Cryptocurrencies and Blockchain, Part 3 BitCoin

Cryptocurrencies and Blockchain, Part 3 BitCoin

Bitcoin is the grandfather of cryptocurrencies as we know them today.

Bitcoin in fact is 2 things: a cryptocurrency and a payment system.

It was invented by a programmer or a group of programmers under the name Satoshi Nakamoto. On October 31, 2008 it was introduced to people on a cryptocurrency mailing list. The open source code (software) was released in 2009.

Cryptocurrencies had been around for some time already, but this was the first time the issue of double spending was solved. A major break through. With bitcoin being released there now was a protocol that ensured that each coin could be spent only once.

It is a peer-to-peer system where transactions take place between users directly, without interference of anyone. All transactions are verified and confirmed by nodes (miners) in a distributed ledger. This distributed ledger is called the blockchain. BitCoin is its units of account. There is no central administrator nor a central ledger. Everything is decentralized.

Bitcoin is the first decentralized digital currency.

Bitcoins are created as a reward in a competition in which users spread all over the world, offer their computing power to verify and record bitcoin transactions into the blockchain. This activity is referred to as mining and successful miners (nodes) are rewarded with transaction fees and newly created bitcoins.

Units of account

Bitcoin is the unit of account of the bitcoin system. Since 2014 it is symbolized with BTC, XBT or ฿, where XBT is the official ISO denominator. To honor Bitcoin’s creator the smallest part of a bitcoin, 0.0000001 is called a Satoshi. That is one hundred millionth of a bitcoin. A microbitcoin is 0.000001 or one millionth and a millibitcoin represents 0.001 or one thousandth of a bitcoin.

Now if we’d compare bitcoin to gold, it is pretty tough to divide a gold bar in one hundred millionths of that very bar isn’t it? With bitcoin that is as easy as blinking your eyes.

Validity of transactions

As in any payment system the validity of a transaction is important. For a transaction to be valid it must be an unspent output of a previous transaction. Each and every transaction must be digitally signed. This is done by using the private key that belongs to a bitcoin wallet. It goes without saying that keeping that private key absolutely private and absolutely safe is very important. Without that private key there is no proof of ownership and any bitcoins in that wallet are simply lost.

Mining bitcoins

Mining is a process of keeping records. Miners (nodes) keep the blockchain complete, consistent, safe and impossible to alter. It is done by repeatedly verifying and collecting new broadcast transactions into a new group of transactions. These groups are called the blocks. As explained in Part 2 of this blog series, each block contains a cryptographic hash of the previous block, thus creating a chain of blocks: the blockchain.

The goal is to get a block accepted by the rest of the network. In order to be accepted a new block must contain what is called a proof-of-work. You can see a proof-of-work with the CAPTCHA code; you often are required to fill in when completing a form online. CAPTCHA is intended for humans, so is easy to complete. For the proof of work in the blocks computing power requires it to be a much more complex process: the difficulty of the blockchain.

The proof-of-work requires miners to find a number, a nonce. It is done in such a way that when a nonce is hashed along with block content, the result is numerically smaller than the network’s difficulty target. Verification of the proof is easy, but it is very time consuming because of the almost endless possibilities, to finally meet the difficulty target.

Every 2016 blocks (approx. 14 days), the difficulty target is increased based on the network’s recent performance. The aim is to keep the average time between new blocks at ten minutes. In this way the system automatically adjusts to the total amount of mining power on the network.

The proof-of-work system combined with the chaining of blocks makes modifications of the blockchain extremely hard. A potential attacker must modify all subsequent blocks in order for the modifications of one block to be accepted. New blocks are mined 24/7/365, the difficulty of modifying a block increases as time passes and the number of subsequent blocks (also called confirmations of the given block) increases. It is estimated that it would require half a billion dollar to hack the blockchain for just 10 minutes! I’d call this highly secure.

More on mining in a next part of this series.

Supply of bitcoins

As explained above the miner who finds the block is rewarded with new coins and transaction fees. As per July 2016 the reward is 12.5 coins per block that are added to the blockchain. To claim this reward, a coinbase, a special transaction, is included with the processed payments. All bitcoins that are in existence have been created in coinbase transactions. The bitcoin protocol specifies that the reward for adding a block will be halved every 210,000 blocks (about every four years). Eventually, the reward will decrease to zero, and the limit of 21 million bitcoins will be reached in the year 2140. From that moment on the record keeping will be rewarded by transaction fees only.

Basically it means that bitcoin’s inventor Nakamoto did set a monetary policy based on artificial scarcity. This policy was set at bitcoin’s inception and included the fact that there would never be more than 21 million bitcoins in total.  

Transaction fees

There is a large payment processing industry, charging you to send your own money to another party. The percentages being charged can reach really serious heights. Bitcoin allows people to charge for sending a transaction. Miners can chose to process the higher transaction fees transactions first. Opposite from the almost criminal charges in the ‘normal’ world, bitcoin transaction fees amount from entirely free to 2%. Fees are based on the storage size of the transaction that is generated. The storage size is determined by the number of inputs used to create the transaction. Also, priority is given to the oldest unspent inputs.

Once this series of blog articles have been completed there also will be a small course available, which will also cover the various types of Bitcoin wallets. That is a topic on its own already. Get yourself on the email list so you will be notified when that course is released.


Every bitcoin wallet has an email address and is showing in the blockchain with a unique code. Since the blockchain is a public ledger anyone can see the transaction with that code. However, no one knows who that code belongs to. Most bitcoin wallets will require the well known “Know Your Customer” documents in order for you to process larger transactions (buy/sell of bitcoins). That is where the anonymity then stops. Just recently the IRS has summoned Coinbase to hand over all data (transactions as well as identities of wallet owners) over the period since 2013.

Peaceful anarchy

Bitcoin is a payment system that takes away the heavy influence of authorities, regulators and banks on your payment behavior. If power is taken away, you will see strong objections coming from exactly these parties to influence the masses in trying to stop them from getting involved with these new payment methods. Less power means less control after all.

It is said that cryptocurrency is the ultimate way for people to get out of poverty. Since there is no interest in Bitcoin it is safe to say there are no religious objections from specific groups of people either. Where many can’t get access to a bank account, they can easily access the bitcoin system and create their wallet. Alternative banking to those who have been without up until now.

Value of bitcoin

The value of bitcoin is measured in USD (or any other Fiat currency) is determined by supply and demand. We already saw that supply will never be more than 21 million bitcoins. Demand however is rapidly increasing. With more and more countries embracing demonetization (India, Pakistan, Venezuela), its people will turn towards a currency their government cannot make worthless overnight. Investors will use bitcoin to hedge against their regular investments. This is why bitcoin also is called the Digital Gold.

All in all a lot of information on the best known cryptocurrency Bitcoin.
In Part 4 we will look into Altcoins, all cryptocurrencies that surfaced since Bitcoin.

Part 1, Introduction

Part 2, Blockchain


Cryptocurrencies and Blockchain, Part 2 Blockchain

Cryptocurrencies and Blockchain, Part 2 Blockchain

Blockchain and Blockchain Technology, words that become more and more familiar to us because of usage in various media. However, what it actually is, is a mystery to those who are entirely new to this new digital revolution.

A Blockchain, the technology that is creating Bitcoin and other cryptocurrencies, is a shared digital ledger, or a continuously updated list of all transactions. This decentralized ledger keeps record of each single transaction that occurs across a fully distributed or peer-to-peer network, either public or private.

Blockchain is a secure way of online transactions. The decentralized ledger records transactions on thousands of computers spread all over the world. They do it in such a way that no transaction can be altered retrospectively. Each transaction has to be confirmed six times before it is final in the blockchain. This creates a high level of security.

The use of a blockchain confirms that each piece of a digital currency was spent only once. This solves the long time problem of double spending. Blockchain has been around for quite a long time already, but it was the Bitcoin Blockchain technology that first had solved that double spending issue. A real break through in technology. This is why Bitcoin is called the grandfather of cryptocurrencies.

Blockchain Database

The Blockchain database consists of two types of records: transactions and blocks.
Blocks contain batches of valid transactions that are hashed and encoded into a Merkle Tree *).

Each block contains the hash **) of the previous block in the chain, thus linking them together. The linked blocks form a chain: the blockchain. This process confirms the integrity of the previous block as well as the reliability and security of the blockchain. This is because it goes all the way back to the genesis block (the very first block in the blockchain). Each single block is uniquely linked to the next and the previous block.


Because data is being stored across the network the blockchain eliminates the risks that we see when data is stored in one central place. The network has no central points that are vulnerable to exploitation by computer hackers nor has it a central point of failure.

Blockchain security methods use public key cryptography, which means that it uses pairs of 2 keys: one that is public and one that is private and only known to the owner. By this both authentication and encryption are established. The public key is used to verify that the holder of the private key is sent a message/ transaction and the private key is to ensure that the encrypted message can only be decrypted by the owner of that private key. Simply put: the public key is encrypting messages and the private key is like a password to be able to read or open that message.

Every miner (also called ‘node’) in a decentralized system has a complete copy of the blockchain. There is no such thing as a centralized ‘official’ copy and all users are trusted equally. Every transaction is broadcast-ed to the network by use of software. Then the mining nodes validate the transactions and add them to the block they are creating. Once the block is completed the nodes broadcast the completed block to all other miners in the network.

Open or Private

There is a discussion going on whether or not the private systems creating blocks are actual blockchains or not. Those using them claim they are, those who work on public systems claim only these are true blockchains.

Private or permissioned systems are similar to corporate systems and do not support decentralized data verification. The Harvard Business Review defines blockchain as a distributed ledger or database open to anyone.

No Permission

The major advantage to an open network that doesn’t work with permissions is that protection against bad actors is not required and no access control is required . This means that applications can be added to the edge of the network without the approval or trust of others, using the blockchain simply as a layer of transport. This openness allows researchers to examine real-time transaction data in a closed economic system.

The Impact of Blockchain on Society

Blockchain will transform business operating models. Think of medical records (no cover ups of medical screw ups, once reported that report is final), pharmacist administration, insurance administration and transactions that now require a notary. Government ledgers and registers on proprietary ownership of real estate and land. Can you see how many jobs will become redundant in the coming years/decades?

What about voting systems on the blockchain, so no election fraud can ever happen again?

Major applications that we already know of and that are getting increasing interest are of course Bitcoin (cryptocurrency) and Ethereum. More about these coins in the next episodes of this series.

You and Blockchain

It gets more and more obvious that those who don’t get involved with blockchain and cryptocurrencies will find themselves offside soon enough. Those who do get in now will be on the edge of something that will grow bigger than most of us can even begin to imagine.

*) Merkle Tree explained on Wikipedia

**) Hash explained on Wikipedia

Cryptocurrencies and Blockchain, Part 1 Introduction

Cryptocurrencies and Blockchain, Part 1 Introduction

Despite the fact that cryptocurrencies have been around for a few years already, Bitcoin, Altcoins and Blockchain still is like jibberish to many.

Blockchain technology will have an even bigger impact on society than the introduction and spreading of the internet has had.
It has taken several years before most households were online.

It will take several years to make people familiar with blockchain and cryptocurrencies. We are a few years on our way, still have some to go, but we are accelerating. This process will get faster and faster.

Personally, I can very well remember the days without ‘being online’, without smart phones and apps. Today however I cannot imagine going back to an internet-less era. The same will go for blockchain and cryptocurrencies.

Because I’m rather passionate about the company I’m active in it seemed very appropriate to start a series of blog posts on this subject.

Why is this important?

First of all because the entire process of blockchain and cryptocurrencies has gone too far already. The process has now become irreversible.

It also is important to know why it could make the difference between prosperity and desperation for people, especially to those who are completely unknown of what is expected to happen in our financial world as we know it.

Our financial system is unsustainable

To understand why blockchain was invented, it is important to understand how our current financial systems function.

Our financial systems are controlled by a small group of elites, including the Rothschilds, JP Morgans, and Rockefeller families. The minute you deposit your money at your bank, it no longer is yours. From that moment on it is money owned by the bank and controlled by the bank. They can do with it whatever they want.

Above each bank there are National Banks, Central Banks, the International Monetary Fund, and the International World Bank of settlements. Again, above that we find the Morgans, Rothschilds, and Rockefellers.

In the past years Central Banks have printed immense amounts of new money, without anything to back up its value.

When you’d apply for a loan with your bank and it is granted, you will only see some numbers added to your account. No real physical money is being moved. In fact, of all account holder accounts, the bank is only required to keep a few percent as a minimum. So, if you ever wondered why you need to order larger withdrawals up front? This is the reason.

All of the world’s money, gold, silver, and bitcoin is $12,7 trillion. Global debt amounts to over $150 trillion.

We only have a few percent of all money in physical money, the rest is just numbers in systems. Meaning that if everyone would have to settle their debt today, it could not be done. Scary!

Banks charge interest on loans. Basically it means they add numbers to your account (money they don’t have), then charge you interest on that. They create more non existing money over money they never actually had in the first place.

Add up to that a society that has been brainwashed into living on credit. It doesn’t require rocket science to see that no bubble can continue to grow infinitely and without repercussions.

Many analysts expect a worldwide financial crash that will be equal or bigger to the Great Depression in 1929.

Have you noticed what happened in Venezuela (inflation of 600%, empty shelves in stores, sheer desperation with its population), India (overnight bank notes were made useless), Zimbabwe (max withdrawals of just $20 a day, people cannot access their own money).

Then look at the banks: not a healthy situation at all. Deutsche Bank is under heavy pressure (that is putting it mildly), Italian banks hold way too much unhealthy loans. Italian culture is one of poor repayment behavior that has gone on much too long. One of the oldest banks desperately needs cash to prevent collapse.

In Europe we had bank bail outs in 2009. As per 2015 that has been changed into bail ins, meaning it will be YOUR money being used to keep a bank alive despite its miss management of all funds. Overnight your savings can be gone. Scary!

On top of this all, banks charge a lot of costs to transfer money from one account to another. Authorities control what you are allowed to pay and what not. Payments can take days to arrive at the recipient.

This is why Blockchain was invented, as a peaceful anarchy against powers in place.

In the next blog post I’ll discuss what blockchain technology is (no worries, I will not make it very technical, I want my Mom to be able to understand it too!)