it as a valid transaction.

2.4. Emission
First transaction of each block candidate is generating node accrual rate in the 50 Bitcoin. After each 210,000 units remuneration will be reduced by 2 times. Thus, the total number of Bitcoins will not exceed 21 million. This is not a big problem, since the minimum amount of the transaction is 108 Bitcoin. Probability of the reward depends on the ratio of computing power node to the total computing power of all nodes in the network. Those wishing to obtain the greatest possible rewards are pursuing as large computing power to generate: the use of vector graphics processors (GPU), integration of computers in the computer pools. This activity is called mining (mining mining and quarrying, mine development), probably because of the similarity with the gold mining. As the drop in compensation motivation for users is likely to shift to collect commissions. Since the computing power of the network unstable software units every 2016 blocks, and it is about every two weeks , recounts requirements hashes of blocks in such a way as to maintain a mean frequency of oscillation at 6 blocks per hour . Thus the emission rate by the algorithm is hardwired and cannot be changed by external factors.

2.5. Fees
The system does not provide Bitcoin mandatory fees. Members may voluntarily include transfer any amount of the commission fee, which makes such a transaction processing priority. Fee goes to the node that generated the block with this transaction.

2.6. Program interface

Software Bitcoin network node exists in two forms: a GUI application and a background application. In both cases it can be controlled via software interface protocol JSON-RPC. Thus make it simple to solve such problems as:

Connect to one node of several programs-miners, creating its own pool; Integrate with the web site store exchanger or other service-related pay;

2.7. Other realizations

Mike Hearn, an employee of Google, in the framework of the "20% of working time employee" realized Bitcoin software node in the language Java - BitcoinJ. This implementation is limited only by the user-defined functions (such a node cannot verify the transaction and blocks to create blocks, but can only create new transaction codes, which, however, sufficient for the client), but it is not a small step in the direction of mobile applications using Bitcoin.

3. Economy Despite the experimental status of the project, it is rapidly gaining popularity. Bitcoins are accepted in exchange for network services and real goods. Many organizations accept donations in this currency. Traders Bitcoin exchange for various currencies (U.S. dollars, rubles, Japanese Yen, and others) on the online exchanges. Among the users of the currency accepted symbol BTC.

3.1. Difference from other currencies

Number of Bitcoins over time Unlike conventional, decree currencies, Bitcoin system have no regulatory institutes. This reduces the instability created by the central banks and governments. Emission is limited, and its programmed course known to all market participants in advance. Payments are made directly, without the mediation of any financial institutions. Cancellation of payment is not possible. Information about making a payment payer spreads throughout the network and received by all the other members of the network, if the abuse. Improper payments are rejected. Payments are not subject to mandatory Commission, but the commission may be paid voluntarily to expedite the processing of payment. The total number of currency units will not exceed 21 million Bitcoin. Volume increases as the sum of exponentially decreasing and approaching the maximum value asymptotically. In future we expect deflation that is not a problem, as the monetary unit is divided to the 8th decimal. Emission stop interest support network nodes switch users to collect commissions.

3.2. Aftermath
Possible scenarios include depreciation of failure, loss of interest of users and the global conspiracy of governments to block the network. However, the latter is unlikely. Bitcoin project itself is probably a reaction to the attempts, in particular, the U.S. government to hinder the activities of companies such as E-Gold and Liberty Dollar. Inherent in it the principles of decentralization and anonymity do not leave links to the attack that lead to system failure.

4. Critics
4.1. Inequality between early and late users
Architecture Bitcoin gives more benefits to participants who joined the system before. Thus, the amount of work required for the production of a coin Bitcoin, currently more than half a million times larger than at the beginning of system operation. By increasing the number of participants and an automatic reduction in the number of coins in reward for mining, generation of coins becomes more difficult and time consuming.

4.2. Technical difficulties

Transaction based on the scripts themselves prisoners in transactions. While this capability increases the flexibility of the system, it complicates the development of software for working with Bitcoin.

4.3. Deflation
Since the inherent limit of total number of coins, this currency experiencing deflation. Due to the constant and predictable deflation has incentive to hoard coins for the purpose of speculation.

4.4. Steal
Since Bitcoin currency is totally digital currency, it is possible theft from users using viruses and Trojans. Also there is possibility of hacking Bitcoin-exchange stock.

4.5. Hidden mining

In June 2011, Symantec said that mining can be run on botnets, infected with viruses. Thus, hundreds thousands of computers start working on Bitcoin generation without the knowledge of their owners. Also possible to use corporate resources for employees generate Bitcoin.