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 Bitcoins
 Why the interest in this new 'currency'?
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James R. Davis
Male Administrator
17396 Posts
[Mentor]


Houston, TX
USA

Honda

GoldWing 1500

Posted - 12/20/2014 :  8:54 AM Follow poster on Twitter  Join poster on Facebook as Friend                        Like
It's not motorcycle oriented, but it will be. In fact, there is reason to believe that this five-year-old phenomenon will become a major part of your future in virtually all aspects of your life.

I'm not talking about bitcoins - I'm talking about the technology behind bitcoins.

That technology is, in a word, revolutionary. It is called the 'blockchain'.

In summary, what the blockchain has done is introduce into the world a new way to determine, WITH CERTAINTY, such things as TRUTH and OWNERSHIP, that is not corruptible, and cannot be taken over by governments, or anybody else.

Big claims, right? But that technology already has demonstrated these abilities.

A little background, first.

The blockchain is a distributed database - actually, a ledger that records EVERY transaction that has ever taken place and EVERY transaction that will ever take place relative to specific things of interest. Not only that, each and every one of those transactions has been verified and confirmed to be accurate. And, those ledger entries are immutable - CANNOT CHANGE OR BE CHANGED OVER TIME.

That blockchain exists in a distributed fashion - not on any single computer, but as complete and identical copies on hundreds of thousands of computers all over the world. There is NO CENTRAL, CONTROLLING, entity involved. Even if the entire power grid of a country was to cease to exist, the blockchain remains in existence and undamaged (so long as at least one copy of it survives).

So what?

Let's get a little more specific and see if some concepts are made clear as a result.

Let's talk about ownership. Who owns your motorcycle? I will tell you that possession may be a reasonable indication, but that is not enough. The man who stole your motorcycle right out of your garage last night possesses the bike, but he does not own it.

How about the money in your bank account? Well, do you possess it, or does the bank?

How about that novel that you took five years to write? It's intellectual property, to be sure, but if it's in digital form, it can be read, and copied, and sold - legally or not - and anybody else can claim to have actually written it and that you didn't. The concept of 'copyright' suggests that some central authority has the ability to designate whomever they please as the 'owner', merely based on that authority.

How about your house? You probably have a mortgage on it. Who owns the house? You? The mortgage lender? Your 'estate'? Well, today the answer is that whomever the title company says owns it, does. That's, after all, what a title is - designation of ownership.

What if you believe that you are the only person in the world that can 'spend' that ten dollar bill that currently resides in your pocket? And what if when you tried to spend it, somebody challenges its authenticity - claiming it is counterfeit? Suddenly 'ownership' and 'value' are not such sure things.

But, on the other hand, what if it could be ABSOLUTELY PROVEN that not only is that ten dollar bill 'real' (not a counterfeit), but that the one and ONLY person in the world who has the right (and ability) to spend it is you? Would you rest easier having that ability?

Ten bucks is not very important in the grander scale of things. So change the focus from that banknote to your domicile. What if you tried to sell it only to find that somebody else claimed - with a title in his name in his hand as proof - that he owned your home and that you were trespassing? Suddenly 'ownership' has become more important to you, no?

That man with what he claims is the title to your home in his hand is married to a registration clerk at a title company and you KNOW that his claimed title is a forgery or has been obtained fraudulently. How on earth can you prove it? The records at the title office appear to be in order. Your word against his? Hardly - he holds what appears to be a valid title. When he invites the sheriff to throw you and your family out onto the street, that's where you will end up.

Why? Because you couldn't PROVE that you are the only person in the world that could have sold or transferred ownership of your home, and that you did not do so, and that you had obtained ownership of your home in the past from a legal sale or transfer from the previous owner (or builder).

And that's where the blockchain comes in.

If the title to your home was logged into the blockchain, it became a FACT. Immutable, remember. And also remember that in order to get into the blockchain, the information was VERIFIED by thousands of nodes on that distributed network. Furthermore, those same thousands (or millions) of nodes each CONFIRM that the information that was placed into the blockchain is EXACTLY the same as what is now in the blockchain - it has not been changed IN ANY WAY since it was placed in there.

Oh, and this will rattle your brain - the blockchain does not have ANY INFORMATION IN IT ABOUT WHO YOU ARE. No name, no social security number, no fingerprints, no DNA - NOTHING. But what it does have is the ability to store transactions, such as a change of ownership of your home, BUT ONLY *YOU* - ABSOLUTELY NOBODY ELSE - CAN 'SPEND' (TRANSFER) THAT OWNERSHIP TO ANYBODY ELSE.

Of course what the blockchain does today is *ALMOST* always restricted to bitcoin transactions - but I think you are getting the picture.

More later, if you're interested.

AMJIce
Male Standard Member
124 Posts


Laguna Hills, CA
USA

Suzuki

DL650K9

Posted - 12/20/2014 :  6:56 PM
I'm interested. I've always been fascinated with all things security and protection. I have been following your articles on bitcoin and understand it revolves around some high-end cryptology implementation to prove authenticity and is related to non-repudiation ...

Keep 'em coming.
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James R. Davis
Male Administrator
17396 Posts
[Mentor]


Houston, TX
USA

Honda

GoldWing 1500

Posted - 12/20/2014 :  8:12 PM Follow poster on Twitter  Join poster on Facebook as Friend  
I thought that I was all alone here. Thanks for the quick feedback.

To continue ...

The blockchain is just that - a chain of blocks of information. Each block contains all the transactions that occurred during the ten minute interval since the previous block was created and as soon as the bitcoin network confirms that it agrees that the new block contains fully verified transactions (that there have been no changes of any kind to those transactions as seen by every other node on the network), that block is appended to the blockchain (and EVERY node on the network then appends it to their copy of the blockchain).

There are three kinds of computer access to the blockchain - all of them in the public domain. No central authority has a 'master copy' - all of the copies are authoritative. The first type of access is most common - by 'wallet' software that can read the contents of the blockchain and that can input a transaction (to the network) that is simply notification of the transfer of ownership of bitcoins (or, potentially, anything else) from one wallet to another.

The second type of access adds the ability to propagate transactions throughout the network. The third type of access adds the ability to create new blocks with transaction information that has been propagated and which is known as 'mining' since one of those computers 'discovers a new block' and gets paid 25 new bitcoins for doing so (plus a very small transaction fee - about 3 cents - for each transaction contained in the block).

In addition to trying to discover a new block, these third types of accessing computers also verify each and every transaction that they place into the new block as well as verifying that the entire blockchain that they are going to append the new block to is also fully verified and unchanged in any way from when it was created. These 'mining' computers do a LOT OF WORK and are substantially more powerful and resource intensive than a typical desktop.

So how does a mining computer 'discover' a new block?

It does so by running a hugely intensive cryptography effort using random numbers and the contents of the new block trying to find a 'hash' result that is smaller than a predefined limit.

ANY digital input can be 'hashed' into a string of, for example, 256 bits. ANY change, no matter how small, in the original digital input will result in a 256 bit output that is completely different than what it was before the change. A mining computer will run MILLIONS of attempts to hash the new block into a 256 bit number that meets the limit. Virtually all attempts fail. But by setting the limit number low enough, and with MILLIONS of computers trying to mime that new block, statistically there will be ONE that is successful in about 10 minutes. Sometimes there is one that mines a new block in less than 10 minutes, sometimes it takes a little longer. But, on average, it takes ten minutes for a new block to be mined. If, over a 14 day period the time it takes to mine a new block has averaged less than 10 minutes, then that limit number is lowered (making it harder), or if the average is longer than 10 minutes, that limit is raised (making it easier).

Anyway, what about those transactions? How are they verified?

I mentioned 'wallets' earlier. It is convenient to think that wallets contain bitcoins. They DO NOT. Bitcoins are merely the balances recorded in the blockchain and belong to the one person in the world who has a digital signature that matches the transaction. Wallets contain nothing more than a bunch of addresses and corresponding secret keys that are used to 'sign' transactions involving the coins the blockchain says belong to those addresses.

Thus, lose a wallet, so what - so long as you have a record of the addresses and secret keys corresponding to those addresses. Use any computer wallet program and import your addresses and keys, and that wallet then can 'spend' (transfer) its bitcoins. (Notice how vastly important it is to have a backup of your wallet contents!!!! Lose the wallet and that backup, and you have absolutely no way of EVER recovering those bitcoins - they are lost to the world!!!!

Each time a block is added to the blockchain, the entire blockchain is then hashed to create another 256 bit number that proves that the entire blockchain is valid and has not been changed IN ANY WAY since it was created. That hash number is prepended to the block that is being mined along with the random number I mentioned earlier, to create yet another 256 bit hash. It is that hash that must be smaller than the limit.

Perspective ... if all the grains of sand on all the beaches in the world were stored in some huge container and a person was asked to select one grain, toss it back in, then the container was tumbled a few million times and that same man was asked to select another grain of sand from it, the odds that he would pick the exact same grain he had picked the first time is more than one trillion times higher than the odds of two digital signatures being the same. Pretty damn secure!!!
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James R. Davis
Male Administrator
17396 Posts
[Mentor]


Houston, TX
USA

Honda

GoldWing 1500

Posted - 12/20/2014 :  10:17 PM Follow poster on Twitter  Join poster on Facebook as Friend  
By the way ... Google just announced that 'What is Bitcoin?' was the fourth most frequent query made throughout 2014 and it was the 10th most frequent query in 2013.

Those of you who have an interest are way ahead of the curve.
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scottrnelson
Advanced Member
6960 Posts
[Mentor]


Meridian, ID
USA

Honda

XR650L, 790 Adv R

Posted - 12/21/2014 :  4:07 PM
Regarding the blockchain -

I'm curious how hard it would be to corrupt it by doing different transactions on the same bitcoin or wallet or whatever, on different computers spread about the world.
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James R. Davis
Male Administrator
17396 Posts
[Mentor]


Houston, TX
USA

Honda

GoldWing 1500

Posted - 12/21/2014 :  4:46 PM Follow poster on Twitter  Join poster on Facebook as Friend  
Impossible.

There can be no double spending.

How many times can I say this ... EVERY transaction is validated by tens of thousands of computers before it is entered into a block, and the balance in a wallet is set in stone in prior blocks. Impending transactions are held in the 'next block' for TEN MINUTES and during that time they cannot effect the balances in any prior block - and part of the validation process is insuring that duplicates or double spending attempts have not occurred.

Each and every transaction in the 'next block' (the one that will next be added to the blockchain) is checked by looking at the blockchain and seeing if the source wallet contains at least the number of bitcoins to be transferred. Then, the aggregate of all transactions for that wallet, in the 'next block' is tested to be sure that the source wallet has at least that number of bitcoins to be transferred.

For example, if your wallet has ONE bitcoin in it according to the blockchain and you post five transactions within the ten minute window while the 'next block' is being assembled, for .1, .2, .3, .4, and .000000001 bitcoin transfers, None of those transactions will be placed into the blockchain because the aggregate number is invalid. Those five transactions could be ten million and occur is 1/100th of a second. None will get into the blockchain because they can not be validated.

[Edit: I'm advised that the first four of these transactions will be successful rather than all of them failing. I'm fine with that. - JRD]

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scottrnelson
Advanced Member
6960 Posts
[Mentor]


Meridian, ID
USA

Honda

XR650L, 790 Adv R

Posted - 12/22/2014 :  9:04 AM
Okay, so you would have to attempt to do it all within the 10 minute window and it would get rejected. Got it.

Thanks for the reply.
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James R. Davis
Male Administrator
17396 Posts
[Mentor]


Houston, TX
USA

Honda

GoldWing 1500

Posted - 12/22/2014 :  9:42 AM Follow poster on Twitter  Join poster on Facebook as Friend  
I used the word 'immutable' a couple of times and I want everyone to fully understand what that means.

It means, among other things, that a bitcoin transaction is irreversible. Unlike a credit card transaction where you can challenge a transaction (claiming, for example, that you didn't receive what you paid for or that the goods were damaged). When you spend bitcoins, they are then gone from your balance - forever.

There is no 'credit card company' (or bank) to complain to with regards to bitcoin transactions. Your merchant certainly can (and probably will) make good on a problem, but that is not the same thing as having a way to dispute transactions using some third-party 'authority'.
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AMJIce
Male Standard Member
124 Posts


Laguna Hills, CA
USA

Suzuki

DL650K9

Posted - 12/22/2014 :  4:02 PM
Even though I do not have the technical expertise, I have read from those whose names in the cryptography and security fields are well-known and they state that the underlying cryptography is sound so I am not that concerned with corruption of the system via "hacks." Where I am unclear is the political and economic "impacts."

I suppose further reading and observing other big-name companies accept it as legal tender can only help its acceptance. It is a big shift in the normal thinking of how payments are tendered.

I value your ability to "break it down" so I will read any posts with great -- and continuing -- interest.
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James R. Davis
Male Administrator
17396 Posts
[Mentor]


Houston, TX
USA

Honda

GoldWing 1500

Posted - 12/22/2014 :  4:23 PM Follow poster on Twitter  Join poster on Facebook as Friend  
More and more merchants are waking up to the advantages provided them from accepting bitcoin payments.

They also understand that holding bitcoins is not a very sound business practice, so they put deals together with bitcoin portal companies like Coinbase to allow them to accept bitcoin payments and INSTANTLY convert them to US Dollars deposited into their bank accounts.

More and more John-Q's are also figuring out that bitcoins provide them advantages as well, if they use them for what they are good at (Fast money transfers at essentially no cost).

For example, a couple of weeks ago my twin sister died about 1,500 miles from where I live. My niece, her daughter, needed some financial help right away. She received bitcoins from me and had them converted into US Dollars and placed into her bank account within two hours. See if you can think of any other way for that to have happened without using bitcoins. [Hint: even a wire transfer takes two to three days and costs at least $15.]
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Horse
Senior Member
258 Posts


Newbury, Berkshire
United Kingdom

BMW

R850RT

Posted - 12/23/2014 :  4:07 PM
http://www.bacs.co.uk/Bacs/Consumer...tCredit.aspx

Is there no equivalent to BSCS in the US? Direct payment between accounts, with only any normal fees applying - or free, if that's applicable.
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James R. Davis
Male Administrator
17396 Posts
[Mentor]


Houston, TX
USA

Honda

GoldWing 1500

Posted - 12/23/2014 :  5:05 PM Follow poster on Twitter  Join poster on Facebook as Friend  
I think you missed the idea that we were talking about UNSCHEDULED transfers. Virtually all corporations in the US provide a direct deposit of scheduled payroll to their employees.

Payment systems are (or are about to) making enormous changes (and problems for banks). Apple has announced its intent to make payments using their iPhones. A new corporation (Gocoin) has raised a great deal of venture capital funds in their efforts to develop a similar payment system that is already accepted by a large number of banks and merchants using a brand new crypto-currency known as Paycoins. There are a large number of bitcoin cash machines being installed around the world (the first one was installed in Nebraska this week) promise to make transferring 'value' (fiat currency to/from bitcoins) a trivial effort.

PayPal is investigating a relationship that will enable bitcoin transactions through their infrastructure.

All of these efforts are to support UNSCHEDULED fund transfers.
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Horse
Senior Member
258 Posts


Newbury, Berkshire
United Kingdom

BMW

R850RT

Posted - 12/24/2014 :  6:39 AM
Nope, not at all.

Examples of when we use BACS payment:

- A group of us go or a meal. One pays, then we BACS per person payment to them
- I'm due a plumber's bill, we'll pay directly to his business account (and have recently done so for two other commercial services)
- Paying for a service my father had received, 'naming' the payment against an invoice, into that business account, the name and inv. number meant the business owner knew what bill was being settled


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James R. Davis
Male Administrator
17396 Posts
[Mentor]


Houston, TX
USA

Honda

GoldWing 1500

Posted - 12/24/2014 :  8:30 AM Follow poster on Twitter  Join poster on Facebook as Friend  
Ah! It is slightly different than I understood it to be.

Still, it seems that it is a form of scheduled (pre-agreed to) payment mechanism that involves organizations which you contact and advise to send payments of some kind directly to your bank account.

What I'm talking about is the ability of any individual (or organization) to impromptu transfer funds, 'instantly' (within one hour) to another individual who then can do whatever they wish to with those funds (including deposit them into their bank accounts). Those individuals can be anywhere in the world - I have sent funds to Hong Kong, England, and Holland on the same day within minutes of each other, from Houston.And, by the way, there were no fees of any kind to do so.

In the case of England ... an acquaintance of mine wanted to buy some bitcoins using GBP. He could find no way to do that except ways which involved paying as much as 5% 'conversion' fees. Buying bitcoins in England is harder than in almost any other country. I sent him, at his request, some bitcoins which he immediately used to pay for whatever he needed to pay for in a country that would not accept GBP (without, as I said, a 'conversion' fee.) Then, when his deal was completed, he sent me back what I had sent him, in bitcoins.

I have a hard time imagining that BACS was a solution he could have used, but then again, I obviously am not really familiar with it. Could be.





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Horse
Senior Member
258 Posts


Newbury, Berkshire
United Kingdom

BMW

R850RT

Posted - 12/24/2014 :  8:46 AM
Ah, now, when it comes to international payments then you've got me :)
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James R. Davis
Male Administrator
17396 Posts
[Mentor]


Houston, TX
USA

Honda

GoldWing 1500

Posted - 12/24/2014 :  9:19 AM Follow poster on Twitter  Join poster on Facebook as Friend  
Let's say that your mother lives in Bolton. Could you get 100 Pounds placed into her bank account there from your bank account (in Newbury) in less than one hour using BACS?

By the way, it is not quite as simple as I've presented it here.

In order to get funds from my bank account (in Houston) into my niece's bank account in North Carolina I had to send instructions to Circle.com (via their website) to withdraw funds from my bank account - which automatically converted them into bitcoins. Then I had to instruct Circle.com to transfer those bitcoins to a Circle.com account (it certainly didn't have to be another Circle account - it could have been to any bitcoin wallet in the world) that my niece had created for herself earlier. Then she had to tell her Circle.com account to deposit those bitcoins into her bank account (after automatically converting them to US Dollars).

Still, it took only an hour.

Notice that no middlemen were involved - no bank teller or broker, or anybody else. Just me and my niece. Without middlemen, there were no fees. See why banks are threatened?

Now, just to be clear about things here ...

If I had sent, say $1,000, to my niece, it would have resulted in about 3.00300300 bitcoins ending up in her Circle account if the price of bitcoins was $333 when I sent them. The price of bitcoins is market driven, so when she transferred 3.00300300 of bitcoins to her bank account it could have resulted in $991.34 being deposited, or $1,010.92, or anything close - based on the price when she transferred them.

Her Circle account holds value as measured in bitcoins, not US Dollars. The bitcoin market is volatile. It can change by 5% a day. But a change of 1% (plus or minus) in an hour is rare indeed.

Merchants have made deals with their bitcoin portal firms (like Coinbase) such that when bitcoins are received in their accounts they are INSTANTLY converted to US Dollars and placed into their bank accounts - thus they have NO market volatility risk whatsoever. When they receive $1,000 (in bitcoins), they end up having $1,000 in US Dollars added to their bank account at that time. (Well, in the case of Coinbase, that's true for the first $1,000,000 of bitcoin receipts. Thereafter, they pay Coinbase about 1% in fees for the service - which is 1/2 to 1/3 of what credit card companies charge them for their services.)
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James R. Davis
Male Administrator
17396 Posts
[Mentor]


Houston, TX
USA

Honda

GoldWing 1500

Posted - 12/24/2014 :  10:24 AM Follow poster on Twitter  Join poster on Facebook as Friend  
I think all of you have seen the new ad banner on the site for a firm called Bitcoin Cloud Services.

Given the discussion we've been having here, perhaps you can start to put some concepts together to understand how bitcoins can be used in very creative ways to do things that simply were not possible until now.

Bitcoin mining, for example, creates bitcoins.

Cash flow is every bit as important for most people as is having a savings account.

Recently I sent a Christmas present to someone. I had elected to pay $200 for that gift. But I simply could not figure out what that person actually wanted or could used that would be meaningful as a gift.

I paid that $200 to Bitcoin Cloud Services (by buying bitcoins from Circle.com and sending the bitcoins to that firm) and bought a certain amount of bitcoin mining hashrate and had the mined bitcoins sent to that person's bitcoin wallet, as they were mined - DAILY.

That person has received about $1.50 worth of bitcoins each and every day since I bought the hash rate. That's cash flow. Not a lot, and certainly not extravagant, and over time, as the total hash rate mining bitcoins in the world increases, the payout will decrease. But over a year long period I have reason to believe that person will receive no less than about $280 in bitcoins. Could be a lot less. But in a period of 15 days, that person has already received more than $23 in payments.

Again, not a big deal - but my Christmas present is seen every day and it appears that it will be worth substantially more than I paid for it. Meets my desires perfectly.

This is NOT a recommendation to use Bitcoin Cloud Services - it shows how bitcoins can be used to do things that simply could not be done before they came into existence.

Oh, and talk about a way to get interest stimulated in bitcoins - that person is now more than interested because of a simple Christmas present.

[EDIT: Note that while I am not affiliated in any way with Bitcoin Cloud Services, the ad on the page is an ADVERTISEMENT, and I will receive compensation if you use it, like any other ad on the site. JRD]
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