What is bitcoin and the 2014 hack [update! 6% of the currency has been hacked!]

What is bitcoin and the 2014 hack [update! 6% of the currency has been hacked!]

Henry Dalziel | General Hacking Posts | March 1, 2014

What is bitcoin? Here’s a real brief summary of what bitcoin is…. Bitcoin is a digital currency that uses a peer-to-peer payment platform. The system (which started as open source) is defined as being a ‘cryptocurrency’ because it uses cryptography to manage the creation and facilitate the transfer of money safely. (Off Topic, but click here to see the coolest form of cryptography that has been around since the 1900’s – and here’s the thing – it is 100% impossible to crack!). Bitcoin: Bitcoin with a capital ‘B’ refers to what makes the currency work (i.e. the tech behind it all; the security, peer-to-peer platform etc). bitcoin: bitcoin with a small ‘b’ refers to the actual currency. What is bitcoin mining? Often you will come across a reference to someone talking about bitcoin mining. A direct quote from the Bitcoin Wiki states the following:

Mining is the process of adding transaction records to Bitcoin’s public ledger of past transactions. This ledger of past transactions is called the block chain as it is a chain of blocks. The block chain serves to confirm transactions to the rest of the network as having taken place. Bitcoin nodes use the block chain to distinguish legitimate Bitcoin transactions from attempts to re-spend coins that have already been spent elsewhere.

So, if you are new to this – think of bitcoin mining as a process in which users of the currency (consumers) verify and record payments in return for transaction fees and/ or newly minted bitcoins. The records of bitcoin transactions are referred to as ‘blocks’ and these create a record of past transactions that subsequently form a ‘block chain’. Each block is reliant on encryption to secure the transaction through hashes. If this still sounds complicated, think about it this way – a bank spends billions of dollars every year to securely arrange and execute transactions, and that is why you are charged ‘bank fees’. With bitcoin it is the miners that have to do the actual transactions and it is therefore only right that they are rewarded for their work (and CPU/ computer processing power). There is a lot of hard work and money that goes into creating ‘blocks’ and by definition (owing to the costs) to make money from bitcoin mining, you have to spend a lot of money as well. Another benefit of bitcoin mining is to generate new currency (minting). A central bank traditionally does this (with currencies like the US Dollar, Japanese Yen etc) – whilst this is done via ‘bitcoin mining’. The bitcoin mining rewards are decreasing each year – most of the costs are related to electricity costs. The hardware is also very expensive. The 2014 Bitcoin Hack! Currently the bitcoin market is in a state of flux. The Japanese based – Mt. Gox exchange used to be the most important business in the Bitcoin economy, now (end of February 2014) it has basically ceased trading to quote:

In light of recent news reports and the potential repercussions on MtGox’s operations and the market, a decision was taken to close all transactions for the time being in order to protect the site and our users. We will be closely monitoring the situation and will react accordingly.

Rumors are circulating that the major reason of this collapse of the bitcoin economy is due to a monumental hack of as many as 745,000 bitcoins which represents nearly ten percent of the entire currency base. In Summary If you are interested in bitcoin etc then you will find the below video interesting. Please leave us your comments below – what are your thoughts to this digital currency – is it the future or is it just a fad?

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