Bitcoin Wiki - User contributions [en]

Bitcoin as an investment

2018-03-10T21:17:00Z

Amandaphiffer: /* See also */

This page discusses the case for owning bitcoin as an investment and store of value.

==The case for investing==

# There is a [[Controlled supply|fixed supply]] of bitcoins. There will never be more than 21 million bitcoins.
# Because of bitcoin's [[Bitcoin as a medium of exchange|useful properties as a medium of exchange]], demand is growing or at least staying the same.
# Fixed supply and growing demand implies a growing price.

==Store of value==

Bitcoin has useful properties to make it a good store of value. It has been described as a "swiss bank account in your pocket"<ref>https://www.reddit.com/r/Bitcoin/comments/4a2l55/obama_meme_bitcoin_is_like_having_a_swissbank/</ref>.

* '''Cannot be debased.''' Limited to [[Controlled supply|21 million coins]] only.
* '''No storage cost.''' Bitcoins take up no physical space, [[Storing bitcoins|any amount can be stored]].
* '''Easy to hide.''' Can be stored encrypted on a paper, on disk, or even [[Brainwallet|memorized in your brain]].
* '''Can be made [[Anonymity|anonymous]]''', meaning nobody would even know you own bitcoins or how many.
* '''Easy to protect.''' Can be made impossible to steal or seize by any thief, government or bank.
* '''Censorship resistant.''' The coins can be [[Bitcoin as a medium of exchange|sent anywhere in the world through the internet without being blocked]].
* '''No counterparty risk.''' Coins are in your possession, if you keep the [[private key]] of a bitcoin secret and the transaction has enough [[Confirmation|confirmations]], then nobody can take them from you no matter for what reason, no matter how good the excuse, no matter what.

Even if these properties are not useful to you, they may be useful to others which would benefit you by increasing the value of your held bitcoins.

==Useful notes==

===Difficulty with storing and theft===

Because bitcoin is a digital asset, it can be un-intuitive to store safely. Users should definitely [[Ways to store Bitcoins|read the guides]] for correctly storing bitcoins. Historically many people have lost their coins but with proper understanding the risks can be eliminated. If your bitcoins do end up lost or stolen then there's almost certainly nothing that can be done to get them back.

===Preserving these properties===

Bitcoin is a software project. There's an obvious question of how it's useful properties can be maintained. Couldn't some programmer simply edit the source code to create more than 21 million bitcoins? The answer turns out to be no. Bitcoin is secured by strong cryptography and game theory, and it's properties are very hard or impossible to change.

See also:

* [[Myths#Miners, developers or some other entity could change Bitcoin's properties to benefit themselves]]
* [[Principles of Bitcoin]]
* [[Economic majority]]

Some people say that although the supply of bitcoin is limited, an infinite amount of other cryptocurrencies (altcoins) can be created. This is fundamentally confused reasoning because bitcoin and altcoins are different currencies, as bitcoin wallets would reject altcoin payments and vis versa. Claiming altcoins dilute the supply of bitcoins is like saying hyperinflation of the Venezuelan currency dilutes the supply of US Dollars.

===Volatility===

Bitcoin is much more volatile than some other assets. This can be good when the price is rising but bad when the price is falling. One way to deal with this is to only hold a certain percentage of your savings in bitcoin and the rest in more stable assets. You could also deal with it by studying bitcoin's fundamentals deeply so that temporary price drops do not scare you into selling low. Investing with a dollar-cost-averaging strategy can also reduce the effects of volatility<ref>https://breadwallet.com/blog/how-invest-bitcoin-without-getting-hurt-volatility/</ref>.

===Uncorrelated asset===

Although bitcoin is volatile, it is mostly uncorrelated with any other asset classes<ref>http://www.signalplot.com/what-is-bitcoins-correlation-with-other-financial-assets/</ref>. This means bitcoin can reduce the overall volatility as part of a well-diversified portfolio.

==See also==
* [[Bitcoin as a medium of exchange]]
* [[Principles of Bitcoin]]
* [[Irreversible Transactions]]
* [[Controlled supply]]
* [https://coinjolt.com/should-you-invest-in-bitcoin/ Should You Invest in Bitcoin?]

==References==
<references />

[[Category:Economics]]

Bitcoin as an investment

2018-03-10T21:16:49Z

Amandaphiffer: /* See also */

This page discusses the case for owning bitcoin as an investment and store of value.

==The case for investing==

# There is a [[Controlled supply|fixed supply]] of bitcoins. There will never be more than 21 million bitcoins.
# Because of bitcoin's [[Bitcoin as a medium of exchange|useful properties as a medium of exchange]], demand is growing or at least staying the same.
# Fixed supply and growing demand implies a growing price.

==Store of value==

Bitcoin has useful properties to make it a good store of value. It has been described as a "swiss bank account in your pocket"<ref>https://www.reddit.com/r/Bitcoin/comments/4a2l55/obama_meme_bitcoin_is_like_having_a_swissbank/</ref>.

* '''Cannot be debased.''' Limited to [[Controlled supply|21 million coins]] only.
* '''No storage cost.''' Bitcoins take up no physical space, [[Storing bitcoins|any amount can be stored]].
* '''Easy to hide.''' Can be stored encrypted on a paper, on disk, or even [[Brainwallet|memorized in your brain]].
* '''Can be made [[Anonymity|anonymous]]''', meaning nobody would even know you own bitcoins or how many.
* '''Easy to protect.''' Can be made impossible to steal or seize by any thief, government or bank.
* '''Censorship resistant.''' The coins can be [[Bitcoin as a medium of exchange|sent anywhere in the world through the internet without being blocked]].
* '''No counterparty risk.''' Coins are in your possession, if you keep the [[private key]] of a bitcoin secret and the transaction has enough [[Confirmation|confirmations]], then nobody can take them from you no matter for what reason, no matter how good the excuse, no matter what.

Even if these properties are not useful to you, they may be useful to others which would benefit you by increasing the value of your held bitcoins.

==Useful notes==

===Difficulty with storing and theft===

Because bitcoin is a digital asset, it can be un-intuitive to store safely. Users should definitely [[Ways to store Bitcoins|read the guides]] for correctly storing bitcoins. Historically many people have lost their coins but with proper understanding the risks can be eliminated. If your bitcoins do end up lost or stolen then there's almost certainly nothing that can be done to get them back.

===Preserving these properties===

Bitcoin is a software project. There's an obvious question of how it's useful properties can be maintained. Couldn't some programmer simply edit the source code to create more than 21 million bitcoins? The answer turns out to be no. Bitcoin is secured by strong cryptography and game theory, and it's properties are very hard or impossible to change.

See also:

* [[Myths#Miners, developers or some other entity could change Bitcoin's properties to benefit themselves]]
* [[Principles of Bitcoin]]
* [[Economic majority]]

Some people say that although the supply of bitcoin is limited, an infinite amount of other cryptocurrencies (altcoins) can be created. This is fundamentally confused reasoning because bitcoin and altcoins are different currencies, as bitcoin wallets would reject altcoin payments and vis versa. Claiming altcoins dilute the supply of bitcoins is like saying hyperinflation of the Venezuelan currency dilutes the supply of US Dollars.

===Volatility===

Bitcoin is much more volatile than some other assets. This can be good when the price is rising but bad when the price is falling. One way to deal with this is to only hold a certain percentage of your savings in bitcoin and the rest in more stable assets. You could also deal with it by studying bitcoin's fundamentals deeply so that temporary price drops do not scare you into selling low. Investing with a dollar-cost-averaging strategy can also reduce the effects of volatility<ref>https://breadwallet.com/blog/how-invest-bitcoin-without-getting-hurt-volatility/</ref>.

===Uncorrelated asset===

Although bitcoin is volatile, it is mostly uncorrelated with any other asset classes<ref>http://www.signalplot.com/what-is-bitcoins-correlation-with-other-financial-assets/</ref>. This means bitcoin can reduce the overall volatility as part of a well-diversified portfolio.

==See also==
* [[Bitcoin as a medium of exchange]]
* [[Principles of Bitcoin]]
* [[Irreversible Transactions]]
* [[Controlled supply]]
* [[https://coinjolt.com/should-you-invest-in-bitcoin/ Should You Invest in Bitcoin?]]

==References==
<references />

[[Category:Economics]]

Satoshi Nakamoto

2018-03-10T20:57:53Z

Amandaphiffer: /* External links */

:''For the unit, see [[satoshi (unit)]].''
'''Satoshi Nakamoto''' is the founder of [[Bitcoin]] and initial creator of the [[Original Bitcoin client]]. He has said in a P2P foundation profile<ref name="p2p_f_profile">[http://p2pfoundation.ning.com/profile/SatoshiNakamoto Satoshi Nakamoto profile on P2P Foundation]</ref> that he is from Japan. Beyond that, not much else is known about him and his identity. He has been working on the Bitcoin project since 2007.<ref>[https://bitcointalk.org/index.php?topic=13.msg46#msg46 Re: Questions about Bitcoin]</ref>

His involvement in the Bitcoin project had tapered and by late 2010 it has ended. The most recent messages reportedly indicate that Satoshi is "gone for good"<ref>[http://bitcoinstats.com/irc/bitcoin-dev/logs/2011/04/26#l1303826036.0 Transcript of #bitcoin-dev for 2011/04/26]</ref>.

==Possible Motives==
He left some clues about why he is doing this project with the inclusion of the following text in the [[Genesis block]], "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks".

Some interesting quotes:
<blockquote><p>Yes, [we will not find a solution to political problems in cryptography,] but we can win a major battle in the arms race and gain a new territory of
freedom for several years.</p>

<p>Governments are good at cutting off the heads of a centrally controlled
networks like Napster, but pure P2P networks like Gnutella and Tor seem to be
holding their own.<ref>[http://www.mail-archive.com/cryptography@metzdowd.com/msg09971.html Re: Bitcoin P2P e-cash paper Fri, 07 Nov 2008 09:30:36 -0800]</ref></p></blockquote>

<blockquote>It's very attractive to the libertarian viewpoint if we can explain it
properly. I'm better with code than with words though. <ref>[http://www.mail-archive.com/cryptography@metzdowd.com/msg10001.html Re: Bitcoin P2P e-cash paper Fri, 14 Nov 2008 14:29:22]</ref></blockquote>

==Possible identity==
His identity and nationality are unknown.

He is entirely unknown outside of Bitcoin as far as anyone can tell, and his (never used) PGP key was created just months prior to the date of the genesis block. He seems to be very familiar with the cryptography mailing list, but there are no non-Bitcoin posts from him on it. He has used an email address from an anonymous mail hosting service (vistomail) as well as one from a free webmail account (gmx.com) and sends mail when connected via Tor. Some have speculated that his entire identity was created in advance in order to protect himself or the network. Perhaps he chose the name Satoshi because it can mean "wisdom" or "reason" and Nakamoto can mean "Central source".

Ultimately the design of Bitcoin and its use of cryptographic proof and fully open implementation is one that makes its creator, in a sense, irrelevant and only of interest for historical reasons.

==External links==
* [http://bitcointalk.org/Satoshi_Nakamoto.asc Satoshi's PGP public key]
* [http://www.bitcoin.org/bitcoin.pdf Bitcoin: A Peer-to-Peer Electronic Cash System] Paper
* [http://sourceforge.net/users/s_nakamoto SourceForge page]
* [http://nakamotoinstitute.org Satoshi Nakamoto Institute]
* [https://coinjolt.com/who-is-satoshi-nakamoto-the-founder-of-bitcoin/ Who is Satoshi Nakamoto?]

==References==
<references/>

[[de:Satoshi Nakamoto]]
[[es:Satoshi Nakamoto]]

[[Category:Individuals]]

Digital currency

2018-03-10T20:56:22Z

Amandaphiffer:

A '''digital currency''' refers to money or [[wikipedia:scrip|scrip]] which is only exchanged electronically.

When money transfers occur as a bank wire transfer or ACH payment, or even transfers of money using services such as [[PayPal]], the funds are sent electronically but the currency transmitted is representative money and what transfers is an underlying fiat currency.

[[Bitcoin]] has been described as the first decentralized digital currency.

==See Also==
* [[BTConvert]]
* [[List of alternative cryptocurrencies]]
* [[:Category:Money transmitters|Money transmitters]]
* [[Redeemable code]]

==External Links==
* [http://en.wikipedia.org/wiki/Electronic_money Electronic Money] article on Wikipedia
* [https://coinjolt.com/smart-digital-currency-investing/ Digital Currency Investing]

Main Page

2018-02-03T20:56:59Z

Amandaphiffer: Investment resources example

How bitcoin works

2018-02-03T18:53:53Z

Amandaphiffer:

<center>
{| class="wikitable"
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This page explains the basic framework of Bitcoin's functionality.

==Cryptography==

There are several cryptographic technologies that make up the essence of Bitcoin.

First is [https://coinjolt.com/what-is-a-public-and-private-key/ public key cryptography]. Each coin is associated with its current owner's public [[ECDSA]] key. When you send some bitcoins to someone, you create a message ([[transaction]]), attaching the new owner's public key to this amount of coins, and sign it with your private key. When this transaction is broadcast to the bitcoin network, this lets everyone know that the new owner of these coins is the owner of the new key. Your signature on the message verifies for everyone that the message is authentic. The complete history of transactions is kept by everyone, so anyone can verify who is the current owner of any particular group of coins.

This complete record of transactions is kept in the [[block chain]], which is a sequence of records called [[block|blocks]]. All computers in the network have a copy of the block chain, which they keep updated by passing along new blocks to each other. Each block contains a group of transactions that have been sent since the previous block. In order to preserve the integrity of the block chain, each block in the chain confirms the integrity of the previous one, all the way back to the first one, the [[genesis block]]. Record insertion is costly because each block must meet certain requirements that make it [[difficulty|difficult]] to generate a valid block. This way, no party can overwrite previous records by just forking the chain.

To make generating bitcoins difficult the [http://en.wikipedia.org/wiki/Hashcash Hashcash] cost-function is used. Hashcash is the first secure efficiently verifiable cost-function or proof-of-work function. The beauty of hashcash is that is is non-interactive and has no secret keys that have to be managed by a central server or relying party; hashcash is as a result fully distributed and infinitely scalable. (Hashcash uses symmetric key cryptogaphy, namely a one-way hashcash function - typically either SHA1 or SHA-256).

In bitcoin, integrity, block-chaining, and the hashcash cost-function all use [http://en.wikipedia.org/wiki/SHA-2 SHA256] as the underlying [http://en.wikipedia.org/wiki/Cryptographic_hash_function cryptographic hash function].

A cryptographic hash function essentially takes input data which can be of practically any size, and transforms it, in an effectively-impossible to reverse or to predict way, into a relatively compact string (in the case of SHA-256 the hash is 32 bytes). Making the slightest change to the input data changes its hash unpredictably, so nobody can create a different block of data that gives exactly the same hash. Therefore, by being given a compact hash, you can confirm that it matches only a particular input datum, and in bitcoin the input data being a block-chain is significantly larger than the SHA-256 hash. This way, Bitcoin blocks don't have to contain serial numbers, as blocks can be identified by their hash, which serves the dual purpose of identification as well as integrity verification. An identification string that also provides its own integrity is called a self-certifying identifier.

The hashcash [[difficulty]] factor is achieved by requiring that the hash output has a number of leading zeros. Technically, to allow more fine-grained control than Hashcash number of leading 0-bits method, Bitcoin extends the hashcash solution definition by treating the hash as a large big-endian integer, and checking that the integer is below a certain threshold. The hashcash cost-function iterates by perturbing data in the block by a [[nonce]] value, until the data in the block hashes to produce an integer below the threshold - which takes a lot of processing power. This low hash value for the block serves as an easily-verifiable [[proof of work]] - every node on the network can instantly verify that the block meets the required criteria.

With this framework, we are able to achieve the essential functions of the Bitcoin system. We have verifiable ownership of bitcoins, and a distributed database of all transactions, which prevents [[#Double_spending|double spending]].

==Bitcoin [[Mining]]==

We have mentioned in the previous section that adding a block to the block chain is difficult, requiring time and processing power to accomplish. The incentive to put forth this time and electricity is that the person who manages to produce a block gets a reward. This reward is two-fold. First, the block producer gets a bounty of some number of bitcoins, which is agreed-upon by the network. (Currently this bounty is 25 bitcoins; this value will halve every 210,000 blocks.) Second, any [[transaction fees]] that may be present in the transactions included in the block, get claimed by the block producer.

This gives rise to the activity known as "Bitcoin [[Mining|mining]]" - using processing power to try to produce a valid block, and as a result 'mine' some bitcoins. The network rules are such that the [[difficulty]] is adjusted to keep block production to approximately 1 block per 10 minutes. Thus, the more miners engage in the mining activity, the more difficult it becomes for each individual miner to produce a block. The higher the total difficulty, the harder it is for an attacker to overwrite the tip of the block chain with his own blocks (which enables him to double-spend his coins. See the [[weaknesses]] page for more details).

Besides being important for maintaining the transaction database, mining is also the mechanism by which bitcoins get created and distributed among the people in the bitcoin economy. The network rules are such that over the next hundred years, give or take a few decades, a total of 21 million bitcoins will be created. See [[Controlled Currency Supply]]. Rather than dropping money out of a helicopter, the bitcoins are awarded to those who contribute to the network by creating [[block]]s in the [[block chain]].

==Double spending==

The [[block chain]] is a common ledger shared by all Bitcoin nodes which details the owner of each bitcoin, or fraction thereof. Unlike conventional banking systems, there is no central place where this ledger of transactions is stored. This is accomplished through the broadcasting of small pieces ("blocks"), each stating that it is a continuation of a previous block. It is possible for the block chain to split; that is, it is possible for two blocks to both point to the same parent block and contain some, but not all, of the same transactions. When this happens, each computer in the network must decide for itself which branch is the "correct" one that should be accepted and extended further.

The rule in this case is to accept the "longest" valid branch. Choose from the branches of blocks that you have received, the path, the total "difficulty" of which is the highest. This is the sequence of blocks that is assumed to have required the most work (CPU time) to generate. For Bitcoin, this will be the "true" order of events, and this is what it will take into account when calculating the balance to show to the user.

It is still possible that, as new blocks are constantly being generated, at some later time, some other branch will become the longest branch. However, it takes significant effort to extend a branch, and nodes work to extend the branch that they have received and accepted (which is normally the longest one). So, the longer this branch becomes compared to the second-longest branch, the more effort it will take for the second-longest branch to catch up and overcome the first in length. Also, the more nodes in the network hear about the longest branch, the more unlikely it becomes for other branches to be extended the next time a block is generated, since the nodes will accept the longest chain.

Therefore, the more time a transaction has been part of the longest block chain, the more likely it is to remain part of the chain indefinitely. This is what makes transactions non-reversible and this is what prevents people from [[double-spending]] their coins. What the receiver of each transaction does, after money has been supposedly transferred to him/her is to check how long the block chain following the said transaction has become, because the more blocks are added to the longest branch after the transaction, the less likely is it that some other branch will overcome it.

When the block chain after the transaction has become long enough, it becomes near-impossible for another branch to overcome it, and so people can start accepting the transaction as true. This is why 'blocks' also serve as 'confirmations' for a transaction. Even if another branch does overcome the one with the transaction, most of the blocks will have been generated by people who have no affiliation with the sender of the coins, as a large number of people are working to generate blocks. Since transactions are broadcasted to all nodes in the network, these blocks are just as likely to contain the transaction as the blocks in the previously-accepted branch.

Bitcoin relies on the fact that no single entity can control most of the CPU power on the network for any significant length of time, since, if they could, they would be able to extend any branch of the tree they chose, and faster than any other branch can be extended, making it the longest branch, and then permanently controlling which transactions appear in it.

==See also==

* [[Introduction]]
* [[Getting started]]
* [[Using Bitcoin]]
* Bitcoin [[FAQ]]
* [[Double-spending]]
* [[Prohibited changes]]

==External Links==

* http://bitcointalk.org/index.php?topic=2487.0 A forum thread with some good 'for-the-layperson' explanations of how bitcoin works.

[[Category:Introduction]]