WELCOME TO WBI CRYPTO UNIVERSITY
MODULE 2 |
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HOW BITCOIN (AND OTHER CRYPTOCURRENCIES) WORKS?
Here are some basics...
As a new user, you can get started with Bitcoin without understanding the technical details. Once you have installed a Bitcoin wallet app on your computer or mobile phone, it will generate your first Bitcoin address and you can create more whenever you need one. You can disclose your addresses to your friends so that they can pay you or vice versa. In fact, this is pretty similar to how email works, except that Bitcoin addresses should only be used once.
As a new user, you can get started with Bitcoin without understanding the technical details. Once you have installed a Bitcoin wallet app on your computer or mobile phone, it will generate your first Bitcoin address and you can create more whenever you need one. You can disclose your addresses to your friends so that they can pay you or vice versa. In fact, this is pretty similar to how email works, except that Bitcoin addresses should only be used once.
With e-currency based on cryptographic proof, without the need to trust a third party middleman, money can be secure and transactions effortless.”
~ Satoshi Nakamoto, Bitcoin developer
WHAT ARE THE BENEFITS OF CRYPTOCURRENCY?
The Digital Money aka "Cryptocurrency" offers number of benefits over Paper Money aka "FIAT Currency" these includes:
Anonymity - Transactions with cryptocurrencies can be executed without revealing much, if any, personal information about yourself. Giving out personal information can increase your risk of identity theft, the conventional way of transacting opens us up to identify fraud where one’s credit card and all associating information can be skimmed and copied.
Better Security - Unlike traditional payments, like cash and credit cards, cryptocurrencies are digital and encrypted; you cannot be ripped off in a transaction like you can be with legacy payment systems, and it is much harder to steal cryptocurrency compared to a wallet full cash. In a world where so many of our transactions are online, and our savings and credit rating are at stake at all times, anything that provides increased transactional security is a plus. And there is currently no transaction mechanism that is currently more safe and secure than those that use cryptocurrency.
Decentralization - A global network of computers use blockchain technology to jointly manage the database that records Bitcoin transactions. That is, Bitcoin is managed by its network, and not any one central authority. Decentralization means the network operates on a user-to-user (or peer-to-peer) basis. The forms of mass collaboration this makes possible are just beginning to be investigated.
Identity Theft - Credit card purchases “pull” a payment from a buyer and this can be initiated without the buyer’s explicit consent, whereas cryptocurrency payments are “pushed” by the payer. When you give your credit card to a merchant, you give him or her access to your full credit line, even if the transaction is for a small amount. Credit cards operate on a “pull” basis, where the store initiates the payment and pulls the designated amount from your account. Cryptocurrency uses a “push” mechanism that allows the cryptocurrency holder to send exactly what he or she wants to the merchant or recipient with no further information.
Cheaper fees - cryptocurrency transactions cost a fraction of regular banking transactions. You can also technically try and include your transaction in the next block without paying any fees. Generally this means your transaction is only confirmed after those that are willing to pay have been processed and can also result in your transaction being rejected altogether. This creates an incentive to reward the miners who process the transactions with a fair fee for their work in order to affect confirmation.
Ownership – Your cryptocurrencies cannot be taken away from you by anyone unless you give it up. Think of what would happen to money you may be holding in a traditional savings account if the bank refused to honor a withdrawal request. You’ve lost access to your own money and there is often very little recourse.
Cyprus 2013 is a prime example of this where the central bank wanted to take back any uninsured deposits over $100,000 to recapitalize itself. As you can imagine this cause a huge outcry.
Speed - The average cryptocurrency transaction can take anywhere between 2 and 20 minutes to complete from sending to spending the received amount. Conventional banking can often take days to complete and visibility into the transaction is limited for most end users. An international wire transfer can take up to 7 working days to be complete, that’s 10,080 minutes – 5,000 times longer than the cryptocurrency alternative.
Accessibility - There are approximately 2.2 billion individuals with access to the Internet or mobile phones who don’t currently have access to traditional exchange, these people are primed for the Cryptocurrency market. Kenya’s M-PESA system, a mobile phone-based money transfer, and microfinancing service recently announced a bitcoin device, with one in three Kenyans now owning a bitcoin wallet.
In the world of cryptocurrencies, anyone with a wallet on their mobile device, laptop or desktop can have access to money without the need of a conventional bank. Even if you do not own a mobile device or computer - your cryptocurrency “bank” can be accessed from any internet cafe or library with a computer (Although this is not recommended as key loggers may be installed on public computers and your passwords can be accessed). In extreme situations cryptocurrencies can even be traded using paper wallets, a representative method of exchanging Bitcoin.
Anti-counterfeiting - A cryptocurrency cannot be counterfeited because every coin in the system is accounted for. This alone plays a major role in economics because often the cost of counterfeiting is passed back to users of the money to recoup any losses due to counterfeiting.
While counterfeiting has become harder over the years because of the improvements to materials and methods of manufacturing used to produce modern fiat currency, it is still not possible to completely and utterly prevent people from counterfeiting money and similarly improving their techniques to get away with it.
What if the process of buying or selling anything with paper money had to include a step that scrutinized the money, checked the material used, double and triple checked the registration number of the note and checked that number against a massive database to see if a duplicate of that note exists anywhere? And if there is a duplicate or the note is proven to be a forgery, the transaction is halted and cannot proceed? What if the note contained a very secret identity number with a built in secret password that must correlate when checked against the database of money and if the database’s entry does not match the note you are holding, the transaction is rejected?
Wouldn’t that be a sure way of beating counterfeiting? Probably - but that’s not how things work, when you go into a store and buy a bag of groceries and hand over $100, the cashier has no way of checking the validity of that note other than looking at it, using a light or feeling it. And the reverse is also true, when they hand you your change - how do you check to see if the change you received is real? It may look real and feel real but could be a very good forgery; you just don’t know and trust the legitimacy of the money.
Traditional money handling processes have absolutely no way of ensuring that you are not handling a counterfeit, and even if there was a method to accurately detect a forgery, would it be able to scale and be used for every transaction?
Cryptocurrencies provide a built in mechanism to address to concern of fraud in the network. It is a process that is hard to trick, transparent to the user and secured through cryptography. The distributed nature of a blockchain also ensures that the data stored therein can be agreed upon by the masses, rather than trusting a single entity with the maintenance of all records.
Global recognition - The cost of doing business across borders includes the process of converting from 1 currency into another. These conversions require a broker who take a % of the money being exchanged in return for providing the service, ultimately costing you to swap one currency for another. Cryptocurrencies can be sent from 1 country to another with very low cost, generally just the fee, and no exchange rates applied – 1 Bitcoin in Europe is worth 1 Bitcoin in Asia.
There is no other electronic cash system in which your account isn’t owned by someone else.
Take PayPal, for example: if the company decides for some reason that your account has been misused, it has the power to freeze all of the assets held in the account, without consulting you.
It is then up to you to jump through whatever hoops are necessary to get it cleared, so that you can access your funds. With cryptocurrency, you own the private key and the corresponding public key that makes up your cryptocurrency address. No one can take that away from you (unless you lose it yourself, or host it with a web-based wallet service that loses it for you).
Overall, cryptocurrencies have a long way to go before they can replace credit cards and traditional currencies as a tool for global commerce.
Fact is, many people are still unaware of cryptocurrency aka Digital Currency. People need to be educated about it to be able to apply it to their lives. Businesses need to start accepting it They need to make it easier to sign up and get started.
The future appeal of cryptocurrencies lies in allowing you ultimate control over your money, with fast secure global transactions, and lower transaction fees when compared to all existing currencies.
When used properly and fully understood it would be the initiator of many emerging systems that will fundamentally change our global economic system.
Better Security - Unlike traditional payments, like cash and credit cards, cryptocurrencies are digital and encrypted; you cannot be ripped off in a transaction like you can be with legacy payment systems, and it is much harder to steal cryptocurrency compared to a wallet full cash. In a world where so many of our transactions are online, and our savings and credit rating are at stake at all times, anything that provides increased transactional security is a plus. And there is currently no transaction mechanism that is currently more safe and secure than those that use cryptocurrency.
Decentralization - A global network of computers use blockchain technology to jointly manage the database that records Bitcoin transactions. That is, Bitcoin is managed by its network, and not any one central authority. Decentralization means the network operates on a user-to-user (or peer-to-peer) basis. The forms of mass collaboration this makes possible are just beginning to be investigated.
Identity Theft - Credit card purchases “pull” a payment from a buyer and this can be initiated without the buyer’s explicit consent, whereas cryptocurrency payments are “pushed” by the payer. When you give your credit card to a merchant, you give him or her access to your full credit line, even if the transaction is for a small amount. Credit cards operate on a “pull” basis, where the store initiates the payment and pulls the designated amount from your account. Cryptocurrency uses a “push” mechanism that allows the cryptocurrency holder to send exactly what he or she wants to the merchant or recipient with no further information.
Cheaper fees - cryptocurrency transactions cost a fraction of regular banking transactions. You can also technically try and include your transaction in the next block without paying any fees. Generally this means your transaction is only confirmed after those that are willing to pay have been processed and can also result in your transaction being rejected altogether. This creates an incentive to reward the miners who process the transactions with a fair fee for their work in order to affect confirmation.
Ownership – Your cryptocurrencies cannot be taken away from you by anyone unless you give it up. Think of what would happen to money you may be holding in a traditional savings account if the bank refused to honor a withdrawal request. You’ve lost access to your own money and there is often very little recourse.
Cyprus 2013 is a prime example of this where the central bank wanted to take back any uninsured deposits over $100,000 to recapitalize itself. As you can imagine this cause a huge outcry.
Speed - The average cryptocurrency transaction can take anywhere between 2 and 20 minutes to complete from sending to spending the received amount. Conventional banking can often take days to complete and visibility into the transaction is limited for most end users. An international wire transfer can take up to 7 working days to be complete, that’s 10,080 minutes – 5,000 times longer than the cryptocurrency alternative.
Accessibility - There are approximately 2.2 billion individuals with access to the Internet or mobile phones who don’t currently have access to traditional exchange, these people are primed for the Cryptocurrency market. Kenya’s M-PESA system, a mobile phone-based money transfer, and microfinancing service recently announced a bitcoin device, with one in three Kenyans now owning a bitcoin wallet.
In the world of cryptocurrencies, anyone with a wallet on their mobile device, laptop or desktop can have access to money without the need of a conventional bank. Even if you do not own a mobile device or computer - your cryptocurrency “bank” can be accessed from any internet cafe or library with a computer (Although this is not recommended as key loggers may be installed on public computers and your passwords can be accessed). In extreme situations cryptocurrencies can even be traded using paper wallets, a representative method of exchanging Bitcoin.
Anti-counterfeiting - A cryptocurrency cannot be counterfeited because every coin in the system is accounted for. This alone plays a major role in economics because often the cost of counterfeiting is passed back to users of the money to recoup any losses due to counterfeiting.
While counterfeiting has become harder over the years because of the improvements to materials and methods of manufacturing used to produce modern fiat currency, it is still not possible to completely and utterly prevent people from counterfeiting money and similarly improving their techniques to get away with it.
What if the process of buying or selling anything with paper money had to include a step that scrutinized the money, checked the material used, double and triple checked the registration number of the note and checked that number against a massive database to see if a duplicate of that note exists anywhere? And if there is a duplicate or the note is proven to be a forgery, the transaction is halted and cannot proceed? What if the note contained a very secret identity number with a built in secret password that must correlate when checked against the database of money and if the database’s entry does not match the note you are holding, the transaction is rejected?
Wouldn’t that be a sure way of beating counterfeiting? Probably - but that’s not how things work, when you go into a store and buy a bag of groceries and hand over $100, the cashier has no way of checking the validity of that note other than looking at it, using a light or feeling it. And the reverse is also true, when they hand you your change - how do you check to see if the change you received is real? It may look real and feel real but could be a very good forgery; you just don’t know and trust the legitimacy of the money.
Traditional money handling processes have absolutely no way of ensuring that you are not handling a counterfeit, and even if there was a method to accurately detect a forgery, would it be able to scale and be used for every transaction?
Cryptocurrencies provide a built in mechanism to address to concern of fraud in the network. It is a process that is hard to trick, transparent to the user and secured through cryptography. The distributed nature of a blockchain also ensures that the data stored therein can be agreed upon by the masses, rather than trusting a single entity with the maintenance of all records.
Global recognition - The cost of doing business across borders includes the process of converting from 1 currency into another. These conversions require a broker who take a % of the money being exchanged in return for providing the service, ultimately costing you to swap one currency for another. Cryptocurrencies can be sent from 1 country to another with very low cost, generally just the fee, and no exchange rates applied – 1 Bitcoin in Europe is worth 1 Bitcoin in Asia.
There is no other electronic cash system in which your account isn’t owned by someone else.
Take PayPal, for example: if the company decides for some reason that your account has been misused, it has the power to freeze all of the assets held in the account, without consulting you.
It is then up to you to jump through whatever hoops are necessary to get it cleared, so that you can access your funds. With cryptocurrency, you own the private key and the corresponding public key that makes up your cryptocurrency address. No one can take that away from you (unless you lose it yourself, or host it with a web-based wallet service that loses it for you).
Overall, cryptocurrencies have a long way to go before they can replace credit cards and traditional currencies as a tool for global commerce.
Fact is, many people are still unaware of cryptocurrency aka Digital Currency. People need to be educated about it to be able to apply it to their lives. Businesses need to start accepting it They need to make it easier to sign up and get started.
The future appeal of cryptocurrencies lies in allowing you ultimate control over your money, with fast secure global transactions, and lower transaction fees when compared to all existing currencies.
When used properly and fully understood it would be the initiator of many emerging systems that will fundamentally change our global economic system.
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MODULE 3:
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Copyright © 2017
WBI CRYPTO UNIVERSITY
All Rights Reserved.
No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of WBI Crypto University.
WBI CRYPTO UNIVERSITY
All Rights Reserved.
No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of WBI Crypto University.