The Crypto Papers Part I, Bitcoin and the Blockchain Basics

Introduction

In the Crypto Papers I try to explain the bitcoin and altcoins and the system behind it, the blockchain. The first three parts will be more about basic stuff, part 4 and 5 will focus more on the technique behind bitcoin and following parts will cover some other topics, yet to come.

Part II will be released within the next 3 days. Part III again 2 or 3 days later. The next parts, will most likely took a few weeks, since I am very busy at this time.

Note: English is my 2nd language, German my first. Due to this, a few of my references are in german language - references are in narrows and the reference list can be found at the end of each Part.

The most interesting fact in this part (in my opinion):

As comparison to famous catchwords like "Euro", "Dollar", "Share" and "Trump" the word "bitcoin" was googled in December 2017 as often as the 4 mentioned above combined (Google trends, 2017)!

Introduction to Blockchain and Bitcoin

The Blockchain is, because of the rising popularity of bitcoin not an unusual word anymore, but what it actually is, will be covered in this series, alike the pros and cons of this technology and how Cryptocurrencies insist of the Blockchain principles.

Right now (27.12.2017) there are more than 1.300 Cryptocurrencies (All Cryptocurrencies | CoinMarketCap, 2017). These coins are known as Altcoins (CFA (ICFAI), 2014). One of the main questions to answer in this series is to check, if Cryptocurrencies are already having a real use/impact on the world and the people.

The use of the word "Altcoin" is used for every Cryptocurrency except Bitcoin. Bitcoin itself is the first Cryptocurrency and also the highest rated (translated into Dollar). Bitcoin was first introduced as a concept in the year 2008 with a whitepaper (bitcoin.pdf, n. d.) from the anonymous founder "Satoashi Nakamoto". An interesting sidenote is, that the year 2008 is also well known for the banking crisis, finding his climax with the bankruptcy of the bank Lehmann Brothers. Bitcoin can so be named as a try to confront the banking system with an open and understandable system. 2009 Nakamoto published the bitcoin system.

In 2009 the bitcoin had a value of 0,00 Euro, in 2010 0,39 Euro, this worth was always increasing, to an alltime high at 26. December 2017 of 16.727,68 Euro (Bitcoin Kurs Chart (BTC/EUR), 2017). With an investion of only a 100 euro in the year of 2010 the value would be at the 26. December 2017 a staggering 4.100.000 Dollar. If bought in 2009 it would multiply a few times more.

All these numbers and growth secured the bitcoin very much attention, that found it's climax in December 2017.

As comparison to famous catchwords like "Euro", "Dollar", "Share" and "Trump" the word "bitcoin" was googled in December 2017 as often as the 4 mentioned above combined (Google trends, 2017)!

This underlines the growing popularity of the bitcoin clearly. Following this channel the Blockchain-technology is also gaining more popularity, not just as control for payments and money, but also for other services. To understand Cryptocurrencies therefore first must be understood the principles of the Blockchain-technology.

Popularity of the Bitcoin and Altcoins

With the high value of the bitcoin, which lays, since the 01. April 2017 all the time above 1.000 Euro / 1 Bitcoin (Bitcoin Kurs Chart (BTC/EUR), 2017), is giving the Bitcoin all the time a high attention in the newspaper press. Cryptocurrencies except the Bitcoin are known as Altcoins. Right now there over 1.300 Altcoins (All Cryptocurrencies | CoinMarketCap, 2017). With the help of Bitcoins and Altcoins the banking system shall be replaced or extended. One big feature of some Cryptocurrencies is the real-time transfer of amounts of money, this is something that is e.g. not working with the bitcoin right now, here a transaction can take minutes, to hours upto even days.

The banking system already has identified real-time money transfer as a weakness in their system and are working on it. Since 2012 there is e.g. a guideline for European banks, that an electronical payment can last longest one day, if the payment is given on paper, than an extra day is granted till success (vgl. So lange dauert eine Überweisung, 2018). The reduction of transaction-times can not be exclusively be drawn back to the Cryptocurrencies, but banks are trying always to reduce the transaction-time.

Most Cryptocurrencies are public, which means that every transaction and balance can be viewed by everyone - the owner of an account can still be anonymous, if he signed on with an pseudonym. Many see this as an advantage, because then there can't be anything hidden anymore, neither from persons or big companies. Others see this as disadvantage, cause everyone knows which transactions someone is taking or how high is his balance.

Right now on nearly every Crypto-Market-Place every person that wants to make deals, has to sign on with his real name and adress and needs to verify this with documents like driver licence or an id-card and pictures.

Technology of the Blockchain and the Bitcoin

The Blockchain-Technology is based on a very easy programming set-up, but was first introduced in the year 2008 in a whitepaper by a person with pseudonym "Satoshi Nakamoto" (Nakamoto, 2008). 2009 Nakamoto published his project bitcoin.

The Blockchain is having a decentralized Database as main anchor point. Decentral means in this matter, that data is not just stored in one place (or including a backup in two), but instead, that the database is mirrored multiple times, so it lays on many servers. These Database knots, or in connection with bitcoin so called Full-Nodes, are the foundation of the Bitcoin-Technologie. The Mining is based to the SHA-256 Algorithm, which was one of the hardest calculations to perform back in 2008/2009.

Forecast to the next blogposts:

Part II:

1. Bitcoin Network, Components and set-up
2. Technology of the Blockchain (more detailed)
3. Mining Functionality

Part III:

1. Paying with cryptocurrencies
2. Critics at the Blockchain and Bitcoin
3. Use of Cryptocurrencies
4. Other well known Cryptocurrencies
5. Big Conclusion of the Parts I, II, and III combined
6. All References

References

Anon 2017. All Cryptocurrencies | CoinMarketCap. [online] Available at: https://coinmarketcap.com/all/views/all/ [Accessed 27 Dec. 2017].

CFA (ICFAI), P.B., 2014. Altcoin. [online] Investopedia. Available at: https://www.investopedia.com/terms/a/altcoin.asp [Accessed 27 Dec. 2017].

Anon n.d. bitcoin.pdf. Available at: https://bitcoin.org/bitcoin.pdf [Accessed 3 Feb. 2018].

Anon 2017. Bitcoin Kurs Chart (BTC/EUR). [online] CoinGecko. Available at: https://www.coingecko.com/de/kurs_chart/bitcoin/eur [Accessed 27 Dec. 2017]

Anon 2017. Google Trends. [online] Google Trends. Available at: https://trends.google.de/trends/explore?date=today%205y&q=bitcoin,share,dollar,euro,trump [Accessed 27 Dec. 2017].

Anon 2018. So lange dauert eine Überweisung. [online] www.t-online.de. Available at: http://www.t-online.de/finanzen/geldanlage/id_47366044/wie-lange-dauert-eineueberweisung-.html [Accessed 3 Feb. 2018].

Nakamoto, S., 2008. Bitcoin: A Peer-to-Peer electronic Cash System. [online] Available at: https://bitcoin.org/bitcoin.pdf [Accessed 9 Jan. 2018].