https://en.bitcoin.it/w/api.php?action=feedcontributions&feedformat=atom&user=UdibrBitcoin Wiki - User contributions [en]2026-05-02T19:48:40ZUser contributionsMediaWiki 1.43.8https://en.bitcoin.it/w/index.php?title=Helping_Bitcoin&diff=6342Helping Bitcoin2011-03-29T23:27:18Z<p>Udibr: /* Third: Be Wise */</p>
<hr />
<div>How does one 'Help' Bitcoin, if it is a on-line currency that is run by nobody in particular? Many people who get interested in Bitcoin are at a loss in what ways they can support this community.<br /><br />
<br />
==First: Become Part of the ''Bitcoin Community''==<br />
<br />
This doesn't mean "register on the forum and chat in #Bitcoin-OTC and do what all the other cool kids are doing" this means, finding a community that you would naturally be part of that accept and support bitcoin. Be that in you workplace, on-line, 4chan, or even in your church. The Bitcoin community is really just the people all around the world who support the use of bitcoins.<br /><br />
<br />
==Second: Be Creative==<br />
<br />
Everyone has their own particular talents and abilities; these are unique and wonderful to each person and together bring out colour of life. The Bitcoin Community is the people in it! Find something that you can do to help, and do it!<br /><br />
<br />
* If you are a super-coder then hacking the bitcoin source may be how you can best help.<br /><br />
<br />
* Or you are into big computer rigs and high effective computing, then making the best miner may be your favourite way to help.<br /><br />
<br />
* Some people run businesses, or trade goods in real life. Maybe accepting Bitcoin for your services would be something you may like to do.<br /><br />
<br />
* Not least, some people are traders, speculating in Bitcoin improves it liquidity and helps every other person using Bitcoin for real transactions.<br /><br />
<br />
There are thousands of possible things that people can do to help Bitcoin. Each different task and part that people take on to do adds stability and flexibility to the Bitcoin economy.<br /><br />
<br />
==Third: Be Wise==<br />
<br />
Everyone has limited resources, and not all people think the same way that you do. Just in real life, don't trust strangers, do your homework, and be prepared for things to go all wrong.<br /><br />
<br />
Don't expect other people to behave as you 'say' that they should behave, and then get upset when they ignore your will. Bitcoin is a big place! An exciting place and even a dangerous place. Bitcoin isn't a mild walk in the park, but going to the Wild West!</div>Udibrhttps://en.bitcoin.it/w/index.php?title=Help:Introduction&diff=4527Help:Introduction2011-02-26T22:11:37Z<p>Udibr: /* Putting it all together */ remove description of multiple block chains which was done before.</p>
<hr />
<div><div class="plainlinks" style="border: 1px solid red; width: 100%; background-color: #fcc; padding: 10px; margin-bottom: 25px;">This page requires copy editing and improvement.</div><br />
<br />
Alice is far away from Bob and wants to buy his [http://www.grasshillalpacas.com/alpacaproductsforbitcoinoffer.html Alpaca socks]. In return, she wants to send him a dollar. A dollar bill is a piece of paper with very low intrinsic value, but which is accepted by people in exchange for valuable products and services in the real world, such as the socks Alice wants to buy. One simple thing Alice can do is to put a dollar bill in an envelope, mail it to Bob, and then wait for Bob to send the socks to her.<br />
<br />
Another thing Alice can do is to "wire" the money to Bob. She can do that by first giving her dollar bills to an institution called a bank, the job of which is to safe-keep Alice's dollar bills and, in return, to give Alice a written promise (called a "bank statement") that, whenever she wishes, she can come to the bank to take back the same amount of dollar bills that she deposited. Since the money is still Alice's, she is entitled to do with it whatever she pleases, and the bank (like most banks), for a small fee, will do Alice the service of "giving" the dollar bills to Bob instead of her. This could be done by sending a person to Bob's door, with Alice's dollar bills in hand (or, better, fresh new dollar bills, if Alice's dollar bills are in bad condition), but usually it is done by Alice's bank by giving the dollar bills to Bob's bank and informing them that the money is for Bob, who will then see the amount in his next statement, or, if he is in a hurry, the next time he contacts his bank asking about how much money they have for him.<br />
<br />
Since banks have many customers, and bank employees require money for doing the job of talking to people and signing documents, banks in recent times have been using machines such as ATMs and web servers, that do the job of "talking" to the customers instead of paid bank employees. The job of these machines is to learn what each customer wants to do with his/her money and, to the extent that it's possible, act on what the customer wants (for example, ATMs can hand cash). In the end, there is very little human involvement in this process, most of the time. The people can always know how much money out of the money that the bank is safe-keeping is theirs, and they are confident that the numbers they see in their bank statements and on their computer screens stand for the number of dollar bills that that they can get from the bank at any time they wish. They can be so sure of that, that they can accept those numbers in the same way they accept paper dollars (this is similar to the way people started accepting paper dollars as they accepted gold or silver).<br />
<br />
However, the fact that machines are used does not change the structure of this system, which is, as it was, based on a central authority (the bank) which is responsible for keeping records about how much money belongs to whom. Everybody has to rely on this central authority to be honest (i.e. to say the truth about how much money they are safe-keeping in total, or at least to make the paper money available upon demand from the owners). Also, every person has to identify him/herself to this authority, by giving his/her real name, in order to be allowed to get their paper bills back or to send money to another person.<br />
<br />
Bitcoin is a system of owning and voluntarily transferring amounts of so-called bitcoins, in a manner similar to an on-line banking interface, but anonymously and without reliance on a central authority to decide on what is true. These bitcoins are valuable because they require the spending of real resources (CPU time and electricity) to produce, and they cannot be counterfeited or removed from a person's ownership without illicit access to his/her computer.<br />
<br />
==Preventing stealing==<br />
To guarantee that an eavesdropper, Eve, cannot access other people's bitcoins by creating transactions in their names we use a [[Wikipedia:Public-key_cryptography|public key system]] to make digital signatures. In this system, each person, such as Alice and Bob, has a pair of public and private keys which he/she stores in a safe [[Wallet|wallet]]. Only the user with his secret private key can sign a document, such as the transaction to give some of his bitcoins to somebody else, but any one can validate the signature using the user’s public key.<br />
<br />
* Bob sends his public key to Alice.<br />
* Alice adds Bob’s public key along with the amount she wants to transfer, to the transaction.<br />
* Alice signs the transaction with her secret private key.<br />
<br />
As a result, anyone who knows the public keys of both Alice and Bob can now see that Alice agreed to transfer the amount to Bob, because nobody other than Alice has Alice's private key. Alice would be foolish to give her private key to other people, as this would allow them to sign transactions in her name, removing funds from her balance.<br />
<br />
Later on, when Bob will transfer the same coins to Charley, he will do the same thing: receive from Charley his public key, add a new transaction to the chain of transactions and sign it with his (Bob) private key. But only Bob can do this, because only Bob has the private key which is necessary for signing and which is the only private key to match Bob’s public key that is already in the chain.<br />
<br />
Eve cannot change who the coins belong to by replacing Bob’s public key with her public key, because Alice signed the transfer to Bob using her private key, declaring that the coins which belonged to her now belong to Bob, and Alice's private key is kept secret from Eve. So if Charley accepts that the original coin was in the hands of Alice he will also accept the fact that this coin was later passed to Bob and now Bob is passing this same coin to him.<br />
<br />
==Preventing double-spending==<br />
This is how we guarantee that Alice cannot replicate the coin and use it in more than one transaction:<br />
<br />
* Details about the [[Transactions|transaction]] are [[Network|sent]] to as many other people's computers as possible.<br />
* A chain of [[Blocks|blocks]] that contains a record of all transactions is collectively maintained by all computers (each has a full copy).<br />
* Blocks are chained in a way that does not allow their data to be modified, without all following blocks becoming invalid.<br />
* Valid blocks are computationally difficult to create and only valid blocks are allowed in the chain, containing valid transactions.<br />
* When multiple continuations to this chain appear, the longest such branch is accepted as the correct one and built upon.<br />
<br />
When Bob sees that his transaction has been included in a block, which has been made part of the longest and constantly growing block chain, he can be confident that the transaction by Alice has been accepted by other computers as valid and has been recorded, preventing Alice from creating a second transaction with the same coin.<br />
<br />
In theory, Alice could generate a spoofed block in which her past usage of the same coin does not appear and try to send this block to everyone as evidence that the coin is still hers. However, that past transaction, which contains a signature from Alice, has already been announced, has already been distributed to a very large number of computers in the bitcoin network and a block containing it has already been generated by someone (otherwise, the first receiver of the coin would have no confirmation). Since the process of generating a block is designed to take a [[Proof_of_work|long time]] and all transactions must be given in such blocks, Alice will be unable to compete with all these computers in the rate at which she can generate blocks. Bob will receive much more blocks from third persons than Alice alone will ever be able to generate, and some of the newer blocks will contain Alice's previous transaction, telling Bob that Alice has already spent her coin. And since, in the presence of multiple parallel chains of blocks of transactions, the longest such chain is accepted and built upon, the only way for Alice to pass her own version of events is to be in a position to permanently command the majority of the CPU power on the network. We assume no single person or organization can do that and therefore, as long as the people who control the majority of the CPU power are acting honestly, accepting only valid blocks and always choosing the longest chain as the one to extend, Alice's transaction will be permanently recorded and Alice will be unable to create another transaction with the same coin.<br />
<br />
==Anonymity==<br />
Bitcoin "accounts" do not have people's names on them and do not have to correspond to individuals. Each balance is simply associated with a public-private key pair and the money "belongs" to whoever has the private key and can sign transactions with it. The transactions that are signed using those keys also don't have to include names.<br />
<br />
Each person can have many such key pairs, each with its own balance, and this can make it more difficult to identify which person owns what amount. In order to protect his [[Anonymity|privacy]], Bob can even generate a new public-private key pair for each individual transaction. So David receiving the coin from Charley will not be able to identify who is the second person in the list of transactions. The only thing David will know is the [[Address|address]] of Bob which is a shortened (hashed) version of his public key.<br />
<br />
==Creation of coins==<br />
As we saw, both Bob and Charley need to verify that the original coin from Alice is valid. Alice cannot simply generate coins instantly, out of thin air, because the appearance of a coin is a transaction that needs to be accepted by others (it must appear at some place in the chain of blocks). The way that new coins are slowly introduced is this: every computer that manages to generate a block is allowed to put one transaction there in which it gains 50 BTC, without this amount having to come from somewhere. Other computers receiving the block can easily see that the block is valid and accept that this amount belongs to the computer that generated the block. This is called a "proof of work", because generating blocks is a [[Target|slow]] process that requires Alice to spend real resources (buy recent computer hardware, use electricity and CPU time) and in this way it can be compared to gold mining. Only with a proof of work is Alice allowed to contribute to the [[Block_chain|chain of blocks]] that together keep a record of all transactions. The coin received by Alice is an incentive for her to perform this computation work. In addition to this, Alice can shave a small, voluntary [[Transaction_fee|fee]] from the transactions stored in the block.<br />
<br />
==Putting it all together==<br />
Directly experience the system in action by visting [http://blockexplorer.com/ Bitcoin Block Explorer].<br />
The site shows you the latest blocks in the block chain. The [[Block_chain|block chain]] contains the agreed history of all transactions that took place in the system.<br />
Note how many blocks were generated in the last hour, should be around 6. Also notice the number of transactions and the total amount transfered in the last hour (last time I checked it was about 64 and 15K.)<br />
This should give you an indication of how active the system is.<br />
<br />
Next, drill into one of these blocks.<br />
Start by noticing that the block's [[hash|hash]] begins with a run of zeros, this is what made making it so difficult.<br />
The computer that generated this block had to run on many ''Nonce'' values (also listed on the block's page) until it found one that generated this run of zeros.<br />
Next notice the line titled ''Previous block'', each block contains the hash of the block that came before it, this is what forms the chain of blocks.<br />
Now notice all the transactions the block contains. The first transaction is the income earned by the computer that generated this block. It includes a fixed amont of coins created out of thin air and possibly fee collected from other transactions in the same block.<br />
<br />
Drill into any of the transactions and you will see how it is made from one or more amounts coming in and out.<br />
The fact that there can be more than one incoming and outgoing amounts, allow the system to join and break amounts in any possible way allowing for any fractional amount needed (usually cents.)<br />
Each incoming amount is a transaction from the past (which you can also drill to) coming from an address of someone<br />
and each outgoing amount is addressed to someone and will be part of a future transaction (which you can also drill too if it also had already taken place.)<br />
<br />
Finally you can drill into any of the [[Address|addresses]] and see what public information is available.<br />
<br />
To get an impression of the amount of activity on the Bitcoin network, you might like to visit the monitoring websites [http://www.bitcoinwatch.com Bitcoin Watch] and [http://www.bitcoinmonitor.com Bitcoin Monitor]. The first has general statistics on the amount and size of transactions, while the latter shows a real-time visualization of events on the Bitcoin network.<br />
<br />
==See Also==<br />
<br />
* Installing Bitcoin [[getting started]] <br />
* [[How bitcoin works]]<br />
* [[Using Bitcoin]]<br />
* A gentle introduction to Bitcoin - [[BitcoinMe]]<br />
* Another introduction, ''The Rebooting Of Money'' podcast is found at [[Bitcoin Money]]</div>Udibrhttps://en.bitcoin.it/w/index.php?title=Help:Introduction&diff=3723Help:Introduction2011-02-15T02:01:20Z<p>Udibr: /* Putting it all together */</p>
<hr />
<div><div class="plainlinks" style="border: 1px solid red; width: 100%; background-color: #fcc; padding: 10px; margin-bottom: 25px;">This page requires copy editing and improvement.</div><br />
Alice is far away from Bob and wants to buy his [http://www.grasshillalpacas.com/alpacaproductsforbitcoinoffer.html Alpaca socks]. In return, she wants to send him a dollar. She can use something like paypal with its limitations or she can mail him a dollar bill. But a dollar bill is just an item with very low intrinsic value that is accepted by Alice and Bob to represent something significant in the real world like socks. Instead of mailing the bill itself, Alice could have emailed a number, like the serial number imprinted on her dollar bill, and save on stamps and time, we will call this number a [[Main_Page|bitcoin]]. The bitcoin is used as a unit of account to measure the value of the socks Bob gave to Alice. Once Bob receives the bitcoin he would like to know that there is a good chance that he will be able to use the bitcoin to buy other products of similar value in the immediate future (means of exchange) or in the long term future (asset) and he needs to know if there are any unwanted side effects to using it.<br />
<br />
For the transaction to take place, Alice needs to have a bitcoin to start with and Bob needs to decide if he accepts the bitcoin in return for his socks. The value of a bitcoin is affected:<br />
* The bitcoin can’t be replicated (counterfeited) and used again by Alice or someone else eavesdropping to the transaction.<br />
* Alice can’t create more bitcoins out off thin air without limit<br />
* However, there should be some mechanism that introduces new bitcoins out of thin air into the system, otherwise there would not be enough bitcoins to make it popular by many people. But this mechanism should be agreed by all (fare) and it should be slow otherwise bitcoins cannot be used to store asset.<br />
* Bob needs to know that it will be relatively easy for him to find other people that will accept his bitcoin in the same way that he did, this is a circular problem that requires other people to go through the same decision process <br />
Bob may consider the following side effects:<br />
* Bob needs to know that it will be hard to steal or confiscate his bitcoin once he received it.<br />
* Like regular cash, Bob will like to know that his privacy is kept, and other people that will receive the bitcoin in the future will not be able to personally track him.<br />
<br />
=Counterfeiting=<br />
==By an eavesdropper==<br />
To guarantee that an eavesdropper, Eve, cannot replicate bitcoins we use a [[Wikipedia:Public-key_cryptography|public key system]] to make digital signatures. In this system, each person, such as Alice and Bob, has a pair of public and private keys which he/she stores in a safe [[Wallet|wallet]]. Only the user with his secret private key can sign a document, such as the transaction to give some of his bitcoins to somebody else, but any one can validate the signature using the user’s public key. The bitcoins, in Alice's hands, already contain a signature by whoever sent her the amount.<br />
<br />
* Bob sends his public key to Alice.<br />
* Alice adds Bob’s public key to the coin’s content.<br />
* Alice signs the transaction with her secret private key.<br />
<br />
As a result, the new coin, that Eve may be intercepting, contains the public key of both Alice and Bob.<br />
<br />
Later on, when Bob will transfer the same coins to Charley, he will do the same thing: receive from Charley his public key, add a new transaction to the coin's chain of transactions and sign it with his (Bob) private key. But only Bob can do this, because only Bob has the private key which is necessary for signing and which is the only private key to match Bob’s public key that is already in the chain.<br />
<br />
Eve cannot change who the coins belong to by replacing Bob’s public key with her public key, because Alice signed the transfer to Bob using her private key, declaring that the coins now belong to Bob, and Alice's private key is kept secret from Eve. So if Charley accepts that the original coin was in the hands of Alice he will also accept the fact that this coin was later passed to Bob and now Bob is passing this same coin to him.<br />
<br />
==By the sender==<br />
This is how we guarantee that Alice cannot replicate the coin and use it in more than one transaction:<br />
<br />
* Details about the [[Transactions|transaction]] are [[Network|sent]] to as many other people's computers as possible<br />
* At least one of the computers sends back a [[Blocks|block]], which is just a large document that includes details of many transactions. The block is sent to as many other people as possible.<br />
* Eventually the block reaches Bob who can validate that his transaction was recorded and no other transaction for the same coin was made in the past.<br />
<br />
In theory, Alice could generate a spoofed block in which her past usage of the same coin does not appear and try to send this block to Bob as evidence that the coin is still hers. However, that past transaction, which contains a signature from Alice, has already been announced and has already been distributed to a very large number of computers in the bitcoin network. Since the process of generating a block is designed to take a [[Proof_of_work|long time]] and all transactions must be given in such blocks, Alice will be unable to compete with all these computers in the rate with which she can generate blocks. Bob will receive much more blocks from third persons than Alice alone will ever be able to generate, and some of these blocks will contain Alice's previous transaction, telling Bob that Alice has already spent her coin. And since, in the presence of multiple parallel chains of blocks of transactions, the longest such chain is taken as the truth, the only way for Alice to "pass" her own version of events is to be in a position to command the majority of the CPU power on the network. We assume nobody can do that, therefore Alice cannot undo what she did and cannot spend her coin twice.<br />
<br />
=Privacy=<br />
In order to protect his [[Anonymity|privacy]], Bob can generate a new public-private key pair for each transaction. So David receiving the coin from Charley will not be able to identify who is the second person in the list of transactions. The only thing David will know is the [[Address|address]] of Bob which is a shortened (hashed) version of his public key.<br />
<br />
=Creation of coins=<br />
As we saw, both Bob and Charley need to verify that the original coin that Alice started with is valid. Alice can’t just generate coins out of thin air because the appearance of a coin is also a transaction that needs to be accepted by others (in their blocks.) The only way she can cause a coin to appear in a block is to generate the block herself, and this is exactly how new coins are slowly introduced: every computer that manages to generate a block is allowed to put one transaction in it in which it receives one coin. Other computers receiving the block can validate that only one coin is created and they can then accept this new coin as valid. Generating blocks is a [[Target|slow]] process that requires Alice to spend computer hardware, electricity bill and time and it can be compared to gold mining. It is also a constructive work because the created block is part of a [[Block_chain|chain of blocks]] that together keep a record of all transactions. The coin received by Alice is used as an incentive for the computation work she performed in addition Alice can shave a small [[Transaction_fee|fee]] from the transactions stored in the block and use it as an additional incentive.<br />
=Putting it all together=<br />
Directly experience the system in action by visting [http://blockexplorer.com/ Bitcoin Block Explorer].<br />
The site shows you the latest blocks in the block chain. The [[Block_chain|block chain]] contains the agreed history of all transactions that took place in the system.<br />
Note how many blocks were generated in the last hour, should be around 6. Also notice the number of transactions and the total amount transfered in the last hour (last time I checked it was about 64 and 15K.)<br />
This should give you an indication of how active the system is.<br />
<br />
Next, drill into one of these blocks.<br />
Start by noticing that the block's [[hash|hash]] begins with a run of zeros, this is what made making it so difficult.<br />
The computer that generated this block had to run on many ''Nonce'' values (also listed on the block's page) until it found one that generated this run of zeros.<br />
Next notice the line titled ''Previous block'', each block contains the hash of the block that came before it, this is what forms the chain of blocks.<br />
Now notice all the transactions the block contains. The first transaction is the income earned by the computer that generated this block. It includes a fixed amont of coins created out of thin air and possibly fee collected from other transactions in the same block. Several blocks starting from the same block could have been generated in parallel but at the end all the computers in the network agree that only one of these blocks is accepted to be part of the block chain. Other blocks are rejected either because they didn't play according to the rules of the game or they missed out on some of the transactions.<br />
<br />
Drill into any of the transactions and you will see how it is made from one or more amounts coming in and out.<br />
The fact that there can be more than one incoming and outgoing amounts, allow the system to join and break amounts in any possible way allowing for any fractional amount needed (usually cents.)<br />
Each incoming amount is a transaction from the past (which you can also drill to) coming from an address of someone<br />
and each outgoing amount is addressed to someone and will be part of a future transaction (which you can also drill too if it also had already taken place.)<br />
<br />
Finally you can drill into any of the [[Address|addresses]] and see what public information is available.</div>Udibrhttps://en.bitcoin.it/w/index.php?title=Help:Introduction&diff=3721Help:Introduction2011-02-15T01:59:34Z<p>Udibr: /* Putting it all together */</p>
<hr />
<div><div class="plainlinks" style="border: 1px solid red; width: 100%; background-color: #fcc; padding: 10px; margin-bottom: 25px;">This page requires copy editing and improvement.</div><br />
Alice is far away from Bob and wants to buy his [http://www.grasshillalpacas.com/alpacaproductsforbitcoinoffer.html Alpaca socks]. In return, she wants to send him a dollar. She can use something like paypal with its limitations or she can mail him a dollar bill. But a dollar bill is just an item with very low intrinsic value that is accepted by Alice and Bob to represent something significant in the real world like socks. Instead of mailing the bill itself, Alice could have emailed a number, like the serial number imprinted on her dollar bill, and save on stamps and time, we will call this number a [[Main_Page|bitcoin]]. The bitcoin is used as a unit of account to measure the value of the socks Bob gave to Alice. Once Bob receives the bitcoin he would like to know that there is a good chance that he will be able to use the bitcoin to buy other products of similar value in the immediate future (means of exchange) or in the long term future (asset) and he needs to know if there are any unwanted side effects to using it.<br />
<br />
For the transaction to take place, Alice needs to have a bitcoin to start with and Bob needs to decide if he accepts the bitcoin in return for his socks. The value of a bitcoin is affected:<br />
* The bitcoin can’t be replicated (counterfeited) and used again by Alice or someone else eavesdropping to the transaction.<br />
* Alice can’t create more bitcoins out off thin air without limit<br />
* However, there should be some mechanism that introduces new bitcoins out of thin air into the system, otherwise there would not be enough bitcoins to make it popular by many people. But this mechanism should be agreed by all (fare) and it should be slow otherwise bitcoins cannot be used to store asset.<br />
* Bob needs to know that it will be relatively easy for him to find other people that will accept his bitcoin in the same way that he did, this is a circular problem that requires other people to go through the same decision process <br />
Bob may consider the following side effects:<br />
* Bob needs to know that it will be hard to steal or confiscate his bitcoin once he received it.<br />
* Like regular cash, Bob will like to know that his privacy is kept, and other people that will receive the bitcoin in the future will not be able to personally track him.<br />
<br />
=Counterfeiting=<br />
==By an eavesdropper==<br />
To guarantee that an eavesdropper, Eve, cannot replicate bitcoins we use a [[Wikipedia:Public-key_cryptography|public key system]] to make digital signatures. In this system, each person, such as Alice and Bob, has a pair of public and private keys which he/she stores in a safe [[Wallet|wallet]]. Only the user with his secret private key can sign a document, such as the transaction to give some of his bitcoins to somebody else, but any one can validate the signature using the user’s public key. The bitcoins, in Alice's hands, already contain a signature by whoever sent her the amount.<br />
<br />
* Bob sends his public key to Alice.<br />
* Alice adds Bob’s public key to the coin’s content.<br />
* Alice signs the transaction with her secret private key.<br />
<br />
As a result, the new coin, that Eve may be intercepting, contains the public key of both Alice and Bob.<br />
<br />
Later on, when Bob will transfer the same coins to Charley, he will do the same thing: receive from Charley his public key, add a new transaction to the coin's chain of transactions and sign it with his (Bob) private key. But only Bob can do this, because only Bob has the private key which is necessary for signing and which is the only private key to match Bob’s public key that is already in the chain.<br />
<br />
Eve cannot change who the coins belong to by replacing Bob’s public key with her public key, because Alice signed the transfer to Bob using her private key, declaring that the coins now belong to Bob, and Alice's private key is kept secret from Eve. So if Charley accepts that the original coin was in the hands of Alice he will also accept the fact that this coin was later passed to Bob and now Bob is passing this same coin to him.<br />
<br />
==By the sender==<br />
This is how we guarantee that Alice cannot replicate the coin and use it in more than one transaction:<br />
<br />
* Details about the [[Transactions|transaction]] are [[Network|sent]] to as many other people's computers as possible<br />
* At least one of the computers sends back a [[Blocks|block]], which is just a large document that includes details of many transactions. The block is sent to as many other people as possible.<br />
* Eventually the block reaches Bob who can validate that his transaction was recorded and no other transaction for the same coin was made in the past.<br />
<br />
In theory, Alice could generate a spoofed block in which her past usage of the same coin does not appear and try to send this block to Bob as evidence that the coin is still hers. However, that past transaction, which contains a signature from Alice, has already been announced and has already been distributed to a very large number of computers in the bitcoin network. Since the process of generating a block is designed to take a [[Proof_of_work|long time]] and all transactions must be given in such blocks, Alice will be unable to compete with all these computers in the rate with which she can generate blocks. Bob will receive much more blocks from third persons than Alice alone will ever be able to generate, and some of these blocks will contain Alice's previous transaction, telling Bob that Alice has already spent her coin. And since, in the presence of multiple parallel chains of blocks of transactions, the longest such chain is taken as the truth, the only way for Alice to "pass" her own version of events is to be in a position to command the majority of the CPU power on the network. We assume nobody can do that, therefore Alice cannot undo what she did and cannot spend her coin twice.<br />
<br />
=Privacy=<br />
In order to protect his [[Anonymity|privacy]], Bob can generate a new public-private key pair for each transaction. So David receiving the coin from Charley will not be able to identify who is the second person in the list of transactions. The only thing David will know is the [[Address|address]] of Bob which is a shortened (hashed) version of his public key.<br />
<br />
=Creation of coins=<br />
As we saw, both Bob and Charley need to verify that the original coin that Alice started with is valid. Alice can’t just generate coins out of thin air because the appearance of a coin is also a transaction that needs to be accepted by others (in their blocks.) The only way she can cause a coin to appear in a block is to generate the block herself, and this is exactly how new coins are slowly introduced: every computer that manages to generate a block is allowed to put one transaction in it in which it receives one coin. Other computers receiving the block can validate that only one coin is created and they can then accept this new coin as valid. Generating blocks is a [[Target|slow]] process that requires Alice to spend computer hardware, electricity bill and time and it can be compared to gold mining. It is also a constructive work because the created block is part of a [[Block_chain|chain of blocks]] that together keep a record of all transactions. The coin received by Alice is used as an incentive for the computation work she performed in addition Alice can shave a small [[Transaction_fee|fee]] from the transactions stored in the block and use it as an additional incentive.<br />
=Putting it all together=<br />
Directly experience the system in action by visting [http://blockexplorer.com/ Bitcoin Block Explorer].<br />
The site shows you the latest blocks in the block chain. The [[Block_chain|block chain]] contains the agreed history of all transactions that took place in the system.<br />
Note how many blocks were generated in the last hour, should be around 6. Also notice the number of transactions and the total amount transfered in the last hour (last time I checked it was about 64 and 15K.)<br />
This should give you an indication of how active the system is.<br />
<br />
Next, drill into one of these blocks.<br />
Start by noticing that the block's hash begins with a run of zeros, this is what made making it so difficult.<br />
The computer that generated this block had to run on many ''Nonce'' values (also listed on the block's page) until it found one that generated this run of zeros.<br />
Next notice the line titled ''Previous block'', each block contains the hash of the block that came before it, this is what forms the chain of blocks.<br />
Now notice all the transactions the block contains. The first transaction is the income earned by the computer that generated this block. It includes a fixed amont of coins created out of thin air and possibly fee collected from other transactions in the same block. Several blocks starting from the same block could have been generated in parallel but at the end all the computers in the network agree that only one of these blocks is accepted to be part of the block chain. Other blocks are rejected either because they didn't play according to the rules of the game or they missed out on some of the transactions.<br />
<br />
Drill into any of the transactions and you will see how it is made from one or more amounts coming in and out.<br />
The fact that there can be more than one incoming and outgoing amounts, allow the system to join and break amounts in any possible way allowing for any fractional amount needed (usually cents.)<br />
Each incoming amount is a transaction from the past (which you can also drill to) coming from an address of someone<br />
and each outgoing amount is addressed to someone and will be part of a future transaction (which you can also drill too if it also had already taken place.)<br />
<br />
Finally you can drill into any of the [[Address|addresses]] and see what public information is available.</div>Udibrhttps://en.bitcoin.it/w/index.php?title=Help:Introduction&diff=3720Help:Introduction2011-02-15T01:59:11Z<p>Udibr: /* Privacy */</p>
<hr />
<div><div class="plainlinks" style="border: 1px solid red; width: 100%; background-color: #fcc; padding: 10px; margin-bottom: 25px;">This page requires copy editing and improvement.</div><br />
Alice is far away from Bob and wants to buy his [http://www.grasshillalpacas.com/alpacaproductsforbitcoinoffer.html Alpaca socks]. In return, she wants to send him a dollar. She can use something like paypal with its limitations or she can mail him a dollar bill. But a dollar bill is just an item with very low intrinsic value that is accepted by Alice and Bob to represent something significant in the real world like socks. Instead of mailing the bill itself, Alice could have emailed a number, like the serial number imprinted on her dollar bill, and save on stamps and time, we will call this number a [[Main_Page|bitcoin]]. The bitcoin is used as a unit of account to measure the value of the socks Bob gave to Alice. Once Bob receives the bitcoin he would like to know that there is a good chance that he will be able to use the bitcoin to buy other products of similar value in the immediate future (means of exchange) or in the long term future (asset) and he needs to know if there are any unwanted side effects to using it.<br />
<br />
For the transaction to take place, Alice needs to have a bitcoin to start with and Bob needs to decide if he accepts the bitcoin in return for his socks. The value of a bitcoin is affected:<br />
* The bitcoin can’t be replicated (counterfeited) and used again by Alice or someone else eavesdropping to the transaction.<br />
* Alice can’t create more bitcoins out off thin air without limit<br />
* However, there should be some mechanism that introduces new bitcoins out of thin air into the system, otherwise there would not be enough bitcoins to make it popular by many people. But this mechanism should be agreed by all (fare) and it should be slow otherwise bitcoins cannot be used to store asset.<br />
* Bob needs to know that it will be relatively easy for him to find other people that will accept his bitcoin in the same way that he did, this is a circular problem that requires other people to go through the same decision process <br />
Bob may consider the following side effects:<br />
* Bob needs to know that it will be hard to steal or confiscate his bitcoin once he received it.<br />
* Like regular cash, Bob will like to know that his privacy is kept, and other people that will receive the bitcoin in the future will not be able to personally track him.<br />
<br />
=Counterfeiting=<br />
==By an eavesdropper==<br />
To guarantee that an eavesdropper, Eve, cannot replicate bitcoins we use a [[Wikipedia:Public-key_cryptography|public key system]] to make digital signatures. In this system, each person, such as Alice and Bob, has a pair of public and private keys which he/she stores in a safe [[Wallet|wallet]]. Only the user with his secret private key can sign a document, such as the transaction to give some of his bitcoins to somebody else, but any one can validate the signature using the user’s public key. The bitcoins, in Alice's hands, already contain a signature by whoever sent her the amount.<br />
<br />
* Bob sends his public key to Alice.<br />
* Alice adds Bob’s public key to the coin’s content.<br />
* Alice signs the transaction with her secret private key.<br />
<br />
As a result, the new coin, that Eve may be intercepting, contains the public key of both Alice and Bob.<br />
<br />
Later on, when Bob will transfer the same coins to Charley, he will do the same thing: receive from Charley his public key, add a new transaction to the coin's chain of transactions and sign it with his (Bob) private key. But only Bob can do this, because only Bob has the private key which is necessary for signing and which is the only private key to match Bob’s public key that is already in the chain.<br />
<br />
Eve cannot change who the coins belong to by replacing Bob’s public key with her public key, because Alice signed the transfer to Bob using her private key, declaring that the coins now belong to Bob, and Alice's private key is kept secret from Eve. So if Charley accepts that the original coin was in the hands of Alice he will also accept the fact that this coin was later passed to Bob and now Bob is passing this same coin to him.<br />
<br />
==By the sender==<br />
This is how we guarantee that Alice cannot replicate the coin and use it in more than one transaction:<br />
<br />
* Details about the [[Transactions|transaction]] are [[Network|sent]] to as many other people's computers as possible<br />
* At least one of the computers sends back a [[Blocks|block]], which is just a large document that includes details of many transactions. The block is sent to as many other people as possible.<br />
* Eventually the block reaches Bob who can validate that his transaction was recorded and no other transaction for the same coin was made in the past.<br />
<br />
In theory, Alice could generate a spoofed block in which her past usage of the same coin does not appear and try to send this block to Bob as evidence that the coin is still hers. However, that past transaction, which contains a signature from Alice, has already been announced and has already been distributed to a very large number of computers in the bitcoin network. Since the process of generating a block is designed to take a [[Proof_of_work|long time]] and all transactions must be given in such blocks, Alice will be unable to compete with all these computers in the rate with which she can generate blocks. Bob will receive much more blocks from third persons than Alice alone will ever be able to generate, and some of these blocks will contain Alice's previous transaction, telling Bob that Alice has already spent her coin. And since, in the presence of multiple parallel chains of blocks of transactions, the longest such chain is taken as the truth, the only way for Alice to "pass" her own version of events is to be in a position to command the majority of the CPU power on the network. We assume nobody can do that, therefore Alice cannot undo what she did and cannot spend her coin twice.<br />
<br />
=Privacy=<br />
In order to protect his [[Anonymity|privacy]], Bob can generate a new public-private key pair for each transaction. So David receiving the coin from Charley will not be able to identify who is the second person in the list of transactions. The only thing David will know is the [[Address|address]] of Bob which is a shortened (hashed) version of his public key.<br />
<br />
=Creation of coins=<br />
As we saw, both Bob and Charley need to verify that the original coin that Alice started with is valid. Alice can’t just generate coins out of thin air because the appearance of a coin is also a transaction that needs to be accepted by others (in their blocks.) The only way she can cause a coin to appear in a block is to generate the block herself, and this is exactly how new coins are slowly introduced: every computer that manages to generate a block is allowed to put one transaction in it in which it receives one coin. Other computers receiving the block can validate that only one coin is created and they can then accept this new coin as valid. Generating blocks is a [[Target|slow]] process that requires Alice to spend computer hardware, electricity bill and time and it can be compared to gold mining. It is also a constructive work because the created block is part of a [[Block_chain|chain of blocks]] that together keep a record of all transactions. The coin received by Alice is used as an incentive for the computation work she performed in addition Alice can shave a small [[Transaction_fee|fee]] from the transactions stored in the block and use it as an additional incentive.<br />
=Putting it all together=<br />
Directly experience the system in action by visting [http://blockexplorer.com/ Bitcoin Block Explorer].<br />
The site shows you the latest blocks in the block chain. The [[Block_chain|block chain]] contains the agreed history of all transactions that took place in the system.<br />
Note how many blocks were generated in the last hour, should be around 6. Also notice the number of transactions and the total amount transfered in the last hour (last time I checked it was about 64 and 15K.)<br />
This should give you an indication of how active the system is.<br />
<br />
Next, drill into one of these blocks.<br />
Start by noticing that the block's hash begins with a run of zeros, this is what made making it so difficult.<br />
The computer that generated this block had to run on many ''Nonce'' values (also listed on the block's page) until it found one that generated this run of zeros.<br />
Next notice the line titled ''Previous block'', each block contains the hash of the block that came before it, this is what forms the chain of blocks.<br />
Now notice all the transactions the block contains. The first transaction is the income earned by the computer that generated this block. It includes a fixed amont of coins created out of thin air and possibly fee collected from other transactions in the same block. Several blocks starting from the same block could have been generated in parallel but at the end all the computers in the network agree that only one of these blocks is accepted to be part of the block chain. Other blocks are rejected either because they didn't play according to the rules of the game or they missed out on some of the transactions.<br />
<br />
Drill into any of the transactions and you will see how it is made from one or more amounts coming in and out.<br />
The fact that there can be more than one incoming and outgoing amounts, allow the system to join and break amounts in any possible way allowing for any fractional amount needed (usually cents.)<br />
Each incoming amount is a transaction from the past (which you can also drill to) coming from an address of someone<br />
and each outgoing amount is addressed to someone and will be part of a future transaction (which you can also drill too if it also had already taken place.)<br />
<br />
Finally you can drill into any of the addresses and see what public information is available.</div>Udibrhttps://en.bitcoin.it/w/index.php?title=Help:Introduction&diff=3719Help:Introduction2011-02-15T01:57:19Z<p>Udibr: /* Putting it all together */</p>
<hr />
<div><div class="plainlinks" style="border: 1px solid red; width: 100%; background-color: #fcc; padding: 10px; margin-bottom: 25px;">This page requires copy editing and improvement.</div><br />
Alice is far away from Bob and wants to buy his [http://www.grasshillalpacas.com/alpacaproductsforbitcoinoffer.html Alpaca socks]. In return, she wants to send him a dollar. She can use something like paypal with its limitations or she can mail him a dollar bill. But a dollar bill is just an item with very low intrinsic value that is accepted by Alice and Bob to represent something significant in the real world like socks. Instead of mailing the bill itself, Alice could have emailed a number, like the serial number imprinted on her dollar bill, and save on stamps and time, we will call this number a [[Main_Page|bitcoin]]. The bitcoin is used as a unit of account to measure the value of the socks Bob gave to Alice. Once Bob receives the bitcoin he would like to know that there is a good chance that he will be able to use the bitcoin to buy other products of similar value in the immediate future (means of exchange) or in the long term future (asset) and he needs to know if there are any unwanted side effects to using it.<br />
<br />
For the transaction to take place, Alice needs to have a bitcoin to start with and Bob needs to decide if he accepts the bitcoin in return for his socks. The value of a bitcoin is affected:<br />
* The bitcoin can’t be replicated (counterfeited) and used again by Alice or someone else eavesdropping to the transaction.<br />
* Alice can’t create more bitcoins out off thin air without limit<br />
* However, there should be some mechanism that introduces new bitcoins out of thin air into the system, otherwise there would not be enough bitcoins to make it popular by many people. But this mechanism should be agreed by all (fare) and it should be slow otherwise bitcoins cannot be used to store asset.<br />
* Bob needs to know that it will be relatively easy for him to find other people that will accept his bitcoin in the same way that he did, this is a circular problem that requires other people to go through the same decision process <br />
Bob may consider the following side effects:<br />
* Bob needs to know that it will be hard to steal or confiscate his bitcoin once he received it.<br />
* Like regular cash, Bob will like to know that his privacy is kept, and other people that will receive the bitcoin in the future will not be able to personally track him.<br />
<br />
=Counterfeiting=<br />
==By an eavesdropper==<br />
To guarantee that an eavesdropper, Eve, cannot replicate bitcoins we use a [[Wikipedia:Public-key_cryptography|public key system]] to make digital signatures. In this system, each person, such as Alice and Bob, has a pair of public and private keys which he/she stores in a safe [[Wallet|wallet]]. Only the user with his secret private key can sign a document, such as the transaction to give some of his bitcoins to somebody else, but any one can validate the signature using the user’s public key. The bitcoins, in Alice's hands, already contain a signature by whoever sent her the amount.<br />
<br />
* Bob sends his public key to Alice.<br />
* Alice adds Bob’s public key to the coin’s content.<br />
* Alice signs the transaction with her secret private key.<br />
<br />
As a result, the new coin, that Eve may be intercepting, contains the public key of both Alice and Bob.<br />
<br />
Later on, when Bob will transfer the same coins to Charley, he will do the same thing: receive from Charley his public key, add a new transaction to the coin's chain of transactions and sign it with his (Bob) private key. But only Bob can do this, because only Bob has the private key which is necessary for signing and which is the only private key to match Bob’s public key that is already in the chain.<br />
<br />
Eve cannot change who the coins belong to by replacing Bob’s public key with her public key, because Alice signed the transfer to Bob using her private key, declaring that the coins now belong to Bob, and Alice's private key is kept secret from Eve. So if Charley accepts that the original coin was in the hands of Alice he will also accept the fact that this coin was later passed to Bob and now Bob is passing this same coin to him.<br />
<br />
==By the sender==<br />
This is how we guarantee that Alice cannot replicate the coin and use it in more than one transaction:<br />
<br />
* Details about the [[Transactions|transaction]] are [[Network|sent]] to as many other people's computers as possible<br />
* At least one of the computers sends back a [[Blocks|block]], which is just a large document that includes details of many transactions. The block is sent to as many other people as possible.<br />
* Eventually the block reaches Bob who can validate that his transaction was recorded and no other transaction for the same coin was made in the past.<br />
<br />
In theory, Alice could generate a spoofed block in which her past usage of the same coin does not appear and try to send this block to Bob as evidence that the coin is still hers. However, that past transaction, which contains a signature from Alice, has already been announced and has already been distributed to a very large number of computers in the bitcoin network. Since the process of generating a block is designed to take a [[Proof_of_work|long time]] and all transactions must be given in such blocks, Alice will be unable to compete with all these computers in the rate with which she can generate blocks. Bob will receive much more blocks from third persons than Alice alone will ever be able to generate, and some of these blocks will contain Alice's previous transaction, telling Bob that Alice has already spent her coin. And since, in the presence of multiple parallel chains of blocks of transactions, the longest such chain is taken as the truth, the only way for Alice to "pass" her own version of events is to be in a position to command the majority of the CPU power on the network. We assume nobody can do that, therefore Alice cannot undo what she did and cannot spend her coin twice.<br />
<br />
=Privacy=<br />
In order to protect his [[Anonymity|privacy]], Bob can generate a new public-private key pair for each transaction. So David receiving the coin from Charley will not be able to identify who is the second person in the list of transactions. The only thing David will know is the [[Address]] of Bob which is a shortened (hashed) version of his public key.<br />
<br />
=Creation of coins=<br />
As we saw, both Bob and Charley need to verify that the original coin that Alice started with is valid. Alice can’t just generate coins out of thin air because the appearance of a coin is also a transaction that needs to be accepted by others (in their blocks.) The only way she can cause a coin to appear in a block is to generate the block herself, and this is exactly how new coins are slowly introduced: every computer that manages to generate a block is allowed to put one transaction in it in which it receives one coin. Other computers receiving the block can validate that only one coin is created and they can then accept this new coin as valid. Generating blocks is a [[Target|slow]] process that requires Alice to spend computer hardware, electricity bill and time and it can be compared to gold mining. It is also a constructive work because the created block is part of a [[Block_chain|chain of blocks]] that together keep a record of all transactions. The coin received by Alice is used as an incentive for the computation work she performed in addition Alice can shave a small [[Transaction_fee|fee]] from the transactions stored in the block and use it as an additional incentive.<br />
=Putting it all together=<br />
Directly experience the system in action by visting [http://blockexplorer.com/ Bitcoin Block Explorer].<br />
The site shows you the latest blocks in the block chain. The [[Block_chain|block chain]] contains the agreed history of all transactions that took place in the system.<br />
Note how many blocks were generated in the last hour, should be around 6. Also notice the number of transactions and the total amount transfered in the last hour (last time I checked it was about 64 and 15K.)<br />
This should give you an indication of how active the system is.<br />
<br />
Next, drill into one of these blocks.<br />
Start by noticing that the block's hash begins with a run of zeros, this is what made making it so difficult.<br />
The computer that generated this block had to run on many ''Nonce'' values (also listed on the block's page) until it found one that generated this run of zeros.<br />
Next notice the line titled ''Previous block'', each block contains the hash of the block that came before it, this is what forms the chain of blocks.<br />
Now notice all the transactions the block contains. The first transaction is the income earned by the computer that generated this block. It includes a fixed amont of coins created out of thin air and possibly fee collected from other transactions in the same block. Several blocks starting from the same block could have been generated in parallel but at the end all the computers in the network agree that only one of these blocks is accepted to be part of the block chain. Other blocks are rejected either because they didn't play according to the rules of the game or they missed out on some of the transactions.<br />
<br />
Drill into any of the transactions and you will see how it is made from one or more amounts coming in and out.<br />
The fact that there can be more than one incoming and outgoing amounts, allow the system to join and break amounts in any possible way allowing for any fractional amount needed (usually cents.)<br />
Each incoming amount is a transaction from the past (which you can also drill to) coming from an address of someone<br />
and each outgoing amount is addressed to someone and will be part of a future transaction (which you can also drill too if it also had already taken place.)<br />
<br />
Finally you can drill into any of the addresses and see what public information is available.</div>Udibrhttps://en.bitcoin.it/w/index.php?title=Help:Introduction&diff=3708Help:Introduction2011-02-14T23:13:40Z<p>Udibr: /* Putting it all together */</p>
<hr />
<div><div class="plainlinks" style="border: 1px solid red; width: 100%; background-color: #fcc; padding: 10px; margin-bottom: 25px;">This page requires copy editing and improvement.</div><br />
Alice is far away from Bob and wants to buy his [http://www.grasshillalpacas.com/alpacaproductsforbitcoinoffer.html Alpaca socks]. In return, she wants to send him a dollar. She can use something like paypal with its limitations or she can mail him a dollar bill. But a dollar bill is just an item with very low intrinsic value that is accepted by Alice and Bob to represent something significant in the real world like socks. Instead of mailing the bill itself, Alice could have emailed a number, like the serial number imprinted on her dollar bill, and save on stamps and time, we will call this number a [[Main_Page|bitcoin]]. The bitcoin is used as a unit of account to measure the value of the socks Bob gave to Alice. Once Bob receives the bitcoin he would like to know that there is a good chance that he will be able to use the bitcoin to buy other products of similar value in the immediate future (means of exchange) or in the long term future (asset) and he needs to know if there are any unwanted side effects to using it.<br />
<br />
For the transaction to take place, Alice needs to have a bitcoin to start with and Bob needs to decide if he accepts the bitcoin in return for his socks. The value of a bitcoin is affected:<br />
* The bitcoin can’t be replicated (counterfeited) and used again by Alice or someone else eavesdropping to the transaction.<br />
* Alice can’t create more bitcoins out off thin air without limit<br />
* However, there should be some mechanism that introduces new bitcoins out of thin air into the system, otherwise there would not be enough bitcoins to make it popular by many people. But this mechanism should be agreed by all (fare) and it should be slow otherwise bitcoins cannot be used to store asset.<br />
* Bob needs to know that it will be relatively easy for him to find other people that will accept his bitcoin in the same way that he did, this is a circular problem that requires other people to go through the same decision process <br />
Bob may consider the following side effects:<br />
* Bob needs to know that it will be hard to steal or confiscate his bitcoin once he received it.<br />
* Like regular cash, Bob will like to know that his privacy is kept, and other people that will receive the bitcoin in the future will not be able to personally track him.<br />
<br />
=Counterfeiting=<br />
==By an eavesdropper==<br />
To guarantee that an eavesdropper, Eve, cannot replicate bitcoins we use a [[Wikipedia:Public-key_cryptography|public key system]] to make digital signatures. In this system, each person, such as Alice and Bob, has a pair of public and private keys which he/she stores in a safe [[Wallet|wallet]]. Only the user with his secret private key can sign a document, such as the transaction to give some of his bitcoins to somebody else, but any one can validate the signature using the user’s public key. The bitcoins, in Alice's hands, already contain a signature by whoever sent her the amount.<br />
<br />
* Bob sends his public key to Alice.<br />
* Alice adds Bob’s public key to the coin’s content.<br />
* Alice signs the transaction with her secret private key.<br />
<br />
As a result, the new coin, that Eve may be intercepting, contains the public key of both Alice and Bob.<br />
<br />
Later on, when Bob will transfer the same coins to Charley, he will do the same thing: receive from Charley his public key, add a new transaction to the coin's chain of transactions and sign it with his (Bob) private key. But only Bob can do this, because only Bob has the private key which is necessary for signing and which is the only private key to match Bob’s public key that is already in the chain.<br />
<br />
Eve cannot change who the coins belong to by replacing Bob’s public key with her public key, because Alice signed the transfer to Bob using her private key, declaring that the coins now belong to Bob, and Alice's private key is kept secret from Eve. So if Charley accepts that the original coin was in the hands of Alice he will also accept the fact that this coin was later passed to Bob and now Bob is passing this same coin to him.<br />
<br />
==By the sender==<br />
How to guaranty that Alice does not replicate the coin and use it in more than one transaction:<br />
* Details about the [[Transactions|transaction]] is [[Network|sent]] to as many other people (to their computers) as possible<br />
* At least one of the computers sends back a [[Blocks|block]], which is just a large document that includes details of the transaction and other unrelated transactions. The block is sent to as many other people as possible.<br />
* Eventually the block reaches Bob that can validate that his transaction was recorded and no other transaction for the same coin was made in the past.<br />
* In theory, Alice can generate a spoofed block in which her past usage of the same coin does not appear and try to send this block to Bob as an evidence that the coin is OK. But the process of generating a block is designed to take a [[Proof_of_work|long time]] and she is not likely to generate it on time. Keep in mind that Bob is using a new public key for each transaction so Alice can’t prepare in advance. In addition, many other computers are working in parallel to generate an honest block and one of them is more likely to finish before her. In any case, eventually competing blocks will arrive to Bob that will indication that Alice’s coin was already in use.<br />
<br />
=Privacy=<br />
In order to protect his [[Anonymity|privacy]], Bob can generate a new public-private key pair for each transaction. So David receiving the coin from Charley will not be able to identify who is the second person in the list of transactions. The only thing David will know is the [[Address]] of Bob which is a shortened (hashed) version of his public key.<br />
<br />
=Creation of coins=<br />
As we saw, both Bob and Charley need to verify that the original coin that Alice started with is valid. Alice can’t just generate coins out of thin air because the appearance of a coin is also a transaction that needs to be accepted by others (in their blocks.) The only way she can cause a coin to appear in a block is to generate the block herself, and this is exactly how new coins are slowly introduced: every computer that manages to generate a block is allowed to put one transaction in it in which it receives one coin. Other computers receiving the block can validate that only one coin is created and they can then accept this new coin as valid. Generating blocks is a [[Target|slow]] process that requires Alice to spend computer hardware, electricity bill and time and it can be compared to gold mining. It is also a constructive work because the created block is part of a [[Block_chain|chain of blocks]] that together keep a record of all transactions. The coin received by Alice is used as an incentive for the computation work she performed in addition Alice can shave a small [[Transaction_fee|fee]] from the transactions stored in the block and use it as an additional incentive.<br />
=Putting it all together=<br />
Directly experience the system in action by visting [http://blockexplorer.com/ Bitcoin Block Explorer].<br />
The site shows you the latest blocks in the block chain. The [[Block_chain|block chain]] contains the agreed history of all transactions that took place in the system.<br />
Note how many blocks were generated in the last hour, should be around 6. Also notice the number of transactions and the total amount transfered in the last hour (last time I checked it was about 64 and 15K.)<br />
This should give you an indication of how active the system is.<br />
<br />
Next, drill into one of these blocks.<br />
Start by noticing that the block's hash begins with a run of zeros, this is what made making it so difficult.<br />
The computer that generated this block had to run on many ''Nonce'' values (also listed on the block's page) until it found one that generated this run of zeros.<br />
Next notice the line titled ''Previous block'', each block contains the hash of the block that came before it, this is what forms the chain of blocks.<br />
Now notice all the transactions the block contains. The first transaction is the income earned by the computer that generated this block. It includes a fixed amont of coins created out of thin air and possibly fee collected from other transactions in the same block. Several blocks starting from the same block could have been generated in parallel but at the end all the computers in the network that only one of these blocks is accepted to be part of the block chain. Other blocks are rejected either because they didn't play according to the rules of the game or they missed out on some of the transactions.<br />
<br />
Drill into any of the transactions and you will see how it is made from one or more amounts coming in and out.<br />
The fact that there can be more than one incoming and outgoing amounts, allow the system to join and break amounts in any possible way allowing for any fractional amount needed (usually cents.)<br />
Each incoming amount is a transaction from the past (which you can also drill to) coming from an address of someone<br />
and each outgoing amount is addressed to someone and will be part of a future transaction (which you can also drill too if it also had already taken place.)<br />
<br />
Finally you can drill into any of the addresses and see what public information is available.</div>Udibrhttps://en.bitcoin.it/w/index.php?title=Help:Introduction&diff=3701Help:Introduction2011-02-14T18:47:20Z<p>Udibr: /* Putting it all together */</p>
<hr />
<div><div class="plainlinks" style="border: 1px solid red; width: 100%; background-color: #fcc; padding: 10px; margin-bottom: 25px;">This page requires copy editing and improvement.</div><br />
Alice is far away from Bob and wants to buy his [http://www.grasshillalpacas.com/alpacaproductsforbitcoinoffer.html Alpaca socks]. In return, she wants to send him a dollar. She can use something like paypal with its limitations or she can mail him a dollar bill. But a dollar bill is just an item with very low intrinsic value that is accepted by Alice and Bob to represent something significant in the real world like socks. Instead of mailing the bill itself, Alice could have emailed a number, like the serial number imprinted on her dollar bill, and save on stamps and time, we will call this number a [[Main_Page|bitcoin]]. The bitcoin is used as a unit of account to measure the value of the socks Bob gave to Alice. Once Bob receives the bitcoin he would like to know that there is a good chance that he will be able to use the bitcoin to buy other products of similar value in the immediate future (means of exchange) or in the long term future (asset) and he needs to know if there are any unwanted side effects to using it.<br />
<br />
For the transaction to take place, Alice needs to have a bitcoin to start with and Bob needs to decide if he accepts the bitcoin in return for his socks. The value of a bitcoin is affected:<br />
* The bitcoin can’t be replicated (counterfeited) and used again by Alice or someone else eavesdropping to the transaction.<br />
* Alice can’t create more bitcoins out off thin air without limit<br />
* However, there should be some mechanism that introduces new bitcoins out of thin air into the system, otherwise there would not be enough bitcoins to make it popular by many people. But this mechanism should be agreed by all (fare) and it should be slow otherwise bitcoins cannot be used to store asset.<br />
* Bob needs to know that it will be relatively easy for him to find other people that will accept his bitcoin in the same way that he did, this is a circular problem that requires other people to go through the same decision process <br />
Bob may consider the following side effects:<br />
* Bob needs to know that it will be hard to steal or confiscate his bitcoin once he received it.<br />
* Like regular cash, Bob will like to know that his privacy is kept, and other people that will receive the bitcoin in the future will not be able to personally track him.<br />
<br />
=Counterfeiting=<br />
==By an eavesdropper==<br />
To guarantee that an eavesdropper, Eve, cannot replicate bitcoins we use a [[Wikipedia:Public-key_cryptography|public key system]] to make digital signatures. In this system, each person, such as Alice and Bob, has a pair of public and private keys which he/she stores in a safe [[Wallet|wallet]]. Only the user with his secret private key can sign a document, such as the transaction to give some of his bitcoins to somebody else, but any one can validate the signature using the user’s public key. The bitcoins, in Alice's hands, already contain a signature by whoever sent her the amount.<br />
<br />
* Bob sends his public key to Alice.<br />
* Alice adds Bob’s public key to the coin’s content.<br />
* Alice signs the transaction with her secret private key.<br />
<br />
As a result, the new coin, that Eve may be intercepting, contains the public key of both Alice and Bob.<br />
<br />
Later on, when Bob will transfer the same coins to Charley, he will do the same thing: receive from Charley his public key, add a new transaction to the coin's chain of transactions and sign it with his (Bob) private key. But only Bob can do this, because only Bob has the private key which is necessary for signing and which is the only private key to match Bob’s public key that is already in the chain.<br />
<br />
Eve cannot change who the coins belong to by replacing Bob’s public key with her public key, because Alice signed the transfer to Bob using her private key, declaring that the coins now belong to Bob, and Alice's private key is kept secret from Eve. So if Charley accepts that the original coin was in the hands of Alice he will also accept the fact that this coin was later passed to Bob and now Bob is passing this same coin to him.<br />
<br />
==By the sender==<br />
How to guaranty that Alice does not replicate the coin and use it in more than one transaction:<br />
* Details about the [[Transactions|transaction]] is [[Network|sent]] to as many other people (to their computers) as possible<br />
* At least one of the computers sends back a [[Blocks|block]], which is just a large document that includes details of the transaction and other unrelated transactions. The block is sent to as many other people as possible.<br />
* Eventually the block reaches Bob that can validate that his transaction was recorded and no other transaction for the same coin was made in the past.<br />
* In theory, Alice can generate a spoofed block in which her past usage of the same coin does not appear and try to send this block to Bob as an evidence that the coin is OK. But the process of generating a block is designed to take a [[Proof_of_work|long time]] and she is not likely to generate it on time. Keep in mind that Bob is using a new public key for each transaction so Alice can’t prepare in advance. In addition, many other computers are working in parallel to generate an honest block and one of them is more likely to finish before her. In any case, eventually competing blocks will arrive to Bob that will indication that Alice’s coin was already in use.<br />
<br />
=Privacy=<br />
In order to protect his [[Anonymity|privacy]], Bob can generate a new public-private key pair for each transaction. So David receiving the coin from Charley will not be able to identify who is the second person in the list of transactions. The only thing David will know is the [[Address]] of Bob which is a shortened (hashed) version of his public key.<br />
<br />
=Creation of coins=<br />
As we saw, both Bob and Charley need to verify that the original coin that Alice started with is valid. Alice can’t just generate coins out of thin air because the appearance of a coin is also a transaction that needs to be accepted by others (in their blocks.) The only way she can cause a coin to appear in a block is to generate the block herself, and this is exactly how new coins are slowly introduced: every computer that manages to generate a block is allowed to put one transaction in it in which it receives one coin. Other computers receiving the block can validate that only one coin is created and they can then accept this new coin as valid. Generating blocks is a [[Target|slow]] process that requires Alice to spend computer hardware, electricity bill and time and it can be compared to gold mining. It is also a constructive work because the created block is part of a [[Block_chain|chain of blocks]] that together keep a record of all transactions. The coin received by Alice is used as an incentive for the computation work she performed in addition Alice can shave a small [[Transaction_fee|fee]] from the transactions stored in the block and use it as an additional incentive.<br />
=Putting it all together=<br />
Directly experience the system in action by visting [http://blockexplorer.com/ Bitcoin Block Explorer].<br />
The site shows you the latest blocks in the block chain. The [[Block_chain|block chain]] contains the agreed history of all transactions that took place in the system.<br />
Note how many blocks were generated in the last hour, should be around 6. Also notice the number of transactions and the total amount transfered in the last hour (last time I checked it was about 64 and 15K.)<br />
This should give you an indication of how active the system is.<br />
<br />
Next, drill into one of these blocks.<br />
Start by noticing that the block's hash begins with a run of zeros, this is what made making it so difficult.<br />
The computer that generated this block had to run on many ''Nonce'' values (also listed on the block's page) until it found one that generated this run of zeros.<br />
Next notice the line titled ''Previous block'', each block contains the hash of the block that came before it, this is what forms the chain of blocks.<br />
Now notice all the transactions the block contains. The first transaction is the income earned by the computer that generated this block. It includes 50 units created out of thin air and possibly fee collected from other transactions in the same block.<br />
<br />
Drill into any of the transactions and you will see how it is made from one or more amounts coming in and out.<br />
The fact that there can be more than one incoming and outgoing amounts, allow the system to join and break amounts in any possible way allowing for any fractional amount needed (usually cents.)<br />
Each incoming amount is a transaction from the past (which you can also drill to) coming from an address of someone<br />
and each outgoing amount is addressed to someone and will be part of a future transaction (which you can also drill too if it also had already taken place.)<br />
<br />
Finally you can drill into any of the addresses and see what public information is available.</div>Udibrhttps://en.bitcoin.it/w/index.php?title=Help:Introduction&diff=3700Help:Introduction2011-02-14T18:43:45Z<p>Udibr: /* Putting it all together */</p>
<hr />
<div><div class="plainlinks" style="border: 1px solid red; width: 100%; background-color: #fcc; padding: 10px; margin-bottom: 25px;">This page requires copy editing and improvement.</div><br />
Alice is far away from Bob and wants to buy his [http://www.grasshillalpacas.com/alpacaproductsforbitcoinoffer.html Alpaca socks]. In return, she wants to send him a dollar. She can use something like paypal with its limitations or she can mail him a dollar bill. But a dollar bill is just an item with very low intrinsic value that is accepted by Alice and Bob to represent something significant in the real world like socks. Instead of mailing the bill itself, Alice could have emailed a number, like the serial number imprinted on her dollar bill, and save on stamps and time, we will call this number a [[Main_Page|bitcoin]]. The bitcoin is used as a unit of account to measure the value of the socks Bob gave to Alice. Once Bob receives the bitcoin he would like to know that there is a good chance that he will be able to use the bitcoin to buy other products of similar value in the immediate future (means of exchange) or in the long term future (asset) and he needs to know if there are any unwanted side effects to using it.<br />
<br />
For the transaction to take place, Alice needs to have a bitcoin to start with and Bob needs to decide if he accepts the bitcoin in return for his socks. The value of a bitcoin is affected:<br />
* The bitcoin can’t be replicated (counterfeited) and used again by Alice or someone else eavesdropping to the transaction.<br />
* Alice can’t create more bitcoins out off thin air without limit<br />
* However, there should be some mechanism that introduces new bitcoins out of thin air into the system, otherwise there would not be enough bitcoins to make it popular by many people. But this mechanism should be agreed by all (fare) and it should be slow otherwise bitcoins cannot be used to store asset.<br />
* Bob needs to know that it will be relatively easy for him to find other people that will accept his bitcoin in the same way that he did, this is a circular problem that requires other people to go through the same decision process <br />
Bob may consider the following side effects:<br />
* Bob needs to know that it will be hard to steal or confiscate his bitcoin once he received it.<br />
* Like regular cash, Bob will like to know that his privacy is kept, and other people that will receive the bitcoin in the future will not be able to personally track him.<br />
<br />
=Counterfeiting=<br />
==By an eavesdropper==<br />
To guarantee that an eavesdropper, Eve, cannot replicate bitcoins we use a [[Wikipedia:Public-key_cryptography|public key system]] to make digital signatures. In this system, each person, such as Alice and Bob, has a pair of public and private keys which he/she stores in a safe [[Wallet|wallet]]. Only the user with his secret private key can sign a document, such as the transaction to give some of his bitcoins to somebody else, but any one can validate the signature using the user’s public key. The bitcoins, in Alice's hands, already contain a signature by whoever sent her the amount.<br />
<br />
* Bob sends his public key to Alice.<br />
* Alice adds Bob’s public key to the coin’s content.<br />
* Alice signs the transaction with her secret private key.<br />
<br />
As a result, the new coin, that Eve may be intercepting, contains the public key of both Alice and Bob.<br />
<br />
Later on, when Bob will transfer the same coins to Charley, he will do the same thing: receive from Charley his public key, add a new transaction to the coin's chain of transactions and sign it with his (Bob) private key. But only Bob can do this, because only Bob has the private key which is necessary for signing and which is the only private key to match Bob’s public key that is already in the chain.<br />
<br />
Eve cannot change who the coins belong to by replacing Bob’s public key with her public key, because Alice signed the transfer to Bob using her private key, declaring that the coins now belong to Bob, and Alice's private key is kept secret from Eve. So if Charley accepts that the original coin was in the hands of Alice he will also accept the fact that this coin was later passed to Bob and now Bob is passing this same coin to him.<br />
<br />
==By the sender==<br />
How to guaranty that Alice does not replicate the coin and use it in more than one transaction:<br />
* Details about the [[Transactions|transaction]] is [[Network|sent]] to as many other people (to their computers) as possible<br />
* At least one of the computers sends back a [[Blocks|block]], which is just a large document that includes details of the transaction and other unrelated transactions. The block is sent to as many other people as possible.<br />
* Eventually the block reaches Bob that can validate that his transaction was recorded and no other transaction for the same coin was made in the past.<br />
* In theory, Alice can generate a spoofed block in which her past usage of the same coin does not appear and try to send this block to Bob as an evidence that the coin is OK. But the process of generating a block is designed to take a [[Proof_of_work|long time]] and she is not likely to generate it on time. Keep in mind that Bob is using a new public key for each transaction so Alice can’t prepare in advance. In addition, many other computers are working in parallel to generate an honest block and one of them is more likely to finish before her. In any case, eventually competing blocks will arrive to Bob that will indication that Alice’s coin was already in use.<br />
<br />
=Privacy=<br />
In order to protect his [[Anonymity|privacy]], Bob can generate a new public-private key pair for each transaction. So David receiving the coin from Charley will not be able to identify who is the second person in the list of transactions. The only thing David will know is the [[Address]] of Bob which is a shortened (hashed) version of his public key.<br />
<br />
=Creation of coins=<br />
As we saw, both Bob and Charley need to verify that the original coin that Alice started with is valid. Alice can’t just generate coins out of thin air because the appearance of a coin is also a transaction that needs to be accepted by others (in their blocks.) The only way she can cause a coin to appear in a block is to generate the block herself, and this is exactly how new coins are slowly introduced: every computer that manages to generate a block is allowed to put one transaction in it in which it receives one coin. Other computers receiving the block can validate that only one coin is created and they can then accept this new coin as valid. Generating blocks is a [[Target|slow]] process that requires Alice to spend computer hardware, electricity bill and time and it can be compared to gold mining. It is also a constructive work because the created block is part of a [[Block_chain|chain of blocks]] that together keep a record of all transactions. The coin received by Alice is used as an incentive for the computation work she performed in addition Alice can shave a small [[Transaction_fee|fee]] from the transactions stored in the block and use it as an additional incentive.<br />
=Putting it all together=<br />
Directly experience the system in action by visting [http://blockexplorer.com/ Bitcoin Block Explorer].<br />
The site shows you the latest blocks in the block chain. The [[Blocak_chain|block chain]] contains the agreed history of all transactions that took place in the system.<br />
Note how many blocks were generated in the last hour, should be around 6. Also notice the number of transactions and the total amount transfered in the last hour (last time I checked it was about 64 and 15K.)<br />
This should give you an indication of how active the system is.<br />
<br />
Next, drill into one of these blocks.<br />
Start by noticing that the block's hash begins with a run of zeros, this is what made making it so difficult.<br />
The computer that generated this block had to run on many ''Nonce'' values (also listed on the block's page) until it found one that generated this run of zeros.<br />
Next notice the line titled ''Previous block'', each block contains the hash of the block that came before it, this is what forms the chain of blocks.<br />
Now notice all the transactions the block contains. The first transaction is the income earned by the computer that generated this block. It includes 50 units created out of thin air and possibly fee collected from other transactions in the same block.<br />
<br />
Drill into any of the transactions and you will see how it is made from one or more amounts coming in and out.<br />
The fact that there can be more than one incoming and outgoing amounts, allow the system to join and break amounts in any possible way allowing for any fractional amount needed (usually cents.)<br />
Each incoming amount is a transaction from the past (which you can also drill to) coming from an address of someone<br />
and each outgoing amount is addressed to someone and will be part of a future transaction (which you can also drill too if it also had already taken place.)<br />
<br />
Finally you can drill into any of the addresses and see what public information is available.</div>Udibrhttps://en.bitcoin.it/w/index.php?title=Help:Introduction&diff=3699Help:Introduction2011-02-14T18:42:40Z<p>Udibr: /* Putting it all together */</p>
<hr />
<div><div class="plainlinks" style="border: 1px solid red; width: 100%; background-color: #fcc; padding: 10px; margin-bottom: 25px;">This page requires copy editing and improvement.</div><br />
Alice is far away from Bob and wants to buy his [http://www.grasshillalpacas.com/alpacaproductsforbitcoinoffer.html Alpaca socks]. In return, she wants to send him a dollar. She can use something like paypal with its limitations or she can mail him a dollar bill. But a dollar bill is just an item with very low intrinsic value that is accepted by Alice and Bob to represent something significant in the real world like socks. Instead of mailing the bill itself, Alice could have emailed a number, like the serial number imprinted on her dollar bill, and save on stamps and time, we will call this number a [[Main_Page|bitcoin]]. The bitcoin is used as a unit of account to measure the value of the socks Bob gave to Alice. Once Bob receives the bitcoin he would like to know that there is a good chance that he will be able to use the bitcoin to buy other products of similar value in the immediate future (means of exchange) or in the long term future (asset) and he needs to know if there are any unwanted side effects to using it.<br />
<br />
For the transaction to take place, Alice needs to have a bitcoin to start with and Bob needs to decide if he accepts the bitcoin in return for his socks. The value of a bitcoin is affected:<br />
* The bitcoin can’t be replicated (counterfeited) and used again by Alice or someone else eavesdropping to the transaction.<br />
* Alice can’t create more bitcoins out off thin air without limit<br />
* However, there should be some mechanism that introduces new bitcoins out of thin air into the system, otherwise there would not be enough bitcoins to make it popular by many people. But this mechanism should be agreed by all (fare) and it should be slow otherwise bitcoins cannot be used to store asset.<br />
* Bob needs to know that it will be relatively easy for him to find other people that will accept his bitcoin in the same way that he did, this is a circular problem that requires other people to go through the same decision process <br />
Bob may consider the following side effects:<br />
* Bob needs to know that it will be hard to steal or confiscate his bitcoin once he received it.<br />
* Like regular cash, Bob will like to know that his privacy is kept, and other people that will receive the bitcoin in the future will not be able to personally track him.<br />
<br />
=Counterfeiting=<br />
==By an eavesdropper==<br />
To guarantee that an eavesdropper, Eve, cannot replicate bitcoins we use a [[Wikipedia:Public-key_cryptography|public key system]] to make digital signatures. In this system, each person, such as Alice and Bob, has a pair of public and private keys which he/she stores in a safe [[Wallet|wallet]]. Only the user with his secret private key can sign a document, such as the transaction to give some of his bitcoins to somebody else, but any one can validate the signature using the user’s public key. The bitcoins, in Alice's hands, already contain a signature by whoever sent her the amount.<br />
<br />
* Bob sends his public key to Alice.<br />
* Alice adds Bob’s public key to the coin’s content.<br />
* Alice signs the transaction with her secret private key.<br />
<br />
As a result, the new coin, that Eve may be intercepting, contains the public key of both Alice and Bob.<br />
<br />
Later on, when Bob will transfer the same coins to Charley, he will do the same thing: receive from Charley his public key, add a new transaction to the coin's chain of transactions and sign it with his (Bob) private key. But only Bob can do this, because only Bob has the private key which is necessary for signing and which is the only private key to match Bob’s public key that is already in the chain.<br />
<br />
Eve cannot change who the coins belong to by replacing Bob’s public key with her public key, because Alice signed the transfer to Bob using her private key, declaring that the coins now belong to Bob, and Alice's private key is kept secret from Eve. So if Charley accepts that the original coin was in the hands of Alice he will also accept the fact that this coin was later passed to Bob and now Bob is passing this same coin to him.<br />
<br />
==By the sender==<br />
How to guaranty that Alice does not replicate the coin and use it in more than one transaction:<br />
* Details about the [[Transactions|transaction]] is [[Network|sent]] to as many other people (to their computers) as possible<br />
* At least one of the computers sends back a [[Blocks|block]], which is just a large document that includes details of the transaction and other unrelated transactions. The block is sent to as many other people as possible.<br />
* Eventually the block reaches Bob that can validate that his transaction was recorded and no other transaction for the same coin was made in the past.<br />
* In theory, Alice can generate a spoofed block in which her past usage of the same coin does not appear and try to send this block to Bob as an evidence that the coin is OK. But the process of generating a block is designed to take a [[Proof_of_work|long time]] and she is not likely to generate it on time. Keep in mind that Bob is using a new public key for each transaction so Alice can’t prepare in advance. In addition, many other computers are working in parallel to generate an honest block and one of them is more likely to finish before her. In any case, eventually competing blocks will arrive to Bob that will indication that Alice’s coin was already in use.<br />
<br />
=Privacy=<br />
In order to protect his [[Anonymity|privacy]], Bob can generate a new public-private key pair for each transaction. So David receiving the coin from Charley will not be able to identify who is the second person in the list of transactions. The only thing David will know is the [[Address]] of Bob which is a shortened (hashed) version of his public key.<br />
<br />
=Creation of coins=<br />
As we saw, both Bob and Charley need to verify that the original coin that Alice started with is valid. Alice can’t just generate coins out of thin air because the appearance of a coin is also a transaction that needs to be accepted by others (in their blocks.) The only way she can cause a coin to appear in a block is to generate the block herself, and this is exactly how new coins are slowly introduced: every computer that manages to generate a block is allowed to put one transaction in it in which it receives one coin. Other computers receiving the block can validate that only one coin is created and they can then accept this new coin as valid. Generating blocks is a [[Target|slow]] process that requires Alice to spend computer hardware, electricity bill and time and it can be compared to gold mining. It is also a constructive work because the created block is part of a [[Block_chain|chain of blocks]] that together keep a record of all transactions. The coin received by Alice is used as an incentive for the computation work she performed in addition Alice can shave a small [[Transaction_fee|fee]] from the transactions stored in the block and use it as an additional incentive.<br />
=Putting it all together=<br />
Directly experience the system in action by visting [http://blockexplorer.com/ Bitcoin Block Explorer].<br />
The site shows you the latest blocks in the block chain. The block chain contains the agreed history of all transactions that took place in the system.<br />
Note how many blocks were generated in the last hour, should be around 6. Also notice the number of transactions and the total amount transfered in the last hour (last time I checked it was about 64 and 15K.)<br />
This should give you an indication of how active the system is.<br />
<br />
Next, drill into one of these blocks.<br />
Start by noticing that the block's hash begins with a run of zeros, this is what made making it so difficult.<br />
The computer that generated this block had to run on many ''Nonce'' values (also listed on the block's page) until it found one that generated this run of zeros.<br />
Next notice the line titled ''Previous block'', each block contains the hash of the block that came before it, this is what forms the chain of blocks.<br />
Now notice all the transactions the block contains. The first transaction is the income earned by the computer that generated this block. It includes 50 units created out of thin air and possibly fee collected from other transactions in the same block.<br />
<br />
Drill into any of the transactions and you will see how it is made from one or more amounts coming in and out.<br />
The fact that there can be more than one incoming and outgoing amounts, allow the system to join and break amounts in any possible way allowing for any fractional amount needed (usually cents.)<br />
Each incoming amount is a transaction from the past (which you can also drill to) coming from an address of someone<br />
and each outgoing amount is addressed to someone and will be part of a future transaction (which you can also drill too if it also had already taken place.)<br />
<br />
Finally you can drill into any of the addresses and see what public information is available.</div>Udibrhttps://en.bitcoin.it/w/index.php?title=Help:Introduction&diff=3677Help:Introduction2011-02-14T02:27:36Z<p>Udibr: /* Putting it all together */</p>
<hr />
<div><div class="plainlinks" style="border: 1px solid red; width: 100%; background-color: #fcc; padding: 10px; margin-bottom: 25px;">This page requires copy editing and improvement.</div><br />
Alice is far away from Bob and wants to buy his [http://www.grasshillalpacas.com/alpacaproductsforbitcoinoffer.html Alpaca socks]. In return, she wants to send him a dollar. She can use something like paypal with its limitations or she can mail him a dollar bill. But a dollar bill is just an item with very low intrinsic value that is accepted by Alice and Bob to represent something significant in the real world like socks. Instead of mailing the bill itself, Alice could have emailed a number, like the serial number imprinted on her dollar bill, and save on stamps and time, we will call this number a [[Main_Page|bitcoin]]. The bitcoin is used as a unit of account to measure the value of the socks Bob gave to Alice. Once Bob receives the bitcoin he would like to know that there is a good chance that he will be able to use the bitcoin to buy other products of similar value in the immediate future (means of exchange) or in the long term future (asset) and he needs to know if there are any unwanted side effects to using it.<br />
<br />
For the transaction to take place, Alice needs to have a bitcoin to start with and Bob needs to decide if he accepts the bitcoin in return for his socks. The value of a bitcoin is affected:<br />
* The bitcoin can’t be replicated (counterfeited) and used again by Alice or someone else eavesdropping to the transaction.<br />
* Alice can’t create more bitcoins out off thin air without limit<br />
* However, there should be some mechanism that introduces new bitcoins out of thin air into the system, otherwise there would not be enough bitcoins to make it popular by many people. But this mechanism should be agreed by all (fare) and it should be slow otherwise bitcoins cannot be used to store asset.<br />
* Bob needs to know that it will be relatively easy for him to find other people that will accept his bitcoin in the same way that he did, this is a circular problem that requires other people to go through the same decision process <br />
Bob may consider the following side effects:<br />
* Bob needs to know that it will be hard to steal or confiscate his bitcoin once he received it.<br />
* Like regular cash, Bob will like to know that his privacy is kept, and other people that will receive the bitcoin in the future will not be able to personally track him.<br />
<br />
=Counterfeiting=<br />
==By an eavesdropper==<br />
To guarantee that an eavesdropper, Eve, cannot replicate bitcoins we use a [[Wikipedia:Public-key_cryptography|public key system]] to make digital signatures. In this system, each person, such as Alice and Bob, has a pair of public and private keys which he/she stores in a safe [[Wallet|wallet]]. Only the user with his secret private key can sign a document, such as the transaction to give some of his bitcoins to somebody else, but any one can validate the signature using the user’s public key. The bitcoins, in Alice's hands, already contain a signature by whoever sent her the amount.<br />
<br />
* Bob sends his public key to Alice.<br />
* Alice adds Bob’s public key to the coin’s content.<br />
* Alice signs the transaction with her secret private key.<br />
<br />
As a result, the new coin, that Eve may be intercepting, contains the public key of both Alice and Bob.<br />
<br />
Later on, when Bob will transfer the same coins to Charley, he will do the same thing: receive from Charley his public key, add a new transaction to the coin's chain of transactions and sign it with his (Bob) private key. But only Bob can do this, because only Bob has the private key which is necessary for signing and which is the only private key to match Bob’s public key that is already in the chain.<br />
<br />
Eve cannot change who the coins belong to by replacing Bob’s public key with her public key, because Alice signed the transfer to Bob using her private key, declaring that the coins now belong to Bob, and Alice's private key is kept secret from Eve. So if Charley accepts that the original coin was in the hands of Alice he will also accept the fact that this coin was later passed to Bob and now Bob is passing this same coin to him.<br />
<br />
==By the sender==<br />
How to guaranty that Alice does not replicate the coin and use it in more than one transaction:<br />
* Details about the [[Transactions|transaction]] is [[Network|sent]] to as many other people (to their computers) as possible<br />
* At least one of the computers sends back a [[Blocks|block]], which is just a large document that includes details of the transaction and other unrelated transactions. The block is sent to as many other people as possible.<br />
* Eventually the block reaches Bob that can validate that his transaction was recorded and no other transaction for the same coin was made in the past.<br />
* In theory, Alice can generate a spoofed block in which her past usage of the same coin does not appear and try to send this block to Bob as an evidence that the coin is OK. But the process of generating a block is designed to take a [[Proof_of_work|long time]] and she is not likely to generate it on time. Keep in mind that Bob is using a new public key for each transaction so Alice can’t prepare in advance. In addition, many other computers are working in parallel to generate an honest block and one of them is more likely to finish before her. In any case, eventually competing blocks will arrive to Bob that will indication that Alice’s coin was already in use.<br />
<br />
=Privacy=<br />
In order to protect his [[Anonymity|privacy]], Bob can generate a new public-private key pair for each transaction. So David receiving the coin from Charley will not be able to identify who is the second person in the list of transactions. The only thing David will know is the [[Address]] of Bob which is a shortened (hashed) version of his public key.<br />
<br />
=Creation of coins=<br />
As we saw, both Bob and Charley need to verify that the original coin that Alice started with is valid. Alice can’t just generate coins out of thin air because the appearance of a coin is also a transaction that needs to be accepted by others (in their blocks.) The only way she can cause a coin to appear in a block is to generate the block herself, and this is exactly how new coins are slowly introduced: every computer that manages to generate a block is allowed to put one transaction in it in which it receives one coin. Other computers receiving the block can validate that only one coin is created and they can then accept this new coin as valid. Generating blocks is a [[Target|slow]] process that requires Alice to spend computer hardware, electricity bill and time and it can be compared to gold mining. It is also a constructive work because the created block is part of a [[Block_chain|chain of blocks]] that together keep a record of all transactions. The coin received by Alice is used as an incentive for the computation work she performed in addition Alice can shave a small [[Transaction_fee|fee]] from the transactions stored in the block and use it as an additional incentive.<br />
=Putting it all together=<br />
Instead of reading endless wikipages you can directly experience the system in action by visting [http://blockexplorer.com/ Bitcoin Block Explorer].<br />
The site shows you the latest blocks in the block chain which are the latest recording of transactions taking place.<br />
Note how many blocks were generated in the last hour, should be around 6. Also notice the total amount transfered in the last hour (last time I checked it was about 15K.)<br />
This the volume of the bitcoin system and it gives you an indication of how active the system is.<br />
<br />
Next, drill into one of these blocks.<br />
Start by noticing that the block's hash begins with a run of zeros, this is what made making it so difficult.<br />
The computer that generated this block had to run on many ''Nonce'' values (also listed on the block's page) until it found one that generated this run of zeros.<br />
Next notice the line titled ''Previous block'', each block contains the hash of the block that came before it, this is what forms the chain of blocks.<br />
Now notice all the transactions the block contains. The first transaction is the income earned by the computer that generated this block. It includes 50 units created out of thin air and possibly fee collected from other transactions in the same block.<br />
<br />
Drill into any of the transactions and you will see how it is made from one or more amounts coming in and out.<br />
The fact that there can be more than one incoming and outgoing amounts, allow the system to join and break amounts in any possible way allowing for any fractional amount needed (usually cents.)<br />
Each incoming amount is a transaction from the past (which you can also drill to) coming from an address of someone<br />
and each outgoing amount is addressed to someone and will be part of a future transaction (which you can also drill too if it also had already taken place.)<br />
<br />
Finally you can drill into any of the addresses and see what public information is available.</div>Udibrhttps://en.bitcoin.it/w/index.php?title=Help:Introduction&diff=3676Help:Introduction2011-02-14T02:25:20Z<p>Udibr: /* Putting it all together */</p>
<hr />
<div><div class="plainlinks" style="border: 1px solid red; width: 100%; background-color: #fcc; padding: 10px; margin-bottom: 25px;">This page requires copy editing and improvement.</div><br />
Alice is far away from Bob and wants to buy his [http://www.grasshillalpacas.com/alpacaproductsforbitcoinoffer.html Alpaca socks]. In return, she wants to send him a dollar. She can use something like paypal with its limitations or she can mail him a dollar bill. But a dollar bill is just an item with very low intrinsic value that is accepted by Alice and Bob to represent something significant in the real world like socks. Instead of mailing the bill itself, Alice could have emailed a number, like the serial number imprinted on her dollar bill, and save on stamps and time, we will call this number a [[Main_Page|bitcoin]]. The bitcoin is used as a unit of account to measure the value of the socks Bob gave to Alice. Once Bob receives the bitcoin he would like to know that there is a good chance that he will be able to use the bitcoin to buy other products of similar value in the immediate future (means of exchange) or in the long term future (asset) and he needs to know if there are any unwanted side effects to using it.<br />
<br />
For the transaction to take place, Alice needs to have a bitcoin to start with and Bob needs to decide if he accepts the bitcoin in return for his socks. The value of a bitcoin is affected:<br />
* The bitcoin can’t be replicated (counterfeited) and used again by Alice or someone else eavesdropping to the transaction.<br />
* Alice can’t create more bitcoins out off thin air without limit<br />
* However, there should be some mechanism that introduces new bitcoins out of thin air into the system, otherwise there would not be enough bitcoins to make it popular by many people. But this mechanism should be agreed by all (fare) and it should be slow otherwise bitcoins cannot be used to store asset.<br />
* Bob needs to know that it will be relatively easy for him to find other people that will accept his bitcoin in the same way that he did, this is a circular problem that requires other people to go through the same decision process <br />
Bob may consider the following side effects:<br />
* Bob needs to know that it will be hard to steal or confiscate his bitcoin once he received it.<br />
* Like regular cash, Bob will like to know that his privacy is kept, and other people that will receive the bitcoin in the future will not be able to personally track him.<br />
<br />
=Counterfeiting=<br />
==By an eavesdropper==<br />
To guarantee that an eavesdropper, Eve, cannot replicate bitcoins we use a [[Wikipedia:Public-key_cryptography|public key system]] to make digital signatures. In this system, each person, such as Alice and Bob, has a pair of public and private keys which he/she stores in a safe [[Wallet|wallet]]. Only the user with his secret private key can sign a document, such as the transaction to give some of his bitcoins to somebody else, but any one can validate the signature using the user’s public key. The bitcoins, in Alice's hands, already contain a signature by whoever sent her the amount.<br />
<br />
* Bob sends his public key to Alice.<br />
* Alice adds Bob’s public key to the coin’s content.<br />
* Alice signs the transaction with her secret private key.<br />
<br />
As a result, the new coin, that Eve may be intercepting, contains the public key of both Alice and Bob.<br />
<br />
Later on, when Bob will transfer the same coins to Charley, he will do the same thing: receive from Charley his public key, add a new transaction to the coin's chain of transactions and sign it with his (Bob) private key. But only Bob can do this, because only Bob has the private key which is necessary for signing and which is the only private key to match Bob’s public key that is already in the chain.<br />
<br />
Eve cannot change who the coins belong to by replacing Bob’s public key with her public key, because Alice signed the transfer to Bob using her private key, declaring that the coins now belong to Bob, and Alice's private key is kept secret from Eve. So if Charley accepts that the original coin was in the hands of Alice he will also accept the fact that this coin was later passed to Bob and now Bob is passing this same coin to him.<br />
<br />
==By the sender==<br />
How to guaranty that Alice does not replicate the coin and use it in more than one transaction:<br />
* Details about the [[Transactions|transaction]] is [[Network|sent]] to as many other people (to their computers) as possible<br />
* At least one of the computers sends back a [[Blocks|block]], which is just a large document that includes details of the transaction and other unrelated transactions. The block is sent to as many other people as possible.<br />
* Eventually the block reaches Bob that can validate that his transaction was recorded and no other transaction for the same coin was made in the past.<br />
* In theory, Alice can generate a spoofed block in which her past usage of the same coin does not appear and try to send this block to Bob as an evidence that the coin is OK. But the process of generating a block is designed to take a [[Proof_of_work|long time]] and she is not likely to generate it on time. Keep in mind that Bob is using a new public key for each transaction so Alice can’t prepare in advance. In addition, many other computers are working in parallel to generate an honest block and one of them is more likely to finish before her. In any case, eventually competing blocks will arrive to Bob that will indication that Alice’s coin was already in use.<br />
<br />
=Privacy=<br />
In order to protect his [[Anonymity|privacy]], Bob can generate a new public-private key pair for each transaction. So David receiving the coin from Charley will not be able to identify who is the second person in the list of transactions. The only thing David will know is the [[Address]] of Bob which is a shortened (hashed) version of his public key.<br />
<br />
=Creation of coins=<br />
As we saw, both Bob and Charley need to verify that the original coin that Alice started with is valid. Alice can’t just generate coins out of thin air because the appearance of a coin is also a transaction that needs to be accepted by others (in their blocks.) The only way she can cause a coin to appear in a block is to generate the block herself, and this is exactly how new coins are slowly introduced: every computer that manages to generate a block is allowed to put one transaction in it in which it receives one coin. Other computers receiving the block can validate that only one coin is created and they can then accept this new coin as valid. Generating blocks is a [[Target|slow]] process that requires Alice to spend computer hardware, electricity bill and time and it can be compared to gold mining. It is also a constructive work because the created block is part of a [[Block_chain|chain of blocks]] that together keep a record of all transactions. The coin received by Alice is used as an incentive for the computation work she performed in addition Alice can shave a small [[Transaction_fee|fee]] from the transactions stored in the block and use it as an additional incentive.<br />
=Putting it all together=<br />
Instead of reading endless wikipages you can directly experience the system in action by visting [http://blockexplorer.com/ Bitcoin Block Explorer].<br />
The site shows you the latest blocks in the block chain which are the latest recording of transactions taking place.<br />
Note how many blocks were generated in the last hour, should be around 6. Also notice the total amount transfered in the last hour (last time I checked it was about 15K.)<br />
This the volume of the bitcoin system and it gives you an indication of how active the system is.<br />
<br />
Next, drill into one of these blocks.<br />
Start by noticing that the block's hash begins with a run of zeros, this is what made making it so difficult.<br />
The computer that generated this block had to run on many ''Nonce'' values (also listed on the block's page) until it found one that generated this run of zeros.<br />
Next notice the line titled ''Previous block'', each block contains the hash of the block that came before it, this is what forms the chain of blocks.<br />
Now notice all the transactions the block contains.<br />
<br />
Drill into any of the transactions and you will see how it is made from one or more amounts coming in and out.<br />
The fact that there can be more than one incoming and outgoing amounts, allow the system to join and break amounts in any possible way allowing for any fractional amount needed (usually cents.)<br />
Each incoming amount is a transaction from the past (which you can also drill to) coming from an address of someone<br />
and each outgoing amount is addressed to someone and will be part of a future transaction (which you can also drill too if it also had already taken place.)<br />
<br />
Finally you can drill into any of the addresses and see what public information is available.</div>Udibrhttps://en.bitcoin.it/w/index.php?title=Help:Introduction&diff=3675Help:Introduction2011-02-14T02:17:19Z<p>Udibr: /* Putting it all in action */</p>
<hr />
<div><div class="plainlinks" style="border: 1px solid red; width: 100%; background-color: #fcc; padding: 10px; margin-bottom: 25px;">This page requires copy editing and improvement.</div><br />
Alice is far away from Bob and wants to buy his [http://www.grasshillalpacas.com/alpacaproductsforbitcoinoffer.html Alpaca socks]. In return, she wants to send him a dollar. She can use something like paypal with its limitations or she can mail him a dollar bill. But a dollar bill is just an item with very low intrinsic value that is accepted by Alice and Bob to represent something significant in the real world like socks. Instead of mailing the bill itself, Alice could have emailed a number, like the serial number imprinted on her dollar bill, and save on stamps and time, we will call this number a [[Main_Page|bitcoin]]. The bitcoin is used as a unit of account to measure the value of the socks Bob gave to Alice. Once Bob receives the bitcoin he would like to know that there is a good chance that he will be able to use the bitcoin to buy other products of similar value in the immediate future (means of exchange) or in the long term future (asset) and he needs to know if there are any unwanted side effects to using it.<br />
<br />
For the transaction to take place, Alice needs to have a bitcoin to start with and Bob needs to decide if he accepts the bitcoin in return for his socks. The value of a bitcoin is affected:<br />
* The bitcoin can’t be replicated (counterfeited) and used again by Alice or someone else eavesdropping to the transaction.<br />
* Alice can’t create more bitcoins out off thin air without limit<br />
* However, there should be some mechanism that introduces new bitcoins out of thin air into the system, otherwise there would not be enough bitcoins to make it popular by many people. But this mechanism should be agreed by all (fare) and it should be slow otherwise bitcoins cannot be used to store asset.<br />
* Bob needs to know that it will be relatively easy for him to find other people that will accept his bitcoin in the same way that he did, this is a circular problem that requires other people to go through the same decision process <br />
Bob may consider the following side effects:<br />
* Bob needs to know that it will be hard to steal or confiscate his bitcoin once he received it.<br />
* Like regular cash, Bob will like to know that his privacy is kept, and other people that will receive the bitcoin in the future will not be able to personally track him.<br />
<br />
=Counterfeiting=<br />
==By an eavesdropper==<br />
To guarantee that an eavesdropper, Eve, cannot replicate bitcoins we use a [[Wikipedia:Public-key_cryptography|public key system]] to make digital signatures. In this system, each person, such as Alice and Bob, has a pair of public and private keys which he/she stores in a safe [[Wallet|wallet]]. Only the user with his secret private key can sign a document, such as the transaction to give some of his bitcoins to somebody else, but any one can validate the signature using the user’s public key. The bitcoins, in Alice's hands, already contain a signature by whoever sent her the amount.<br />
<br />
* Bob sends his public key to Alice.<br />
* Alice adds Bob’s public key to the coin’s content.<br />
* Alice signs the transaction with her secret private key.<br />
<br />
As a result, the new coin, that Eve may be intercepting, contains the public key of both Alice and Bob.<br />
<br />
Later on, when Bob will transfer the same coins to Charley, he will do the same thing: receive from Charley his public key, add a new transaction to the coin's chain of transactions and sign it with his (Bob) private key. But only Bob can do this, because only Bob has the private key which is necessary for signing and which is the only private key to match Bob’s public key that is already in the chain.<br />
<br />
Eve cannot change who the coins belong to by replacing Bob’s public key with her public key, because Alice signed the transfer to Bob using her private key, declaring that the coins now belong to Bob, and Alice's private key is kept secret from Eve. So if Charley accepts that the original coin was in the hands of Alice he will also accept the fact that this coin was later passed to Bob and now Bob is passing this same coin to him.<br />
<br />
==By the sender==<br />
How to guaranty that Alice does not replicate the coin and use it in more than one transaction:<br />
* Details about the [[Transactions|transaction]] is [[Network|sent]] to as many other people (to their computers) as possible<br />
* At least one of the computers sends back a [[Blocks|block]], which is just a large document that includes details of the transaction and other unrelated transactions. The block is sent to as many other people as possible.<br />
* Eventually the block reaches Bob that can validate that his transaction was recorded and no other transaction for the same coin was made in the past.<br />
* In theory, Alice can generate a spoofed block in which her past usage of the same coin does not appear and try to send this block to Bob as an evidence that the coin is OK. But the process of generating a block is designed to take a [[Proof_of_work|long time]] and she is not likely to generate it on time. Keep in mind that Bob is using a new public key for each transaction so Alice can’t prepare in advance. In addition, many other computers are working in parallel to generate an honest block and one of them is more likely to finish before her. In any case, eventually competing blocks will arrive to Bob that will indication that Alice’s coin was already in use.<br />
<br />
=Privacy=<br />
In order to protect his [[Anonymity|privacy]], Bob can generate a new public-private key pair for each transaction. So David receiving the coin from Charley will not be able to identify who is the second person in the list of transactions. The only thing David will know is the [[Address]] of Bob which is a shortened (hashed) version of his public key.<br />
<br />
=Creation of coins=<br />
As we saw, both Bob and Charley need to verify that the original coin that Alice started with is valid. Alice can’t just generate coins out of thin air because the appearance of a coin is also a transaction that needs to be accepted by others (in their blocks.) The only way she can cause a coin to appear in a block is to generate the block herself, and this is exactly how new coins are slowly introduced: every computer that manages to generate a block is allowed to put one transaction in it in which it receives one coin. Other computers receiving the block can validate that only one coin is created and they can then accept this new coin as valid. Generating blocks is a [[Target|slow]] process that requires Alice to spend computer hardware, electricity bill and time and it can be compared to gold mining. It is also a constructive work because the created block is part of a [[Block_chain|chain of blocks]] that together keep a record of all transactions. The coin received by Alice is used as an incentive for the computation work she performed in addition Alice can shave a small [[Transaction_fee|fee]] from the transactions stored in the block and use it as an additional incentive.<br />
=Putting it all together=<br />
Instead of reading endless wikipages you can directly experience the system in action by visting [http://blockexplorer.com/ Bitcoin Block Explorer].<br />
The site shows you the latest blocks in the block chain which are the latest recording of transactions taking place.<br />
Note how many blocks were generated in the last hour, should be around 6.<br />
Drill into one of these blocks.<br />
Start by noticing that the block's hash begins with a run of zeros, this is what made making it so difficult. The computer that generated this block had to run on many ''Nonce'' values (also listed on the block's page) until it found one that generated this run of zeros.<br />
Next notice the line titled ''Previous block'', each block contains the hash of the block that came before it, this is what forms the chain of blocks.<br />
Now notice all the transactions the block contains.<br />
Drill into any of the transactions and you will see how it is made from amounts coming in and out.<br />
Each incoming amount is a transaction from the past (which you can also drill to) coming from an address of someone<br />
and each outgoing amount is addressed to someone and will be part of a future transaction (which you can also drill too if it also had already taken place.)<br />
Finally you can drill into the address and see what public information is available.</div>Udibrhttps://en.bitcoin.it/w/index.php?title=Help:Introduction&diff=3674Help:Introduction2011-02-14T02:17:01Z<p>Udibr: /* Putting it all in action */</p>
<hr />
<div><div class="plainlinks" style="border: 1px solid red; width: 100%; background-color: #fcc; padding: 10px; margin-bottom: 25px;">This page requires copy editing and improvement.</div><br />
Alice is far away from Bob and wants to buy his [http://www.grasshillalpacas.com/alpacaproductsforbitcoinoffer.html Alpaca socks]. In return, she wants to send him a dollar. She can use something like paypal with its limitations or she can mail him a dollar bill. But a dollar bill is just an item with very low intrinsic value that is accepted by Alice and Bob to represent something significant in the real world like socks. Instead of mailing the bill itself, Alice could have emailed a number, like the serial number imprinted on her dollar bill, and save on stamps and time, we will call this number a [[Main_Page|bitcoin]]. The bitcoin is used as a unit of account to measure the value of the socks Bob gave to Alice. Once Bob receives the bitcoin he would like to know that there is a good chance that he will be able to use the bitcoin to buy other products of similar value in the immediate future (means of exchange) or in the long term future (asset) and he needs to know if there are any unwanted side effects to using it.<br />
<br />
For the transaction to take place, Alice needs to have a bitcoin to start with and Bob needs to decide if he accepts the bitcoin in return for his socks. The value of a bitcoin is affected:<br />
* The bitcoin can’t be replicated (counterfeited) and used again by Alice or someone else eavesdropping to the transaction.<br />
* Alice can’t create more bitcoins out off thin air without limit<br />
* However, there should be some mechanism that introduces new bitcoins out of thin air into the system, otherwise there would not be enough bitcoins to make it popular by many people. But this mechanism should be agreed by all (fare) and it should be slow otherwise bitcoins cannot be used to store asset.<br />
* Bob needs to know that it will be relatively easy for him to find other people that will accept his bitcoin in the same way that he did, this is a circular problem that requires other people to go through the same decision process <br />
Bob may consider the following side effects:<br />
* Bob needs to know that it will be hard to steal or confiscate his bitcoin once he received it.<br />
* Like regular cash, Bob will like to know that his privacy is kept, and other people that will receive the bitcoin in the future will not be able to personally track him.<br />
<br />
=Counterfeiting=<br />
==By an eavesdropper==<br />
To guarantee that an eavesdropper, Eve, cannot replicate bitcoins we use a [[Wikipedia:Public-key_cryptography|public key system]] to make digital signatures. In this system, each person, such as Alice and Bob, has a pair of public and private keys which he/she stores in a safe [[Wallet|wallet]]. Only the user with his secret private key can sign a document, such as the transaction to give some of his bitcoins to somebody else, but any one can validate the signature using the user’s public key. The bitcoins, in Alice's hands, already contain a signature by whoever sent her the amount.<br />
<br />
* Bob sends his public key to Alice.<br />
* Alice adds Bob’s public key to the coin’s content.<br />
* Alice signs the transaction with her secret private key.<br />
<br />
As a result, the new coin, that Eve may be intercepting, contains the public key of both Alice and Bob.<br />
<br />
Later on, when Bob will transfer the same coins to Charley, he will do the same thing: receive from Charley his public key, add a new transaction to the coin's chain of transactions and sign it with his (Bob) private key. But only Bob can do this, because only Bob has the private key which is necessary for signing and which is the only private key to match Bob’s public key that is already in the chain.<br />
<br />
Eve cannot change who the coins belong to by replacing Bob’s public key with her public key, because Alice signed the transfer to Bob using her private key, declaring that the coins now belong to Bob, and Alice's private key is kept secret from Eve. So if Charley accepts that the original coin was in the hands of Alice he will also accept the fact that this coin was later passed to Bob and now Bob is passing this same coin to him.<br />
<br />
==By the sender==<br />
How to guaranty that Alice does not replicate the coin and use it in more than one transaction:<br />
* Details about the [[Transactions|transaction]] is [[Network|sent]] to as many other people (to their computers) as possible<br />
* At least one of the computers sends back a [[Blocks|block]], which is just a large document that includes details of the transaction and other unrelated transactions. The block is sent to as many other people as possible.<br />
* Eventually the block reaches Bob that can validate that his transaction was recorded and no other transaction for the same coin was made in the past.<br />
* In theory, Alice can generate a spoofed block in which her past usage of the same coin does not appear and try to send this block to Bob as an evidence that the coin is OK. But the process of generating a block is designed to take a [[Proof_of_work|long time]] and she is not likely to generate it on time. Keep in mind that Bob is using a new public key for each transaction so Alice can’t prepare in advance. In addition, many other computers are working in parallel to generate an honest block and one of them is more likely to finish before her. In any case, eventually competing blocks will arrive to Bob that will indication that Alice’s coin was already in use.<br />
<br />
=Privacy=<br />
In order to protect his [[Anonymity|privacy]], Bob can generate a new public-private key pair for each transaction. So David receiving the coin from Charley will not be able to identify who is the second person in the list of transactions. The only thing David will know is the [[Address]] of Bob which is a shortened (hashed) version of his public key.<br />
<br />
=Creation of coins=<br />
As we saw, both Bob and Charley need to verify that the original coin that Alice started with is valid. Alice can’t just generate coins out of thin air because the appearance of a coin is also a transaction that needs to be accepted by others (in their blocks.) The only way she can cause a coin to appear in a block is to generate the block herself, and this is exactly how new coins are slowly introduced: every computer that manages to generate a block is allowed to put one transaction in it in which it receives one coin. Other computers receiving the block can validate that only one coin is created and they can then accept this new coin as valid. Generating blocks is a [[Target|slow]] process that requires Alice to spend computer hardware, electricity bill and time and it can be compared to gold mining. It is also a constructive work because the created block is part of a [[Block_chain|chain of blocks]] that together keep a record of all transactions. The coin received by Alice is used as an incentive for the computation work she performed in addition Alice can shave a small [[Transaction_fee|fee]] from the transactions stored in the block and use it as an additional incentive.<br />
=Putting it all in action=<br />
Instead of reading endless wikipages you can directly experience the system in action by visting [http://blockexplorer.com/ Bitcoin Block Explorer].<br />
The site shows you the latest blocks in the block chain which are the latest recording of transactions taking place.<br />
Note how many blocks were generated in the last hour, should be around 6.<br />
Drill into one of these blocks.<br />
Start by noticing that the block's hash begins with a run of zeros, this is what made making it so difficult. The computer that generated this block had to run on many ''Nonce'' values (also listed on the block's page) until it found one that generated this run of zeros.<br />
Next notice the line titled ''Previous block'', each block contains the hash of the block that came before it, this is what forms the chain of blocks.<br />
Now notice all the transactions the block contains.<br />
Drill into any of the transactions and you will see how it is made from amounts coming in and out.<br />
Each incoming amount is a transaction from the past (which you can also drill to) coming from an address of someone<br />
and each outgoing amount is addressed to someone and will be part of a future transaction (which you can also drill too if it also had already taken place.)<br />
Finally you can drill into the address and see what public information is available.</div>Udibrhttps://en.bitcoin.it/w/index.php?title=Help:Introduction&diff=3673Help:Introduction2011-02-14T02:15:13Z<p>Udibr: /* Putting it all in action */</p>
<hr />
<div><div class="plainlinks" style="border: 1px solid red; width: 100%; background-color: #fcc; padding: 10px; margin-bottom: 25px;">This page requires copy editing and improvement.</div><br />
Alice is far away from Bob and wants to buy his [http://www.grasshillalpacas.com/alpacaproductsforbitcoinoffer.html Alpaca socks]. In return, she wants to send him a dollar. She can use something like paypal with its limitations or she can mail him a dollar bill. But a dollar bill is just an item with very low intrinsic value that is accepted by Alice and Bob to represent something significant in the real world like socks. Instead of mailing the bill itself, Alice could have emailed a number, like the serial number imprinted on her dollar bill, and save on stamps and time, we will call this number a [[Main_Page|bitcoin]]. The bitcoin is used as a unit of account to measure the value of the socks Bob gave to Alice. Once Bob receives the bitcoin he would like to know that there is a good chance that he will be able to use the bitcoin to buy other products of similar value in the immediate future (means of exchange) or in the long term future (asset) and he needs to know if there are any unwanted side effects to using it.<br />
<br />
For the transaction to take place, Alice needs to have a bitcoin to start with and Bob needs to decide if he accepts the bitcoin in return for his socks. The value of a bitcoin is affected:<br />
* The bitcoin can’t be replicated (counterfeited) and used again by Alice or someone else eavesdropping to the transaction.<br />
* Alice can’t create more bitcoins out off thin air without limit<br />
* However, there should be some mechanism that introduces new bitcoins out of thin air into the system, otherwise there would not be enough bitcoins to make it popular by many people. But this mechanism should be agreed by all (fare) and it should be slow otherwise bitcoins cannot be used to store asset.<br />
* Bob needs to know that it will be relatively easy for him to find other people that will accept his bitcoin in the same way that he did, this is a circular problem that requires other people to go through the same decision process <br />
Bob may consider the following side effects:<br />
* Bob needs to know that it will be hard to steal or confiscate his bitcoin once he received it.<br />
* Like regular cash, Bob will like to know that his privacy is kept, and other people that will receive the bitcoin in the future will not be able to personally track him.<br />
<br />
=Counterfeiting=<br />
==By an eavesdropper==<br />
To guarantee that an eavesdropper, Eve, cannot replicate bitcoins we use a [[Wikipedia:Public-key_cryptography|public key system]] to make digital signatures. In this system, each person, such as Alice and Bob, has a pair of public and private keys which he/she stores in a safe [[Wallet|wallet]]. Only the user with his secret private key can sign a document, such as the transaction to give some of his bitcoins to somebody else, but any one can validate the signature using the user’s public key. The bitcoins, in Alice's hands, already contain a signature by whoever sent her the amount.<br />
<br />
* Bob sends his public key to Alice.<br />
* Alice adds Bob’s public key to the coin’s content.<br />
* Alice signs the transaction with her secret private key.<br />
<br />
As a result, the new coin, that Eve may be intercepting, contains the public key of both Alice and Bob.<br />
<br />
Later on, when Bob will transfer the same coins to Charley, he will do the same thing: receive from Charley his public key, add a new transaction to the coin's chain of transactions and sign it with his (Bob) private key. But only Bob can do this, because only Bob has the private key which is necessary for signing and which is the only private key to match Bob’s public key that is already in the chain.<br />
<br />
Eve cannot change who the coins belong to by replacing Bob’s public key with her public key, because Alice signed the transfer to Bob using her private key, declaring that the coins now belong to Bob, and Alice's private key is kept secret from Eve. So if Charley accepts that the original coin was in the hands of Alice he will also accept the fact that this coin was later passed to Bob and now Bob is passing this same coin to him.<br />
<br />
==By the sender==<br />
How to guaranty that Alice does not replicate the coin and use it in more than one transaction:<br />
* Details about the [[Transactions|transaction]] is [[Network|sent]] to as many other people (to their computers) as possible<br />
* At least one of the computers sends back a [[Blocks|block]], which is just a large document that includes details of the transaction and other unrelated transactions. The block is sent to as many other people as possible.<br />
* Eventually the block reaches Bob that can validate that his transaction was recorded and no other transaction for the same coin was made in the past.<br />
* In theory, Alice can generate a spoofed block in which her past usage of the same coin does not appear and try to send this block to Bob as an evidence that the coin is OK. But the process of generating a block is designed to take a [[Proof_of_work|long time]] and she is not likely to generate it on time. Keep in mind that Bob is using a new public key for each transaction so Alice can’t prepare in advance. In addition, many other computers are working in parallel to generate an honest block and one of them is more likely to finish before her. In any case, eventually competing blocks will arrive to Bob that will indication that Alice’s coin was already in use.<br />
<br />
=Privacy=<br />
In order to protect his [[Anonymity|privacy]], Bob can generate a new public-private key pair for each transaction. So David receiving the coin from Charley will not be able to identify who is the second person in the list of transactions. The only thing David will know is the [[Address]] of Bob which is a shortened (hashed) version of his public key.<br />
<br />
=Creation of coins=<br />
As we saw, both Bob and Charley need to verify that the original coin that Alice started with is valid. Alice can’t just generate coins out of thin air because the appearance of a coin is also a transaction that needs to be accepted by others (in their blocks.) The only way she can cause a coin to appear in a block is to generate the block herself, and this is exactly how new coins are slowly introduced: every computer that manages to generate a block is allowed to put one transaction in it in which it receives one coin. Other computers receiving the block can validate that only one coin is created and they can then accept this new coin as valid. Generating blocks is a [[Target|slow]] process that requires Alice to spend computer hardware, electricity bill and time and it can be compared to gold mining. It is also a constructive work because the created block is part of a [[Block_chain|chain of blocks]] that together keep a record of all transactions. The coin received by Alice is used as an incentive for the computation work she performed in addition Alice can shave a small [[Transaction_fee|fee]] from the transactions stored in the block and use it as an additional incentive.<br />
=Putting it all in action=<br />
Instead of reading endless wikipages you can directly experience the system in action by visting [http://blockexplorer.com/ Bitcoin Block Explorer].<br />
The site shows you the latest blocks in the block chain which are the latest recording of transactions taking place.<br />
Note how many blocks were generated in the last hour, should be around 6.<br />
Drill into one of these blocks.<br />
Start by noticing that the block's hash begins with a run of zeros, this is what made making it so difficult. The computer that generated this block had to run on many ''Nonce'' values (also listed on the block's page) until it found one that generated this run of zeros. Next notice the previous block, each block contains the hash of the block that came before it, this is what forms the chain of blocks.<br />
Now notice all the transactions the block contains.<br />
Drill into any of the transactions and you will see how it is made from amounts coming in and out.<br />
Each incoming amount is a transaction from the past (which you can also drill to) coming from an address of someone<br />
and each outgoing amount is addressed to someone and will be part of a future transaction (which you can also drill too if it also had already taken place.)<br />
Finally you can drill into the address and see what public information is available.</div>Udibrhttps://en.bitcoin.it/w/index.php?title=Help:Introduction&diff=3672Help:Introduction2011-02-14T02:08:03Z<p>Udibr: /* Putting it all in action */</p>
<hr />
<div><div class="plainlinks" style="border: 1px solid red; width: 100%; background-color: #fcc; padding: 10px; margin-bottom: 25px;">This page requires copy editing and improvement.</div><br />
Alice is far away from Bob and wants to buy his [http://www.grasshillalpacas.com/alpacaproductsforbitcoinoffer.html Alpaca socks]. In return, she wants to send him a dollar. She can use something like paypal with its limitations or she can mail him a dollar bill. But a dollar bill is just an item with very low intrinsic value that is accepted by Alice and Bob to represent something significant in the real world like socks. Instead of mailing the bill itself, Alice could have emailed a number, like the serial number imprinted on her dollar bill, and save on stamps and time, we will call this number a [[Main_Page|bitcoin]]. The bitcoin is used as a unit of account to measure the value of the socks Bob gave to Alice. Once Bob receives the bitcoin he would like to know that there is a good chance that he will be able to use the bitcoin to buy other products of similar value in the immediate future (means of exchange) or in the long term future (asset) and he needs to know if there are any unwanted side effects to using it.<br />
<br />
For the transaction to take place, Alice needs to have a bitcoin to start with and Bob needs to decide if he accepts the bitcoin in return for his socks. The value of a bitcoin is affected:<br />
* The bitcoin can’t be replicated (counterfeited) and used again by Alice or someone else eavesdropping to the transaction.<br />
* Alice can’t create more bitcoins out off thin air without limit<br />
* However, there should be some mechanism that introduces new bitcoins out of thin air into the system, otherwise there would not be enough bitcoins to make it popular by many people. But this mechanism should be agreed by all (fare) and it should be slow otherwise bitcoins cannot be used to store asset.<br />
* Bob needs to know that it will be relatively easy for him to find other people that will accept his bitcoin in the same way that he did, this is a circular problem that requires other people to go through the same decision process <br />
Bob may consider the following side effects:<br />
* Bob needs to know that it will be hard to steal or confiscate his bitcoin once he received it.<br />
* Like regular cash, Bob will like to know that his privacy is kept, and other people that will receive the bitcoin in the future will not be able to personally track him.<br />
<br />
=Counterfeiting=<br />
==By an eavesdropper==<br />
To guarantee that an eavesdropper, Eve, cannot replicate bitcoins we use a [[Wikipedia:Public-key_cryptography|public key system]] to make digital signatures. In this system, each person, such as Alice and Bob, has a pair of public and private keys which he/she stores in a safe [[Wallet|wallet]]. Only the user with his secret private key can sign a document, such as the transaction to give some of his bitcoins to somebody else, but any one can validate the signature using the user’s public key. The bitcoins, in Alice's hands, already contain a signature by whoever sent her the amount.<br />
<br />
* Bob sends his public key to Alice.<br />
* Alice adds Bob’s public key to the coin’s content.<br />
* Alice signs the transaction with her secret private key.<br />
<br />
As a result, the new coin, that Eve may be intercepting, contains the public key of both Alice and Bob.<br />
<br />
Later on, when Bob will transfer the same coins to Charley, he will do the same thing: receive from Charley his public key, add a new transaction to the coin's chain of transactions and sign it with his (Bob) private key. But only Bob can do this, because only Bob has the private key which is necessary for signing and which is the only private key to match Bob’s public key that is already in the chain.<br />
<br />
Eve cannot change who the coins belong to by replacing Bob’s public key with her public key, because Alice signed the transfer to Bob using her private key, declaring that the coins now belong to Bob, and Alice's private key is kept secret from Eve. So if Charley accepts that the original coin was in the hands of Alice he will also accept the fact that this coin was later passed to Bob and now Bob is passing this same coin to him.<br />
<br />
==By the sender==<br />
How to guaranty that Alice does not replicate the coin and use it in more than one transaction:<br />
* Details about the [[Transactions|transaction]] is [[Network|sent]] to as many other people (to their computers) as possible<br />
* At least one of the computers sends back a [[Blocks|block]], which is just a large document that includes details of the transaction and other unrelated transactions. The block is sent to as many other people as possible.<br />
* Eventually the block reaches Bob that can validate that his transaction was recorded and no other transaction for the same coin was made in the past.<br />
* In theory, Alice can generate a spoofed block in which her past usage of the same coin does not appear and try to send this block to Bob as an evidence that the coin is OK. But the process of generating a block is designed to take a [[Proof_of_work|long time]] and she is not likely to generate it on time. Keep in mind that Bob is using a new public key for each transaction so Alice can’t prepare in advance. In addition, many other computers are working in parallel to generate an honest block and one of them is more likely to finish before her. In any case, eventually competing blocks will arrive to Bob that will indication that Alice’s coin was already in use.<br />
<br />
=Privacy=<br />
In order to protect his [[Anonymity|privacy]], Bob can generate a new public-private key pair for each transaction. So David receiving the coin from Charley will not be able to identify who is the second person in the list of transactions. The only thing David will know is the [[Address]] of Bob which is a shortened (hashed) version of his public key.<br />
<br />
=Creation of coins=<br />
As we saw, both Bob and Charley need to verify that the original coin that Alice started with is valid. Alice can’t just generate coins out of thin air because the appearance of a coin is also a transaction that needs to be accepted by others (in their blocks.) The only way she can cause a coin to appear in a block is to generate the block herself, and this is exactly how new coins are slowly introduced: every computer that manages to generate a block is allowed to put one transaction in it in which it receives one coin. Other computers receiving the block can validate that only one coin is created and they can then accept this new coin as valid. Generating blocks is a [[Target|slow]] process that requires Alice to spend computer hardware, electricity bill and time and it can be compared to gold mining. It is also a constructive work because the created block is part of a [[Block_chain|chain of blocks]] that together keep a record of all transactions. The coin received by Alice is used as an incentive for the computation work she performed in addition Alice can shave a small [[Transaction_fee|fee]] from the transactions stored in the block and use it as an additional incentive.<br />
=Putting it all in action=<br />
Instead of reading endless wikipages you can directly experience the system in action by visting [http://blockexplorer.com/ Bitcoin Block Explorer].<br />
Start with the latest blocks in the block chain.<br />
Drill into one of them to see all the transactions it contains.<br />
Drill into any of the transactions and you will see how it is made from amounts coming in and out.<br />
Each incoming amount is a transaction from the past (which you can also drill to) coming from an address of someone<br />
and each outgoing amount is addressed to someone and will be part of a future transaction (which you can also drill too if it also had already taken place.)<br />
Finally you can drill into the address and see what public information is available.</div>Udibrhttps://en.bitcoin.it/w/index.php?title=Help:Introduction&diff=3671Help:Introduction2011-02-14T02:06:19Z<p>Udibr: /* Putting it all in action */</p>
<hr />
<div><div class="plainlinks" style="border: 1px solid red; width: 100%; background-color: #fcc; padding: 10px; margin-bottom: 25px;">This page requires copy editing and improvement.</div><br />
Alice is far away from Bob and wants to buy his [http://www.grasshillalpacas.com/alpacaproductsforbitcoinoffer.html Alpaca socks]. In return, she wants to send him a dollar. She can use something like paypal with its limitations or she can mail him a dollar bill. But a dollar bill is just an item with very low intrinsic value that is accepted by Alice and Bob to represent something significant in the real world like socks. Instead of mailing the bill itself, Alice could have emailed a number, like the serial number imprinted on her dollar bill, and save on stamps and time, we will call this number a [[Main_Page|bitcoin]]. The bitcoin is used as a unit of account to measure the value of the socks Bob gave to Alice. Once Bob receives the bitcoin he would like to know that there is a good chance that he will be able to use the bitcoin to buy other products of similar value in the immediate future (means of exchange) or in the long term future (asset) and he needs to know if there are any unwanted side effects to using it.<br />
<br />
For the transaction to take place, Alice needs to have a bitcoin to start with and Bob needs to decide if he accepts the bitcoin in return for his socks. The value of a bitcoin is affected:<br />
* The bitcoin can’t be replicated (counterfeited) and used again by Alice or someone else eavesdropping to the transaction.<br />
* Alice can’t create more bitcoins out off thin air without limit<br />
* However, there should be some mechanism that introduces new bitcoins out of thin air into the system, otherwise there would not be enough bitcoins to make it popular by many people. But this mechanism should be agreed by all (fare) and it should be slow otherwise bitcoins cannot be used to store asset.<br />
* Bob needs to know that it will be relatively easy for him to find other people that will accept his bitcoin in the same way that he did, this is a circular problem that requires other people to go through the same decision process <br />
Bob may consider the following side effects:<br />
* Bob needs to know that it will be hard to steal or confiscate his bitcoin once he received it.<br />
* Like regular cash, Bob will like to know that his privacy is kept, and other people that will receive the bitcoin in the future will not be able to personally track him.<br />
<br />
=Counterfeiting=<br />
==By an eavesdropper==<br />
To guarantee that an eavesdropper, Eve, cannot replicate bitcoins we use a [[Wikipedia:Public-key_cryptography|public key system]] to make digital signatures. In this system, each person, such as Alice and Bob, has a pair of public and private keys which he/she stores in a safe [[Wallet|wallet]]. Only the user with his secret private key can sign a document, such as the transaction to give some of his bitcoins to somebody else, but any one can validate the signature using the user’s public key. The bitcoins, in Alice's hands, already contain a signature by whoever sent her the amount.<br />
<br />
* Bob sends his public key to Alice.<br />
* Alice adds Bob’s public key to the coin’s content.<br />
* Alice signs the transaction with her secret private key.<br />
<br />
As a result, the new coin, that Eve may be intercepting, contains the public key of both Alice and Bob.<br />
<br />
Later on, when Bob will transfer the same coins to Charley, he will do the same thing: receive from Charley his public key, add a new transaction to the coin's chain of transactions and sign it with his (Bob) private key. But only Bob can do this, because only Bob has the private key which is necessary for signing and which is the only private key to match Bob’s public key that is already in the chain.<br />
<br />
Eve cannot change who the coins belong to by replacing Bob’s public key with her public key, because Alice signed the transfer to Bob using her private key, declaring that the coins now belong to Bob, and Alice's private key is kept secret from Eve. So if Charley accepts that the original coin was in the hands of Alice he will also accept the fact that this coin was later passed to Bob and now Bob is passing this same coin to him.<br />
<br />
==By the sender==<br />
How to guaranty that Alice does not replicate the coin and use it in more than one transaction:<br />
* Details about the [[Transactions|transaction]] is [[Network|sent]] to as many other people (to their computers) as possible<br />
* At least one of the computers sends back a [[Blocks|block]], which is just a large document that includes details of the transaction and other unrelated transactions. The block is sent to as many other people as possible.<br />
* Eventually the block reaches Bob that can validate that his transaction was recorded and no other transaction for the same coin was made in the past.<br />
* In theory, Alice can generate a spoofed block in which her past usage of the same coin does not appear and try to send this block to Bob as an evidence that the coin is OK. But the process of generating a block is designed to take a [[Proof_of_work|long time]] and she is not likely to generate it on time. Keep in mind that Bob is using a new public key for each transaction so Alice can’t prepare in advance. In addition, many other computers are working in parallel to generate an honest block and one of them is more likely to finish before her. In any case, eventually competing blocks will arrive to Bob that will indication that Alice’s coin was already in use.<br />
<br />
=Privacy=<br />
In order to protect his [[Anonymity|privacy]], Bob can generate a new public-private key pair for each transaction. So David receiving the coin from Charley will not be able to identify who is the second person in the list of transactions. The only thing David will know is the [[Address]] of Bob which is a shortened (hashed) version of his public key.<br />
<br />
=Creation of coins=<br />
As we saw, both Bob and Charley need to verify that the original coin that Alice started with is valid. Alice can’t just generate coins out of thin air because the appearance of a coin is also a transaction that needs to be accepted by others (in their blocks.) The only way she can cause a coin to appear in a block is to generate the block herself, and this is exactly how new coins are slowly introduced: every computer that manages to generate a block is allowed to put one transaction in it in which it receives one coin. Other computers receiving the block can validate that only one coin is created and they can then accept this new coin as valid. Generating blocks is a [[Target|slow]] process that requires Alice to spend computer hardware, electricity bill and time and it can be compared to gold mining. It is also a constructive work because the created block is part of a [[Block_chain|chain of blocks]] that together keep a record of all transactions. The coin received by Alice is used as an incentive for the computation work she performed in addition Alice can shave a small [[Transaction_fee|fee]] from the transactions stored in the block and use it as an additional incentive.<br />
=Putting it all in action=<br />
Instead of reading endless wikipages you can directly experience the system in action by visting [http://blockexplorer.com/ Bitcoin Block Explorer].<br />
Start with the latest blocks in the block chain. Drilling into one of them to see all the transactions it contains.<br />
Drill into any of the transactions and you will see how it is made from amounts coming in and out.<br />
Each incoming amount is a transaction from the past (which you can also drill to) coming from an address of someone<br />
and each outgoing amount is addressed to someone and will be part of a future transaction (which you can also drill too if it also had already taken place.)<br />
Finally you can drill into the address and see what public information is available.</div>Udibrhttps://en.bitcoin.it/w/index.php?title=Help:Introduction&diff=3670Help:Introduction2011-02-14T02:03:19Z<p>Udibr: /* Creation of coins */</p>
<hr />
<div><div class="plainlinks" style="border: 1px solid red; width: 100%; background-color: #fcc; padding: 10px; margin-bottom: 25px;">This page requires copy editing and improvement.</div><br />
Alice is far away from Bob and wants to buy his [http://www.grasshillalpacas.com/alpacaproductsforbitcoinoffer.html Alpaca socks]. In return, she wants to send him a dollar. She can use something like paypal with its limitations or she can mail him a dollar bill. But a dollar bill is just an item with very low intrinsic value that is accepted by Alice and Bob to represent something significant in the real world like socks. Instead of mailing the bill itself, Alice could have emailed a number, like the serial number imprinted on her dollar bill, and save on stamps and time, we will call this number a [[Main_Page|bitcoin]]. The bitcoin is used as a unit of account to measure the value of the socks Bob gave to Alice. Once Bob receives the bitcoin he would like to know that there is a good chance that he will be able to use the bitcoin to buy other products of similar value in the immediate future (means of exchange) or in the long term future (asset) and he needs to know if there are any unwanted side effects to using it.<br />
<br />
For the transaction to take place, Alice needs to have a bitcoin to start with and Bob needs to decide if he accepts the bitcoin in return for his socks. The value of a bitcoin is affected:<br />
* The bitcoin can’t be replicated (counterfeited) and used again by Alice or someone else eavesdropping to the transaction.<br />
* Alice can’t create more bitcoins out off thin air without limit<br />
* However, there should be some mechanism that introduces new bitcoins out of thin air into the system, otherwise there would not be enough bitcoins to make it popular by many people. But this mechanism should be agreed by all (fare) and it should be slow otherwise bitcoins cannot be used to store asset.<br />
* Bob needs to know that it will be relatively easy for him to find other people that will accept his bitcoin in the same way that he did, this is a circular problem that requires other people to go through the same decision process <br />
Bob may consider the following side effects:<br />
* Bob needs to know that it will be hard to steal or confiscate his bitcoin once he received it.<br />
* Like regular cash, Bob will like to know that his privacy is kept, and other people that will receive the bitcoin in the future will not be able to personally track him.<br />
<br />
=Counterfeiting=<br />
==By an eavesdropper==<br />
To guarantee that an eavesdropper, Eve, cannot replicate bitcoins we use a [[Wikipedia:Public-key_cryptography|public key system]] to make digital signatures. In this system, each person, such as Alice and Bob, has a pair of public and private keys which he/she stores in a safe [[Wallet|wallet]]. Only the user with his secret private key can sign a document, such as the transaction to give some of his bitcoins to somebody else, but any one can validate the signature using the user’s public key. The bitcoins, in Alice's hands, already contain a signature by whoever sent her the amount.<br />
<br />
* Bob sends his public key to Alice.<br />
* Alice adds Bob’s public key to the coin’s content.<br />
* Alice signs the transaction with her secret private key.<br />
<br />
As a result, the new coin, that Eve may be intercepting, contains the public key of both Alice and Bob.<br />
<br />
Later on, when Bob will transfer the same coins to Charley, he will do the same thing: receive from Charley his public key, add a new transaction to the coin's chain of transactions and sign it with his (Bob) private key. But only Bob can do this, because only Bob has the private key which is necessary for signing and which is the only private key to match Bob’s public key that is already in the chain.<br />
<br />
Eve cannot change who the coins belong to by replacing Bob’s public key with her public key, because Alice signed the transfer to Bob using her private key, declaring that the coins now belong to Bob, and Alice's private key is kept secret from Eve. So if Charley accepts that the original coin was in the hands of Alice he will also accept the fact that this coin was later passed to Bob and now Bob is passing this same coin to him.<br />
<br />
==By the sender==<br />
How to guaranty that Alice does not replicate the coin and use it in more than one transaction:<br />
* Details about the [[Transactions|transaction]] is [[Network|sent]] to as many other people (to their computers) as possible<br />
* At least one of the computers sends back a [[Blocks|block]], which is just a large document that includes details of the transaction and other unrelated transactions. The block is sent to as many other people as possible.<br />
* Eventually the block reaches Bob that can validate that his transaction was recorded and no other transaction for the same coin was made in the past.<br />
* In theory, Alice can generate a spoofed block in which her past usage of the same coin does not appear and try to send this block to Bob as an evidence that the coin is OK. But the process of generating a block is designed to take a [[Proof_of_work|long time]] and she is not likely to generate it on time. Keep in mind that Bob is using a new public key for each transaction so Alice can’t prepare in advance. In addition, many other computers are working in parallel to generate an honest block and one of them is more likely to finish before her. In any case, eventually competing blocks will arrive to Bob that will indication that Alice’s coin was already in use.<br />
<br />
=Privacy=<br />
In order to protect his [[Anonymity|privacy]], Bob can generate a new public-private key pair for each transaction. So David receiving the coin from Charley will not be able to identify who is the second person in the list of transactions. The only thing David will know is the [[Address]] of Bob which is a shortened (hashed) version of his public key.<br />
<br />
=Creation of coins=<br />
As we saw, both Bob and Charley need to verify that the original coin that Alice started with is valid. Alice can’t just generate coins out of thin air because the appearance of a coin is also a transaction that needs to be accepted by others (in their blocks.) The only way she can cause a coin to appear in a block is to generate the block herself, and this is exactly how new coins are slowly introduced: every computer that manages to generate a block is allowed to put one transaction in it in which it receives one coin. Other computers receiving the block can validate that only one coin is created and they can then accept this new coin as valid. Generating blocks is a [[Target|slow]] process that requires Alice to spend computer hardware, electricity bill and time and it can be compared to gold mining. It is also a constructive work because the created block is part of a [[Block_chain|chain of blocks]] that together keep a record of all transactions. The coin received by Alice is used as an incentive for the computation work she performed in addition Alice can shave a small [[Transaction_fee|fee]] from the transactions stored in the block and use it as an additional incentive.<br />
=Putting it all in action=<br />
Instead of reading endless wikipages you can directly experience the system in action by visting [http://blockexplorer.com/ Bitcoin Block Explorer] web site.<br />
You start with the latest real blocks in the block chain. Drilling into one of these blocks, shows you all the transactions that were signed by it.<br />
Drilling into one of the transactions shows you how each transaction is made from amounts coming in and out.<br />
Each incoming amount is a transaction from the past (which you can also drill to) coming from an address of someone<br />
and each outgoing amount is addressed to someone and will be part of a future transaction (which you can drill too if it also had already taken place.)<br />
Finally you can drill into the address and see what public information is available.</div>Udibrhttps://en.bitcoin.it/w/index.php?title=API_reference_(JSON-RPC)&diff=3668API reference (JSON-RPC)2011-02-14T01:08:42Z<p>Udibr: /* Controlling Bitcoin */</p>
<hr />
<div>== Controlling Bitcoin ==<br />
<br />
Run ''bitcoind'' or ''bitcoin -server''. You can control it via the command-line or by HTTP-JSON-RPC commands.<br />
<br />
Under Linux create ~/.bitcoin/bitcoin.conf. Under Windows create bitcoin.conf in the Bitcoin data directory. Under OS X in /Users/udi/Library/Application\ Support/Bitcoin/<br />
<br />
bitcoin.conf:<br />
rpcuser=myusername<br />
rpcpassword=secretpassword<br />
<br />
Now run:<br />
$ ./bitcoind<br />
bitcoin server starting<br />
$ ./bitcoind help<br />
<br />
A [[Original Bitcoin client/API Calls list|list of RPC calls]] will be shown.<br />
<br />
$ ./bitcoind getbalance<br />
2000.00000<br />
<br />
== JSON-RPC ==<br />
<br />
Running Bitcoin with the -server argument (or running bitcoind) tells it to function as a [http://json-rpc.org/wiki/specification|HTTP JSON-RPC] server, but <br />
[http://en.wikipedia.org/wiki/Basic_access_authentication|HTTP Basic access authentication] must be used when communicating with it, and, for security, by default, the server only accepts connections from other processes on the same machine. If your HTTP or JSON library requires you to specify which 'realm' is authenticated, use 'jsonrpc'.<br />
<br />
Bitcoin supports SSL (https) JSON-RPC connections beginning with version 0.3.14. See the [[Enabling SSL on original client daemon|rpcssl wiki page]] for setup instructions and a list of all bitcoin.conf configuration options.<br />
<br />
To access the server you should find a [http://json-rpc.org/wiki/implementations|suitable library] for your language.<br />
<br />
== Python ==<br />
<br />
For Python, [http://json-rpc.org/wiki/python-json-rpc python-jsonrpc] is perfect. Python-jsonrpc automatically generates Python methods corresponding to the functions above. For example:<br />
<br />
<source lang="python"><br />
from jsonrpc import ServiceProxy<br />
<br />
access = ServiceProxy("http://user:password@127.0.0.1:8332")<br />
access.getinfo()<br />
access.listreceivedbyaddress(6)<br />
access.sendtoaddress("11yEmxiMso2RsFVfBcCa616npBvGgxiBX", 10)<br />
</source><br />
<br />
== PHP ==<br />
<br />
The [https://github.com/mikegogulski/bitcoin-php bitcoin-php] library provides an abstraction layer around a JSON-RPC-HTTP(S) connection to Bitcoin. Example:<br />
<br />
<source lang="php"><br />
include_once("bitcoin.inc");<br />
$bitcoin_client = new BitcoinClient("https", "username", "password", "localhost", 8332, "/path/to/server.cert");<br />
<br />
if (TRUE !== ($fault = $bitcoin_client->can_connect()))<br />
die('Connection to Bitcoin failed. Fault: ', $fault);<br />
<br />
try {<br />
$address = $bitcoin_client->query("getnewaddress", $label);<br />
} catch (BitcoinClientException $e) {<br />
die('getnewaddress failed. Fault: ', $e->getMessage());<br />
}<br />
</source><br />
<br />
The [http://jsonrpcphp.org/ JSON-RPC PHP] library also makes it very easy to connect to Bitcoin. For example:<br />
<br />
<source lang="php"><br />
require_once 'jsonRPCClient.php';<br />
<br />
$bitcoin = new jsonRPCClient('http://user:pass@127.0.0.1:8332/');<br />
<br />
echo "<pre>\n";<br />
print_r($bitcoin->getinfo()); echo "\n";<br />
echo "Received: ".$bitcoin->getreceivedbylabel("Your Address")."\n";<br />
echo "</pre>";<br />
</source><br />
<br />
== Java ==<br />
<br />
The easiest way to tell Java to use HTTP Basic authentication is to set a default Authenticator:<br />
<br />
<source lang="java"><br />
final String rpcuser ="...";<br />
final String rpcpassword ="...";<br />
<br />
Authenticator.setDefault(new Authenticator() {<br />
protected PasswordAuthentication getPasswordAuthentication() {<br />
return new PasswordAuthentication (rpcuser, rpcpassword.toCharArray());<br />
}<br />
});<br />
</source><br />
<br />
Once that is done, any JSON-RPC library for Java (or ordinary URL POSTs) may be used to communicate with the Bitcoin server.<br />
<br />
== Perl ==<br />
<br />
The JSON::RPC package from CPAN can be used to communicate with Bitcoin. You must set the client's credentials; for example:<br />
<br />
<source lang="perl"><br />
use JSON::RPC::Client;<br />
use Data::Dumper;<br />
<br />
my $client = new JSON::RPC::Client;<br />
<br />
$client->ua->credentials(<br />
'localhost:8332', 'jsonrpc', 'user' => 'password' # REPLACE WITH YOUR bitcoin.conf rpcuser/rpcpassword<br />
);<br />
<br />
my $uri = 'http://localhost:8332/';<br />
my $obj = {<br />
method => 'getinfo',<br />
params => [],<br />
};<br />
<br />
my $res = $client->call( $uri, $obj );<br />
<br />
if ($res){<br />
if ($res->is_error) { print "Error : ", $res->error_message; }<br />
else { print Dumper($res->result); }<br />
} else {<br />
print $client->status_line;<br />
}<br />
</source><br />
<br />
== .NET (C#) ==<br />
The communication with rpc service can be achieved using the standard httprequest/response objects.<br />
A library for serialising and deserialising Json will make your life a lot easier:<br />
<br />
* JayRock for .NET 4.0<br />
* Json.Net for .NET 2.0 and above <br />
<br />
The following example uses Json.Net:<br />
<br />
<source lang="csharp"><br />
HttpWebRequest webRequest = (HttpWebRequest)WebRequest.Create("http://localhost.:8332");<br />
webRequest.Credentials = new NetworkCredential("user", "pwd");<br />
/// important, otherwise the service can't desirialse your request properly<br />
webRequest.ContentType = "application/json-rpc";<br />
webRequest.Method = "POST";<br />
<br />
JObject joe = new JObject();<br />
joe.Add(new JProperty("jsonrpc", "1.0"));<br />
joe.Add(new JProperty("id", "1"));<br />
joe.Add(new JProperty("method", Method));<br />
// params is a collection values which the method requires..<br />
if (Params.Keys.Count == 0)<br />
{<br />
joe.Add(new JProperty("params", new JArray()));<br />
}<br />
else<br />
{<br />
JArray props = new JArray();<br />
// add the props in the reverse order!<br />
for (int i = Params.Keys.Count - 1; i >= 0; i--)<br />
{<br />
.... // add the params<br />
}<br />
joe.Add(new JProperty("params", props));<br />
}<br />
<br />
// serialize json for the request<br />
string s = JsonConvert.SerializeObject(joe);<br />
byte[] byteArray = Encoding.UTF8.GetBytes(s);<br />
webRequest.ContentLength = byteArray.Length;<br />
Stream dataStream = webRequest.GetRequestStream();<br />
dataStream.Write(byteArray, 0, byteArray.Length);<br />
dataStream.Close();<br />
<br />
<br />
WebResponse webResponse = webRequest.GetResponse();<br />
<br />
... // deserialze the response<br />
</source><br />
<br />
== Command line (cURL) ==<br />
<br />
You can also send commands and see results using [http://curl.haxx.se/ cURL] or some other command-line HTTP-fetching utility; for example:<br />
<br />
<source lang="bash"><br />
curl --user user --data-binary '{"jsonrpc": "1.0", "id":"curltest", "method": "getinfo", "params": [] }' <br />
-H 'content-type: text/plain;' http://127.0.0.1:8332/<br />
</source><br />
<br />
You will be prompted for your rpcpassword, and then will see something like:<br />
<br />
<source lang="javascript"><br />
{"result":{"balance":0.000000000000000,"blocks":59952,"connections":48,"proxy":"","generate":false,<br />
"genproclimit":-1,"difficulty":16.61907875185736,"error":null,"id":"curltest"}<br />
</source><br />
<br />
[[Category:Articles using content from the old wiki]]<br />
[[Category:Technical]]<br />
[[Category:Developer]]</div>Udibrhttps://en.bitcoin.it/w/index.php?title=Help:Introduction&diff=3666Help:Introduction2011-02-14T00:57:31Z<p>Udibr: /* Privacy */</p>
<hr />
<div><div class="plainlinks" style="border: 1px solid red; width: 100%; background-color: #fcc; padding: 10px; margin-bottom: 25px;">This page requires copy editing and improvement.</div><br />
Alice is far away from Bob and wants to buy his [http://www.grasshillalpacas.com/alpacaproductsforbitcoinoffer.html Alpaca socks]. In return, she wants to send him a dollar. She can use something like paypal with its limitations or she can mail him a dollar bill. But a dollar bill is just an item with very low intrinsic value that is accepted by Alice and Bob to represent something significant in the real world like socks. Instead of mailing the bill itself, Alice could have emailed a number, like the serial number imprinted on her dollar bill, and save on stamps and time, we will call this number a [[Main_Page|bitcoin]]. The bitcoin is used as a unit of account to measure the value of the socks Bob gave to Alice. Once Bob receives the bitcoin he would like to know that there is a good chance that he will be able to use the bitcoin to buy other products of similar value in the immediate future (means of exchange) or in the long term future (asset) and he needs to know if there are any unwanted side effects to using it.<br />
<br />
For the transaction to take place, Alice needs to have a bitcoin to start with and Bob needs to decide if he accepts the bitcoin in return for his socks. The value of a bitcoin is affected:<br />
* The bitcoin can’t be replicated (counterfeited) and used again by Alice or someone else eavesdropping to the transaction.<br />
* Alice can’t create more bitcoins out off thin air without limit<br />
* However, there should be some mechanism that introduces new bitcoins out of thin air into the system, otherwise there would not be enough bitcoins to make it popular by many people. But this mechanism should be agreed by all (fare) and it should be slow otherwise bitcoins cannot be used to store asset.<br />
* Bob needs to know that it will be relatively easy for him to find other people that will accept his bitcoin in the same way that he did, this is a circular problem that requires other people to go through the same decision process <br />
Bob may consider the following side effects:<br />
* Bob needs to know that it will be hard to steal or confiscate his bitcoin once he received it.<br />
* Like regular cash, Bob will like to know that his privacy is kept, and other people that will receive the bitcoin in the future will not be able to personally track him.<br />
<br />
=Counterfeiting=<br />
==By an eavesdropper==<br />
To guarantee that an eavesdropper, Eve, cannot replicate bitcoins we use a [[Wikipedia:Public-key_cryptography|public key system]] to make digital signatures. In this system, each person, such as Alice and Bob, has a pair of public and private keys which he/she stores in a safe [[Wallet|wallet]]. Only the user with his secret private key can sign a document, such as the transaction to give some of his bitcoins to somebody else, but any one can validate the signature using the user’s public key. The bitcoins, in Alice's hands, already contain a signature by whoever sent her the amount.<br />
<br />
* Bob sends his public key to Alice.<br />
* Alice adds Bob’s public key to the coin’s content.<br />
* Alice signs the transaction with her secret private key.<br />
<br />
As a result, the new coin, that Eve may be intercepting, contains the public key of both Alice and Bob.<br />
<br />
Later on, when Bob will transfer the same coins to Charley, he will do the same thing: receive from Charley his public key, add a new transaction to the coin's chain of transactions and sign it with his (Bob) private key. But only Bob can do this, because only Bob has the private key which is necessary for signing and which is the only private key to match Bob’s public key that is already in the chain.<br />
<br />
Eve cannot change who the coins belong to by replacing Bob’s public key with her public key, because Alice signed the transfer to Bob using her private key, declaring that the coins now belong to Bob, and Alice's private key is kept secret from Eve. So if Charley accepts that the original coin was in the hands of Alice he will also accept the fact that this coin was later passed to Bob and now Bob is passing this same coin to him.<br />
<br />
==By the sender==<br />
How to guaranty that Alice does not replicate the coin and use it in more than one transaction:<br />
* Details about the [[Transactions|transaction]] is [[Network|sent]] to as many other people (to their computers) as possible<br />
* At least one of the computers sends back a [[Blocks|block]], which is just a large document that includes details of the transaction and other unrelated transactions. The block is sent to as many other people as possible.<br />
* Eventually the block reaches Bob that can validate that his transaction was recorded and no other transaction for the same coin was made in the past.<br />
* In theory, Alice can generate a spoofed block in which her past usage of the same coin does not appear and try to send this block to Bob as an evidence that the coin is OK. But the process of generating a block is designed to take a [[Proof_of_work|long time]] and she is not likely to generate it on time. Keep in mind that Bob is using a new public key for each transaction so Alice can’t prepare in advance. In addition, many other computers are working in parallel to generate an honest block and one of them is more likely to finish before her. In any case, eventually competing blocks will arrive to Bob that will indication that Alice’s coin was already in use.<br />
<br />
=Privacy=<br />
In order to protect his [[Anonymity|privacy]], Bob can generate a new public-private key pair for each transaction. So David receiving the coin from Charley will not be able to identify who is the second person in the list of transactions. The only thing David will know is the [[Address]] of Bob which is a shortened (hashed) version of his public key.<br />
<br />
=Creation of coins=<br />
As we saw, both Bob and Charley need to verify that the original coin that Alice started with is valid. Alice can’t just generate coins out of thin air because the appearance of a coin is also a transaction that needs to be accepted by others (in their blocks.) The only way she can cause a coin to appear in a block is to generate the block herself, and this is exactly how new coins are slowly introduced: every computer that manages to generate a block is allowed to put one transaction in it in which it receives one coin. Other computers receiving the block can validate that only one coin is created and they can then accept this new coin as valid. Generating blocks is a [[Target|slow]] process that requires Alice to spend computer hardware, electricity bill and time and it can be compared to gold mining. It is also a constructive work because the created block is part of a [[Block_chain|chain of blocks]] that together keep a record of all transactions. The coin received by Alice is used as an incentive for the computation work she performed in addition Alice can shave a small [[Transaction_fee|fee]] from the transactions stored in the block and use it as an additional incentive.</div>Udibrhttps://en.bitcoin.it/w/index.php?title=Help:Introduction&diff=3664Help:Introduction2011-02-13T23:54:24Z<p>Udibr: /* Creation of coins */</p>
<hr />
<div><div class="plainlinks" style="border: 1px solid red; width: 100%; background-color: #fcc; padding: 10px; margin-bottom: 25px;">This page requires copy editing and improvement.</div><br />
Alice is far away from Bob and wants to buy his [http://www.grasshillalpacas.com/alpacaproductsforbitcoinoffer.html Alpaca socks]. In return, she wants to send him a dollar. She can use something like paypal with its limitations or she can mail him a dollar bill. But a dollar bill is just an item with very low intrinsic value that is accepted by Alice and Bob to represent something significant in the real world like socks. Instead of mailing the bill itself, Alice could have emailed a number, like the serial number imprinted on her dollar bill, and save on stamps and time, we will call this number a [[Main_Page|bitcoin]]. The bitcoin is used as a unit of account to measure the value of the socks Bob gave to Alice. Once Bob receives the bitcoin he would like to know that there is a good chance that he will be able to use the bitcoin to buy other products of similar value in the immediate future (means of exchange) or in the long term future (asset) and he needs to know if there are any unwanted side effects to using it.<br />
<br />
For the transaction to take place, Alice needs to have a bitcoin to start with and Bob needs to decide if he accepts the bitcoin in return for his socks. The value of a bitcoin is affected:<br />
* The bitcoin can’t be replicated (counterfeited) and used again by Alice or someone else eavesdropping to the transaction.<br />
* Alice can’t create more bitcoins out off thin air without limit<br />
* However, there should be some mechanism that introduces new bitcoins out of thin air into the system, otherwise there would not be enough bitcoins to make it popular by many people. But this mechanism should be agreed by all (fare) and it should be slow otherwise bitcoins cannot be used to store asset.<br />
* Bob needs to know that it will be relatively easy for him to find other people that will accept his bitcoin in the same way that he did, this is a circular problem that requires other people to go through the same decision process <br />
Bob may consider the following side effects:<br />
* Bob needs to know that it will be hard to steal or confiscate his bitcoin once he received it.<br />
* Like regular cash, Bob will like to know that his privacy is kept, and other people that will receive the bitcoin in the future will not be able to personally track him.<br />
<br />
=Counterfeiting=<br />
==By an eavesdropper==<br />
To guarantee that an eavesdropper, Eve, cannot replicate bitcoins we use a [[Wikipedia:Public-key_cryptography|public key system]] to make digital signatures. In this system, each person, such as Alice and Bob, has a pair of public and private keys which he/she stores in a safe [[Wallet|wallet]]. Only the user with his secret private key can sign a document, such as the transaction to give some of his bitcoins to somebody else, but any one can validate the signature using the user’s public key. The bitcoins, in Alice's hands, already contain a signature by whoever sent her the amount.<br />
<br />
* Bob sends his public key to Alice.<br />
* Alice adds Bob’s public key to the coin’s content.<br />
* Alice signs the transaction with her secret private key.<br />
<br />
As a result, the new coin, that Eve may be intercepting, contains the public key of both Alice and Bob.<br />
<br />
Later on, when Bob will transfer the same coins to Charley, he will do the same thing: receive from Charley his public key, add a new transaction to the coin's chain of transactions and sign it with his (Bob) private key. But only Bob can do this, because only Bob has the private key which is necessary for signing and which is the only private key to match Bob’s public key that is already in the chain.<br />
<br />
Eve cannot change who the coins belong to by replacing Bob’s public key with her public key, because Alice signed the transfer to Bob using her private key, declaring that the coins now belong to Bob, and Alice's private key is kept secret from Eve. So if Charley accepts that the original coin was in the hands of Alice he will also accept the fact that this coin was later passed to Bob and now Bob is passing this same coin to him.<br />
<br />
==By the sender==<br />
How to guaranty that Alice does not replicate the coin and use it in more than one transaction:<br />
* Details about the [[Transactions|transaction]] is [[Network|sent]] to as many other people (to their computers) as possible<br />
* At least one of the computers sends back a [[Blocks|block]], which is just a large document that includes details of the transaction and other unrelated transactions. The block is sent to as many other people as possible.<br />
* Eventually the block reaches Bob that can validate that his transaction was recorded and no other transaction for the same coin was made in the past.<br />
* In theory, Alice can generate a spoofed block in which her past usage of the same coin does not appear and try to send this block to Bob as an evidence that the coin is OK. But the process of generating a block is designed to take a [[Proof_of_work|long time]] and she is not likely to generate it on time. Keep in mind that Bob is using a new public key for each transaction so Alice can’t prepare in advance. In addition, many other computers are working in parallel to generate an honest block and one of them is more likely to finish before her. In any case, eventually competing blocks will arrive to Bob that will indication that Alice’s coin was already in use.<br />
<br />
=Privacy=<br />
In order to protect his privacy, Bob can generate a new public-private key pair for each transaction. So David receiving the coin from Charley will not be able to identify who is the second person in the list of transactions. The only thing David will know is the [[Address]] of Bob which is a shortened (hashed) version of his public key.<br />
<br />
=Creation of coins=<br />
As we saw, both Bob and Charley need to verify that the original coin that Alice started with is valid. Alice can’t just generate coins out of thin air because the appearance of a coin is also a transaction that needs to be accepted by others (in their blocks.) The only way she can cause a coin to appear in a block is to generate the block herself, and this is exactly how new coins are slowly introduced: every computer that manages to generate a block is allowed to put one transaction in it in which it receives one coin. Other computers receiving the block can validate that only one coin is created and they can then accept this new coin as valid. Generating blocks is a [[Target|slow]] process that requires Alice to spend computer hardware, electricity bill and time and it can be compared to gold mining. It is also a constructive work because the created block is part of a [[Block_chain|chain of blocks]] that together keep a record of all transactions. The coin received by Alice is used as an incentive for the computation work she performed in addition Alice can shave a small [[Transaction_fee|fee]] from the transactions stored in the block and use it as an additional incentive.</div>Udibrhttps://en.bitcoin.it/w/index.php?title=Help:Introduction&diff=3663Help:Introduction2011-02-13T23:48:03Z<p>Udibr: /* Creation of coins */</p>
<hr />
<div><div class="plainlinks" style="border: 1px solid red; width: 100%; background-color: #fcc; padding: 10px; margin-bottom: 25px;">This page requires copy editing and improvement.</div><br />
Alice is far away from Bob and wants to buy his [http://www.grasshillalpacas.com/alpacaproductsforbitcoinoffer.html Alpaca socks]. In return, she wants to send him a dollar. She can use something like paypal with its limitations or she can mail him a dollar bill. But a dollar bill is just an item with very low intrinsic value that is accepted by Alice and Bob to represent something significant in the real world like socks. Instead of mailing the bill itself, Alice could have emailed a number, like the serial number imprinted on her dollar bill, and save on stamps and time, we will call this number a [[Main_Page|bitcoin]]. The bitcoin is used as a unit of account to measure the value of the socks Bob gave to Alice. Once Bob receives the bitcoin he would like to know that there is a good chance that he will be able to use the bitcoin to buy other products of similar value in the immediate future (means of exchange) or in the long term future (asset) and he needs to know if there are any unwanted side effects to using it.<br />
<br />
For the transaction to take place, Alice needs to have a bitcoin to start with and Bob needs to decide if he accepts the bitcoin in return for his socks. The value of a bitcoin is affected:<br />
* The bitcoin can’t be replicated (counterfeited) and used again by Alice or someone else eavesdropping to the transaction.<br />
* Alice can’t create more bitcoins out off thin air without limit<br />
* However, there should be some mechanism that introduces new bitcoins out of thin air into the system, otherwise there would not be enough bitcoins to make it popular by many people. But this mechanism should be agreed by all (fare) and it should be slow otherwise bitcoins cannot be used to store asset.<br />
* Bob needs to know that it will be relatively easy for him to find other people that will accept his bitcoin in the same way that he did, this is a circular problem that requires other people to go through the same decision process <br />
Bob may consider the following side effects:<br />
* Bob needs to know that it will be hard to steal or confiscate his bitcoin once he received it.<br />
* Like regular cash, Bob will like to know that his privacy is kept, and other people that will receive the bitcoin in the future will not be able to personally track him.<br />
<br />
=Counterfeiting=<br />
==By an eavesdropper==<br />
To guarantee that an eavesdropper, Eve, cannot replicate bitcoins we use a [[Wikipedia:Public-key_cryptography|public key system]] to make digital signatures. In this system, each person, such as Alice and Bob, has a pair of public and private keys which he/she stores in a safe [[Wallet|wallet]]. Only the user with his secret private key can sign a document, such as the transaction to give some of his bitcoins to somebody else, but any one can validate the signature using the user’s public key. The bitcoins, in Alice's hands, already contain a signature by whoever sent her the amount.<br />
<br />
* Bob sends his public key to Alice.<br />
* Alice adds Bob’s public key to the coin’s content.<br />
* Alice signs the transaction with her secret private key.<br />
<br />
As a result, the new coin, that Eve may be intercepting, contains the public key of both Alice and Bob.<br />
<br />
Later on, when Bob will transfer the same coins to Charley, he will do the same thing: receive from Charley his public key, add a new transaction to the coin's chain of transactions and sign it with his (Bob) private key. But only Bob can do this, because only Bob has the private key which is necessary for signing and which is the only private key to match Bob’s public key that is already in the chain.<br />
<br />
Eve cannot change who the coins belong to by replacing Bob’s public key with her public key, because Alice signed the transfer to Bob using her private key, declaring that the coins now belong to Bob, and Alice's private key is kept secret from Eve. So if Charley accepts that the original coin was in the hands of Alice he will also accept the fact that this coin was later passed to Bob and now Bob is passing this same coin to him.<br />
<br />
==By the sender==<br />
How to guaranty that Alice does not replicate the coin and use it in more than one transaction:<br />
* Details about the [[Transactions|transaction]] is [[Network|sent]] to as many other people (to their computers) as possible<br />
* At least one of the computers sends back a [[Blocks|block]], which is just a large document that includes details of the transaction and other unrelated transactions. The block is sent to as many other people as possible.<br />
* Eventually the block reaches Bob that can validate that his transaction was recorded and no other transaction for the same coin was made in the past.<br />
* In theory, Alice can generate a spoofed block in which her past usage of the same coin does not appear and try to send this block to Bob as an evidence that the coin is OK. But the process of generating a block is designed to take a [[Proof_of_work|long time]] and she is not likely to generate it on time. Keep in mind that Bob is using a new public key for each transaction so Alice can’t prepare in advance. In addition, many other computers are working in parallel to generate an honest block and one of them is more likely to finish before her. In any case, eventually competing blocks will arrive to Bob that will indication that Alice’s coin was already in use.<br />
<br />
=Privacy=<br />
In order to protect his privacy, Bob can generate a new public-private key pair for each transaction. So David receiving the coin from Charley will not be able to identify who is the second person in the list of transactions. The only thing David will know is the [[Address]] of Bob which is a shortened (hashed) version of his public key.<br />
<br />
=Creation of coins=<br />
As we saw, both Bob and Charley need to verify that the original coin that Alice started with is valid. Alice can’t just generate coins out of thin air because the appearance of a coin is also a transaction that needs to be accepted by others (in their blocks.) The only way she can cause a coin to appear in a block is to generate the block herself, and this is exactly how new coins are slowly introduced: every computer that manages to generate a block is allowed to put one transaction in it in which it receives one coin. Other computers receiving the block can validate that only one coin is created and they can then accept this new coin as valid. Generating blocks is a [[Target|slow]] process that requires Alice to spend computer hardware, electricity bill and time and it can be compared to gold mining. It is also a constructive work because the created block is part of a [[Block_chain|chain of blocks]] that together keep a record of all transactions.</div>Udibrhttps://en.bitcoin.it/w/index.php?title=Help:Introduction&diff=3662Help:Introduction2011-02-13T23:45:00Z<p>Udibr: /* Creation of coins */</p>
<hr />
<div><div class="plainlinks" style="border: 1px solid red; width: 100%; background-color: #fcc; padding: 10px; margin-bottom: 25px;">This page requires copy editing and improvement.</div><br />
Alice is far away from Bob and wants to buy his [http://www.grasshillalpacas.com/alpacaproductsforbitcoinoffer.html Alpaca socks]. In return, she wants to send him a dollar. She can use something like paypal with its limitations or she can mail him a dollar bill. But a dollar bill is just an item with very low intrinsic value that is accepted by Alice and Bob to represent something significant in the real world like socks. Instead of mailing the bill itself, Alice could have emailed a number, like the serial number imprinted on her dollar bill, and save on stamps and time, we will call this number a [[Main_Page|bitcoin]]. The bitcoin is used as a unit of account to measure the value of the socks Bob gave to Alice. Once Bob receives the bitcoin he would like to know that there is a good chance that he will be able to use the bitcoin to buy other products of similar value in the immediate future (means of exchange) or in the long term future (asset) and he needs to know if there are any unwanted side effects to using it.<br />
<br />
For the transaction to take place, Alice needs to have a bitcoin to start with and Bob needs to decide if he accepts the bitcoin in return for his socks. The value of a bitcoin is affected:<br />
* The bitcoin can’t be replicated (counterfeited) and used again by Alice or someone else eavesdropping to the transaction.<br />
* Alice can’t create more bitcoins out off thin air without limit<br />
* However, there should be some mechanism that introduces new bitcoins out of thin air into the system, otherwise there would not be enough bitcoins to make it popular by many people. But this mechanism should be agreed by all (fare) and it should be slow otherwise bitcoins cannot be used to store asset.<br />
* Bob needs to know that it will be relatively easy for him to find other people that will accept his bitcoin in the same way that he did, this is a circular problem that requires other people to go through the same decision process <br />
Bob may consider the following side effects:<br />
* Bob needs to know that it will be hard to steal or confiscate his bitcoin once he received it.<br />
* Like regular cash, Bob will like to know that his privacy is kept, and other people that will receive the bitcoin in the future will not be able to personally track him.<br />
<br />
=Counterfeiting=<br />
==By an eavesdropper==<br />
To guarantee that an eavesdropper, Eve, cannot replicate bitcoins we use a [[Wikipedia:Public-key_cryptography|public key system]] to make digital signatures. In this system, each person, such as Alice and Bob, has a pair of public and private keys which he/she stores in a safe [[Wallet|wallet]]. Only the user with his secret private key can sign a document, such as the transaction to give some of his bitcoins to somebody else, but any one can validate the signature using the user’s public key. The bitcoins, in Alice's hands, already contain a signature by whoever sent her the amount.<br />
<br />
* Bob sends his public key to Alice.<br />
* Alice adds Bob’s public key to the coin’s content.<br />
* Alice signs the transaction with her secret private key.<br />
<br />
As a result, the new coin, that Eve may be intercepting, contains the public key of both Alice and Bob.<br />
<br />
Later on, when Bob will transfer the same coins to Charley, he will do the same thing: receive from Charley his public key, add a new transaction to the coin's chain of transactions and sign it with his (Bob) private key. But only Bob can do this, because only Bob has the private key which is necessary for signing and which is the only private key to match Bob’s public key that is already in the chain.<br />
<br />
Eve cannot change who the coins belong to by replacing Bob’s public key with her public key, because Alice signed the transfer to Bob using her private key, declaring that the coins now belong to Bob, and Alice's private key is kept secret from Eve. So if Charley accepts that the original coin was in the hands of Alice he will also accept the fact that this coin was later passed to Bob and now Bob is passing this same coin to him.<br />
<br />
==By the sender==<br />
How to guaranty that Alice does not replicate the coin and use it in more than one transaction:<br />
* Details about the [[Transactions|transaction]] is [[Network|sent]] to as many other people (to their computers) as possible<br />
* At least one of the computers sends back a [[Blocks|block]], which is just a large document that includes details of the transaction and other unrelated transactions. The block is sent to as many other people as possible.<br />
* Eventually the block reaches Bob that can validate that his transaction was recorded and no other transaction for the same coin was made in the past.<br />
* In theory, Alice can generate a spoofed block in which her past usage of the same coin does not appear and try to send this block to Bob as an evidence that the coin is OK. But the process of generating a block is designed to take a [[Proof_of_work|long time]] and she is not likely to generate it on time. Keep in mind that Bob is using a new public key for each transaction so Alice can’t prepare in advance. In addition, many other computers are working in parallel to generate an honest block and one of them is more likely to finish before her. In any case, eventually competing blocks will arrive to Bob that will indication that Alice’s coin was already in use.<br />
<br />
=Privacy=<br />
In order to protect his privacy, Bob can generate a new public-private key pair for each transaction. So David receiving the coin from Charley will not be able to identify who is the second person in the list of transactions. The only thing David will know is the [[Address]] of Bob which is a shortened (hashed) version of his public key.<br />
<br />
=Creation of coins=<br />
As we saw, both Bob and Charley need to verify that the original coin that Alice started with is valid. Alice can’t just generate coins out of thin air because the appearance of a coin is also a transaction that needs to be accepted by others (in their blocks.) The only way she can cause a coin to appear in a block is to generate the block herself, and this is exactly how new coins are slowly introduced: every computer that manages to generate a block is allowed to put one transaction in it in which it receives one coin. Other computers receiving the block can validate that only one coin is created and they can then accept this new coin as valid. Generating blocks is a [[Target|slow]] process that requires Alice to spend computer hardware, electricity bill and time and it can be compared to gold mining. It is also a constructive work because the created work helps validate the entire bitcoin system.</div>Udibrhttps://en.bitcoin.it/w/index.php?title=Help:Introduction&diff=3661Help:Introduction2011-02-13T23:43:05Z<p>Udibr: /* Creation of coins */</p>
<hr />
<div><div class="plainlinks" style="border: 1px solid red; width: 100%; background-color: #fcc; padding: 10px; margin-bottom: 25px;">This page requires copy editing and improvement.</div><br />
Alice is far away from Bob and wants to buy his [http://www.grasshillalpacas.com/alpacaproductsforbitcoinoffer.html Alpaca socks]. In return, she wants to send him a dollar. She can use something like paypal with its limitations or she can mail him a dollar bill. But a dollar bill is just an item with very low intrinsic value that is accepted by Alice and Bob to represent something significant in the real world like socks. Instead of mailing the bill itself, Alice could have emailed a number, like the serial number imprinted on her dollar bill, and save on stamps and time, we will call this number a [[Main_Page|bitcoin]]. The bitcoin is used as a unit of account to measure the value of the socks Bob gave to Alice. Once Bob receives the bitcoin he would like to know that there is a good chance that he will be able to use the bitcoin to buy other products of similar value in the immediate future (means of exchange) or in the long term future (asset) and he needs to know if there are any unwanted side effects to using it.<br />
<br />
For the transaction to take place, Alice needs to have a bitcoin to start with and Bob needs to decide if he accepts the bitcoin in return for his socks. The value of a bitcoin is affected:<br />
* The bitcoin can’t be replicated (counterfeited) and used again by Alice or someone else eavesdropping to the transaction.<br />
* Alice can’t create more bitcoins out off thin air without limit<br />
* However, there should be some mechanism that introduces new bitcoins out of thin air into the system, otherwise there would not be enough bitcoins to make it popular by many people. But this mechanism should be agreed by all (fare) and it should be slow otherwise bitcoins cannot be used to store asset.<br />
* Bob needs to know that it will be relatively easy for him to find other people that will accept his bitcoin in the same way that he did, this is a circular problem that requires other people to go through the same decision process <br />
Bob may consider the following side effects:<br />
* Bob needs to know that it will be hard to steal or confiscate his bitcoin once he received it.<br />
* Like regular cash, Bob will like to know that his privacy is kept, and other people that will receive the bitcoin in the future will not be able to personally track him.<br />
<br />
=Counterfeiting=<br />
==By an eavesdropper==<br />
To guarantee that an eavesdropper, Eve, cannot replicate bitcoins we use a [[Wikipedia:Public-key_cryptography|public key system]] to make digital signatures. In this system, each person, such as Alice and Bob, has a pair of public and private keys which he/she stores in a safe [[Wallet|wallet]]. Only the user with his secret private key can sign a document, such as the transaction to give some of his bitcoins to somebody else, but any one can validate the signature using the user’s public key. The bitcoins, in Alice's hands, already contain a signature by whoever sent her the amount.<br />
<br />
* Bob sends his public key to Alice.<br />
* Alice adds Bob’s public key to the coin’s content.<br />
* Alice signs the transaction with her secret private key.<br />
<br />
As a result, the new coin, that Eve may be intercepting, contains the public key of both Alice and Bob.<br />
<br />
Later on, when Bob will transfer the same coins to Charley, he will do the same thing: receive from Charley his public key, add a new transaction to the coin's chain of transactions and sign it with his (Bob) private key. But only Bob can do this, because only Bob has the private key which is necessary for signing and which is the only private key to match Bob’s public key that is already in the chain.<br />
<br />
Eve cannot change who the coins belong to by replacing Bob’s public key with her public key, because Alice signed the transfer to Bob using her private key, declaring that the coins now belong to Bob, and Alice's private key is kept secret from Eve. So if Charley accepts that the original coin was in the hands of Alice he will also accept the fact that this coin was later passed to Bob and now Bob is passing this same coin to him.<br />
<br />
==By the sender==<br />
How to guaranty that Alice does not replicate the coin and use it in more than one transaction:<br />
* Details about the [[Transactions|transaction]] is [[Network|sent]] to as many other people (to their computers) as possible<br />
* At least one of the computers sends back a [[Blocks|block]], which is just a large document that includes details of the transaction and other unrelated transactions. The block is sent to as many other people as possible.<br />
* Eventually the block reaches Bob that can validate that his transaction was recorded and no other transaction for the same coin was made in the past.<br />
* In theory, Alice can generate a spoofed block in which her past usage of the same coin does not appear and try to send this block to Bob as an evidence that the coin is OK. But the process of generating a block is designed to take a [[Proof_of_work|long time]] and she is not likely to generate it on time. Keep in mind that Bob is using a new public key for each transaction so Alice can’t prepare in advance. In addition, many other computers are working in parallel to generate an honest block and one of them is more likely to finish before her. In any case, eventually competing blocks will arrive to Bob that will indication that Alice’s coin was already in use.<br />
<br />
=Privacy=<br />
In order to protect his privacy, Bob can generate a new public-private key pair for each transaction. So David receiving the coin from Charley will not be able to identify who is the second person in the list of transactions. The only thing David will know is the [[Address]] of Bob which is a shortened (hashed) version of his public key.<br />
<br />
=Creation of coins=<br />
As we saw, both Bob and Charley need to verify that the original coin that Alice started with is valid. Alice can’t just generate coins out of thin air because the appearance of a coin is also a transaction that needs to be accepted by others (in their blocks.) The only way she can cause a coin to appear in a block is to generate the block herself, and this is exactly how new coins are slowly introduced: every computer that [[Target|manages]] to generate a block is allowed to put one transaction in it in which it receives one coin. Other computers receiving the block can validate that only one coin is created and they can then accept this new coin as valid. Generating blocks is a slow process that requires Alice to spend computer hardware, electricity bill and time and it can be compared to gold mining. It is also a constructive work because the created work helps validate the entire bitcoin system.</div>Udibrhttps://en.bitcoin.it/w/index.php?title=Help:Introduction&diff=3656Help:Introduction2011-02-13T23:17:51Z<p>Udibr: /* By the sender */</p>
<hr />
<div><div class="plainlinks" style="border: 1px solid red; width: 100%; background-color: #fcc; padding: 10px; margin-bottom: 25px;">This page requires copy editing and improvement.</div><br />
Alice is far away from Bob and wants to buy his [http://www.grasshillalpacas.com/alpacaproductsforbitcoinoffer.html Alpaca socks]. In return, she wants to send him a dollar. She can use something like paypal with its limitations or she can mail him a dollar bill. But a dollar bill is just an item with very low intrinsic value that is accepted by Alice and Bob to represent something significant in the real world like socks. Instead of mailing the bill itself, Alice could have emailed a number, like the serial number imprinted on her dollar bill, and save on stamps and time, we will call this number a [[Main_Page|bitcoin]]. The bitcoin is used as a unit of account to measure the value of the socks Bob gave to Alice. Once Bob receives the bitcoin he would like to know that there is a good chance that he will be able to use the bitcoin to buy other products of similar value in the immediate future (means of exchange) or in the long term future (asset) and he needs to know if there are any unwanted side effects to using it.<br />
<br />
For the transaction to take place, Alice needs to have a bitcoin to start with and Bob needs to decide if he accepts the bitcoin in return for his socks. The value of a bitcoin is affected:<br />
* The bitcoin can’t be replicated (counterfeited) and used again by Alice or someone else eavesdropping to the transaction.<br />
* Alice can’t create more bitcoins out off thin air without limit<br />
* However, there should be some mechanism that introduces new bitcoins out of thin air into the system, otherwise there would not be enough bitcoins to make it popular by many people. But this mechanism should be agreed by all (fare) and it should be slow otherwise bitcoins cannot be used to store asset.<br />
* Bob needs to know that it will be relatively easy for him to find other people that will accept his bitcoin in the same way that he did, this is a circular problem that requires other people to go through the same decision process <br />
Bob may consider the following side effects:<br />
* Bob needs to know that it will be hard to steal or confiscate his bitcoin once he received it.<br />
* Like regular cash, Bob will like to know that his privacy is kept, and other people that will receive the bitcoin in the future will not be able to personally track him.<br />
<br />
=Counterfeiting=<br />
==By an eavesdropper==<br />
How do we guaranty that an eavesdropper, Eve, does not replicate the bit coin:<br />
* We will use a [[Wikipedia:Public-key_cryptography|public key system]] to make digital signatures. In this system a person has a pair of public and private keys which Bob stores in a safe [[Wallet|wallet]]. Only the user with his secret private key can sign a document, such as the coins content, but any one can validate the signature using the user’s public key. The coin content, in Alice hands, already contains Alice public key<br />
* Bob sends his public key to Alice<br />
* Alice adds Bob’s public key to the coin’s content<br />
* Alice signs the entire coin’s content with her secret private key.<br />
As a result the new coin, that Eve may be intercepting, contains the public key of both Alice and Bob. Later on when Bob will transfer the same coin to Charley he will do the same thing: receive from Charley his public key, add it to the coin’s content and sign the new coin with his (Bob) private key. But only Bob can do this last step because only Bob has the private key which is necessary for signing and which is the only private key to match Bob’s public that is already imprinted in the coin’s content. Eve can’t modify the coin’s content and replace Bob’s public key with her public key because the coin was signed with Alice private key that is kept secret from Eve. So if Charley accepts that the original coin was in the hands of Alice he will also accept the fact that this coin was later passed to Bob and now Bob is passing this same coin to him.<br />
<br />
==By the sender==<br />
How to guaranty that Alice does not replicate the coin and use it in more than one transaction:<br />
* Details about the [[Transactions|transaction]] is [[Network|sent]] to as many other people (to their computers) as possible<br />
* At least one of the computers sends back a [[Blocks|block]], which is just a large document that includes details of the transaction and other unrelated transactions. The block is sent to as many other people as possible.<br />
* Eventually the block reaches Bob that can validate that his transaction was recorded and no other transaction for the same coin was made in the past.<br />
* In theory, Alice can generate a spoofed block in which her past usage of the same coin does not appear and try to send this block to Bob as an evidence that the coin is OK. But the process of generating a block is designed to take a [[Proof_of_work|long time]] and she is not likely to generate it on time. Keep in mind that Bob is using a new public key for each transaction so Alice can’t prepare in advance. In addition, many other computers are working in parallel to generate an honest block and one of them is more likely to finish before her. In any case, eventually competing blocks will arrive to Bob that will indication that Alice’s coin was already in use.<br />
<br />
=Privacy=<br />
In order to protect his privacy, Bob can generate a new public-private key pair for each transaction. So David receiving the coin from Charley will not be able to identify who is the second person in the list of transactions. The only thing David will know is the [[Address]] of Bob which is a shortened (hashed) version of his public key.<br />
<br />
=Creation of coins=<br />
As we saw, both Bob and Charley need to verify that the original coin that Alice started with is valid. Alice can’t just generate coins out of thin air because the appearance of a coin is also a transaction that needs to be accepted by others (in their blocks.) The only way she can cause a coin to appear in a block is to generate the block herself, and this is exactly how new coins are slowly introduced: every computer that manages to generate a block is allowed to put one transaction in it in which it receives one coin. Other computers receiving the block can validate that only one coin is created and they can then accept this new coin as valid. Generating blocks is a slow process that requires Alice to spend computer hardware, electricity bill and time and it can be compared to gold mining. It is also a constructive work because the created work helps validate the entire bitcoin system.</div>Udibrhttps://en.bitcoin.it/w/index.php?title=Help:FAQ&diff=3651Help:FAQ2011-02-13T21:04:32Z<p>Udibr: /* What are bitcoins? */</p>
<hr />
<div>Here you will find answers to the most commonly asked questions.<br />
<br />
== General ==<br />
=== What are bitcoins? ===<br />
Bitcoins or coins are the main unit of currency of the Bitcoin system. A commonly used shorthand for bitcoins is “BTC” to refer to a price in Bitcoins (eg: “100 BTC”)<br />
A Bitcoin isn't actually a 'thing' you can point at. It is just a number associated with a [[Address|Bitcoin Address]]. See also an [[Introduction|easy intro]] to bitcoin.<br />
<br />
=== How are new Bitcoins created? ===<br />
<br />
[[File:total_bitcoins_over_time_graph.png|thumb|Number of bitcoins over time, assuming a perfect 10-minute interval.]]<br />
New coins are generated by a network node each time it finds the solution to a certain mathematical problem (i.e. creates a new [[block]]), which is difficult to perform and can demonstrate a [[proof of work]]. The reward for solving a block is [[controlled inflation|automatically adjusted]] so that in the first 4 years of the Bitcoin network, 10,500,000 coins will be created. The amount is halved each 4 years, so it will be 5,250,000 in years 4-8, 2,625,000 in years 8-12 and so on. Thus the total number of coins will approach 21,000,000 over time.<br />
<br />
In addition, built into the network is a system that attempts to allocate new coins in blocks about every 10 minutes, on average, somewhere on the network. As the number of people who are using the Bitcoin software to attempt to generate these new coins changes, the difficulty of creating new coins changes. This happens in a manner that is agreed upon by the network as a whole, based upon the time taken to generate the previous 2016 blocks. The difficulty is therefore related to the average computing resources devoted to generate these new coins over the time it took to create these previous blocks. The likelihood of somebody "discovering" one of these blocks is based on the computer they are using compared to all of the computers also generating blocks on the network.<br />
<br />
=== What's the current total amount of Bitcoins in existence? ===<br />
<br />
[http://blockexplorer.com/q/totalbc Current count]<br />
<br />
The number of blocks times the coin value of a block is the number of coins in existence. The coin value of a block is 50 BTC for each of the first 210,000 blocks, 25 BTC for the next 210,000 blocks, then 12.5 BTC, 6.25 BTC and so on.<br />
<br />
=== How divisible are Bitcoins? ===<br />
<br />
Technically, a Bitcoin can be divided down to 8 decimals using existing data structures, so 0.00000001 BTC is the smallest amount currently possible. Discussions about and ideas for ways to provide for even smaller quantities of Bitcoins may be created in the future if the need for them ever arises. For convenience, the program currently accepts only 2 decimal places as quantities smaller than 0.01 BTC are considered of trivial value and are usually used only to attack the network.<br />
<br />
=== How does the halving work when the number gets really small? ===<br />
<br />
The reward will go from 0.00000001 to 0. Then no more coins will likely be created. <br />
<br />
The calculation is done as a right bitwise shift of a 64-bit signed integer. The integer is equal to the number of Bitcoins * 100,000,000. This is how all Bitcoin balances/values are stored internally.<br />
<br />
Keep in mind that using current rules this will take nearly 100 years before it becomes an issue and Bitcoins may change considerably before that happens.<br />
<br />
=== How long will it take to generate all the coins? ===<br />
<br />
The last block that will generate coins will be block #6,929,999. This should be generated around year 2140. Then the total number of coins in circulation will remain static at 20,999,999.9769.<br />
<br />
Even if the allowed precision is expanded from the current 8 decimals, the total BTC in circulation will always be slightly below 21 million (assuming everything else stays the same). For example, with 16 decimals of precision, the end total BTC would be 20999999.999999999496.<br />
<br />
=== If no more coins are going to be generated, will more blocks be created? ===<br />
<br />
Absolutely! Even before the creation of coins ends, the use of [[transaction fee|transaction fees]] will likely make creating new blocks more valuable from the fees than the new coins being created. When coin generation ends, what will sustain the ability to use bitcoins will be these fees entirely. There will be blocks generated after block #6,929,999, assuming that people are still using Bitcoins at that time.<br />
<br />
== Networking ==<br />
<br />
=== Do I need to configure my firewall to run bitcoin? ===<br />
<br />
Bitcoin will connect to other nodes, usually on tcp port 8333. You will need to allow outgoing TCP connections to port 8333 if you want to allow your bitcoin client to connect to many nodes. Bitcoin will also try to connect to IRC (tcp port 6667) to meet other nodes to connect to.<br />
<br />
If you want to restrict your firewall rules to a few ips and/or don't want to allow IRC connection, you can find stable nodes in the [[Fallback Nodes|fallback nodes list]].<br />
<br />
[[fr:FAQ]]<br />
{{fromold|bitcoins}}<br />
<br />
[[Category:Technical]]<br />
[[Category:Vocabulary]]</div>Udibrhttps://en.bitcoin.it/w/index.php?title=Help:FAQ&diff=3632Help:FAQ2011-02-13T18:59:32Z<p>Udibr: /* What's the current total amount of Bitcoins in existence? */</p>
<hr />
<div>Here you will find answers to the most commonly asked questions.<br />
<br />
== General ==<br />
=== What are bitcoins? ===<br />
Bitcoins or coins are the main unit of currency of the Bitcoin system. A commonly used shorthand for bitcoins is “BTC” to refer to a price in Bitcoins (eg: “100 BTC”)<br />
A Bitcoin isn't actually a 'thing' you can point at. It is just a number associated with a [[Address|Bitcoin Address]]. See also an [[Easy_Intro|easy intro]] to bitcoin.<br />
<br />
=== How are new Bitcoins created? ===<br />
<br />
[[File:total_bitcoins_over_time_graph.png|thumb|Number of bitcoins over time, assuming a perfect 10-minute interval.]]<br />
New coins are generated by a network node each time it finds the solution to a certain mathematical problem (i.e. creates a new [[block]]), which is difficult to perform and can demonstrate a [[proof of work]]. The reward for solving a block is [[controlled inflation|automatically adjusted]] so that in the first 4 years of the Bitcoin network, 10,500,000 coins will be created. The amount is halved each 4 years, so it will be 5,250,000 in years 4-8, 2,625,000 in years 8-12 and so on. Thus the total number of coins will approach 21,000,000 over time.<br />
<br />
In addition, built into the network is a system that attempts to allocate new coins in blocks about every 10 minutes, on average, somewhere on the network. As the number of people who are using the Bitcoin software to attempt to generate these new coins changes, the difficulty of creating new coins changes. This happens in a manner that is agreed upon by the network as a whole, based upon the time taken to generate the previous 2016 blocks. The difficulty is therefore related to the average computing resources devoted to generate these new coins over the time it took to create these previous blocks. The likelihood of somebody "discovering" one of these blocks is based on the computer they are using compared to all of the computers also generating blocks on the network.<br />
<br />
=== What's the current total amount of Bitcoins in existence? ===<br />
<br />
[http://blockexplorer.com/q/totalbc Current count]<br />
<br />
The number of blocks times the coin value of a block is the number of coins in existence. The coin value of a block is 50 BTC for each of the first 210,000 blocks, 25 BTC for the next 210,000 blocks, then 12.5 BTC, 6.25 BTC and so on.<br />
<br />
=== How divisible are Bitcoins? ===<br />
<br />
Technically, a Bitcoin can be divided down to 8 decimals using existing data structures, so 0.00000001 BTC is the smallest amount currently possible. Discussions about and ideas for ways to provide for even smaller quantities of Bitcoins may be created in the future if the need for them ever arises. For convenience, the program currently accepts only 2 decimal places as quantities smaller than 0.01 BTC are considered of trivial value and are usually used only to attack the network.<br />
<br />
=== How does the halving work when the number gets really small? ===<br />
<br />
The reward will go from 0.00000001 to 0. Then no more coins will likely be created. <br />
<br />
The calculation is done as a right bitwise shift of a 64-bit signed integer. The integer is equal to the number of Bitcoins * 100,000,000. This is how all Bitcoin balances/values are stored internally.<br />
<br />
Keep in mind that using current rules this will take nearly 100 years before it becomes an issue and Bitcoins may change considerably before that happens.<br />
<br />
=== How long will it take to generate all the coins? ===<br />
<br />
The last block that will generate coins will be block #6,929,999. This should be generated around year 2140. Then the total number of coins in circulation will remain static at 20,999,999.9769.<br />
<br />
Even if the allowed precision is expanded from the current 8 decimals, the total BTC in circulation will always be slightly below 21 million (assuming everything else stays the same). For example, with 16 decimals of precision, the end total BTC would be 20999999.999999999496.<br />
<br />
=== If no more coins are going to be generated, will more blocks be created? ===<br />
<br />
Absolutely! Even before the creation of coins ends, the use of [[transaction fee|transaction fees]] will likely make creating new blocks more valuable from the fees than the new coins being created. When coin generation ends, what will sustain the ability to use bitcoins will be these fees entirely. There will be blocks generated after block #6,929,999, assuming that people are still using Bitcoins at that time.<br />
<br />
== Networking ==<br />
<br />
=== Do I need to configure my firewall to run bitcoin? ===<br />
<br />
Bitcoin will connect to other nodes, usually on tcp port 8333. You will need to allow outgoing TCP connections to port 8333 if you want to allow your bitcoin client to connect to many nodes. Bitcoin will also try to connect to IRC (tcp port 6667) to meet other nodes to connect to.<br />
<br />
If you want to restrict your firewall rules to a few ips and/or don't want to allow IRC connection, you can find stable nodes in the [[Fallback Nodes|fallback nodes list]].<br />
<br />
[[fr:FAQ]]<br />
{{fromold|bitcoins}}<br />
<br />
[[Category:Technical]]<br />
[[Category:Vocabulary]]</div>Udibrhttps://en.bitcoin.it/w/index.php?title=Help:FAQ&diff=3631Help:FAQ2011-02-13T18:36:43Z<p>Udibr: </p>
<hr />
<div>Here you will find answers to the most commonly asked questions.<br />
<br />
== General ==<br />
=== What are bitcoins? ===<br />
Bitcoins or coins are the main unit of currency of the Bitcoin system. A commonly used shorthand for bitcoins is “BTC” to refer to a price in Bitcoins (eg: “100 BTC”)<br />
A Bitcoin isn't actually a 'thing' you can point at. It is just a number associated with a [[Address|Bitcoin Address]]. See also an [[Easy_Intro|easy intro]] to bitcoin.<br />
<br />
=== How are new Bitcoins created? ===<br />
<br />
[[File:total_bitcoins_over_time_graph.png|thumb|Number of bitcoins over time, assuming a perfect 10-minute interval.]]<br />
New coins are generated by a network node each time it finds the solution to a certain mathematical problem (i.e. creates a new [[block]]), which is difficult to perform and can demonstrate a [[proof of work]]. The reward for solving a block is [[controlled inflation|automatically adjusted]] so that in the first 4 years of the Bitcoin network, 10,500,000 coins will be created. The amount is halved each 4 years, so it will be 5,250,000 in years 4-8, 2,625,000 in years 8-12 and so on. Thus the total number of coins will approach 21,000,000 over time.<br />
<br />
In addition, built into the network is a system that attempts to allocate new coins in blocks about every 10 minutes, on average, somewhere on the network. As the number of people who are using the Bitcoin software to attempt to generate these new coins changes, the difficulty of creating new coins changes. This happens in a manner that is agreed upon by the network as a whole, based upon the time taken to generate the previous 2016 blocks. The difficulty is therefore related to the average computing resources devoted to generate these new coins over the time it took to create these previous blocks. The likelihood of somebody "discovering" one of these blocks is based on the computer they are using compared to all of the computers also generating blocks on the network.<br />
<br />
=== What's the current total amount of Bitcoins in existence? ===<br />
<br />
[http://blockexplorer.com/q/totalbc Current count]<br />
<br />
The number of blocks times the coin value of a block is the number of coins in existence. The coin value of a block is 50 BTC for each of the first 210,000 blocks, 25 BTC for the next 210,000 blocks, then 12.5 BTC, 7.25 BTC and so on.<br />
<br />
=== How divisible are Bitcoins? ===<br />
<br />
Technically, a Bitcoin can be divided down to 8 decimals using existing data structures, so 0.00000001 BTC is the smallest amount currently possible. Discussions about and ideas for ways to provide for even smaller quantities of Bitcoins may be created in the future if the need for them ever arises. For convenience, the program currently accepts only 2 decimal places as quantities smaller than 0.01 BTC are considered of trivial value and are usually used only to attack the network.<br />
<br />
=== How does the halving work when the number gets really small? ===<br />
<br />
The reward will go from 0.00000001 to 0. Then no more coins will likely be created. <br />
<br />
The calculation is done as a right bitwise shift of a 64-bit signed integer. The integer is equal to the number of Bitcoins * 100,000,000. This is how all Bitcoin balances/values are stored internally.<br />
<br />
Keep in mind that using current rules this will take nearly 100 years before it becomes an issue and Bitcoins may change considerably before that happens.<br />
<br />
=== How long will it take to generate all the coins? ===<br />
<br />
The last block that will generate coins will be block #6,929,999. This should be generated around year 2140. Then the total number of coins in circulation will remain static at 20,999,999.9769.<br />
<br />
Even if the allowed precision is expanded from the current 8 decimals, the total BTC in circulation will always be slightly below 21 million (assuming everything else stays the same). For example, with 16 decimals of precision, the end total BTC would be 20999999.999999999496.<br />
<br />
=== If no more coins are going to be generated, will more blocks be created? ===<br />
<br />
Absolutely! Even before the creation of coins ends, the use of [[transaction fee|transaction fees]] will likely make creating new blocks more valuable from the fees than the new coins being created. When coin generation ends, what will sustain the ability to use bitcoins will be these fees entirely. There will be blocks generated after block #6,929,999, assuming that people are still using Bitcoins at that time.<br />
<br />
== Networking ==<br />
<br />
=== Do I need to configure my firewall to run bitcoin? ===<br />
<br />
Bitcoin will connect to other nodes, usually on tcp port 8333. You will need to allow outgoing TCP connections to port 8333 if you want to allow your bitcoin client to connect to many nodes. Bitcoin will also try to connect to IRC (tcp port 6667) to meet other nodes to connect to.<br />
<br />
If you want to restrict your firewall rules to a few ips and/or don't want to allow IRC connection, you can find stable nodes in the [[Fallback Nodes|fallback nodes list]].<br />
<br />
[[fr:FAQ]]<br />
{{fromold|bitcoins}}<br />
<br />
[[Category:Technical]]<br />
[[Category:Vocabulary]]</div>Udibrhttps://en.bitcoin.it/w/index.php?title=Help:Introduction&diff=3625Help:Introduction2011-02-13T16:41:17Z<p>Udibr: /* By the sender */</p>
<hr />
<div>Alice is far away from Bob and wants to buy his [http://www.grasshillalpacas.com/alpacaproductsforbitcoinoffer.html Alpaca socks]. In return, she wants to send him a dollar. She can use something like paypal with its limitations or she can mail him a dollar bill. But a dollar bill is just an item with very low intrinsic value that is accepted by Alice and Bob to represent something significant in the real world like socks. Instead of mailing the bill itself, Alice could have emailed a number, like the serial number imprinted on her dollar bill, and save on stamps and time, we will call this number a [[Main_Page|bitcoin]]. The bitcoin is used as a unit of account to measure the value of the socks Bob gave to Alice. Once Bob receives the bitcoin he would like to know that there is a good chance that he will be able to use the bitcoin to buy other products of similar value in the immediate future (means of exchange) or in the long term future (asset) and he needs to know if there are any unwanted side effects to using it.<br />
<br />
For the transaction to take place, Alice needs to have a bitcoin to start with and Bob needs to decide if he accepts the bitcoin in return for his socks. The value of a bitcoin is affected:<br />
* The bitcoin can’t be replicated (counterfeited) and used again by Alice or someone else eavesdropping to the transaction.<br />
* Alice can’t create more bitcoins out off thin air without limit<br />
* However, there should be some mechanism that introduces new bitcoins out of thin air into the system, otherwise there would not be enough bitcoins to make it popular by many people. But this mechanism should be agreed by all (fare) and it should be slow otherwise bitcoins cannot be used to store asset.<br />
* Bob needs to know that it will be relatively easy for him to find other people that will accept his bitcoin in the same way that he did, this is a circular problem that requires other people to go through the same decision process <br />
Bob may consider the following side effects:<br />
* Bob needs to know that it will be hard to steal or confiscate his bitcoin once he received it.<br />
* Like regular cash, Bob will like to know that his privacy is kept, and other people that will receive the bitcoin in the future will not be able to personally track him.<br />
<br />
=Counterfeiting=<br />
==By an Eavesdropper==<br />
How do we guaranty that an eavesdropper, Eve, does not replicate the bit coin:<br />
* We will use a [[Wikipedia:Public-key_cryptography|public key system]] to make digital signatures. In this system a person has a pair of public and private keys which Bob stores in a safe [[Wallet|wallet]]. Only the user with his secret private key can sign a document, such as the coins content, but any one can validate the signature using the user’s public key. The coin content, in Alice hands, already contains Alice public key<br />
* Bob sends his public key to Alice<br />
* Alice adds Bob’s public key to the coin’s content<br />
* Alice signs the entire coin’s content with her secret private key.<br />
As a result the new coin, that Eve may be intercepting, contains the public key of both Alice and Bob. Later on when Bob will transfer the same coin to Charley he will do the same thing: receive from Charley his public key, add it to the coin’s content and sign the new coin with his (Bob) private key. But only Bob can do this last step because only Bob has the private key which is necessary for signing and which is the only private key to match Bob’s public that is already imprinted in the coin’s content. Eve can’t modify the coin’s content and replace Bob’s public key with her public key because the coin was signed with Alice private key that is kept secret from Eve. So if Charley accepts that the original coin was in the hands of Alice he will also accept the fact that this coin was later passed to Bob and now Bob is passing this same coin to him.<br />
<br />
==By the sender==<br />
How to guaranty that Alice does not replicate the coin and use it in more than one transaction:<br />
* Details about the [[Transactions|transaction]] is sent to as many other people (to their computers) as possible<br />
* At least one of the computers sends back a [[Blocks|block]], which is just a large document that includes details of the transaction and other unrelated transactions. The block is sent to as many other people as possible.<br />
* Eventually the block reaches Bob that can validate that his transaction was recorded and no other transaction for the same coin was made in the past.<br />
* In theory, Alice can generate a spoofed block in which her past usage of the same coin does not appear and try to send this block to Bob as an evidence that the coin is OK. But the process of generating a block is designed to take a [[Proof_of_work|long time]] and she is not likely to generate it on time. Keep in mind that Bob is using a new public key for each transaction so Alice can’t prepare in advance. In addition, many other computers are working in parallel to generate an honest block and one of them is more likely to finish before her. In any case, eventually competing blocks will arrive to Bob that will indication that Alice’s coin was already in use.<br />
<br />
=Privacy=<br />
In order to protect his privacy, Bob can generate a new public-private key pair for each transaction. So David receiving the coin from Charley will not be able to identify who is the second person in the list of transactions. The only thing David will know is the [[Address]] of Bob which is a shortened (hashed) version of his public key.<br />
<br />
=Creation of coins=<br />
As we saw, both Bob and Charley need to verify that the original coin that Alice started with is valid. Alice can’t just generate coins out of thin air because the appearance of a coin is also a transaction that needs to be accepted by others (in their blocks.) The only way she can cause a coin to appear in a block is to generate the block herself, and this is exactly how new coins are slowly introduced: every computer that manages to generate a block is allowed to put one transaction in it in which it receives one coin. Other computers receiving the block can validate that only one coin is created and they can then accept this new coin as valid. Generating blocks is a slow process that requires Alice to spend computer hardware, electricity bill and time and it can be compared to gold mining. It is also a constructive work because the created work helps validate the entire bitcoin system.</div>Udibrhttps://en.bitcoin.it/w/index.php?title=Help:Introduction&diff=3623Help:Introduction2011-02-13T16:36:05Z<p>Udibr: /* By the sender */</p>
<hr />
<div>Alice is far away from Bob and wants to buy his [http://www.grasshillalpacas.com/alpacaproductsforbitcoinoffer.html Alpaca socks]. In return, she wants to send him a dollar. She can use something like paypal with its limitations or she can mail him a dollar bill. But a dollar bill is just an item with very low intrinsic value that is accepted by Alice and Bob to represent something significant in the real world like socks. Instead of mailing the bill itself, Alice could have emailed a number, like the serial number imprinted on her dollar bill, and save on stamps and time, we will call this number a [[Main_Page|bitcoin]]. The bitcoin is used as a unit of account to measure the value of the socks Bob gave to Alice. Once Bob receives the bitcoin he would like to know that there is a good chance that he will be able to use the bitcoin to buy other products of similar value in the immediate future (means of exchange) or in the long term future (asset) and he needs to know if there are any unwanted side effects to using it.<br />
<br />
For the transaction to take place, Alice needs to have a bitcoin to start with and Bob needs to decide if he accepts the bitcoin in return for his socks. The value of a bitcoin is affected:<br />
* The bitcoin can’t be replicated (counterfeited) and used again by Alice or someone else eavesdropping to the transaction.<br />
* Alice can’t create more bitcoins out off thin air without limit<br />
* However, there should be some mechanism that introduces new bitcoins out of thin air into the system, otherwise there would not be enough bitcoins to make it popular by many people. But this mechanism should be agreed by all (fare) and it should be slow otherwise bitcoins cannot be used to store asset.<br />
* Bob needs to know that it will be relatively easy for him to find other people that will accept his bitcoin in the same way that he did, this is a circular problem that requires other people to go through the same decision process <br />
Bob may consider the following side effects:<br />
* Bob needs to know that it will be hard to steal or confiscate his bitcoin once he received it.<br />
* Like regular cash, Bob will like to know that his privacy is kept, and other people that will receive the bitcoin in the future will not be able to personally track him.<br />
<br />
=Counterfeiting=<br />
==By an Eavesdropper==<br />
How do we guaranty that an eavesdropper, Eve, does not replicate the bit coin:<br />
* We will use a [[Wikipedia:Public-key_cryptography|public key system]] to make digital signatures. In this system a person has a pair of public and private keys which Bob stores in a safe [[Wallet|wallet]]. Only the user with his secret private key can sign a document, such as the coins content, but any one can validate the signature using the user’s public key. The coin content, in Alice hands, already contains Alice public key<br />
* Bob sends his public key to Alice<br />
* Alice adds Bob’s public key to the coin’s content<br />
* Alice signs the entire coin’s content with her secret private key.<br />
As a result the new coin, that Eve may be intercepting, contains the public key of both Alice and Bob. Later on when Bob will transfer the same coin to Charley he will do the same thing: receive from Charley his public key, add it to the coin’s content and sign the new coin with his (Bob) private key. But only Bob can do this last step because only Bob has the private key which is necessary for signing and which is the only private key to match Bob’s public that is already imprinted in the coin’s content. Eve can’t modify the coin’s content and replace Bob’s public key with her public key because the coin was signed with Alice private key that is kept secret from Eve. So if Charley accepts that the original coin was in the hands of Alice he will also accept the fact that this coin was later passed to Bob and now Bob is passing this same coin to him.<br />
<br />
==By the sender==<br />
How to guaranty that Alice does not replicate the coin and use it in more than one transaction:<br />
* Details about the [[Transactions|transaction]] is sent to as many other people (to their computers) as possible<br />
* At least one of the computers sends back a [[Blocks|block]], which is just a large document that includes details of the transaction and other unrelated transactions. The block is sent to as many other people as possible.<br />
* Eventually the block reaches Bob that can validate that his transaction was recorded and no other transaction for the same coin was made in the past.<br />
* In theory, Alice can generate a spoofed block in which her past usage of the same coin does not appear and try to send this block to Bob as an evidence that the coin is OK. But the process of generating a block is designed to take a long time and she is not likely to generate it on time. Keep in mind that Bob is using a new public key for each transaction so Alice can’t prepare in advance. In addition, many other computers are working in parallel to generate an honest block and one of them is more likely to finish before her. In any case, eventually competing blocks will arrive to Bob that will indication that Alice’s coin was already in use.<br />
<br />
=Privacy=<br />
In order to protect his privacy, Bob can generate a new public-private key pair for each transaction. So David receiving the coin from Charley will not be able to identify who is the second person in the list of transactions. The only thing David will know is the [[Address]] of Bob which is a shortened (hashed) version of his public key.<br />
<br />
=Creation of coins=<br />
As we saw, both Bob and Charley need to verify that the original coin that Alice started with is valid. Alice can’t just generate coins out of thin air because the appearance of a coin is also a transaction that needs to be accepted by others (in their blocks.) The only way she can cause a coin to appear in a block is to generate the block herself, and this is exactly how new coins are slowly introduced: every computer that manages to generate a block is allowed to put one transaction in it in which it receives one coin. Other computers receiving the block can validate that only one coin is created and they can then accept this new coin as valid. Generating blocks is a slow process that requires Alice to spend computer hardware, electricity bill and time and it can be compared to gold mining. It is also a constructive work because the created work helps validate the entire bitcoin system.</div>Udibrhttps://en.bitcoin.it/w/index.php?title=Help:Introduction&diff=3622Help:Introduction2011-02-13T16:34:23Z<p>Udibr: /* By the sender */</p>
<hr />
<div>Alice is far away from Bob and wants to buy his [http://www.grasshillalpacas.com/alpacaproductsforbitcoinoffer.html Alpaca socks]. In return, she wants to send him a dollar. She can use something like paypal with its limitations or she can mail him a dollar bill. But a dollar bill is just an item with very low intrinsic value that is accepted by Alice and Bob to represent something significant in the real world like socks. Instead of mailing the bill itself, Alice could have emailed a number, like the serial number imprinted on her dollar bill, and save on stamps and time, we will call this number a [[Main_Page|bitcoin]]. The bitcoin is used as a unit of account to measure the value of the socks Bob gave to Alice. Once Bob receives the bitcoin he would like to know that there is a good chance that he will be able to use the bitcoin to buy other products of similar value in the immediate future (means of exchange) or in the long term future (asset) and he needs to know if there are any unwanted side effects to using it.<br />
<br />
For the transaction to take place, Alice needs to have a bitcoin to start with and Bob needs to decide if he accepts the bitcoin in return for his socks. The value of a bitcoin is affected:<br />
* The bitcoin can’t be replicated (counterfeited) and used again by Alice or someone else eavesdropping to the transaction.<br />
* Alice can’t create more bitcoins out off thin air without limit<br />
* However, there should be some mechanism that introduces new bitcoins out of thin air into the system, otherwise there would not be enough bitcoins to make it popular by many people. But this mechanism should be agreed by all (fare) and it should be slow otherwise bitcoins cannot be used to store asset.<br />
* Bob needs to know that it will be relatively easy for him to find other people that will accept his bitcoin in the same way that he did, this is a circular problem that requires other people to go through the same decision process <br />
Bob may consider the following side effects:<br />
* Bob needs to know that it will be hard to steal or confiscate his bitcoin once he received it.<br />
* Like regular cash, Bob will like to know that his privacy is kept, and other people that will receive the bitcoin in the future will not be able to personally track him.<br />
<br />
=Counterfeiting=<br />
==By an Eavesdropper==<br />
How do we guaranty that an eavesdropper, Eve, does not replicate the bit coin:<br />
* We will use a [[Wikipedia:Public-key_cryptography|public key system]] to make digital signatures. In this system a person has a pair of public and private keys which Bob stores in a safe [[Wallet|wallet]]. Only the user with his secret private key can sign a document, such as the coins content, but any one can validate the signature using the user’s public key. The coin content, in Alice hands, already contains Alice public key<br />
* Bob sends his public key to Alice<br />
* Alice adds Bob’s public key to the coin’s content<br />
* Alice signs the entire coin’s content with her secret private key.<br />
As a result the new coin, that Eve may be intercepting, contains the public key of both Alice and Bob. Later on when Bob will transfer the same coin to Charley he will do the same thing: receive from Charley his public key, add it to the coin’s content and sign the new coin with his (Bob) private key. But only Bob can do this last step because only Bob has the private key which is necessary for signing and which is the only private key to match Bob’s public that is already imprinted in the coin’s content. Eve can’t modify the coin’s content and replace Bob’s public key with her public key because the coin was signed with Alice private key that is kept secret from Eve. So if Charley accepts that the original coin was in the hands of Alice he will also accept the fact that this coin was later passed to Bob and now Bob is passing this same coin to him.<br />
<br />
==By the sender==<br />
How to guaranty that Alice does not replicate the coin and use it in more than one transaction:<br />
* The transaction is sent to as many other people (to their computers) as possible<br />
* At least one of the computers sends back a [[Blocks|block]], which is just a large document that includes details of the transaction and other unrelated transactions. The block is sent to as many other people as possible.<br />
* Eventually the block reaches Bob that can validate that his transaction was recorded and no other transaction for the same coin was made in the past.<br />
* In theory, Alice can generate a spoofed block in which her past usage of the same coin does not appear and try to send this block to Bob as an evidence that the coin is OK. But the process of generating a block is designed to take a long time and she is not likely to generate it on time. Keep in mind that Bob is using a new public key for each transaction so Alice can’t prepare in advance. In addition, many other computers are working in parallel to generate an honest block and one of them is more likely to finish before her. In any case, eventually competing blocks will arrive to Bob that will indication that Alice’s coin was already in use.<br />
<br />
=Privacy=<br />
In order to protect his privacy, Bob can generate a new public-private key pair for each transaction. So David receiving the coin from Charley will not be able to identify who is the second person in the list of transactions. The only thing David will know is the [[Address]] of Bob which is a shortened (hashed) version of his public key.<br />
<br />
=Creation of coins=<br />
As we saw, both Bob and Charley need to verify that the original coin that Alice started with is valid. Alice can’t just generate coins out of thin air because the appearance of a coin is also a transaction that needs to be accepted by others (in their blocks.) The only way she can cause a coin to appear in a block is to generate the block herself, and this is exactly how new coins are slowly introduced: every computer that manages to generate a block is allowed to put one transaction in it in which it receives one coin. Other computers receiving the block can validate that only one coin is created and they can then accept this new coin as valid. Generating blocks is a slow process that requires Alice to spend computer hardware, electricity bill and time and it can be compared to gold mining. It is also a constructive work because the created work helps validate the entire bitcoin system.</div>Udibrhttps://en.bitcoin.it/w/index.php?title=Help:Introduction&diff=3621Help:Introduction2011-02-13T16:33:16Z<p>Udibr: /* By the sender */</p>
<hr />
<div>Alice is far away from Bob and wants to buy his [http://www.grasshillalpacas.com/alpacaproductsforbitcoinoffer.html Alpaca socks]. In return, she wants to send him a dollar. She can use something like paypal with its limitations or she can mail him a dollar bill. But a dollar bill is just an item with very low intrinsic value that is accepted by Alice and Bob to represent something significant in the real world like socks. Instead of mailing the bill itself, Alice could have emailed a number, like the serial number imprinted on her dollar bill, and save on stamps and time, we will call this number a [[Main_Page|bitcoin]]. The bitcoin is used as a unit of account to measure the value of the socks Bob gave to Alice. Once Bob receives the bitcoin he would like to know that there is a good chance that he will be able to use the bitcoin to buy other products of similar value in the immediate future (means of exchange) or in the long term future (asset) and he needs to know if there are any unwanted side effects to using it.<br />
<br />
For the transaction to take place, Alice needs to have a bitcoin to start with and Bob needs to decide if he accepts the bitcoin in return for his socks. The value of a bitcoin is affected:<br />
* The bitcoin can’t be replicated (counterfeited) and used again by Alice or someone else eavesdropping to the transaction.<br />
* Alice can’t create more bitcoins out off thin air without limit<br />
* However, there should be some mechanism that introduces new bitcoins out of thin air into the system, otherwise there would not be enough bitcoins to make it popular by many people. But this mechanism should be agreed by all (fare) and it should be slow otherwise bitcoins cannot be used to store asset.<br />
* Bob needs to know that it will be relatively easy for him to find other people that will accept his bitcoin in the same way that he did, this is a circular problem that requires other people to go through the same decision process <br />
Bob may consider the following side effects:<br />
* Bob needs to know that it will be hard to steal or confiscate his bitcoin once he received it.<br />
* Like regular cash, Bob will like to know that his privacy is kept, and other people that will receive the bitcoin in the future will not be able to personally track him.<br />
<br />
=Counterfeiting=<br />
==By an Eavesdropper==<br />
How do we guaranty that an eavesdropper, Eve, does not replicate the bit coin:<br />
* We will use a [[Wikipedia:Public-key_cryptography|public key system]] to make digital signatures. In this system a person has a pair of public and private keys which Bob stores in a safe [[Wallet|wallet]]. Only the user with his secret private key can sign a document, such as the coins content, but any one can validate the signature using the user’s public key. The coin content, in Alice hands, already contains Alice public key<br />
* Bob sends his public key to Alice<br />
* Alice adds Bob’s public key to the coin’s content<br />
* Alice signs the entire coin’s content with her secret private key.<br />
As a result the new coin, that Eve may be intercepting, contains the public key of both Alice and Bob. Later on when Bob will transfer the same coin to Charley he will do the same thing: receive from Charley his public key, add it to the coin’s content and sign the new coin with his (Bob) private key. But only Bob can do this last step because only Bob has the private key which is necessary for signing and which is the only private key to match Bob’s public that is already imprinted in the coin’s content. Eve can’t modify the coin’s content and replace Bob’s public key with her public key because the coin was signed with Alice private key that is kept secret from Eve. So if Charley accepts that the original coin was in the hands of Alice he will also accept the fact that this coin was later passed to Bob and now Bob is passing this same coin to him.<br />
<br />
==By the sender==<br />
How to guaranty that Alice does not replicate the coin and use it in more than one transaction:<br />
* The transaction is sent to as many other people (to their computers) as possible<br />
* At least one of the computers sends back a [[Block|block]], which is just a large document that includes details of the transaction and other unrelated transactions. The block is sent to as many other people as possible.<br />
* Eventually the block reaches Bob that can validate that his transaction was recorded and no other transaction for the same coin was made in the past.<br />
* In theory, Alice can generate a spoofed block in which her past usage of the same coin does not appear and try to send this block to Bob as an evidence that the coin is OK. But the process of generating a block is designed to take a long time and she is not likely to generate it on time. Keep in mind that Bob is using a new public key for each transaction so Alice can’t prepare in advance. In addition, many other computers are working in parallel to generate an honest block and one of them is more likely to finish before her. In any case, eventually competing blocks will arrive to Bob that will indication that Alice’s coin was already in use.<br />
<br />
=Privacy=<br />
In order to protect his privacy, Bob can generate a new public-private key pair for each transaction. So David receiving the coin from Charley will not be able to identify who is the second person in the list of transactions. The only thing David will know is the [[Address]] of Bob which is a shortened (hashed) version of his public key.<br />
<br />
=Creation of coins=<br />
As we saw, both Bob and Charley need to verify that the original coin that Alice started with is valid. Alice can’t just generate coins out of thin air because the appearance of a coin is also a transaction that needs to be accepted by others (in their blocks.) The only way she can cause a coin to appear in a block is to generate the block herself, and this is exactly how new coins are slowly introduced: every computer that manages to generate a block is allowed to put one transaction in it in which it receives one coin. Other computers receiving the block can validate that only one coin is created and they can then accept this new coin as valid. Generating blocks is a slow process that requires Alice to spend computer hardware, electricity bill and time and it can be compared to gold mining. It is also a constructive work because the created work helps validate the entire bitcoin system.</div>Udibrhttps://en.bitcoin.it/w/index.php?title=Help:Introduction&diff=3620Help:Introduction2011-02-13T16:33:05Z<p>Udibr: /* By the sender */</p>
<hr />
<div>Alice is far away from Bob and wants to buy his [http://www.grasshillalpacas.com/alpacaproductsforbitcoinoffer.html Alpaca socks]. In return, she wants to send him a dollar. She can use something like paypal with its limitations or she can mail him a dollar bill. But a dollar bill is just an item with very low intrinsic value that is accepted by Alice and Bob to represent something significant in the real world like socks. Instead of mailing the bill itself, Alice could have emailed a number, like the serial number imprinted on her dollar bill, and save on stamps and time, we will call this number a [[Main_Page|bitcoin]]. The bitcoin is used as a unit of account to measure the value of the socks Bob gave to Alice. Once Bob receives the bitcoin he would like to know that there is a good chance that he will be able to use the bitcoin to buy other products of similar value in the immediate future (means of exchange) or in the long term future (asset) and he needs to know if there are any unwanted side effects to using it.<br />
<br />
For the transaction to take place, Alice needs to have a bitcoin to start with and Bob needs to decide if he accepts the bitcoin in return for his socks. The value of a bitcoin is affected:<br />
* The bitcoin can’t be replicated (counterfeited) and used again by Alice or someone else eavesdropping to the transaction.<br />
* Alice can’t create more bitcoins out off thin air without limit<br />
* However, there should be some mechanism that introduces new bitcoins out of thin air into the system, otherwise there would not be enough bitcoins to make it popular by many people. But this mechanism should be agreed by all (fare) and it should be slow otherwise bitcoins cannot be used to store asset.<br />
* Bob needs to know that it will be relatively easy for him to find other people that will accept his bitcoin in the same way that he did, this is a circular problem that requires other people to go through the same decision process <br />
Bob may consider the following side effects:<br />
* Bob needs to know that it will be hard to steal or confiscate his bitcoin once he received it.<br />
* Like regular cash, Bob will like to know that his privacy is kept, and other people that will receive the bitcoin in the future will not be able to personally track him.<br />
<br />
=Counterfeiting=<br />
==By an Eavesdropper==<br />
How do we guaranty that an eavesdropper, Eve, does not replicate the bit coin:<br />
* We will use a [[Wikipedia:Public-key_cryptography|public key system]] to make digital signatures. In this system a person has a pair of public and private keys which Bob stores in a safe [[Wallet|wallet]]. Only the user with his secret private key can sign a document, such as the coins content, but any one can validate the signature using the user’s public key. The coin content, in Alice hands, already contains Alice public key<br />
* Bob sends his public key to Alice<br />
* Alice adds Bob’s public key to the coin’s content<br />
* Alice signs the entire coin’s content with her secret private key.<br />
As a result the new coin, that Eve may be intercepting, contains the public key of both Alice and Bob. Later on when Bob will transfer the same coin to Charley he will do the same thing: receive from Charley his public key, add it to the coin’s content and sign the new coin with his (Bob) private key. But only Bob can do this last step because only Bob has the private key which is necessary for signing and which is the only private key to match Bob’s public that is already imprinted in the coin’s content. Eve can’t modify the coin’s content and replace Bob’s public key with her public key because the coin was signed with Alice private key that is kept secret from Eve. So if Charley accepts that the original coin was in the hands of Alice he will also accept the fact that this coin was later passed to Bob and now Bob is passing this same coin to him.<br />
<br />
==By the sender==<br />
How to guaranty that Alice does not replicate the coin and use it in more than one transaction:<br />
* The transaction is sent to as many other people (to their computers) as possible<br />
* At least one of the computers sends back a [[Block|block], which is just a large document that includes details of the transaction and other unrelated transactions. The block is sent to as many other people as possible.<br />
* Eventually the block reaches Bob that can validate that his transaction was recorded and no other transaction for the same coin was made in the past.<br />
* In theory, Alice can generate a spoofed block in which her past usage of the same coin does not appear and try to send this block to Bob as an evidence that the coin is OK. But the process of generating a block is designed to take a long time and she is not likely to generate it on time. Keep in mind that Bob is using a new public key for each transaction so Alice can’t prepare in advance. In addition, many other computers are working in parallel to generate an honest block and one of them is more likely to finish before her. In any case, eventually competing blocks will arrive to Bob that will indication that Alice’s coin was already in use.<br />
<br />
=Privacy=<br />
In order to protect his privacy, Bob can generate a new public-private key pair for each transaction. So David receiving the coin from Charley will not be able to identify who is the second person in the list of transactions. The only thing David will know is the [[Address]] of Bob which is a shortened (hashed) version of his public key.<br />
<br />
=Creation of coins=<br />
As we saw, both Bob and Charley need to verify that the original coin that Alice started with is valid. Alice can’t just generate coins out of thin air because the appearance of a coin is also a transaction that needs to be accepted by others (in their blocks.) The only way she can cause a coin to appear in a block is to generate the block herself, and this is exactly how new coins are slowly introduced: every computer that manages to generate a block is allowed to put one transaction in it in which it receives one coin. Other computers receiving the block can validate that only one coin is created and they can then accept this new coin as valid. Generating blocks is a slow process that requires Alice to spend computer hardware, electricity bill and time and it can be compared to gold mining. It is also a constructive work because the created work helps validate the entire bitcoin system.</div>Udibrhttps://en.bitcoin.it/w/index.php?title=Help:Introduction&diff=3619Help:Introduction2011-02-13T16:30:37Z<p>Udibr: </p>
<hr />
<div>Alice is far away from Bob and wants to buy his [http://www.grasshillalpacas.com/alpacaproductsforbitcoinoffer.html Alpaca socks]. In return, she wants to send him a dollar. She can use something like paypal with its limitations or she can mail him a dollar bill. But a dollar bill is just an item with very low intrinsic value that is accepted by Alice and Bob to represent something significant in the real world like socks. Instead of mailing the bill itself, Alice could have emailed a number, like the serial number imprinted on her dollar bill, and save on stamps and time, we will call this number a [[Main_Page|bitcoin]]. The bitcoin is used as a unit of account to measure the value of the socks Bob gave to Alice. Once Bob receives the bitcoin he would like to know that there is a good chance that he will be able to use the bitcoin to buy other products of similar value in the immediate future (means of exchange) or in the long term future (asset) and he needs to know if there are any unwanted side effects to using it.<br />
<br />
For the transaction to take place, Alice needs to have a bitcoin to start with and Bob needs to decide if he accepts the bitcoin in return for his socks. The value of a bitcoin is affected:<br />
* The bitcoin can’t be replicated (counterfeited) and used again by Alice or someone else eavesdropping to the transaction.<br />
* Alice can’t create more bitcoins out off thin air without limit<br />
* However, there should be some mechanism that introduces new bitcoins out of thin air into the system, otherwise there would not be enough bitcoins to make it popular by many people. But this mechanism should be agreed by all (fare) and it should be slow otherwise bitcoins cannot be used to store asset.<br />
* Bob needs to know that it will be relatively easy for him to find other people that will accept his bitcoin in the same way that he did, this is a circular problem that requires other people to go through the same decision process <br />
Bob may consider the following side effects:<br />
* Bob needs to know that it will be hard to steal or confiscate his bitcoin once he received it.<br />
* Like regular cash, Bob will like to know that his privacy is kept, and other people that will receive the bitcoin in the future will not be able to personally track him.<br />
<br />
=Counterfeiting=<br />
==By an Eavesdropper==<br />
How do we guaranty that an eavesdropper, Eve, does not replicate the bit coin:<br />
* We will use a [[Wikipedia:Public-key_cryptography|public key system]] to make digital signatures. In this system a person has a pair of public and private keys which Bob stores in a safe [[Wallet|wallet]]. Only the user with his secret private key can sign a document, such as the coins content, but any one can validate the signature using the user’s public key. The coin content, in Alice hands, already contains Alice public key<br />
* Bob sends his public key to Alice<br />
* Alice adds Bob’s public key to the coin’s content<br />
* Alice signs the entire coin’s content with her secret private key.<br />
As a result the new coin, that Eve may be intercepting, contains the public key of both Alice and Bob. Later on when Bob will transfer the same coin to Charley he will do the same thing: receive from Charley his public key, add it to the coin’s content and sign the new coin with his (Bob) private key. But only Bob can do this last step because only Bob has the private key which is necessary for signing and which is the only private key to match Bob’s public that is already imprinted in the coin’s content. Eve can’t modify the coin’s content and replace Bob’s public key with her public key because the coin was signed with Alice private key that is kept secret from Eve. So if Charley accepts that the original coin was in the hands of Alice he will also accept the fact that this coin was later passed to Bob and now Bob is passing this same coin to him.<br />
<br />
==By the sender==<br />
How to guaranty that Alice does not replicate the coin and use it in more than one transaction:<br />
* The transaction is sent to as many other people (to their computers) as possible<br />
* At least one of the computers sends back block, which is just a large document that includes details of the transaction and other unrelated transactions. The block is sent to as many other people as possible.<br />
* Eventually the block reaches Bob that can validate that his transaction was recorded and no other transaction for the same coin was made in the past.<br />
* In theory, Alice can generate a spoofed block in which her past usage of the same coin does not appear and try to send this block to Bob as an evidence that the coin is OK. But the process of generating a block is designed to take a long time and she is not likely to generate it on time. Keep in mind that Bob is using a new public key for each transaction so Alice can’t prepare in advance. In addition, many other computers are working in parallel to generate an honest block and one of them is more likely to finish before her. In any case, eventually competing blocks will arrive to Bob that will indication that Alice’s coin was already in use.<br />
<br />
=Privacy=<br />
In order to protect his privacy, Bob can generate a new public-private key pair for each transaction. So David receiving the coin from Charley will not be able to identify who is the second person in the list of transactions. The only thing David will know is the [[Address]] of Bob which is a shortened (hashed) version of his public key.<br />
<br />
=Creation of coins=<br />
As we saw, both Bob and Charley need to verify that the original coin that Alice started with is valid. Alice can’t just generate coins out of thin air because the appearance of a coin is also a transaction that needs to be accepted by others (in their blocks.) The only way she can cause a coin to appear in a block is to generate the block herself, and this is exactly how new coins are slowly introduced: every computer that manages to generate a block is allowed to put one transaction in it in which it receives one coin. Other computers receiving the block can validate that only one coin is created and they can then accept this new coin as valid. Generating blocks is a slow process that requires Alice to spend computer hardware, electricity bill and time and it can be compared to gold mining. It is also a constructive work because the created work helps validate the entire bitcoin system.</div>Udibrhttps://en.bitcoin.it/w/index.php?title=Help:Introduction&diff=3618Help:Introduction2011-02-13T16:29:47Z<p>Udibr: /* By an Eavesdropper */</p>
<hr />
<div>Alice is far away from Bob and wants to buy his [http://www.grasshillalpacas.com/alpacaproductsforbitcoinoffer.html Alpaca socks]. In return, she wants to send him a dollar. She can use something like paypal with its limitations or she can mail him a dollar bill. But a dollar bill is just an item with very low intrinsic value that is accepted by Alice and Bob to represent something significant in the real world like socks. Instead of mailing the bill itself, Alice could have emailed a number, like the serial number imprinted on her dollar bill, and save on stamps and time, we will call this number a [http://www.bitcoin.org bitcoin]. The bitcoin is used as a unit of account to measure the value of the socks Bob gave to Alice. Once Bob receives the bitcoin he would like to know that there is a good chance that he will be able to use the bitcoin to buy other products of similar value in the immediate future (means of exchange) or in the long term future (asset) and he needs to know if there are any unwanted side effects to using it.<br />
<br />
For the transaction to take place, Alice needs to have a bitcoin to start with and Bob needs to decide if he accepts the bitcoin in return for his socks. The value of a bitcoin is affected:<br />
* The bitcoin can’t be replicated (counterfeited) and used again by Alice or someone else eavesdropping to the transaction.<br />
* Alice can’t create more bitcoins out off thin air without limit<br />
* However, there should be some mechanism that introduces new bitcoins out of thin air into the system, otherwise there would not be enough bitcoins to make it popular by many people. But this mechanism should be agreed by all (fare) and it should be slow otherwise bitcoins cannot be used to store asset.<br />
* Bob needs to know that it will be relatively easy for him to find other people that will accept his bitcoin in the same way that he did, this is a circular problem that requires other people to go through the same decision process <br />
Bob may consider the following side effects:<br />
* Bob needs to know that it will be hard to steal or confiscate his bitcoin once he received it.<br />
* Like regular cash, Bob will like to know that his privacy is kept, and other people that will receive the bitcoin in the future will not be able to personally track him.<br />
<br />
=Counterfeiting=<br />
==By an Eavesdropper==<br />
How do we guaranty that an eavesdropper, Eve, does not replicate the bit coin:<br />
* We will use a [[Wikipedia:Public-key_cryptography|public key system]] to make digital signatures. In this system a person has a pair of public and private keys which Bob stores in a safe [[Wallet|wallet]]. Only the user with his secret private key can sign a document, such as the coins content, but any one can validate the signature using the user’s public key. The coin content, in Alice hands, already contains Alice public key<br />
* Bob sends his public key to Alice<br />
* Alice adds Bob’s public key to the coin’s content<br />
* Alice signs the entire coin’s content with her secret private key.<br />
As a result the new coin, that Eve may be intercepting, contains the public key of both Alice and Bob. Later on when Bob will transfer the same coin to Charley he will do the same thing: receive from Charley his public key, add it to the coin’s content and sign the new coin with his (Bob) private key. But only Bob can do this last step because only Bob has the private key which is necessary for signing and which is the only private key to match Bob’s public that is already imprinted in the coin’s content. Eve can’t modify the coin’s content and replace Bob’s public key with her public key because the coin was signed with Alice private key that is kept secret from Eve. So if Charley accepts that the original coin was in the hands of Alice he will also accept the fact that this coin was later passed to Bob and now Bob is passing this same coin to him.<br />
<br />
==By the sender==<br />
How to guaranty that Alice does not replicate the coin and use it in more than one transaction:<br />
* The transaction is sent to as many other people (to their computers) as possible<br />
* At least one of the computers sends back block, which is just a large document that includes details of the transaction and other unrelated transactions. The block is sent to as many other people as possible.<br />
* Eventually the block reaches Bob that can validate that his transaction was recorded and no other transaction for the same coin was made in the past.<br />
* In theory, Alice can generate a spoofed block in which her past usage of the same coin does not appear and try to send this block to Bob as an evidence that the coin is OK. But the process of generating a block is designed to take a long time and she is not likely to generate it on time. Keep in mind that Bob is using a new public key for each transaction so Alice can’t prepare in advance. In addition, many other computers are working in parallel to generate an honest block and one of them is more likely to finish before her. In any case, eventually competing blocks will arrive to Bob that will indication that Alice’s coin was already in use.<br />
<br />
=Privacy=<br />
In order to protect his privacy, Bob can generate a new public-private key pair for each transaction. So David receiving the coin from Charley will not be able to identify who is the second person in the list of transactions. The only thing David will know is the [[Address]] of Bob which is a shortened (hashed) version of his public key.<br />
<br />
=Creation of coins=<br />
As we saw, both Bob and Charley need to verify that the original coin that Alice started with is valid. Alice can’t just generate coins out of thin air because the appearance of a coin is also a transaction that needs to be accepted by others (in their blocks.) The only way she can cause a coin to appear in a block is to generate the block herself, and this is exactly how new coins are slowly introduced: every computer that manages to generate a block is allowed to put one transaction in it in which it receives one coin. Other computers receiving the block can validate that only one coin is created and they can then accept this new coin as valid. Generating blocks is a slow process that requires Alice to spend computer hardware, electricity bill and time and it can be compared to gold mining. It is also a constructive work because the created work helps validate the entire bitcoin system.</div>Udibrhttps://en.bitcoin.it/w/index.php?title=Help:Introduction&diff=3617Help:Introduction2011-02-13T16:28:27Z<p>Udibr: /* By an Eavesdropper */</p>
<hr />
<div>Alice is far away from Bob and wants to buy his [http://www.grasshillalpacas.com/alpacaproductsforbitcoinoffer.html Alpaca socks]. In return, she wants to send him a dollar. She can use something like paypal with its limitations or she can mail him a dollar bill. But a dollar bill is just an item with very low intrinsic value that is accepted by Alice and Bob to represent something significant in the real world like socks. Instead of mailing the bill itself, Alice could have emailed a number, like the serial number imprinted on her dollar bill, and save on stamps and time, we will call this number a [http://www.bitcoin.org bitcoin]. The bitcoin is used as a unit of account to measure the value of the socks Bob gave to Alice. Once Bob receives the bitcoin he would like to know that there is a good chance that he will be able to use the bitcoin to buy other products of similar value in the immediate future (means of exchange) or in the long term future (asset) and he needs to know if there are any unwanted side effects to using it.<br />
<br />
For the transaction to take place, Alice needs to have a bitcoin to start with and Bob needs to decide if he accepts the bitcoin in return for his socks. The value of a bitcoin is affected:<br />
* The bitcoin can’t be replicated (counterfeited) and used again by Alice or someone else eavesdropping to the transaction.<br />
* Alice can’t create more bitcoins out off thin air without limit<br />
* However, there should be some mechanism that introduces new bitcoins out of thin air into the system, otherwise there would not be enough bitcoins to make it popular by many people. But this mechanism should be agreed by all (fare) and it should be slow otherwise bitcoins cannot be used to store asset.<br />
* Bob needs to know that it will be relatively easy for him to find other people that will accept his bitcoin in the same way that he did, this is a circular problem that requires other people to go through the same decision process <br />
Bob may consider the following side effects:<br />
* Bob needs to know that it will be hard to steal or confiscate his bitcoin once he received it.<br />
* Like regular cash, Bob will like to know that his privacy is kept, and other people that will receive the bitcoin in the future will not be able to personally track him.<br />
<br />
=Counterfeiting=<br />
==By an Eavesdropper==<br />
How do we guaranty that an eavesdropper, Eve, does not replicate the bit coin:<br />
* We will use a [http://en.wikipedia.org/wiki/Public-key_cryptography public key system] to make digital signatures. In this system a person has a pair of public and private keys which Bob stores in a safe [[Wallet|wallet]]. Only the user with his secret private key can sign a document, such as the coins content, but any one can validate the signature using the user’s public key. The coin content, in Alice hands, already contains Alice public key<br />
* Bob sends his public key to Alice<br />
* Alice adds Bob’s public key to the coin’s content<br />
* Alice signs the entire coin’s content with her secret private key.<br />
As a result the new coin, that Eve may be intercepting, contains the public key of both Alice and Bob. Later on when Bob will transfer the same coin to Charley he will do the same thing: receive from Charley his public key, add it to the coin’s content and sign the new coin with his (Bob) private key. But only Bob can do this last step because only Bob has the private key which is necessary for signing and which is the only private key to match Bob’s public that is already imprinted in the coin’s content. Eve can’t modify the coin’s content and replace Bob’s public key with her public key because the coin was signed with Alice private key that is kept secret from Eve. So if Charley accepts that the original coin was in the hands of Alice he will also accept the fact that this coin was later passed to Bob and now Bob is passing this same coin to him.<br />
<br />
==By the sender==<br />
How to guaranty that Alice does not replicate the coin and use it in more than one transaction:<br />
* The transaction is sent to as many other people (to their computers) as possible<br />
* At least one of the computers sends back block, which is just a large document that includes details of the transaction and other unrelated transactions. The block is sent to as many other people as possible.<br />
* Eventually the block reaches Bob that can validate that his transaction was recorded and no other transaction for the same coin was made in the past.<br />
* In theory, Alice can generate a spoofed block in which her past usage of the same coin does not appear and try to send this block to Bob as an evidence that the coin is OK. But the process of generating a block is designed to take a long time and she is not likely to generate it on time. Keep in mind that Bob is using a new public key for each transaction so Alice can’t prepare in advance. In addition, many other computers are working in parallel to generate an honest block and one of them is more likely to finish before her. In any case, eventually competing blocks will arrive to Bob that will indication that Alice’s coin was already in use.<br />
<br />
=Privacy=<br />
In order to protect his privacy, Bob can generate a new public-private key pair for each transaction. So David receiving the coin from Charley will not be able to identify who is the second person in the list of transactions. The only thing David will know is the [[Address]] of Bob which is a shortened (hashed) version of his public key.<br />
<br />
=Creation of coins=<br />
As we saw, both Bob and Charley need to verify that the original coin that Alice started with is valid. Alice can’t just generate coins out of thin air because the appearance of a coin is also a transaction that needs to be accepted by others (in their blocks.) The only way she can cause a coin to appear in a block is to generate the block herself, and this is exactly how new coins are slowly introduced: every computer that manages to generate a block is allowed to put one transaction in it in which it receives one coin. Other computers receiving the block can validate that only one coin is created and they can then accept this new coin as valid. Generating blocks is a slow process that requires Alice to spend computer hardware, electricity bill and time and it can be compared to gold mining. It is also a constructive work because the created work helps validate the entire bitcoin system.</div>Udibrhttps://en.bitcoin.it/w/index.php?title=Help:Introduction&diff=3616Help:Introduction2011-02-13T16:26:57Z<p>Udibr: /* Privacy */</p>
<hr />
<div>Alice is far away from Bob and wants to buy his [http://www.grasshillalpacas.com/alpacaproductsforbitcoinoffer.html Alpaca socks]. In return, she wants to send him a dollar. She can use something like paypal with its limitations or she can mail him a dollar bill. But a dollar bill is just an item with very low intrinsic value that is accepted by Alice and Bob to represent something significant in the real world like socks. Instead of mailing the bill itself, Alice could have emailed a number, like the serial number imprinted on her dollar bill, and save on stamps and time, we will call this number a [http://www.bitcoin.org bitcoin]. The bitcoin is used as a unit of account to measure the value of the socks Bob gave to Alice. Once Bob receives the bitcoin he would like to know that there is a good chance that he will be able to use the bitcoin to buy other products of similar value in the immediate future (means of exchange) or in the long term future (asset) and he needs to know if there are any unwanted side effects to using it.<br />
<br />
For the transaction to take place, Alice needs to have a bitcoin to start with and Bob needs to decide if he accepts the bitcoin in return for his socks. The value of a bitcoin is affected:<br />
* The bitcoin can’t be replicated (counterfeited) and used again by Alice or someone else eavesdropping to the transaction.<br />
* Alice can’t create more bitcoins out off thin air without limit<br />
* However, there should be some mechanism that introduces new bitcoins out of thin air into the system, otherwise there would not be enough bitcoins to make it popular by many people. But this mechanism should be agreed by all (fare) and it should be slow otherwise bitcoins cannot be used to store asset.<br />
* Bob needs to know that it will be relatively easy for him to find other people that will accept his bitcoin in the same way that he did, this is a circular problem that requires other people to go through the same decision process <br />
Bob may consider the following side effects:<br />
* Bob needs to know that it will be hard to steal or confiscate his bitcoin once he received it.<br />
* Like regular cash, Bob will like to know that his privacy is kept, and other people that will receive the bitcoin in the future will not be able to personally track him.<br />
<br />
=Counterfeiting=<br />
==By an Eavesdropper==<br />
How do we guaranty that an eavesdropper, Eve, does not replicate the bit coin:<br />
* We will use a [http://en.wikipedia.org/wiki/Public-key_cryptography public key system] to make digital signatures. In this system a person has a pair of public and private keys. Only the user with his secret private key can sign a document, such as the coins content, but any one can validate the signature using the user’s public key. The coin content, in Alice hands, already contains Alice public key<br />
* Bob sends his public key to Alice<br />
* Alice adds Bob’s public key to the coin’s content<br />
* Alice signs the entire coin’s content with her secret private key.<br />
As a result the new coin, that Eve may be intercepting, contains the public key of both Alice and Bob. Later on when Bob will transfer the same coin to Charley he will do the same thing: receive from Charley his public key, add it to the coin’s content and sign the new coin with his (Bob) private key. But only Bob can do this last step because only Bob has the private key which is necessary for signing and which is the only private key to match Bob’s public that is already imprinted in the coin’s content. Eve can’t modify the coin’s content and replace Bob’s public key with her public key because the coin was signed with Alice private key that is kept secret from Eve. So if Charley accepts that the original coin was in the hands of Alice he will also accept the fact that this coin was later passed to Bob and now Bob is passing this same coin to him.<br />
<br />
==By the sender==<br />
How to guaranty that Alice does not replicate the coin and use it in more than one transaction:<br />
* The transaction is sent to as many other people (to their computers) as possible<br />
* At least one of the computers sends back block, which is just a large document that includes details of the transaction and other unrelated transactions. The block is sent to as many other people as possible.<br />
* Eventually the block reaches Bob that can validate that his transaction was recorded and no other transaction for the same coin was made in the past.<br />
* In theory, Alice can generate a spoofed block in which her past usage of the same coin does not appear and try to send this block to Bob as an evidence that the coin is OK. But the process of generating a block is designed to take a long time and she is not likely to generate it on time. Keep in mind that Bob is using a new public key for each transaction so Alice can’t prepare in advance. In addition, many other computers are working in parallel to generate an honest block and one of them is more likely to finish before her. In any case, eventually competing blocks will arrive to Bob that will indication that Alice’s coin was already in use.<br />
<br />
=Privacy=<br />
In order to protect his privacy, Bob can generate a new public-private key pair for each transaction. So David receiving the coin from Charley will not be able to identify who is the second person in the list of transactions. The only thing David will know is the [[Address]] of Bob which is a shortened (hashed) version of his public key.<br />
<br />
=Creation of coins=<br />
As we saw, both Bob and Charley need to verify that the original coin that Alice started with is valid. Alice can’t just generate coins out of thin air because the appearance of a coin is also a transaction that needs to be accepted by others (in their blocks.) The only way she can cause a coin to appear in a block is to generate the block herself, and this is exactly how new coins are slowly introduced: every computer that manages to generate a block is allowed to put one transaction in it in which it receives one coin. Other computers receiving the block can validate that only one coin is created and they can then accept this new coin as valid. Generating blocks is a slow process that requires Alice to spend computer hardware, electricity bill and time and it can be compared to gold mining. It is also a constructive work because the created work helps validate the entire bitcoin system.</div>Udibrhttps://en.bitcoin.it/w/index.php?title=Help:Introduction&diff=3615Help:Introduction2011-02-13T16:17:30Z<p>Udibr: /* By an Eavesdropper */</p>
<hr />
<div>Alice is far away from Bob and wants to buy his [http://www.grasshillalpacas.com/alpacaproductsforbitcoinoffer.html Alpaca socks]. In return, she wants to send him a dollar. She can use something like paypal with its limitations or she can mail him a dollar bill. But a dollar bill is just an item with very low intrinsic value that is accepted by Alice and Bob to represent something significant in the real world like socks. Instead of mailing the bill itself, Alice could have emailed a number, like the serial number imprinted on her dollar bill, and save on stamps and time, we will call this number a [http://www.bitcoin.org bitcoin]. The bitcoin is used as a unit of account to measure the value of the socks Bob gave to Alice. Once Bob receives the bitcoin he would like to know that there is a good chance that he will be able to use the bitcoin to buy other products of similar value in the immediate future (means of exchange) or in the long term future (asset) and he needs to know if there are any unwanted side effects to using it.<br />
<br />
For the transaction to take place, Alice needs to have a bitcoin to start with and Bob needs to decide if he accepts the bitcoin in return for his socks. The value of a bitcoin is affected:<br />
* The bitcoin can’t be replicated (counterfeited) and used again by Alice or someone else eavesdropping to the transaction.<br />
* Alice can’t create more bitcoins out off thin air without limit<br />
* However, there should be some mechanism that introduces new bitcoins out of thin air into the system, otherwise there would not be enough bitcoins to make it popular by many people. But this mechanism should be agreed by all (fare) and it should be slow otherwise bitcoins cannot be used to store asset.<br />
* Bob needs to know that it will be relatively easy for him to find other people that will accept his bitcoin in the same way that he did, this is a circular problem that requires other people to go through the same decision process <br />
Bob may consider the following side effects:<br />
* Bob needs to know that it will be hard to steal or confiscate his bitcoin once he received it.<br />
* Like regular cash, Bob will like to know that his privacy is kept, and other people that will receive the bitcoin in the future will not be able to personally track him.<br />
<br />
=Counterfeiting=<br />
==By an Eavesdropper==<br />
How do we guaranty that an eavesdropper, Eve, does not replicate the bit coin:<br />
* We will use a [http://en.wikipedia.org/wiki/Public-key_cryptography public key system] to make digital signatures. In this system a person has a pair of public and private keys. Only the user with his secret private key can sign a document, such as the coins content, but any one can validate the signature using the user’s public key. The coin content, in Alice hands, already contains Alice public key<br />
* Bob sends his public key to Alice<br />
* Alice adds Bob’s public key to the coin’s content<br />
* Alice signs the entire coin’s content with her secret private key.<br />
As a result the new coin, that Eve may be intercepting, contains the public key of both Alice and Bob. Later on when Bob will transfer the same coin to Charley he will do the same thing: receive from Charley his public key, add it to the coin’s content and sign the new coin with his (Bob) private key. But only Bob can do this last step because only Bob has the private key which is necessary for signing and which is the only private key to match Bob’s public that is already imprinted in the coin’s content. Eve can’t modify the coin’s content and replace Bob’s public key with her public key because the coin was signed with Alice private key that is kept secret from Eve. So if Charley accepts that the original coin was in the hands of Alice he will also accept the fact that this coin was later passed to Bob and now Bob is passing this same coin to him.<br />
<br />
==By the sender==<br />
How to guaranty that Alice does not replicate the coin and use it in more than one transaction:<br />
* The transaction is sent to as many other people (to their computers) as possible<br />
* At least one of the computers sends back block, which is just a large document that includes details of the transaction and other unrelated transactions. The block is sent to as many other people as possible.<br />
* Eventually the block reaches Bob that can validate that his transaction was recorded and no other transaction for the same coin was made in the past.<br />
* In theory, Alice can generate a spoofed block in which her past usage of the same coin does not appear and try to send this block to Bob as an evidence that the coin is OK. But the process of generating a block is designed to take a long time and she is not likely to generate it on time. Keep in mind that Bob is using a new public key for each transaction so Alice can’t prepare in advance. In addition, many other computers are working in parallel to generate an honest block and one of them is more likely to finish before her. In any case, eventually competing blocks will arrive to Bob that will indication that Alice’s coin was already in use.<br />
<br />
=Privacy=<br />
In order to protect his privacy, Bob can generate a new public-private key pair for each transaction. So David receiving the coin from Charley will not be able to identify who is the second person in the list of transactions. However, Bob will have to keep the private key of each coin he received until he spends it. <br />
<br />
=Creation of coins=<br />
As we saw, both Bob and Charley need to verify that the original coin that Alice started with is valid. Alice can’t just generate coins out of thin air because the appearance of a coin is also a transaction that needs to be accepted by others (in their blocks.) The only way she can cause a coin to appear in a block is to generate the block herself, and this is exactly how new coins are slowly introduced: every computer that manages to generate a block is allowed to put one transaction in it in which it receives one coin. Other computers receiving the block can validate that only one coin is created and they can then accept this new coin as valid. Generating blocks is a slow process that requires Alice to spend computer hardware, electricity bill and time and it can be compared to gold mining. It is also a constructive work because the created work helps validate the entire bitcoin system.</div>Udibrhttps://en.bitcoin.it/w/index.php?title=Help:Introduction&diff=3614Help:Introduction2011-02-13T16:16:23Z<p>Udibr: </p>
<hr />
<div>Alice is far away from Bob and wants to buy his [http://www.grasshillalpacas.com/alpacaproductsforbitcoinoffer.html Alpaca socks]. In return, she wants to send him a dollar. She can use something like paypal with its limitations or she can mail him a dollar bill. But a dollar bill is just an item with very low intrinsic value that is accepted by Alice and Bob to represent something significant in the real world like socks. Instead of mailing the bill itself, Alice could have emailed a number, like the serial number imprinted on her dollar bill, and save on stamps and time, we will call this number a [http://www.bitcoin.org bitcoin]. The bitcoin is used as a unit of account to measure the value of the socks Bob gave to Alice. Once Bob receives the bitcoin he would like to know that there is a good chance that he will be able to use the bitcoin to buy other products of similar value in the immediate future (means of exchange) or in the long term future (asset) and he needs to know if there are any unwanted side effects to using it.<br />
<br />
For the transaction to take place, Alice needs to have a bitcoin to start with and Bob needs to decide if he accepts the bitcoin in return for his socks. The value of a bitcoin is affected:<br />
* The bitcoin can’t be replicated (counterfeited) and used again by Alice or someone else eavesdropping to the transaction.<br />
* Alice can’t create more bitcoins out off thin air without limit<br />
* However, there should be some mechanism that introduces new bitcoins out of thin air into the system, otherwise there would not be enough bitcoins to make it popular by many people. But this mechanism should be agreed by all (fare) and it should be slow otherwise bitcoins cannot be used to store asset.<br />
* Bob needs to know that it will be relatively easy for him to find other people that will accept his bitcoin in the same way that he did, this is a circular problem that requires other people to go through the same decision process <br />
Bob may consider the following side effects:<br />
* Bob needs to know that it will be hard to steal or confiscate his bitcoin once he received it.<br />
* Like regular cash, Bob will like to know that his privacy is kept, and other people that will receive the bitcoin in the future will not be able to personally track him.<br />
<br />
=Counterfeiting=<br />
==By an Eavesdropper==<br />
How do we guaranty that an eavesdropper, Eve, does not replicate the bit coin:<br />
* We will use a public key system to make digital signatures. In this system a person has a pair of public and private keys. Only the user with his secret private key can sign a document, such as the coins content, but any one can validate the signature using the user’s public key. The coin content, in Alice hands, already contains Alice public key<br />
* Bob sends his public key to Alice<br />
* Alice adds Bob’s public key to the coin’s content<br />
* Alice signs the entire coin’s content with her secret private key.<br />
As a result the new coin, that Eve may be intercepting, contains the public key of both Alice and Bob. Later on when Bob will transfer the same coin to Charley he will do the same thing: receive from Charley his public key, add it to the coin’s content and sign the new coin with his (Bob) private key. But only Bob can do this last step because only Bob has the private key which is necessary for signing and which is the only private key to match Bob’s public that is already imprinted in the coin’s content. Eve can’t modify the coin’s content and replace Bob’s public key with her public key because the coin was signed with Alice private key that is kept secret from Eve. So if Charley accepts that the original coin was in the hands of Alice he will also accept the fact that this coin was later passed to Bob and now Bob is passing this same coin to him.<br />
<br />
==By the sender==<br />
How to guaranty that Alice does not replicate the coin and use it in more than one transaction:<br />
* The transaction is sent to as many other people (to their computers) as possible<br />
* At least one of the computers sends back block, which is just a large document that includes details of the transaction and other unrelated transactions. The block is sent to as many other people as possible.<br />
* Eventually the block reaches Bob that can validate that his transaction was recorded and no other transaction for the same coin was made in the past.<br />
* In theory, Alice can generate a spoofed block in which her past usage of the same coin does not appear and try to send this block to Bob as an evidence that the coin is OK. But the process of generating a block is designed to take a long time and she is not likely to generate it on time. Keep in mind that Bob is using a new public key for each transaction so Alice can’t prepare in advance. In addition, many other computers are working in parallel to generate an honest block and one of them is more likely to finish before her. In any case, eventually competing blocks will arrive to Bob that will indication that Alice’s coin was already in use.<br />
<br />
=Privacy=<br />
In order to protect his privacy, Bob can generate a new public-private key pair for each transaction. So David receiving the coin from Charley will not be able to identify who is the second person in the list of transactions. However, Bob will have to keep the private key of each coin he received until he spends it. <br />
<br />
=Creation of coins=<br />
As we saw, both Bob and Charley need to verify that the original coin that Alice started with is valid. Alice can’t just generate coins out of thin air because the appearance of a coin is also a transaction that needs to be accepted by others (in their blocks.) The only way she can cause a coin to appear in a block is to generate the block herself, and this is exactly how new coins are slowly introduced: every computer that manages to generate a block is allowed to put one transaction in it in which it receives one coin. Other computers receiving the block can validate that only one coin is created and they can then accept this new coin as valid. Generating blocks is a slow process that requires Alice to spend computer hardware, electricity bill and time and it can be compared to gold mining. It is also a constructive work because the created work helps validate the entire bitcoin system.</div>Udibrhttps://en.bitcoin.it/w/index.php?title=Help:Introduction&diff=3613Help:Introduction2011-02-13T16:14:50Z<p>Udibr: /* By an Eavesdropper */</p>
<hr />
<div>Alice is far away from Bob and wants to buy his Alpaca socks. In return, she wants to send him a dollar. She can use something like paypal with its limitations or she can mail him a dollar bill. But a dollar bill is just an item with very low intrinsic value that is accepted by Alice and Bob to represent something significant in the real world like socks. Instead of mailing the bill itself, Alice could have emailed a number, like the serial number imprinted on her dollar bill, and save on stamps and time, we will call this number a [http://www.bitcoin.org bitcoin]. The bitcoin is used as a unit of account to measure the value of the socks Bob gave to Alice. Once Bob receives the bitcoin he would like to know that there is a good chance that he will be able to use the bitcoin to buy other products of similar value in the immediate future (means of exchange) or in the long term future (asset) and he needs to know if there are any unwanted side effects to using it.<br />
<br />
For the transaction to take place, Alice needs to have a bitcoin to start with and Bob needs to decide if he accepts the bitcoin in return for his socks. The value of a bitcoin is affected:<br />
* The bitcoin can’t be replicated (counterfeited) and used again by Alice or someone else eavesdropping to the transaction.<br />
* Alice can’t create more bitcoins out off thin air without limit<br />
* However, there should be some mechanism that introduces new bitcoins out of thin air into the system, otherwise there would not be enough bitcoins to make it popular by many people. But this mechanism should be agreed by all (fare) and it should be slow otherwise bitcoins cannot be used to store asset.<br />
* Bob needs to know that it will be relatively easy for him to find other people that will accept his bitcoin in the same way that he did, this is a circular problem that requires other people to go through the same decision process <br />
Bob may consider the following side effects:<br />
* Bob needs to know that it will be hard to steal or confiscate his bitcoin once he received it.<br />
* Like regular cash, Bob will like to know that his privacy is kept, and other people that will receive the bitcoin in the future will not be able to personally track him.<br />
<br />
=Counterfeiting=<br />
==By an Eavesdropper==<br />
How do we guaranty that an eavesdropper, Eve, does not replicate the bit coin:<br />
* We will use a public key system to make digital signatures. In this system a person has a pair of public and private keys. Only the user with his secret private key can sign a document, such as the coins content, but any one can validate the signature using the user’s public key. The coin content, in Alice hands, already contains Alice public key<br />
* Bob sends his public key to Alice<br />
* Alice adds Bob’s public key to the coin’s content<br />
* Alice signs the entire coin’s content with her secret private key.<br />
As a result the new coin, that Eve may be intercepting, contains the public key of both Alice and Bob. Later on when Bob will transfer the same coin to Charley he will do the same thing: receive from Charley his public key, add it to the coin’s content and sign the new coin with his (Bob) private key. But only Bob can do this last step because only Bob has the private key which is necessary for signing and which is the only private key to match Bob’s public that is already imprinted in the coin’s content. Eve can’t modify the coin’s content and replace Bob’s public key with her public key because the coin was signed with Alice private key that is kept secret from Eve. So if Charley accepts that the original coin was in the hands of Alice he will also accept the fact that this coin was later passed to Bob and now Bob is passing this same coin to him.<br />
<br />
==By the sender==<br />
How to guaranty that Alice does not replicate the coin and use it in more than one transaction:<br />
* The transaction is sent to as many other people (to their computers) as possible<br />
* At least one of the computers sends back block, which is just a large document that includes details of the transaction and other unrelated transactions. The block is sent to as many other people as possible.<br />
* Eventually the block reaches Bob that can validate that his transaction was recorded and no other transaction for the same coin was made in the past.<br />
* In theory, Alice can generate a spoofed block in which her past usage of the same coin does not appear and try to send this block to Bob as an evidence that the coin is OK. But the process of generating a block is designed to take a long time and she is not likely to generate it on time. Keep in mind that Bob is using a new public key for each transaction so Alice can’t prepare in advance. In addition, many other computers are working in parallel to generate an honest block and one of them is more likely to finish before her. In any case, eventually competing blocks will arrive to Bob that will indication that Alice’s coin was already in use.<br />
<br />
=Privacy=<br />
In order to protect his privacy, Bob can generate a new public-private key pair for each transaction. So David receiving the coin from Charley will not be able to identify who is the second person in the list of transactions. However, Bob will have to keep the private key of each coin he received until he spends it. <br />
<br />
=Creation of coins=<br />
As we saw, both Bob and Charley need to verify that the original coin that Alice started with is valid. Alice can’t just generate coins out of thin air because the appearance of a coin is also a transaction that needs to be accepted by others (in their blocks.) The only way she can cause a coin to appear in a block is to generate the block herself, and this is exactly how new coins are slowly introduced: every computer that manages to generate a block is allowed to put one transaction in it in which it receives one coin. Other computers receiving the block can validate that only one coin is created and they can then accept this new coin as valid. Generating blocks is a slow process that requires Alice to spend computer hardware, electricity bill and time and it can be compared to gold mining. It is also a constructive work because the created work helps validate the entire bitcoin system.</div>Udibrhttps://en.bitcoin.it/w/index.php?title=Help:Introduction&diff=3612Help:Introduction2011-02-13T16:13:28Z<p>Udibr: Created page with "Alice is far away from Bob and wants to buy his Alpaca socks. In return, she wants to send him a dollar. She can use something like paypal with its limitations or she can mail hi..."</p>
<hr />
<div>Alice is far away from Bob and wants to buy his Alpaca socks. In return, she wants to send him a dollar. She can use something like paypal with its limitations or she can mail him a dollar bill. But a dollar bill is just an item with very low intrinsic value that is accepted by Alice and Bob to represent something significant in the real world like socks. Instead of mailing the bill itself, Alice could have emailed a number, like the serial number imprinted on her dollar bill, and save on stamps and time, we will call this number a [http://www.bitcoin.org bitcoin]. The bitcoin is used as a unit of account to measure the value of the socks Bob gave to Alice. Once Bob receives the bitcoin he would like to know that there is a good chance that he will be able to use the bitcoin to buy other products of similar value in the immediate future (means of exchange) or in the long term future (asset) and he needs to know if there are any unwanted side effects to using it.<br />
<br />
For the transaction to take place, Alice needs to have a bitcoin to start with and Bob needs to decide if he accepts the bitcoin in return for his socks. The value of a bitcoin is affected:<br />
* The bitcoin can’t be replicated (counterfeited) and used again by Alice or someone else eavesdropping to the transaction.<br />
* Alice can’t create more bitcoins out off thin air without limit<br />
* However, there should be some mechanism that introduces new bitcoins out of thin air into the system, otherwise there would not be enough bitcoins to make it popular by many people. But this mechanism should be agreed by all (fare) and it should be slow otherwise bitcoins cannot be used to store asset.<br />
* Bob needs to know that it will be relatively easy for him to find other people that will accept his bitcoin in the same way that he did, this is a circular problem that requires other people to go through the same decision process <br />
Bob may consider the following side effects:<br />
* Bob needs to know that it will be hard to steal or confiscate his bitcoin once he received it.<br />
* Like regular cash, Bob will like to know that his privacy is kept, and other people that will receive the bitcoin in the future will not be able to personally track him.<br />
<br />
=Counterfeiting=<br />
==By an Eavesdropper==<br />
How do we guaranty that an eavesdropped, Eve, does not replicate the bit coin:<br />
* We will use a public key system to make digital signatures. In this system a person has a pair of public and private keys. Only the user with his secret private key can sign a document, such as the coins content, but any one can validate the signature using the user’s public key. The coin content, in Alice hands, already contains Alice public key<br />
* Bob sends his public key to Alice<br />
* Alice adds Bob’s public key to the coin’s content<br />
* Alice signs the entire coin’s content with her secret private key.<br />
As a result the new coin, that Eve may be intercepting, contains the public key of both Alice and Bob. Later on when Bob will transfer the same coin to Charley he will do the same thing: receive from Charley his public key, add it to the coin’s content and sign the new coin with his (Bob) private key. But only Bob can do this last step because only Bob has the private key which is necessary for signing and which is the only private key to match Bob’s public that is already imprinted in the coin’s content. Eve can’t modify the coin’s content and replace Bob’s public key with her public key because the coin was signed with Alice private key that is kept secret from Eve. So if Charley accepts that the original coin was in the hands of Alice he will also accept the fact that this coin was later passed to Bob and now Bob is passing this same coin to him.<br />
<br />
==By the sender==<br />
How to guaranty that Alice does not replicate the coin and use it in more than one transaction:<br />
* The transaction is sent to as many other people (to their computers) as possible<br />
* At least one of the computers sends back block, which is just a large document that includes details of the transaction and other unrelated transactions. The block is sent to as many other people as possible.<br />
* Eventually the block reaches Bob that can validate that his transaction was recorded and no other transaction for the same coin was made in the past.<br />
* In theory, Alice can generate a spoofed block in which her past usage of the same coin does not appear and try to send this block to Bob as an evidence that the coin is OK. But the process of generating a block is designed to take a long time and she is not likely to generate it on time. Keep in mind that Bob is using a new public key for each transaction so Alice can’t prepare in advance. In addition, many other computers are working in parallel to generate an honest block and one of them is more likely to finish before her. In any case, eventually competing blocks will arrive to Bob that will indication that Alice’s coin was already in use.<br />
<br />
=Privacy=<br />
In order to protect his privacy, Bob can generate a new public-private key pair for each transaction. So David receiving the coin from Charley will not be able to identify who is the second person in the list of transactions. However, Bob will have to keep the private key of each coin he received until he spends it. <br />
<br />
=Creation of coins=<br />
As we saw, both Bob and Charley need to verify that the original coin that Alice started with is valid. Alice can’t just generate coins out of thin air because the appearance of a coin is also a transaction that needs to be accepted by others (in their blocks.) The only way she can cause a coin to appear in a block is to generate the block herself, and this is exactly how new coins are slowly introduced: every computer that manages to generate a block is allowed to put one transaction in it in which it receives one coin. Other computers receiving the block can validate that only one coin is created and they can then accept this new coin as valid. Generating blocks is a slow process that requires Alice to spend computer hardware, electricity bill and time and it can be compared to gold mining. It is also a constructive work because the created work helps validate the entire bitcoin system.</div>Udibrhttps://en.bitcoin.it/w/index.php?title=Help_talk:Introduction&diff=3611Help talk:Introduction2011-02-13T16:12:23Z<p>Udibr: Created page with "I would like to create this page, describing bitcoin in an easy manner."</p>
<hr />
<div>I would like to create this page, describing bitcoin in an easy manner.</div>Udibr