Math Money: A simple introduction to crypto-currencies

Math Money : A simple introduction to crypto-currencies

Crypto-currencies (bitcoin et al) have caught the attention of Governments, enforcement agencies, geeks and the general public.

This document provides a simple introduction to crypto-currencies and briefly introduces terms such as cryptography, hash functions, proof-of-work, digital signatures, mining, merkle root & tree, crypto-currency addresses and wallets.

This document is intended for the novice reader and may suffer from errors inherent when a complex topic is (over?) simplified.

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Quick guide to bitcoin

What are bitcoins?

Bitcoins are an anonymous, decentralized form of electronic currency existing entirely on the Internet. They are generated and controlled automatically through computer peer-to-peer networks. Bitcoins are like "cash" in cyberspace - anonymous.

The Bitcoin scheme is a large scale global payment system in which all the transactions are publicly accessible, but quite anonymous.

Bitcoins are not issued by any Government, bank or company. They are not issued or backed by any central body. This is unlike currencies (e.g. Rupees, Dollars, Euro) which are backed by Governments.


How bitcoins work

Bitcoins work on public key cryptography and digital signatures.
A bitcoin address mathematically corresponds to a "public key" and looks like this:

To "pay" you in bitcoins, a person needs your bitcoin address.

The world’s first bitcoin ATM was setup in Waves coffee shop in Vancouver, Canada in October 2013

The world’s first bitcoin ATM was setup in Waves coffee shop in Vancouver, Canada in October 2013 (Image courtesy: Getty)

Each person can have multiple bitcoin addresses, each with its own balance. Users can generate a new bitcoin address for each transaction.

To create a new bitcoin address, you do not need to disclose any personal information. No e-mail addresses, user-names or passwords are required to hold or spend bitcoins.

Each bitcoin balance is simply associated with a bitcoin address and its public-private key pair.

The money "belongs" to anyone who has the private key and can “sign” transactions with it.

Bitcoin keys do not have to be registered anywhere in advance, as they are only used when required for a transaction.

Transacting parties do not need to know each other's identity. This is analogous to walking into a shop and paying cash to buy something. The shop owner does not need to know your identity.

A user scans a QR code on his smart phone to transfer bitcoins

A user scans a QR code on his smart phone to transfer bitcoins (Image courtesy: Getty)

Relevant resources:

Bitcoin official site

Bitcoin wiki

Financial and technical data related to the Bitcoin network.

Bitcoin blockchain (a database which holds information about all bitcoin transactions)

List of cryptocurrencies

Bitcoin: A Peer-to-Peer Electronic Cash System (PDF)

Hashcash - A Denial of Service Counter-Measure (PDF)

Quantitative Analysis of the Full Bitcoin Transaction Graph (PDF)

Presentation on how criminals use the Internet to sell drugs, guns and banking info.

Bitcoin news

Bitcoin banned in Thailand

Bitcoin recognized by Germany as 'private money'

Vehicle maker Tomcar opens for Bitcoin business

eSports company settles bitcoin botnet case for $1 million

China bans banks from handling bitcoins

Singapore Government Opens To Bitcoin Payments

RBI cautions users of virtual currencies of potential risks

Bitcoin Exchange Operator Indicted for Credit Union Capture

Mining Crypto Currencies

400 Bitcoin ATMs in just 2 years!

And if you are wondering what a Bitcoin is then you are in the right place.

In this world of digitization we use various digital services for our commercial transactions like Pay-pal or Google wallet. But have you heard of crypto currencies? No??

Crypto currencies are digital money and they don’t have any physical form. Bitcoins were recognized as the first crypto currency. Unlike other currencies, crypto currencies are controlled by no single governing body. And this is the reason they are used widely on dark sites such as Silk Road. Sites dedicated to selling contraband and other illegal products.

Bitcoins have a simple concept like any other mobile app or computer program. Bitcoins have a personal wallet and accredit a user to send and receive bitcoins. All transactions which happen through Bitcoins are recorded on a public ledger (also known as a "block chain") and this enables the user’s device to verify the validity of each transaction.

Unlike your bank account, to open a bitcoin account you don't need to give any identifying information about yourself at any point. A key pair corresponding to the sender's Bitcoin account gives protection in terms of authenticity to each transaction. This gives power to users to have full control over sending bitcoins. This protects users from many frauds, charge backs or identity thefts.

Have you made up your mind to invest in Bitcoins then?

Just remember, that like shares Bitcoin value also fluctuates, and it happens quickly and widely. So if you are planning an investment in any crypto currency make a good study and analysis and be ready for the consequences!

Learn more about the technology behind crypto currencies & mobile wallets. Register now for the Conference on Cyber Crime Control (c4).