Introduction to Bitcoin

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Unit 3

 



Q.1} Explain bitcoin wallet mining.
            Bitcoin mining is done by specialized computers. The role of miners is to secure the network and to process every Bitcoin transaction. Miners achieve this by solving a computational problem which allows them to chain together blocks of transactions (hence Bitcoin’s famous “blockchain”). For this service, miners are rewarded with newly-created Bitcoins and transaction fees.

Step #1: 

            Get Bitcoin Wallet When earning bitcoins from mining, they go directly into a Bitcoin wallet. You can't mine without a wallet.


Step #2: 

            Find a Bitcoin Exchange When earning bitcoins from mining, you may need to sell the coins to pay for power costs. You may also need to buy coins on exchanges.


Step #3: 

            Get Bitcoin Mining Hardware You won’t be able to mine without an ASIC miner. ASIC miners are specialized computers that were built for the sole purpose of mining bitcoins. Don’t even try mining bitcoins on your home desktop or laptop computer! You will earn less than one penny per year and will waste money on electricity.


Step #4: 

            Select a Mining Pool Once you get your mining hardware, you need to select a mining pool. Without a mining pool, you would only receive a mining payout if you found a block on your own. This is called solo mining. We don’t recommend this because your hardware’s hash rate is very unlikely to be anywhere near enough to find a block solo mining.

Step #5: 

            Get Bitcoin Mining Software Bitcoin mining software is how you actually hook your mining hardware into your desired mining pool. You need to use the software to point your hash rate at the pool. Braiins is one of the more popular mining softwares on the market. Also in the software you tell the pool which Bitcoin address payouts should be sent to. There is mining software available for Mac, Windows, and Linux.


Step #6: 

            Is Bitcoin Mining Legal in your Country? Make Sure! This won’t be much of an issue in MOST countries. Consult local counsel for further assistance in determining whether Bitcoin mining is legal and the tax implications of doing the activity. Like other business, you can usually write off your expenses that made your operation profitable, like electricity and hardware costs


Step #7:

            Is Bitcoin Mining Profitable for You? Do you understand what you need to do to start? You should run some calculations and see if Bitcoin mining will actually be profitable for you. You can use a Bitcoin mining calculator to get a rough idea. I say rough idea because many factors related to your mining profitability are constantly changing. A doubling in the Bitcoin price could increase your profits by two


Q.2} What is peer to peer payment gateway?
            Peer-to-peer transactions (also referred to as person-to-person transactions, P2P transactions, or P2P payments) are electronic money transfers made from one person to another through an intermediary, typically referred to as a P2P payment application. P2P payments can be sent and received via mobile device or any home computer with access to the Internet, offering a convenient alternative to traditional payment methods. Through the P2P payment application, each individual's account is linked to one or more of the user's bank accounts. When a transaction occurs, the account balance in the application records the transaction and either sends or pulls money directly to the user's bank account or stores it in the user's account within the application. Since this concept's inception, many business entities have developed P2P transaction capabilities, increasing the competition in the space and the convenience brought to the consumer. The prevalence of mobile devices has also forced the adaptation of P2P payment applications to become more convenient for users.


Q.3} What is bitcoin? Explain its working.
Bitcoin
            Bitcoin is a digital currency created in January 2009 following the housing market crash. It follows the ideas set out in a whitepaper by the mysterious and pseudonymous Satoshi Nakamoto.1 The identity of the person or persons who created the technology is still a mystery. Bitcoin offers the promise of lower transaction fees than traditional online payment mechanisms and is operated by a decentralized authority, unlike government-issued currencies.
Working
            Bitcoin is one of the first digital currencies to use peer-to-peer technology to facilitate instant payments. The independent individuals and companies who own the governing computing power and participate in the Bitcoin network, are comprised of nodes or miners. "Miners," or the people who process the transactions on the blockchain, are motivated by rewards (the release of new bitcoin) and transaction fees paid in bitcoin. These miners can be thought of as the decentralized authority enforcing the credibility of the Bitcoin network. New bitcoin is being released to the miners at a fixed, but periodically declining rate, such that the total supply of bitcoins approaches 21 million. As of July 2020, there are roughly 3 million bitcoins which have yet to be mined.3 In this way, Bitcoin (and any cryptocurrency generated through a similar process) operates differently from fiat currency; in centralized banking systems, currency is released at a rate matching the growth in goods in an attempt to maintain price stability, while a decentralized system like Bitcoin sets the release rate ahead of time and according to an algorithm.
            Bitcoin mining is the process by which bitcoins are released into circulation. Generally, mining requires the solving of computationally difficult puzzles in order to discover a new block, which is added to the blockchain. In contributing to the blockchain, mining adds and verifies transaction records across the network. For adding blocks to the blockchain, miners receive a reward in the form of a few bitcoins; the reward is halved every 210,000 blocks. The block reward was 50 new bitcoins in 2009 and is currently 12.5. On May 11th, 2020 the third halving occurred, bringing the reward for each block discovery down to 6.25 bitcoins.5 A variety of hardware can be used to mine bitcoin but some yield higher rewards than others. Certain computer chips called Application-Specific Integrated Circuits (ASIC) and more advanced processing units like Graphic Processing Units (GPUs) can achieve more rewards. These elaborate mining processors are known as "mining rigs."

Advantages of Bitcoin:-

  • International payments are a lot faster than banks;
  • Fees are low;
  • Blockchain — near impossible to hack;
  • Decentralized — cannot be shut down at a single point;
  • Transparent — you don’t have to trust anyone;
  • Anonymous — you don’t need to use your name;
  • Powered by the community — the fees are shared instead of going to a single point (i.e. a bank or PayPal);
  • No verification for new users — anyone can use it.
Disadvantages of blockchain:-

  • Mining uses lots of electricity;
  • Not as fast as other cryptocurrencies;
  • Fees change a lot;
  • Anonymous — used for crime;
  • Difficult to use — private keys, public keys, etc.


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