A brief description of what is Bitcoin, how it works and how it is different from real money..........

1. TRADING WITH BITCOIN

2. What is Bitcoin?
 Bitcoin is a form of digital currency.
 Divided into smaller unit called Satoshi.
 It can be used to buy things electronically and in that
sense we can say that it is no different than
conventional dollars.
 Money and payment system without any central
authority.
 Protected by strong encryption (that’s why it is also
called as cryptocurrency).
 The system is peer-to-peer and transactions take
place between users directly.
 Bitcoin was invented by SATOSHI NAKAMOTO and
released as OPEN SOURCE SOFTWARE.

3. How real money
works?
 Central bank manages supply of base
money.
 Chartered banks manages supply of
bank money.
 Banks acts as intermediaries, accounts
are debited/credited by them as
instructed.

4. How it works……
 Download free
“wallet” software.
 Each wallet has a
public address
with a private key.
 Need to know
some important
terms.
BITCOIN WALLET

5. Basic terminologies of Bitcoin
 The block chain is a public ledger (a book or other
collection of financial accounts) that records
bitcoin transactions.
 The bitcoin transactions are verified by network
nodes and recorded in a public distributed ledger
known as the block chain, which uses bitcoin as its
unit of account.
 The block chain is like a distributed database.
 Approximately six times per hour, a new group of
accepted transactions, a block, is created, added
to the block chain, and quickly published to all
nodes.
1. Blockchain

6. 2. Mining
 Miners are those who, together or alone, run the software
that compiles recent Bitcoin transactions into blocks and
proves their validity by calculating a “proof of work”, that
covers all of the data in those blocks.
 Bitcoins are created as a reward for payment processing
work in which users offer their computing power to verify
and record payments into a public ledger. This activity is
called mining .
 Miners are rewarded with transaction fees and newly
created bitcoins.
 Mining is a record-keeping service. Miners keep the block
chain consistent, complete, and unalterable by repeatedly
verifying and collecting newly broadcast transactions into a
new group of transactions called a block.

7. 3. Bitcoin Wallets
 A wallet stores the information necessary to
transact Bitcoins.
 The best way to describe a wallet is something
that "stores the digital credentials for your Bitcoin
holdings" and allows you to access (and spend)
them.
 There is also wallet software for managing
accounts and transactions. Since Bitcoins are
valuable, wallets should also be encrypted.

8. How blocks are created?
 Every 10 minutes (average), miners try to
solve a proof-of-work problem.
 The first one to solve the problem publishes
a “block” on the “blockchain” that includes
all transactions from the last 10 minutes.
Then that POW is verified by other miner,
and transaction status is updated.
 With the constant halving, eventually there
will only be about 21 million Bitcoins.

9. Problems of Double spending
 One of the difficulties that the makers faced is the
problems of double spending.
 In real cash , the transaction takes place in person.
Both the buyer and the seller side is satisfied.
 Since in case of bitcoin ,the transactions occurring
are digital in nature, it can be possible that the
malignant buyer after buying the product can create
its own block (can write the record where the
transaction never took place ) , thus having obtained
the goods without spending.

10. How to counter Double spending
Bitcoins uses blockchain and proof of work method to
counter double spending. It induces a confirmation lag in
transactions so that it becomes very difficult for the buyer
to alter the transaction details and the blockchains.

11. Rise and fall of prices of bitcoin,
since it’s start

12. Legality of Bitcoins in different
parts of the world

13. Uses of Bitcoin
 A store of value
 Convenient online purchases
 Tips and donations
 Transactions that must be irreversible
 Black-market transactions(illegal
transactions)
 Investment
 Gambling
 International transactions and financing

14. Optimal point of money growth
rate
Money growth rate
q(n) refers to computational power of a
miner.

15. Fiat money:
• No double spending.
• Easily accessible.
• Government keeps check
on money supply.
• Need pocket to carry
• Lost/stolen
• Duplicate money
• Relatively more stable
Bitcoin:
• Double spending to some
extent
• Requires use of some
softwares
• No government involvement
as the system is decentralized.
• Records can be kept in digital
wallet
• 51% attack
• No chances of duplication
• Not stable

16. Factor responsible for the Rise
of bitcoin
 It is easy to set up and it is fast
 Low and irreversible transaction fees
 Decentralized
 It is anonymous
 It is completely transparent

17. Why volatile?
 Still in development phase.
 News and rumours about it’s legality.
 Trust and bans. As more people want to
buy Bitcoins, sellers will charge more.
 No rules, regulations or oversight.

18. Conclusion
Bitcoin, and associated blockchain technology, has become a
force to be reckoned with.
Updating the accountant’s ledger for the 21st century,
blockchain has built a system of checks and balances founded
on mathematical proofs and economics to rule out the middle
man.
Proof-of-work systems replace the need for a central authority
and, by emulating the self-interest of the finance industry, create
a veritable army of miners fighting to reinforce the security of
the proof-of-work.
However, despite its success as a currency, Bitcoin still remains
an experiment of trust. It is an experiment against central
authority — that of banks, credit agencies, and other individuals
as flawed as ourselves.