What is cryptocurrency and how they work

Bitcoins have long ceased to be a technological and economic innovation, such a hype around them, as in 2013, no longer exists. Today headlines about cryptocurrency almost "cling" miner as a profession is not a big surprise, and the rate of about $ 600 for a couple of stitches ciphertext only surprise is very distant from the human Internet. But, ceasing to be a sensation, Bitcoins have not disappeared - and so it makes sense to understand how they work.

The key difference between the traditional currency of their kriptoanalogov boils down to who and how to control their production and trafficking. In the first case it is a national or supranational central bank that prints banknotes, equipped with multiple levels of protection (usually physical). Such protection can be overcome, even if it requires a significant investment, and is punishable by law. In the second case of its turnover cryptocurrency release and control system is defined by the device, ie the mathematical apparatus on which it is based.

Despite the fact that at one time Bitcoin has caused great excitement in the world, he was not the first attempt to create kriptovalyutnyh systems. However, the author of the Bitcoin system, known under the pseudonym Satoshi Nakamoto (Eng. Satoshi Nakamoto), so successfully combined the results of previous attempts, he, no doubt, have managed to create the first successful cryptocurrency. It was based on two elements - blokcheyn (English block chain -. «Chain blocks") or encrypted distributed database, which contains all the transactions since the launch, and "mining" - the process of solving computational problems to validate the transaction and control issuance of new currency. Blokcheyn was proposed in 1991 as a mechanism for version control and the establishment of digital documents. A decision hash objectives underlying of mining, most clearly manifested in HashCash project. It was developed to combat spam in e-mail to send an email, the computer had to solve simple computational task. One user, this takes a few seconds, but the spammer sends out millions of messages, it became a serious obstacle. Nevertheless, HashCash for various reasons did not engraft and lost more effective filter system.

The textbook at Princeton University on the history and theory of Bitcoins (there is!) Is a list of payment systems, which to some extent can be regarded as precursors of the most famous cryptocurrency. In this list of 80 companies, of which, as the authors note, only PayPal has achieved wide popularity, and it is because he refused to create cryptocurrency in favor of other activities. The immediate predecessors were Bitcoin system b-money (1998) and BitGold (2005). Their creators have implemented ideas and encrypted "Ledger", in which all transactions are stored, and the "Mining" - solving computational problems for virtual currency. However, in both systems, there was no synchronization "ledgers" between users and not enough control over the "printing" money. Bitcoin system described in 2008, and officially launched in 2009, it has successfully coped with both tasks, so that has gained popularity among enthusiasts. Nevertheless, for a long time Bitcoin had wide acceptance, and the cost in traditional foreign exchange equivalent was minimal: for 10 thousand Bitcoins one of the first users could buy only two pizzas. But with the expansion of Internet users has increased and the cost of Bitcoins (Eng. BTC), has experienced a real boom in the autumn of 2013, when it exceeded US $ 1,100. At the time of publication of the article one Bitcoin was worth 603.67 dollars.

What are the key components included in Bitcoin system

There are several, and individually they somehow existed before the advent of Bitcoins. It is the combination of these components in a single system has led to the creation of successful working cryptocurrency and became a model for many clones or similar projects.

The hash function

Bitcoin and its analogs do not just called "cryptocurrency" - this indicates a word of encrypted data in the encryption is based sisteme.V special feature that, for any input creates a unique hash (Engl hash.) - A set of a fixed number of symbols ( normally 256 or 512 bits). A hash function must have a number of properties. Firstly, it should not lead to "clashes" (eng. Collisions), that is, for two different sets of input data two different hash must be obtained. If you think about it, this condition is impossible, since the input data can be of any size, and the hash is always limited in length. However, in practice, the probability of a match for the two hashes do not match the original data immensely small and forge hash simple search in the foreseeable future (comparable to the time the sun of life, for example) is simply impossible. Secondly, the hash function should be arranged so that, having only one hash of the original message, it was impossible to decipher. In other words, the reverse transcript of the hash should not be possible, the system allows only confirm compliance with its message hash.

Blokcheyn

At the heart of Bitcoin system is blokcheyn - a special kind of database that stores all the operations carried out by users. Strictly speaking, Bitcoins themselves - it's just a record in the database, no other physical or virtual equivalent in the currency does not. Blokcheyn differs from other types of databases that each element therein (block) not only contains information about multiple transactions, but also a pointer to the previous block. This means that you can store only the last block of the chain and always be able to make sure that in the previous blocks no amends. For this it is necessary to download the penultimate unit and calculate a hash of it if it coincides with the pointer in the last block, then there was no change. Theoretically, this operation can be repeated until the first block, but all blokcheyn "weigh" several tens of gigabytes, so pass it entirely unreasonable.

Members kriptovalyutnoy system exchanged between conventional monetary units, such as Bitcoin, existing only in the form of transactions. All of them are periodically written into blocks and added blokcheyn, which by definition keeps all operations, starting with the first, and determines current assets of all users (although the list of assets as such does not exist, they are only calculated on a transaction basis). The very same blokcheyn not stored on the server provisionally taken the organizers for seven locks. Instead, once the last block has been updated, blokcheyn distribute programs on users' computers just as memes differ on social networks or movies - on torrents. At the same time, any user can check the integrity and authenticity of all blokcheyna transaction.

Digital signature

We are used to sign documents certifying thus its agreement with its contents. But what about the signatures on the Internet? If your signature is a set of characters (text or picture), it can easily be copied, that is stealing. This digital signature is more complicated a simple stroke of the pen, and also actively uses hash functions. To endorse the electronic document, the user needs to have two keys - indoor and outdoor. Open to share with your message recipient, and closed stores as the apple of the eye and used to create the signature itself. The latter can, for example, be a hash of the data type "document" + "private key". According hash can not recover the private key, but this is not required. It is sufficient that the signature was recognized, that is, with the public key, the original message and a digital signature, you could say that this signature really belongs to the owner of the private key.

Things get even easier when we learn that in the Bitcoin network is not as such accounts. User cryptocurrency this is considered the owner of the private key. Any transaction as follows: "A public key sends the public key of B N Bitcoins. Signed: A public key. " Now any user can verify that the message is really encrypted by none other than the owner of the private key means that the signature is authentic. Most cryptocurrency follow certain anonymity, based on the fact that the exchange of Bitcoin is only between the keys (a kind of "electronic wallets"), and one person can have any number of keys, it can even create a new purse for each new transaction. Track the movement of funds between purses is very easy - all the information about the transaction open. But associate "wallet" with its real owner, using only the information of the Bitcoin system is usually impossible.

Mining

Since Bitcoin is not the central bank, which is responsible for the accuracy of the transaction, they should be checked before you make in blokcheyn. The user, who had the honor to make the "official" version of the new unit could theoretically affect ongoing transactions. However, if he decides to do the black accounting, any checks in the next stage with great probability it will reveal a forgery. It is reasonable to deal with the machinations of the "Temporary Central Bank" no.

The creator of Bitcoin found the solution of two problems: the motivation of the inspection and the issuance of new currency. Those who had the chance to add to the chain of the new block receives as a bonus right for the unique transaction: the creation of new Bitcoins and assign them to your key, and the size of this award is fixed - for example, now it is 12.5 Bitcoins. To become its happy owner, it is necessary before the others to solve a particular problem (English puzzle.) And show "proof (done) work" (English proof-of-work.): You need to find a number that is in conjunction with a hash of the previous block and the list transactions of this unit will hash entering the pre-specified interval. The complexity of this problem stems from the fact that it can be solved only brute force, so nominally at all "miners" (English miner -. "Miner") have an equal chance to answer first.

In reality, the reward is great, because in addition to the 12.5 Bitcoin user gets a commission and provided transactions, trapped in the new block. For this reason, users are willing to invest heavily in the creation of "farms", ie, special computers, solving the problem of hash. It turns out that the user's chance proportional to the power of his farm, and this in the long term can lead to the monopolization and the collapse of the entire system. Additionally, and increases the total network capacity. For these reasons, complexity of the tasks automatically adapts every 2016 blocks: it decreases the interval which should fall hash. This threshold is calculated so that a new unit was created every 10 minutes on average.

inflation problem is solved as well as part of mining, because it is the only way to "print" new banknotes. Every award of 210 thousand units is reduced by half, so the total number of Bitcoin system is strictly limited. According to current estimates, the reward will be minimal in 2030, and all will be "published" 21 million Bitcoins. This amount will not be increased, but may be reduced, for example, in a scripting language Bitcoin system has the ability to destroy your money. This can be useful if the user wants to save some information in blokcheyne as it (with time stamp) will continue as long as the running Bitcoin. Another way to reduce the amount of currency units - to lose or destroy the private key. In this case the user loses access to Bitcoins. In such a situation, for example, was a Briton James Houvels that threw the laptop, which stored the private key, thus losing the 7500 Bitcoins. In November 2013 the equivalent of 7.5 million dollars.

How to get and where to spend Bitcoins

From the above it follows that the best way to get Bitcoin - is to do their mining. To date, however, this method turns out to not be so profitable, especially for newcomers: the reward for a new block has been reduced four times, and the complexity of the problem, on the contrary, has increased many times over. Since the probability of namaynit unit proportional to the fraction of your computing power on the public network, is to rely on some, albeit minimal, return, you will have to seriously invest in the equipment, as during the existence of Bitcoin number and performance "farms" around the world significantly exceeded the capabilities of one, even a very good home computer.

However, in addition to the direct of mining there are alternatives, such as cloud Mining. In this case, provide services to rent their equipment to everyone to try yourself in the role of miners. Such sites tend to possess a variety of configurations of "farms" that are optimized for different cryptocurrency (your choice). The more you are renting capacity, the higher the chances namaynit block, the faster your investment can be recouped. A major advantage of cloud services is itself a chance to try and quit if you do not like it, and the lack of fanfare and a heat source in your home - all the "farm" one way or another "famous" it. For example, a popular service cloud of mining is the sponsor of this material, HashFlare project.

Finally, if you want to get a Bitcoin, but do not intend to engage in mining, cryptocurrency can simply buy on the stock exchange as dollars or euros. Many online exchange offer to create your own online purse in which to store your savings. In such a system, you do not need to download a separate client program for the Bitcoin network, as well as to create public and private keys - all exchange takes over and transactions with Bitcoin, in this case turn out to be no more difficult than any other olnayn-purse.

And what Bitcoin can be spent? The era when tens of thousands of Bitcoins barely enough for a pizza, is long gone, and today this currency is quite competitive in the global market. Bitcoins are taking over the world as a payment in a variety of areas: restaurants, pubs, internet stores, etc. There are special cards, for example, coinmap.org, where you can find the nearest to you calculate a point in Bitcoins. Payment in such places there is a number of ways: in advance or you create an account in a pleasing store or cafe, transfer funds into your account and pay off on them, or pay Bitcoins just like to pay by credit card, using, for example, a mobile application.

Moreover, by using special mobile services (eg, Shakepay) can issue a one-time credit of online or offline map for instant conversion of Bitcoins from his account in dollars or euros for payments. So, in April of this year with the help of this method was able to just 2.413612 Bitcoins for pre-order on the car Tesla Model 3 (company Tesla Motors promises to open the sale of electric vehicles in 2017 at a price of 35 thousand dollars per piece).

However, for those wishing to spend time in Russia Bitcoin is not the most suitable. A few years ago cryptocurrency, which has not yet had time to draw the attention of the state, is in a relatively free circulation: it could, for example, to go to the bar and have a beer at the fair namaynennye "coin". In late 2014, the authorities made a first attempt to legislatively prohibit money substitutes, which equated and Bitcoins, but the project was rejected by the experts as being too vague. Since then, several times preparing the relevant draft laws, but none of them did not become law. The last time in August 2016 the Ministry of Finance stated that "frontal prohibition" on Bitcoins to enter impractical. Today, most of the Russian sites related to Bitcoin - is the exchange and exchange offices. For example, cash rubles can be exchanged for Bitcoins, and then spend them in foreign shops.

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