After Japan accepted Bitcoin as legal currency, It’s gathered lot of attention and hence this post.
You must have read this already: “Bitcoin is a peer-to-peer Decentralized electronic cash system.” This was the title of the original white paper by Satoshi Nakamoto in 2008.
From the white paper:
Abstract. A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution. Digital signatures provide part of the solution, but the main benefits are lost if a trusted third party is still required to prevent double-spending. We propose a solution to the double-spending problem using a peer-to-peer network. The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work. The longest chain not only serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of CPU power. As long as a majority of CPU power is controlled by nodes that are not cooperating to attack the network, they’ll generate the longest chain and outpace attackers. The network itself requires minimal structure. Messages are broadcast on a best effort basis, and nodes can leave and rejoin the network at will, accepting the longest proof-of-work chain as proof of what happened while they were gone.
Here’s how it works:
- New transactions are broadcast to all nodes.
- Each node collects new transactions into a block.
- Each node works on finding a difficult proof-of-work for its block.
- When a node finds a proof-of-work, it broadcasts the block to all nodes.
- Nodes accept the block only if all transactions in it are valid and not already spent.
- Nodes express their acceptance of the block by working on creating the next block in the chain, using the hash of the accepted block as the previous hash.
Nodes in this case refers to the bitcoin client. In the early days the client also acted as miners. Since the entry of ASIC miners it’s unprofitable to mine with CPU/GPU. People buy ASICs and mine in a pool. Every pool runs a full node.
Getting started with bitcoin:
To do bitcoin transactions you need a wallet. Wallet is an account containing your secret key (private key, that gives you the right to spend your coins[must not be shared]) and an address (which can be given out in the public for payments)
Here’s a list of wallets you can use:
Some of these wallets have an option to buy the coins directly from them, so you can either do that or head to some faucets for free bitcoins.
Here’s a website that lists many faucets: http://bit.makejar.com/