Money: a

timeline
Using bitcoin
Exchanges
Storing
Bitcoin
A public ledger
Mining
Made by
Reference
Glossary
Sources
Bitcoin
History
A guide to a new
form of digital
money.
Hash functions
Digital signatures
Technology
The U.S. Dollar vs. Bitcoin
Further reading
A history of money
12,000 BC
Trading in
commodities such as
grain, livestock, and
stone.
First banks invented in
Mesopotamia.
2,000 BC
3,000 BC
First metallic coins;
Asia Minor,
Mesopotamia and
likely others.
1,200 BC
Cowry shells as
currency
100 BC
Leather banknotes,
China.
800 AD
First paper money,
China
1920s
Credit cards
1967
First ATM; Barclays
Bank, London
2009
Bitcoin introduced
Bank of England
chartered
1694
1913 Federal Reserve created
Throughout its 14,000-year history, money has
always been evolving.
How bitcoin works
Bitcoin is a money system based on a widely distributed ledger
which records transactions between individuals. Each entry in
this ledger states who sent money to whom, and when they
sent it. For example, John sent Mary .6 bitcoins at 3:24 PM on
June 6th.
Mining
The idea of a public ledger is as old as money itself. Whats new
is the use of a globally distributed, peer-to-peer network, to
verify and maintain that ledger in real-time.
The nodes of this network are bitcoin miners, individuals or
groups who operate software that constantly checks the
integrity of the ledger, and adds new transactions to the ledger
when they are sent out to the network.
A time-stamped public ledger. In bitcoin, addresses
composed of letters and numbers replace names like
John and Mary.
John
Mary .6 BTC
3:24:56 PM, 6/5/14
Payer Payee Value Time
Mary Dr. Wu
.5 BTC
9:24:41 AM, 6/6/14
Dr. Wu
Mikes
Coee
Shop
.01 BTC
10:11:23 AM, 6/6/14
A public ledger
A distributed, global network is the backbone of the system,
working to verify transactions.
Exchanges
One of the most common ways to get bitcoin is through
an online exchange that connects buyers and sellers of
currency. There are dozens, if not hundreds, of exchanges
around the world, each with its own orderbook, where
orders are denominated in any number of world
currencies. A few exchanges host most of the volume, and
have historically exhibited volatile trading behavior.
Bitcoin
Exchanges
Fiat
Storing bitcoins
Given the potential security risks of online exchanges,
many users opt to store bitcoins away from centralized
exchanges. Paper wallets are a generally fool-proof way
to store private keys away from the internet, and digital
wallet software oers a means of storing private keys on
a computer, but away from a central exchange.
Technology
Cryptographers invented hash functions in the 1970s as a way
of turning an input of any size into an output of a xed size. A
given input, or inputs, always produces the same output, but an
output cannot be used to predict the input.
Input
Output
Input
Buying
Hash functions
One danger of exchanges
is that they create central
points of failure, akin to
banks.
Digital signatures
Digital signature technology underlies much of internet
security. Bitcoin uses a type of digital signature known as the
Elliptic Curve Digital Signature Algorithm.
Bitcoin vs. The Dollar
2009 2011
$.01
$1
$100
2013 1800 1900 2000
The U.S. dollar market price of
one bitcoin from its inception
in 2009 until early 2014.
1
Equivalent buying
power of the U.S. dollar from
1774 until 2012.
2
Bitcoin is inelastic, with
money created at a
predictable and
decreasing rate over
time, based on a freely
available, open-source
program.
Fiat currency systems
use an elastic money
supply. Central bankers
control the supply of
money, with the ability
to create new currency
at will.
There are variety of
ways of transferring at
currencies, but even
the cheapest, like credit
and debit cards,
require fees of at least
2%
4
.
Fees for most Bitcoin
transactions are less
than about 40 cents,
while some
transactions are free
3
.
During the few years of
its existence, Bitcoin
has experienced wild
price volatility, but
limited supply and
exponential adoption
have helped its value
increase over time.
Some currencies, such
as the U.S. dollar, have
maintained generally
stable values over long
time periods, though
they tend to lose value
over time.
Bitcoin
U.S. Dollar
A currency is only worth what people are willing
to pay for it.
Bitcoin is decentralized,
though individuals or
groups may come to
control large parts of
the network.
Monetary power is
controlled by a strong,
central state entity,
such as the U.S. federal
government.
Glossary
BTC
mining
private key
public
adress
deation
at
ledger
an abbreviation for
bitcoin
an increase in a
currencys value
money that is issued by a
central bank
a list of transactions
updating and verifying
the distributed ledger
a code that allows the
user to spend the
corresponding BTC
a name in the bitcoin
network, though one
individual can have
many
1
Bitcoin Market Price (USD)
https://blockchain.info/charts/market-price
2
United States Dollar Value Wikipedia
http://en.wikipedia.org/wiki/U.S._Dollars#Value
3
Bitcoin Fees: Bitcoin Transaction Fees Explained
http://bitcoinfees.com/
4
Interchange fee Wikipedia
http://en.wikipedia.org/wiki/Interchange_fee
ination
a decrease in a
currencys value
Sources
Further reading
Bitcoin wiki en.bitcoin.it
Mastering Bitcoin: unlocking digital
crypto-currencies by Andreas M. Antonopolous
Bitcoin Revolution: Ending Tyranny for Fun and
Prot by Jarrod Dennis and Max Wright