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Sanzhar Maxyutov Professor Sandra Jackson English 113B Essay proposal 18 Septeber 2014

Bitcoins

The volatile rise of bitcoin has prompted many stories explaining why the online currency is a thing to watch. Bitcoin has started to gain popularity in the global world. As such, people want to know more on how the system works and all the modalities involved. Bitcoin phenomenon is closely monitored by business people and country’s all round the world as it’s something essential on the current and future states of world economy (Grocer, Stephen; 2013). This prompted me to dig deep into what bitcoin actually is and all the elements involved.

Bitcoin is a form of decentralized virtual currency (Daniel Forrester; Mark Solomon; 2013). Bitcoins are stored up in a “digital wallet” that exists in a user’s computer. The wallet is a form of virtual bank account which allows users to either send or receive bitcoins, save money or pay for goods (Daniel Forrester; Mark Solomon; 2013). The users of bitcoin own a set of public and private key which are analogous to any bank account. When sending money to someone else, the users usually create a transaction and sign it using their private key. Each of the transaction claims is referenced to a previous transaction which credited the user (David Gray; 2013). This means that bitcoins cannot be created out of nothing and coins cannot be spent twice.

Unlike the traditional currencies, bitcoins are managed and issued without a central authority. This means that there is no company, government or even bank in charge of the currency (Ryan Lancelot; Jack Tata; 2013). It’s simply a currency of the internet. This makes it more prone to corrupt banks or even wild inflation which introduces my thesis question, how effective is bitcoin as an online currency?

When using bitcoin to make payments, one transfer’s funds from A to B without knowing who the recipient or the sender of the funds is (Pierluigi Paganini; Richard Amores; 2013). The system is unusual as even the government or banks cannot know who is doing the transactions and do not regulate the way funds are exchanged (Pierluigi Paganini; Richard Amores; 2013). It simply means there is no regulation on how funds are transferred. On the other hand, the security of the system is advanced. Every ten minutes, all the transactions are put together in a form of bitcoin block that acts as a ledger. Blocks are hard to forge so by the transactions being part of the block, they are safe to spend. The blocks linked together form a chain block. The block chain records all transactions that took place and act as a definite authority on how much money the users have linked to their public keys. The particular block chain is secured by cryptographic algorithms, thereby making it impossible to even alter any transaction (David Gray; 2013).

References

Daniel Forrester; Mark Solomon; (2013) “Bitcoin explained: today’s complete guide to tomorrows currency” Charleston, South Carolina: Create Space.

David Gray; (2013) “Bitcoin: a dummies guide to virtual currency” Newark, DE: Speedy Publishing.

Pierluigi Paganini; Richard Amores; (2013) “Digital virtual currency and bitcoins: the dark webs financial market exchange and secrets” West Warwick, RI: paganini/amores publishing.

Ryan Lancelot; Jack Tata; (2013) “What’s the deal with bitcoins?” [Pennington, New York]: People Tested.

Grocer, Stephen; (2013). "Beware the Risks of the Bitcoin: Winklevii Outline the Downside" . Moneybeat (The Wall Street Journal).