Posts by Laxman Sonale

Hello friends, in today’s article, we see the Bitcoin story, and how it’s working on Blockchain Technology. so If you want to invest in bitcoin, before that you should know about this. Investing in Bitcoin is like investing in Gold, so there is nothing is produced by this investment.

Previous Articles on Bitcoin

Bitcoin and Blockchain Story:-

Hello friend, before understanding the bitcoin basic, you should understand, how money works, so let’s see first how money works.

There are two ways to hold money

1. Physical cash
2. With a Bank ( behalf of you they save your record)

Physical Cash:-

Having physical Cash, we got many problems. like, I want to send money to another country, I have to put money in bags and someone has to transfer this bag from one place to another place, again the risk of Robb that money. (Bitcoin Story: Basic to advance)

so to solve this problem, we  keep our money in the bank

With a Bank:-

While keeping money in Bank, we can avoid keeping money in our homes, and not be required to carry bags of money with us

This whole problem is for the bank.

Bank solve the physical cash problem but they bring the new problem about money. like

1. you have to trust the bank,
2. you don’t have full control over money as compared to having physical cash.
3. We have to follow banks rules
4. We have to pay fees to the bank
5. We can lose our data by cyber theft e.g. J.P.Morgan like banks also lose customer data.

Generally speaking people like Physical cash money, because we have full control over cash, and you can lend money to anyone or take money from anyone without knowing another third person.

But the problem is physical cash is not intangible because of this, we got a store and transport problem.

Bank money give Intangible so we don’t have to store money in our pocket, whenever you go, you can use money with a bank ATM. (Bitcoin Story: Basic to advance)

So we prefer intangibility convenience. then the question comes, is there any way in which We get the Intangibility + full control like Physical cash? This means the bank is no more intermediate.

A century before, there was like this currency available, that gives both intangibility and full control over cash, At Yap island Micronesia

Rai Stone is used as a currency stone. Rai Stone is a big stone they have the ring-type shape

Rai Stone is intangible and middle man free also.

1) Intangible, because, in a transaction, we don’t have to transfer Rai stone, or not affect where the Rai stone is.

Physical Cash actually we have to transfer, from one person to another. A century before, a Rai Stone transferring in Goat and that Boat was destroyed and go down the Sea. with this also, people now do the transaction on the basis by saying, they think, rai stone place there somewhere in the middle of the sea.

2) Middle man Free:- There is no central record for this rai stone transaction

So no one registers the transaction like the head of the villager, in that the record is about which Rai stone, is of which person. village people put records in their brains about which Rai stone is of which person.

So we can’t believe in a single person. So whoever the transaction happen, on whole village people know about their transaction and all village peoples key record of the transaction in our brain.

So this type of distributed ledger, we have the big benefits

1. there is no middle man, which means no fee to pay
2. No Froud Risj ( Because we all have the transaction record if one person have a record, then there is the risk of losing record, or stealing that record)
3. No problem If the register is lost. ( so whole villagers are registered so there is no problem of Register (a record ) being lost.

Friends, Bitcoin is the Rio Stones in Internet Version. (Bitcoin Story: Basic to advance)

Bitcoin is intangible we can transfer bitcoin online, without any physical transfer

Middle man free so all transaction record is stored on Blockchain Technology. this technology is distributed to 10,000 computers, for now, you can think like, of this computer as a transaction register.

Now let’s see what are the Objective of bitcoin

Bitcoin Objectives:-

Direct online payments from one person to another person without a financial institution. ( without any middle man and with freedom)

Now we, see how we can invent bitcoin, step by step.

Now a day everyone has internet, so we have to remove the middle man ( like Bank)

So we have to develop some system like they can do bank works,

First step

1) Account Opening:-

The first step you have is to open an account, for bitcoin Transaction. Bank gives you a unique account number and keeps, a record of that number. so the bank can’t give the other person a number. (Bitcoin Story: Basic to advance)

then you generate the password for the same account number. without a bank we have to open an account for that we can choose a big random number digit.

so like type, this type of probability is zero to have the same account number of two people, and by using the one-way function corresponding, we can generate the password.

One way function means any given input can get output, but not get from output to input.

The hash Function we talked about in previous articles is also a one-way function. Like we talk about the public key, the private key is linked by a one-way function,

Actually, how is linked let’s understand,

we take 52 characters long choose a random number, so in that 52 characters, any alphanumeric number is long.

Means:- ABCD@07YZA etc

anything from 52 possibilities this random number is our private key, or say the password. If you pass this password in one way function on this some mathematical calculation steps and give an output.

so that is your public key

so this public key, you pass two or one-way function,

so come Public keys compress version, so this number you can say username/account number or address.

your account number is long about 26 -35 characters long. On this account number, people can send you bitcoin.

In the Bank case, we get the unique account number or username, then you generate the password. so in blockchain happen reverse, because, we pass this in one way function. (Bitcoin Story: Basic to advance)

if I use any random number, and I pass from a one-way function and get a password so any person can do this. that person does the same as me and passes through one function. Because the one-way function is going forward not reverse.

so that’s why we generate the first password and on that basis, we generate a username and no one can generate a password from a username.

so in cryptography, public key, the private key one was function concepts, without bank we generate account number and password,

Bank do other things likes,

• Keeping Record of money:- How many transactions happen from one account to another account.

So we have to eliminate banks. so we can do anyone can become record keeper without anyone permission and can keep the transaction on computer. Just like in Ria stone village head does not keep all records, instead of that everyone’s villager has their record. (Bitcoin Story: Basic to advance)

Just like 10,000 computers keep a record of how much money have in different accounts. so for this, we avoid the risk of fraud and listing records because 10,000 computers register.

If any new transaction happens, then the record file in excel form submit all over the other computer.

Two ways to record Transaction:

1) Inventory Data record:-

Show in which account how much has to balance in the account. for example, Account number XYZ, has one million dollars.

2) Transaction Data Record:-

Record the transfer of money from one account to another account ( Transaction record not balance record)

In the Bitcoin register, have a record of Balance credit, debit process, you can know how much money have in their account.

Transaction data record, you not only just know account balance but also know how much bitcoin comes in our account. (Bitcoin Story: Basic to advance)

Transaction data has the following things in their process:-

1. Account number of the sender
2. Account number of receiver
3. Number of bitcoins transferred
4. digital signature of the sender ( to know about digital signature Click here)
5. Transaction fees for executing a transaction

so now, you say, if in this system there is no middle man, so why are we pay the transaction fee

so let’s see

Any transaction before putting on the register, check this, is this transaction is valued ( validity check of transaction data)

For the Validity signature, we have to verify really that’s much bitcoin have in that account, and to transfer the Bitcoin.

so you think, we have to check this. you also know up to now, we do

1. make the account number and password
2. how much have money in the account in a different account and distribute this record to 10,000 computers.
3. Keep the record in transaction form.

Now, let’s see how are transaction recorded on 10,000 computers.

If there is one computer, then we have to keep records line by line. so may happen some transactions got first and others get sometime later and take time to distribute between 10,000 computers

so transaction order has different for different people. We can’t control how much transaction order comes in per second.

so we control when to enter the register. like when transactions come, we can’t put in the register,m for that we need more transactions. When more transactions come, then we record to put on the register by developing Block 1 after 10 minutes. (Bitcoin Story: Basic to advance)

so now you ask a question, who creates a block every 10 minutes

so let’s see who make a block

For this purpose, they play the game like Ludo, in 10,000 computer

suppose four people playing Ludo, everyone has dice, the game is those people got first 6 number dice that person won means, that person can make the block.

In bitcoin, the game of playing name is Proof of Work i.e. Hash Puzzle

In block Present Transaction data have to pass through a hash function and find out hash value just in a dice game, those got first six they can same as in a hash game. You have to find the hash value that has in the game ( puzzle)

What’s value, they show the game of difficulty level? difficulty is number like 1,2,3,4,5

if game difficulty =1; valid hash value minimum one zero in their hash value e.g. 0f45jgdc77k6d

if game difficulty = 10; Valid hash Value= e.g. 0000000000 jshwda

So bigger difficulty needs bigger Zero, and that much hash puzzle becomes bigger difficult.

and that much time and the computer power required to solve.

In 10,000 people, in between them, one person gives Hash Value that satisfies the difficulty level so that person gets a chance to create the block.

so problem is, if first in Hash Puzzle is not solved then how second Hash Value we get Because Hash function always gives some result of given inputs. means, to find different hash values, you have to change input data.

Like, any transaction removed, and any transaction adds and changed transaction order, so In transaction don’t have to change, so for this in block give some empty space so you can add as your transaction. so for this activity called as Nonce.

if the hash function value is not coming as we need, then you can change Nonce and try again up to the right hash value come.

Mining:-Mining is the activity of creating a new block by solving the hash puzzle.

changing every time in Nonce, to get the right hash value is called mining. so those people who do this are called Minor.

minor is the person who does this, to solve the hash puzzle, required hard work not because, to solve the mathematical problem because of finding hash value, 100 and millions of times.

Computing power and electricity are mostly used by this process so why does anyone do this mining. so those creating blocks they got the reward means, those people solve firstly puzzle they get rewarded.

so who gives the reward and in which form so we don’t need a middle man so this system has its own currency. so by creating a block new bitcoin is generated just like print money. (Bitcoin Story: Basic to advance)

so this bitcoin is given to the person that creates a block. so this process is called block reward and inn that also include transition fees that person got who solve the puzzle.

In 2009, when bitcoin come, so in that time 50 bitcoin is given as block reward each of 2 lakh 10 thousand block

After four years, one block is created after 10 minutes

In 2013, 25 BTC means block reward is going half-percentage

In 2017, 12.5 BTC

In 2021, 6.25 BTC

so a Total of 21 million bitcoins created by this can happen in 2140.

Why block reward prize going half in value and in 2140 all thing ( bitcoin stop generating)

Block reward keep only for that reason is in this system. the starting people get a reward because, when new system start, there are not many transactions happen.

so transaction fees are also less. so when in system transaction increases, some as time come, the transaction fee is more for minor to compensate.

so solving hash puzzle get block rewards so people get greedy and increase computer hashing power, and create faster blocks.

so what can we do to create a block in 10 minutes that very quickly before 10 minutes? so for this purpose in the system some after time the difficulty level increases and after creating the 2016 block, the system check, blocks, are created before 10 minutes or same. (Bitcoin Story: Basic to advance)

if a block is created faster, ( means, people increases hash power) so the system increases difficulty level to need more time to solve the hash puzzle.

if block is created slower, the difficulty level decreases; the system speeds up

so how do we know the block is generated after to minutes, and in which order.

means how to do ordering blocks

Like, in the book have a page number, we know, which to read after this page.

just like that in bitcoin blocks, there is no number system for blocks

This means each block shares the previous block hash value, so just like that, each block refers to the previous block. so you say why we refer to difficulty, just give a simple number.

for this purpose have two reasons.

1. If we give 1,2,3,4 number, then minor give up the previous block mining they go to higher number block mining.

e.g. if block 14 mining going on, then I know the next block is blocked 15. so number 15 using, I can start the next hashing.

so for this, we have to know the block 14 hash value to start before block 15.

so block 15 hash we start when we know block 14 very well

so Noone, a person can’t start next block or do having because block 15 start previous 14 block hash.

so Noone can make changes in block 14. if in number 14 blocks are linked with hash both thing process called as blockchain technology. (Bitcoin Story: Basic to advance)

so by using this system, we can eliminate(remove) the middle man, and also be trustworthy and no one can hack it or changes information.

People say, Bitcoin is made on the blockchain, but bitcoin’s main aim is to eliminate middlemen ( like banks) from transactions.

so by process of removing the middle man is called a blockchain. so blockchain is not a new technology, this technology come in the late 1990 to early 2000 technology.

Like a public key, private key, etc joining by developing technology. so that technology name is blockchain technology. so block created linked so what happens in the block so let’s inn block five thing happen.

A block has the following things:

1.  previous block hash value
2. transaction data hash value
3. Nonce ( help to solve the hash puzzle)
4. The difficulty level of the hash puzzle.
5. timestamps:- so hash puzzle began

just like we check transaction validity same as we check block validity by checking previous block reference difficulty level is good or bad as we decided timestamp is right after block previous current block hash value solving the hash puzzle, or current difficulty level.

Gossip-style distribution of Block:-

so those people create blocks, they solve the hash puzzles in other languages and they send their block to 9,999 people to check and update their blockchain.

after creating a block, other persons at like superior, so if the block is found invalid, then reward is taken back from the block creator and other people start creating blocks to create the fastest block.

so those do very well, they only get a reward, if block is wrong, then in punishment reward is taken back, because creating a block, a computer chip is used to they become week after using it. ( require expenses) and light bill needs and other people check your work so the person in spite of fear, they do the right work,

so this 10,000 computer ( person), so these people work by their own interest, this person called as nodes.

So all system is own this principle majority nodes ( people) are very honest and only work for reward. (Bitcoin Story: Basic to advance)

After creating a block, other nodes, check that block, and update send in form of Gossip-style just like if i want to share something, I can share with my friend, and my friends tell their friends,  so this type my thought spread to all people.

so this type of block also spread.

Longest-Chain rule:-

so lots of people creating blocks,s so two people can come in first means same time two people create blocks this may happen.

so by happening this, in the chain, the branches start. if any minor get two valid blocks come at a time. so his opinion, which block, they can create next block.

But transaction data have to be one version. so this does not happen in the first history, some have other history and others have another history. so which history is right, this problem comes.

so for this purpose, blockchain follows the longest chain. means those chains have a maximum block that’s blockchain is right if those chains don’t have longest chain history, that block called an orphan block.

The longest chain is called an official chain because by developing that chain the maximum computing power is spent.

So orphan blocks transaction put again in a new block, and link to the longest chain, to execute this and to become history part. so the longest chain rule can also use for the wrong purpose.

like if I develop a new chain, that is longest than the official chai, so the official chain becomes orphan and my new chain becomes the official chain.

the old chain transaction is not considered, so double spending can do means the same money spend twice to buy things

e.g. if I buy clothes and pay the payment in bitcoin, my transaction creates in one block, so I do the same parallel payment with the same bitcoin, and I add more blocks on that transaction. (Bitcoin Story: Basic to advance)

my old transaction, that gives, to the shopkeeper, that transaction come in the orphan block so they did not consider the transaction. so for again system goes to process and refer to the longest chain, and I sent bitcoin to another address, so my transaction is failed, so I got my clothes and money get back.

so advise this, before giving clothes, we have to add at least 5 blocks should be created on our payment blocks, because of this, the new chain development required maximum hashing power. so that money we creating the other new chain required more money.

so developing a big new chain than the official chain is not easy work. so for that, you have to solve the fast puzzles, and also solve puzzles for old blocks also.

to develop this, we required world’s power of at least more than 50% so doing this called 51% attack

This means, if you have 51% worlds power then you can develop in long-chain, but to buy 51% hash power required more money, which means more expense so less expensive is to buy bitcoin.

so 51% attacks are possible in small cryptocurrencies because many people are not included, and do not have maximum hashing power. (Bitcoin Story: Basic to advance)

final last thing, in cryptocurrency, cryptography is used maximum. so whatever currency develop is called cryptocurrency money.

so this is the story of bitcoin.