Cryptocurrency Guide – Everything You Need To Know About Bitcoin, Blockchain from Coding compiler. Even people not connected with the financial sector or the IT industry have often heard about Bitcoins, cryptocurrency, and the blockchain. Since its introduction in 2009, Bitcon, as a peer to peer payment system, has increasingly attracted attention and conquered new users. Moreover, the leading international financial institutions speak of new opportunities for the use of blockchains, and the need to regulate relations related to cryptocurrency. It is worth noting that a consortium has also been established in Russia under the leadership of the Central Bank of the Russian Federation dealing with this subject matter.
Using blockchains as the main concept of bitcoins, experts are called as very promising. However, as with any technology, bitcoins have a reverse side of the coin, which attackers can use for personal gain. These are primarily issues related to the trafficking of illegal content, uncontrolled financial transactions, as well as ensuring the confidentiality of subjects and the security of translations.
Introduction to Bitcoin Theory
“Bitcoin” is a peer-to-peer payment system that uses the same-name settlement unit and the same-name data transfer protocol. Cryptographic methods are used to ensure the operation and at the same time protect the system. But meanwhile all information about transactions between system addresses is available in open form.
The goal of the developers is to create a system of completely irreversible transactions when an electronic payment between the two parties occurs without a third party – the guarantor and none of the parties, including any external administrator (bank, tax, judicial or other government bodies), could cancel, block, challenge or forcibly complete a transaction.
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One of the main features of the system is complete decentralization: there is no central administrator or any equivalent. A necessary and sufficient element of this payment system is the base client program, which also has open source code. Launched on many computers, client programs are connected to each other in a peer-to-peer network, each node of which is equal and self-sufficient.
In view of this, state or private management of the system, including a change in the total number of bitcoins, becomes impossible. The volume and time of issue of new bitcoins are known in advance. But they are distributed relatively randomly among those who use their equipment for calculations, the results of which are a specific mechanism for regulating and confirming the validity of operations in the Bitcoin system – a method of proving that work has been done .
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Where do bitcoins come from
Despite the fact that Bitcoin is a purely virtual currency, it appears far from the air. The process of obtaining cryptocurrencies is called mining . At the beginning of the creation, miners had enough of a regular home computer, then gaming video cards, but with an increase in power, only owners of special equipment were able to generate cryptocurrency
The computer of the owner, who decided to do bitcoin, simply solves complex mathematical problems, receiving virtual money as a reward. Bitcoins operate on the basis of the blockchain system – it does not have a single center and is distributed, which simultaneously ensures reliability and security.
All passing transactions pass through miners: their computers must verify the accuracy of the transfer using the secret key and information about all new transactions.
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About the problems of cryptography and anonymity
Bitcoin payment system uses a cryptographic and decentralized register. As soon as it appeared, many considered that the future of the world of finance was behind it, but at the same time, Bitcoin opened new opportunities for the criminal world. On the one hand, governments around the world seek to prohibit end-to-end encryption, on the other hand there is Bitcoin anonymity.
Analysis of the block chain as a relatively new sector of the Bitcoin market demonstrates flaws in the use of pseudonyms. The block chain serves as a data source for other financial services that need to comply with regulatory requirements. They collect metadata, background information related to transactions, and the IP addresses associated with the nodes, and use this information to identify criminals and blacklist them.
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Therefore, there is no financial confidentiality in the full sense of the word in the Bitcoin blockchain .
Despite technical shortcomings, Bitcoin is a powerful tool for payments, transfer of funds, microfinance, or circumvent government disclosure requirements. Bitcoin’s P2P secure network provides new opportunities for financial technology and allows consumers to save money.
Blockchain technology and its use in payment systems
Blockchain is a distributed database that stores information about all transactions of system participants in the form of a “chain of blocks” (this is how Blockchain is translated from English). Access to the registry is available to all blockchain users who act as a collective notary who confirms the truth of the information in the database. Blockchain can be used for financial transactions, user identification, creation of cybersecurity technologies, etc.
Participants of the Blockchain system are a kind of collective notary who confirms the truth of the information in the registry. Each technology user can access information about any transaction. The blockchain has become widespread thanks to Bitcoin, but the use of the blockchain can go far beyond this cryptocurrency.
It is assumed that the blockchain can be used to reduce the cost of the financial operations.
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Blockchain considered as an alternative to SWIFT
The cornerstone, around which numerous innovations in the field of finance are built, is the technology of distributed transaction confirmation, which was first implemented in the Bitcoin cryptocurrency and called the blockchain.
This approach is interesting for several reasons. First, blockchains do not need intermediaries in the face of expensive payment systems that are currently processing transactions. Secondly, the speed of processing operations increases. In the traditional scheme with a clearing organization, this process can take up to several days, and in the case of the blockchain, transactions proceed in real time. “Blockchain can save banks billions of dollars by eliminating slow and expensive centralized payment systems,” says Huachi Yoshida, CTO, Hitachi Data Systems
Currently, SWIFT (Society for Worldwide Interbank Financial Telecommunication) system is used for interbank settlements . This platform is rightly considered the “circulatory system” of the global economy, as more than 11 thousand financial organizations are connected to it in more than 200 countries of the world. Cash payments are serviced using unique six-digit codes (BIC), attributed to each bank. Financial organizations are charged for the opportunity to work in the SWIFT system.
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Microsoft is trying to make Azure the basis for blockchain systems of banks
On April 4, 2016, Microsoft joined forces with a consortium of banks to help develop new methods for using blockchain – the underlying Bitcoin technology – to support financial transactions.
R3 CEV, a company that leads a consortium of more than 40 leading global banks to develop and promote the blockchain system, will get access to Microsoft Azure cloud resources as part of a strategic partnership between the two companies. The consortium’s banks in the New York branch of R3 include Bank of America, Credit Suisse, Goldman Sachs, and UBS.
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Prospects: 12 major markets for blockchain
In mid-January 2016, analyst firm CB Insights published a list of the largest industries where blockchains can be used.
Banks are used to securely store and transfer valuable assets. The blockchain, being protected by a digital registry, can perform these functions.
2. Payments and money transfers
According to the report of the World Economic Forum, decentralized payment technologies, including Bitcoin, can transform the “business architecture” of remittances, which has not changed for more than 100 years. Blockchain is able to bypass these inefficient systems and create a more open, fast and commission-free flow of payments around the world.
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Although the blockchain is an open registry, data transfer is strictly verified and implemented using advanced cryptographic methods. With the widespread introduction of this technology, which is considered to be more reliable than traditional systems, the probability of hacker hacking will decrease. Cybersecurity will increase due to the failure of almost all human intermediaries, according to Goldman Sachs.
If many educational institutions switch to transparent documentation (diplomas, academic certificates, etc.) using blockchains or similar protected technologies, there will be fewer fraudsters in this area and you can also get rid of manual checks of paper documents.
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The University of West Virginia (West Virginia University) has already thought about using the blockchain-based voting platform. Thanks to her, students could cast their votes via mobile devices, and the election results would be fair.
6. Leasing and car sales
In 2015, Visa and DocuSign created special software based on the blockchain to improve the convenience of paying for a rental car and making lease payments for it. Payments are automatically debited as the vehicle is used according to the agreement.
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7. Network technologies and the “Internet of things”
IBM and Samsung are working on the concept of Adept, which involves using blockchain-like technology to create a decentralized network from a huge number of different “Internet of Things” devices that can interact with each other to install updates independently, troubleshoot and power management.
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8. Smart contracts
Smart contracts are computer programs that perform something depending on the actions of another object. Speaking in programming language, this is an implication function, but at the same time the blockchain provides automatic implementation of such contracts, without human intervention. Smart contracts, for example, can monitor the implementation of long-term loans.
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In the markets of forecasting technologies and conducting research, analysis and consulting, a fracture may occur as a result of the introduction of the blockchain. An example is the Augur online prediction platform. With the help of the blockchain, the service intends to decentralized to offer betting services not only on sports and promotions, but also on election results, the likelihood of natural disasters, etc.
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10. Online music
Many musicians are already actively turning to the blockchain for the legal distribution of works via the Internet. PeerTracks and Ujo Music are trying to solve this problem by organizing direct deductions to owners and the use of smart contracts.
11. Car sharing
The concept of sharing a private car using online travel search services (ridesharing) does not imply decentralization: Uber or another similar company acts as a control center and uses algorithms to monitor drivers and their expenses. People travel for this virtual money, and also earn it while traveling. At the same time, the application tracks the movement of users.
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12. Share trading
Online retailer Overstock.com built a system with the help of a subsidiary of TØ, which allows companies to issue shares and take loans on their security through the blockchain, while Startup Chain and Nasdaq are working on trading shares of private companies using the blockchain
Security recommendations when using cryptocurrency
1. Always backup your entire wallet: Some wallets contain many hidden secret keys. If you have backup copies of only secret keys to your visible Bitcoin addresses, perhaps this is not all, and then you will not be able to recover most of your funds from a backup.
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2. Be sure to encrypt network backups:Any backup that is stored on the network is highly vulnerable to fraudsters. Even a computer connected to the network is vulnerable to viruses. In this regard, you should encrypt all backups available from the network.
3. Do not keep all your savings in bitcoins: The price of bitcoin is subject to fluctuations, it can unpredictably increase or decrease within a short period of time due to the youth of the Bitcoin economy, the novelty of its nature and the illiquidity of the markets. As a result, we do not recommend storing your bitcoin savings.
4. Check everything until the transaction: Bitcoin payments can not be canceled Only if the recipient returns the funds to you, you can get them back.
5. Bitcoin’s complete anonymity remains in doubt:To protect your privacy, using Bitcoin requires some effort. After all, all Bitcoin transactions are public and instantly distributed on the network, which means that everyone can see the balance and transactions of any Bitcoin address. However, the user’s identity behind the addresses remains unknown until the information is opened through payment, or in other circumstances.
6. Instant transactions are less secure:Transactions are usually executed within a few seconds and confirmed within 10 minutes. At this time, the transaction is regarded as genuine, but still reversible. Unfair users can take advantage of this. Each confirmation exponentially reduces the risk of reversibility of the transaction.
7. Make sure before any actions that you are on the right site, and not on the fake page created by the attacker (phishing). The danger may be indicated by an incorrect site certificate or the absence of SSL, errors in the site URL, and atypical behavior of the site.
8. Use complex passwords ; do not use the same password on different sites. Change passwords periodically
9. Do not enter your credentials on other people’s computers , in which there are doubts about security.
10. Use antivirus with current databases , and better use Linux.
11. Do not neglect additional security measures , such as confirmation of payments through mail or Google Authenticator, if they are provided by the service.