Conference PaperPDF Available

Bitcoin A simple explanation of Bitcoin and Block Chain technology JANUARY 2015 RICHARD LEE TWESIGE

  • January 2015
DOI:10.13140/2.1.1385.2486
  • Conference: Bitcoin Cryptocurrenct
  • Volume: 1
Authors:
Richard Lee Twesige at Indiana University of Pennsylvania
Richard Lee Twesige
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Abstract

This paper is intended to enlighten curious minds, breakdown and explain what Bitcoin really is in the simplest ways possible. First I will introduce and define what Bitcoin really is and explain the Block Chain technology, give a simple comparison with the internet and why Block Chain will keep thriving, key features of the Block Chain, describe potential systems where the Block Chain technology could be utilised for improvement and finally the conclusion.
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Bitcoin
A simple explanation of Bitcoin
and
Block Chain technology
JANUARY 2015
RICHARD LEE TWESIGE
r.l..twesige@gmail.com
This page was intentionally left blank
Keywords: Bitcoin, Internet, Protocol, Block Chain, Distributed network.
Abstract:
This paper is intended to enlighten curious minds, breakdown and explain what Bitcoin really is
in the simplest ways possible. First I will introduce and define what Bitcoin really is and explain the
Block Chain technology, give a simple comparison with the internet and why Block Chain will keep
thriving, key features of the Block Chain, describe potential systems where the Block Chain technology
could be utilised for improvement and finally the conclusion.
Introduction:
In 2008 October 31 when Satoshi Nakamoto released the Bitcoin white paper[1], he/she/they
did not cater for the non engineers and mathematicians. Even though a good general description of
what Bitcoin is meant to be and how it works was clearly explained. In most cases becaue of it's initial
implementation in the finance sector, it has been known as “computer money” or “nerd money.”
Bitcoin simply broken down is Bit-Coin, “Bit”[2] being the smallest unit of data in a computer
which is also short for binary digit. A bit has a single binary value of either 1 or 0. While “Coin”[3]
could be defined as money or unit that holds value. Now we know why Satoshi Nakamoto chose the
name “Bitcoin.” Though Bitcoin is the network on which the Block Chain protocol is built on top of.
The BlockChain:
Block Chain is the technology protocol that Bitcoin is built ontop of. Just like the internet that
was introduced in the 1960s and late 1970s, is a communications protocol that governs the rules and
regulations for information exchange over the network of networks, Block Chain is a protocol that
governs the rules and regulations for value exchange. One is the internet of information, while the other
is the internet of value. Internet is a communications protocol and Block Chain is value exchange
protocol. With “value “ [4] being broadly defined.
The same reasons that made and still make the internet a success, are the same ones that will
make the Block Chain thrive. For example its fast, public, open to anyone, cheap and easy to utilize,
transparent and programmable. Just like how the internet made it possible to transfer information
instateniously from any part of the world, the Block Chain technology let's the users transfer value
globally.
Block Chain features:
Fast: Communication between peers on the network is fast and in places where time is a vital
factor for operations and trade, this feature comes in handy.
Cheap: Using the Block Chain for reasons of payment and value exchange, is cheaper than any
other system in place at the moment.
Easyly Accesible & Public: Any one from all over the world can utilise the Block Chain
technology via a Bitcoin client such as Amory, Bitcoin core, bitcoind and many more.
Open Source & Programmable: It can be programmed to meet a particular need. For instance
the need to have a finacial payment system (micro payments) and it can be programmed by
anyone with software evelopment skills to meet a particular need.
Transparent: These are the most brilliant features of the Block Chain, it's transparency makes
it available for anyone on the network to view. Something like a legder accessible by everyone,
like a “universal consesus”[5] so to say. Not only is it visible by every one, it is also time
stamped.
Distributed: The fact that the Block Chain utilises a distributed network, this makes it more
secure than any other centralised institution like finanncial banks and the rest a like. This is
because vital data likecryptographic keys used for online financial payments and trade are not
kept in the same place. In case an attacker was to compromise the Block Chain, chases are
very slim that he could have a successful attack.
Block Chain's potential implementation:
The Block Chain technology can be utilised in various fields today, even so like the internet the
implementations are so vast that they cannot be thought of today. Just like when the internet, not many
would have thought of social networks and online gaming even though the idea of electronic mail then
was still a fantacy.
Finance: One of the core reasons Bitcoin was invented, was because of the financial crisis that keeps a
lot of people in the world awake. With the BlockChain technology, the financial payment system can be
remodeled. This new model can help improve micro payments to even the smallest fraction called a
“satoshi” [6] which is the smallest unit of a Bitcoin. Fractions that cannot be handled with today's
money.
Funding: Fundraisers that want to raise funds to start a business, support a cause or pay for college can
use the Bitcoin clients to do this with so much ease. This is because of the divisibility capability of
Bitcoin.
Trade: The Block Chain could be used to transfer value from one entitiy to another. For example with
the use of “multisig” [7]a shipper and cosignee can agree on an arbitrary that will work with both
parties in case one of the trade patners turns out to be dishonest. This system has a potential to
massively change the e-freight[8] systems in import and export trade.
Voting Systems: In democratic societies where the community is given the right to freely vote, a token
can be issued and the voter has the ability to later submit to the candidates' “ballot box.” Which can
easily be done on a public distributed ledger that is uncorruptable.
Monetary Systems: Bitcoin as a currency has the potential to eliminate fiat currencies that are being
used. This is because Bitcoin is less volatile than most of the paper currencies that is printed out of thin
air. Sending money from one place to another will not need a third party at all as easy and free as
sending an email.
The opputinities are vast and cannot be all listed others include; Escrow transaction services, Smart
contracts, Smart property and a lot more.
Conclusion:
The majority that has been exposed to Bitcoin always question why they really need it or why it
is important. This is because this percentage of people live in the developed world like North America
and Europe where they have already gotten mature systems in place like financial and payment systems
and can conviniently make purchase or particitipate in trade.
But when you start to go south like Latin America, South East Asia and the African continent.
One can start to comprehend how this open protocol has the ability to change the world, it has the
ability to democratise most of the systems today on the planet. From a retail perspective, 20%[9] of the
world has done trade online in 2013. Anyone with a mobile device will have equall access, which will
expand the market multiple times. A substantial thing when expanding a business globally further than
local markets. Today there has been $4Billion dollars[10] worth of trade that has taken place on the
Bitcoin network.
Bitcoin network and its underlying Block Chain technology are in their very primitive stages,
just like how the internet was in 1995[11], and you can see the questions that were asked by main
stream then are quite similar today. Even though there is more to Bitcoin, Bitcoin as a digital
currency(BTC) is already being adopted by users and merchnats have began accepting it.
The genie has been out of the bottle since 2008[12] and its not going back. Just like the internet
and most technology, this technology paradigm shift will still grow exponetially regardless of
regulation, litigation ecsetera and that is because technology can only be delayed but not stopped.
References:
[1] Nakamoto, Satoshi. Bitcoin: A Peer-to-Peer Electronic Cash System. N.p.: Bitcoin.org, Nov. 2008.
PDF.
[2] "Bit (binary Digit)." TechTarget. N.p., Mar. 2010. Web. 02 Jan. 2015.
<http://whatis.techtarget.com/definition/bit-binary-digit>.
[3] "Numismatics Definition | Investopedia." Investopedia. N.p., 13 Apr. 2008. Web. 02 Jan. 2015.
<http://www.investopedia.com/terms/n/numismatics.asp>.
[4] "Economic Value Definition | Investopedia." Investopedia. N.p., 21 Nov. 2013. Web. 02 Jan. 2015.
<http://www.investopedia.com/terms/e/economic-value.asp>.
[5] Losbar, Yannick. "How Can the Bitcoin Blockchain Help Humanity?" CryptoCoinsNews.
CryptoCoinsNews, 16 Sept. 2014. Web. 02 Jan. 2015. <https://www.cryptocoinsnews.com/how-can-
the-bitcoin-blockchain-help-humanity/>.
[6] "Satoshi (unit)." Bitcoin.it. Bitcoin.it, n.d. Web. 02 Jan. 2015. <https://en.bitcoin.it/wiki/Satoshi_
%28unit%29>.
[7] Ressler, Sansy. "I Sign, You Sign, We All Sign: Explanation of Multi-signature Transactions -
Bitcoin Magazine." Bitcoin Magazine. Coin Publishing Ltd, 02 Apr. 2014. Web. 02 Jan. 2015.
<http://bitcoinmagazine.com/11848/multisig-explained/>.
[8] Twesige, Richard L. E-FREIGHT Implementation of Electronic Documents in a Paper-based
Environment. N.p.: Reasearchgate, 29 Dec. 2014. PDF.
[9] "E-COMMERCE: EVOLUTION OR REVOLUTION E-COMMERCE SHIFTS INTO HIGHER
GEAR." E-COMMERCE: (n.d.): n. pag. Web. 2 Jan. 2014.
<http://ir.nielsen.com/files/doc_financials/Nielsen-Global-E-commerce-Report-August-2014.pdf>.
[10] "Bitcoin Watch." Bitcoin Watch. N.p., n.d. Web. 02 Jan. 2015. <http://www.bitcoinwatch.com/>.
[11] Plumer, Brad. "What the Internet Looked like in 1995." Washington Post. The Washington Post, 29
Mar. 2013. Web. 02 Jan. 2015.
<http://www.washingtonpost.com/blogs/wonkblog/wp/2013/03/29/what-the-internet-looked-like-in-
1995/>.
[12] Nirgunarthy, Amith. "Word Cloud: The Original Satoshi Nakamoto Bitcoin White Paper • IHB
News™." IHB. The Bitcoin Card Co. LLC, 29 Apr. 2014. Web. 02 Jan. 2015. <https://ihb.io/2014-04-
29/news/word-cloud-original-satoshi-nakamoto-bitcoin-white-paper-5638>.
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Satoshi (unit)." Bitcoin.it. Bitcoin.it, n.d. Web. 02 Jan. 2015. <https://en.bitcoin.it/wiki/Satoshi_ %28unit%29>.