Part 1: The beginnings of the Bitcoin cryptocurrency
The Bitcoin virtual currency, which is managed without a bank by a decentralized and transparent open-source network, has been around since 2009. Anyone who installs the software on their computer can become part of the network. Everyone is probably familiar with the story of American Laszlo Hanvecz, who paid for two pizzas with 10,000 Bitcoins, equivalent to almost 5 million US dollars today. This was the first documented commercial transaction in which bitcoins were exchanged for a real commodity. A lot has happened since then.
Part 2: Paying with bitcoins
In the meantime, bitcoins have become a little more established. In modern metropolises like Berlin, it’s been possible to pay with this virtual currency in some restaurants, cafés and pubs for a few years now.
Berlin restaurateur Jörg Platzer was one of the first to accept bitcoin payments in the capital. For merchants, the crypto-currency offers certain advantages: Money is virtually instantaneous in bitcoin transactions, with no need for merchants to fear chargebacks, as payments in the bitcoin system are irreversible.
Part 3: How Bitcoin works
Bitcoins function as a kind of collective accounting system that records every transaction and the location of every bitcoin in the world. Although it’s a virtual currency – meaning it exists only in a computer – the system ensures that the number of coins is limited, and that they cannot be counterfeited or spent more than once.
In the accounting system, bitcoins only appear in the form of transactions, which refers to the sending of money from one bitcoin address to another in the form of a message over the network.
The public transaction history shows who owns how many bitcoins. A transaction is then signed with an individual secret key, which ensures that only the recipient of a bitcoin amount can spend it again.
Bitcoin wallets” are more like a keychain than a wallet, where you can store Bitcoin addresses and create new ones. The information stored in the Bitcoin wallet is all you need to dispose of your Bitcoins. That’s why you absolutely must encrypt your wallet and back it up regularly: if the hard disk breaks, you won’t be able to access your Bitcoins!
Part 4: The Blockchain payment directory
Bockchain is a type of database of which there are countless copies worldwide, and which is perpetuated by countless computers via a peer-to-peer network. It consists of interconnected blocks of data, hence the name “blockchain”.
Part 5: How does Bitcoin mining work?
Bitcoin payments are secured during the mining process. A “miner” checks the validity of incoming transactions. If the transactions are valid, he collects them in a block, along with a timestamp, the hash of the previous block and a number (called a nonce).
On top of all this, the miner uses an algorithm to form a hash that must be less than a given numerical value; this complicates the task of finding a valid hash. If a miner finds a valid hash, he receives bitcoins as a reward for his efforts.
Bitcoin mining has triggered a new global gold rush that fuels the decentralized bitcoin network. Successful miners reap a valuable reward in the form of bitcoins, which they can in turn exchange for real money on the stock market. Sven Poinart and Dennis Daiber are such miners.
Part 6: Bitcoin bank robbery
Bitcoin mining, with a goldmine, naturally attracts criminals who use the processing power of other people’s processors to do it – known as cryptojacking. In autumn 2017, for example, The Pirate Bay drained the processor power of visitors to its website. Since then, this has become a trend. Since cryptojacking is only really interesting with a high number of hits, video streaming platforms are particularly popular for cryptojacking attacks due to the long viewing times.
Crypto mining isn’t the only thing criminals find attractive about virtual currency. Bank robbers also have new opportunities to get their hands on money thanks to bitcoin. For example, since the turn of 2017, crackers have captured cryptocurrencies worth a total of €650 million.
Part 7: Speed up transfers with transaction fees
In most cases, you have up to 24 hours for the bitcoin transaction to appear on the blockchain. However, there are far more transactions ordered than miners can process in blocks. This is where transfer fees come into play: each user is free to decide how much to pay the miner to process the transaction.
The seller is penalized by low transaction fees when bids fall again after a price drop. In fact, the order will always be executed, as there is no expiry date for transfers.
Part 8: Government restrictions on bitcoin trading
Bitcoin is the epitome of free trade. The crypto-currency is considered decentralized, independent, popular and supposedly unregulatable. But this last point is only true to a limited extent: governments around the world are trying to tame crypto-currencies. In the EU, there is a threat of compulsory registration of Bitcoin addresses. In Germany, Bitcoin exchanges must obtain authorization from the BaFin, failing which they risk many years in prison. In Venezuela, miners must register with the state, and China wants to ban mining altogether.
Part 9: China’s exit from bitcoin mining
China has decided to withdraw from bitcoin mining and close mining farms across the country. Until now, two-thirds of the world’s bitcoin miners were located in China, literally burning up the country’s particularly cheap electricity. This must now come to an end, not least to relieve the strain on power grids.
If such a large proportion of bitcoin miners, and with them their computing power to supply new blocks, are eliminated, it portends far-reaching consequences for the crypto-currency. In fact, however, the impact on users and markets is barely perceptible. This is mainly due to a gradual displacement of mining operations through taxes, higher electricity costs and a cap on energy consumption. An abrupt halt to all mining activities in China would make more waves, but only for a short time.
Part 10: Disappearance of completed transactions from the blockchain
The basic function of the blockchain is to keep all blocks and all the transactions they contain captive and immutable forever. So why do transactions that have already been executed continue to disappear as if they had never existed? The answer is simple: the blockchain only contains blocks that are currently relevant.
If several miners find the next valid block almost simultaneously, by chance or provocation, the blockchain splits. The branch that survives depends on the one with the most successor blocks found. The branch with the lowest number of successors dies and becomes a so-called “stale” block.
Part 11: Multiplication of crypto-currencies by Bitcoin forks
When two argue, the third is happy – this principle can also be applied to crypto-currencies. Disputes between developers or miners always lead to forks, during which a new crypto-currency is created. Following their dissatisfaction, they create their own branch (folk) and thus optimize previous developments. In so-called hard forks, the owner of the original crypto-currency receives money as a gift.
Part 12: Beware of bitcoin thieves, fake suppliers and the like
Bitcoin investors’ assets are exposed to many threats. In addition to falling prices, bitcoin thieves, fake suppliers and strange business practices ensure a high risk of loss. Attackers deliberately exploit the credulity and inattention of bitcoin holders. Bitcoin thieves, for example, embezzle money from unsuspecting users or encrypt computer data and extort bitcoins.
Part 13: Making room on the Bitcoin blockchain
The Bitcoin crypto-currency is not particularly good as a means of mass payment. Unprocessed transactions continue to pile up in memes. Speculators therefore outbid each other when prices fall, in order to secure a place on the next block for their sell transaction. Transaction congestion and excessive fees mean that bitcoin is no longer used as a means of payment, but rather as an object of investment and speculation. After all, who wants to wait hours for their coffee to be paid for, or spend several times the purchase price on transfer fees?
Part 14: Blockchain with eternal memory
In the Bitcoin blockchain, data is stored immutably at all times. Most of the content is harmless transfer data. But not only that: the blockchain also offers space for links, song lyrics, entire articles and photos. (Formerly) secret information or even illegal content such as child pornography are particularly problematic. Once chiseled into the blockchain, data is copied millions of times all over the world.
Part 15: Price breakers
There’s a lot of momentum in the bitcoin price. Contrary to what skeptics claim, the value of the virtual currency is not completely arbitrary, but is influenced by real-world events. If you look closely, you’ll discover a correlation between quite a few political, economic and even religious events and the price of the crypto-currency. For example, the announcement of China’s exit from bitcoin mining caused a plunge. Facebook’s decision to stop allowing ads for Initial Coin Offerings (ICOs) and crypto-currencies also had a negative impact on bitcoin’s value.
Part 16: The threat of 51 percent attacks
On May 16, 2018, criminal attackers deliberately killed the main branch of the Bitcoin Gold blockchain in order to cancel the transactions it contained. In the so-called 51% attack, they took control of the majority of the hashing power and were able to defraud crypto-currency traders out of millions of dollars.
Part 17: Shopping with bitcoins
The price of bitcoin has been falling for months. So you should instead buy something nice instead of continuing to hoard bitcoins. In other European countries, crypto-currencies are much more common as a means of payment than in Germany. For example, there are bitcoin vending machines at Amsterdam’s Schiphol airport that allow holidaymakers to exchange euro bills for bitcoins.
Part 18: How Bitcoin Gold and Zcash are fighting for their freedom
An overpowered mining farm’s attack on Bitcoin Gold at the end of May effectively marked the end of the crypto-currency. The crooks reportedly amassed up to five times more hashing power than the regular network of miners, manipulating Bitcoin Gold at will for three days.
Part 19: Environmentally-friendly Bitcoin mining
Bitcoin is not only an unsavory currency for criminals and terrorists, bitcoin mining is also considered a bad waste of coal and nuclear energy. Every bitcoin transaction is an environmental sin, say some detractors. And they’re right, measured by energy consumption, Bitcoin & Co. are very inefficient.
Part 20: Manipulating the bitcoin price
The bitcoin whales have reappeared after years, causing price reactions on crypto-currency exchanges. The whales are individual wallet addresses on which more than ten thousand bitcoins worth several million US dollars are stored. Today, people are embarking on a search to find out where all this money is coming from. It’s possible that the whale’s owner was involved in one of the biggest bitcoin thefts of all time.
The trail can be traced back to the legendary MtGox scam of 2014. As a result of this scam, the largest Bitcoin trader at the time went bankrupt. Meanwhile, the now-discovered Bitcoin whale was split into many smaller pieces of money and remained under the public radar until late August. The whale’s Bitcoin denomination suggests that its owner is preparing to sell it. Selling such a Bitcoin asset would greatly affect the price.
Part 21: A double-spending bug threatened bitcoin’s very existence
Bitcoin nodes” prevent money from being spent more than once. But for over a year, the Bitcoin Core node and client software contained a bug that allowed exactly that. This bug was a serious threat to Bitcoin’s existence.
The bug, which has now been fixed after a year, represented a real danger. Fortunately, this flaw was not exploited, as it only concerned a very specific case construction – namely the case where a miner reports a block with a transaction in which one bitcoin is spent twice. The obstacle and effort to exploit this bug would have been significant. Had this flaw still been exploited, the consequences would have been devastating.
Part 22: Dirty power struggle endangers Bitcoin cash balances
A Wild West showdown: that’s how to describe the power struggle between Bitcoin Cash’s developers. Bitcoin Cash has undergone another hard fork, and much-needed safeguards have been dropped as a result of the conflict. Normally, protective measures during a hard fork prevent transactions from being executed twice, but this didn’t happen this time. Users now have to take action themselves and keep their money safe.
Part 23: Climate study on bitcoin is wrong
Four Hawaiian scientists publish a study predicting that bitcoin could increase global warming to more than two degrees – but this is fundamentally wrong. Mining bitcoin consumes huge amounts of electricity, there’s no doubt about that. But in their study of the emissions that would be created by the crypto-currency if bitcoin were increasingly used as a means of payment, the researchers made a fatal error. The scientists from the University of Hawaii calculated how many additional emissions would be created if Bitocin were to replace other non-monetary forms of payment. The result: in the space of 16 years, Bitcoin would increase global CO2 emissions so much that global warming would increase by more than two degrees.
Part 24: The big losers in the bitcoin cash war
Just over a year ago, bitcoin was at its highest, then came the big crash: the price falls since Christmas 2017 have many reasons – one of them is Craig Wright. He started a war around Bitcoin Cash. Craig Wright, lead developer at blockchain company nChain, wanted to prevent a Bitcoin Cash hard fork scheduled for mid-November and push through his own proposal. To get his proposal through, Wright enlisted the support of several major miners. Indeed, miners, or mine operators, play a decisive role in the development of crypto-currencies; they choose the protocol that miners use. So, if you have more than 50% of the mining power, you can set the direction.
However, with a hard fork, it’s a bit different. After a hard fork, blocks generated by the new protocol are incompatible with the previous protocol. In the case of a successful hard fork, the individual miners working under the new protocol are sufficient. However, the old crypto-currency remains. However, a normal hard fork wasn’t enough for Wright: he wanted to inherit Bitcoin Cash. In November 2017, Bitcoin Cash underwent a hard fork that resulted in all miners switching to the new protocol.
On November 15, 2018, when Bitcoin ABC and Bitcoin SV underwent a hard fork, Wright and his followers attempted to overload the ABC network, in which they carried out countless spam transactions. At the same time, miners of Bitcoin SV (Wright’s company’s crypto-currency) were generating empty or almost empty blocks for the ABC blockchain. Indeed, (almost) empty blocks mean that thousands of transactions have to step back and wait for another chance to be included in the next block. Wright therefore wanted to take control of the ABC blockchain with overwhelming hashing power and stop exchanges on the ABC blockchain.
Part 25: Bitcoin and blockchain celebrate their 10th anniversary
For 10 years now, the Bitcoin blockchain has operated according to the same rules. Satoshi Nakamoto – inventor of bitcoin and the blockchain – published the first block of the bitcoin blockchain on January 9, 2009.
At the time, Satoshi calculated the so-called Genesis block by hand, as there were no bitcoins to transfer, nor computers to process transactions into new blocks and continue the blockchain. To keep the newly-created blockchain alive, Satoshi introduced a reward for each new block found – and received 50 bitcoins for his self-calculated Genesis block.
Thus were created the first 50 bitcoins and the incentive to have his computer calculate new blocks and continue the blockchain. By the end of November 2013, bitcoin had reached its first peak, paying as much as $1,000 per bitcoin. The following year, the price of bitcoin dropped to US$250, only to soar again at the end of 2016 – by December 2017, US$20,000 per bitcoin was sometimes paid.
