#5 - BITCOIN, Analyzed from a hacker's point of view. PART 1.

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BITCOIN, Analyzed from a hacker's point of view

1. Bitcoin as technology

·        What is important about being a decentralized currency?

·        What is blockchain?

·        What is important about a distributed database?

·        What is the backup of bitcoin?

·        What is bitcoin mining?

·        Why does mining provide security to the bitcoin network?

·        What is a fork?

·        What is the difference between a soft fork and a hard fork?

·        What's wrong with my bitcoins on a fork?

·        So if I start mining, can I earn bitcoins?

·        How do I calculate if it is worth investing in mining?

·        Current reward for blocks ?, So it is not always the same?

·        What is the amount of bitcoin that will be generated?

·        Why the amount of bitcoins that are going to be generated was predefined?

·        What is a wallet or bitcoins wallet?

·        And where is my purse?

·        How do I know that nobody is going to generate the same wallet as me?

·        How do you know that a wallet has the money it sends?

PART 1. Bitcoin as technology

WHAT IS THE BITCOIN?

Bitcoin (BTC, ?, XBT) is a cryptocurrency, an open source digital currency created in 2009 by an unknown person under the pseudonym "Satoshi Nakamoto". It is supported by the protocol and the P2P network (peer-to-peer), a network of computers that function as clients and servers at the same time, that is, without a central client or server. Therefore, it has the revolutionary characteristic of being the first decentralized currency.

WHAT IS IMPORTANT TO BE A DECENTRALIZED CURRENCY?

 First you have to understand why all the coins we already know are centralized. Every currency needs a backup, we need to trust who issued it and that it has a quantitative value. We trust in the Central Bank because it is supposed to be an institution that will never fall because it is managed by the State and, in turn, this force uses the local currency, so that we have no choice but to use it. If the Central Bank did not exist, I printed a ticket on printer paper with the value I want and I can use it to buy and nobody can tell me that it is false because there are no real tickets. In addition, we must ensure that double expenses are not possible and that transactions are legitimate. Bitcoin is the first safe currency with which transactions have been done in a decentralized manner. That is, without a bank or other intermediary to which to entrust our money. This was possible thanks to Blockchain.

WHAT IS BLOCKCHAIN?

A chain of blocks. A distributed accounting book used to record all the movements and balances of Bitcoin accounts in an unalterable, auditable and reliable way.

It is a database distributed among all the nodes of the Bitcoin network, where all have copies of all the transactions made, in order to provide security to the network.

These transactions are grouped into blocks and validated by the network miners to join the chain.

Once a block joins the string it can not be modified or deleted. This chain of blocks is public, so that everyone can see that it was not adulterated (here you have it): https://blockchain.info/en).

WHAT IS A DISTRIBUTED DATABASE IMPORTANT?

On a technical level, it provides security to the network, since a centralized database provides a single point of attack, which can be hacked. In contrast, in a distributed database, the data is stored by all the nodes, that is, if one is attacked, the others will remain standing, and at the same time they will recognize that the data of the hacked node was adulterated since correspond to those of the majority of the network, so they will not recognize as valid the movements and therefore the balances that that node can process.

At the macroeconomic level, the aforementioned makes fractional reserve impossible (when banks only keep a portion of their users' reserves, and the rest use it to issue debt and earn interest on money that is not really theirs) so that Avoid this form of inflation.

WHAT IS THE BACKUP OF THE BITCOIN?

 You could say that Blockchain, but this, by solving the technical problems arising from the legitimacy of transactions, also resolves the need for a backup in case something goes wrong, since nothing can hurt salt.

WHAT IS BITCOIN'S MINING?

It is the generation of new blocks in the blockchain by confirming transactions between Bitcoin users.

All the miners in the network are competing to be the first to find the solution to a cryptographic problem (SHA-256) that requires several repetitive attempts by brute force, as an incentive they are rewarded.

It's like asking someone to think of a number from 1 to 100 and try to guess it by saying 1, 2, 3, 4 and so on until you hit it. The difference is that this is a number from 1 to * the number of molecules in the universe * and it is not one that tries to guess but millions of miners. Therefore the one that counts faster (has greater computing power) will have more chances of winning the reward.

The reward for being the first to find a block is new bitcoin generated, but there is also a reward for the rates that users put their transactions so that they have priority in the confirmation of the miners and are processed faster.

WHY DOES MINING PROVIDE SECURITY TO THE BITCOIN NETWORK?

As I mentioned before, if a node is hacked or wants to send false information like doing the same transaction twice to two different wallets, the other nodes will recognize the error and will only take into account the transaction of the block that is confirmed first.

That is mining, the generation of new blocks in the blockchain by confirming transactions between Bitcoin users.

Therefore, while most nodes want to validate x transaction, this transaction will be correctly processed. For this to be necessary decentralization, that is, there is not a single miner with 90% hashpower deciding which transactions are validated and which are not.

WHAT IS A FORK?

A fork happens when a defined majority of nodes decides not to validate certain types of transactions. For example, it can happen in the face of an improvement in the network's security protocol, so the nodes should stop accepting transactions with the old protocol that are no longer considered secure, forcing them to update their software.

WHAT IS THE DIFFERENCE BETWEEN A SOFT FORK AND A HARD FORK?

A hard fork is the previous example of improvement of the security protocol, in which when this supposed upgrade happens, the nodes that run old versions of the protocol will no longer be considered valid by the other nodes that are the majority.

In contrast, in a soft fork the old nodes will continue to be considered valid and will continue to participate to validate the transactions of the network, only that being a minority, it will be a waste of time and resources.

WHAT HAPPENS WITH MY BITCOINS IN A FORK?

In a soft fork nothing, everything remains the same.

On the other hand, a hard fork becomes part of the chain of blocks, one with the old protocol and the other with the new one. This can be considered as the creation of a new cryptocurrency but in theory it is nothing more than the division of ideas about how the same currency should be.

Due to this, whoever has had a balance in a pre-fork cryptocurrency will now have balance in both chains and therefore balance of both cryptocurrencies, since they have the same history of past blocks, only that from then on they will act independently and the movements of one chain will not affect the other.

THEN IF I MINE, CAN I WIN BITCOINS?

Yes, but to this day the difficulty of finding a block is so great that a normal PC is not competent. There are people who rigged putting several graphics cards together to mine but you have to calculate if the electricity bill is not going to be bigger than the reward you can get, without counting the investment in such GPUs.

Also, ASIC specialized in Bitcoin mining equipment went on the market.

You can participate in pools, which are groups of people who offer their mining power and divide the rewards in relation to their contribution.

HOW DO I CALCULATE IF IT IS WORTH TO INVEST IN MINING? 

On this page (https://www.cryptocompare.com/mining/calculator/btc?HashingPower=4730&HashingUnit=GH%2Fs&PowerConsumption=1293&CostPerkWh=0.12) you can calculate the expected performance. The current difficulty is configured, the current exchange rate in dollars and the current reward for blocks. You never put the power in hashes of the equipment with which you are going to mine and the result in dollars of a certain time you subtract what your provider of light charges you for keeping your equipment working at that time. 

CURRENT REWARD FOR BLOCKS ?, IS NOT ALWAYS THE SAME? 

No, every 210.000 blocks mined the reward per mine block cut in half. This is known as "halving". Since only one block can be generated every 10 minutes, the halving occurs every 210.000 * 10 = 2.100.000 minutes = 4 years At first the reward was 50 btc per block; after 4 years 25 btc; today it is 12.5 and the next halving will happen in 2020 (here you have a countdown: https://www.bitcoinblockhalf.com/) The last bitcoin will be mined in 2140.

WHAT IS THE AMOUNT OF BITCOIN THAT WILL BE GENERATED?

We would have to multiply (50 btc * 210.000) which are the first blocks that were mined and had that reward, then add it (25 btc * 210.000), then (12.5 * 210.000) and so on. The number to which it tends is 21.000.000.

WHY THE QUANTITY OF BITCOINS THAT ARE TO BE GENERATED WAS PREDEFINED?

It is economically necessary.

Bitcoin simulates the gold standard in which the United States lived before 74, in which for every dollar that was in circulation the bank guarded a fraction of gold with a relatively equal value.

There is a limited amount of gold in the world (logically), and with every gram of gold that is extracted (as with each mined block), the gold that remains is more and more difficult to extract (difficulty of the problem).

If each dollar is worth one gram of gold and only 50 grams were mined, there will only be 50 dollars in circulation; Juan charges $ 5 a day, an apple is worth $ 1. If 50 grams more are mined there will be 100 grams but at the same time they will print 50 dollars more, so there will be 100 dollars; Juan will charge 10 dollars and the apple will cost 2 dollars. The value is maintained.

Currently convertibility no longer exists, money is fiduciary. That is, its value is only backed by the trust that people have in the bank that issued it.

One of the main problems of banks and states is that they print as many bills as they want, and if they print too many the laws of supply and demand are responsible for detracting from those bills. It is what is known as inflation. With Bitcoin there is no inflation.

?WHAT IS A BITCOINS WALLET OR PURSE? 

It is the address in which the bitcoins "meet". In itself it is just a sequence of several characters that encrypt the information of a public key and a private one. The private key is necessary to ensure that no one sends money with my account, while the public key can be understood as proof that I own the private key. So, if I request a money transfer to my public key I am not revealing my private key. Having a distributed database and not private generates many advantages to the user, such as the security of knowing that you are not entrusting your funds to anyone and that they are entirely in your possession while you have the private key to access them. It does not matter if the bank is hacked, it does not matter if the government leaves with everyone's money. They never had it in the beginning, we never trusted it. 

AND WHERE IS MY PURSE?

 I answer with another question: where is your bank account? In a bank you have the CBU and the password, but you do not have the account itself, you only have access to it. A bank account exists in your private database, where the information that links your CBU to an account and a password is stored as an access key to that account. In Bitcoin the accounts exist in the distributed database that is the blockchain. As has been said, the blockchain is nothing more than a distributed accounting book, and that is what a bank account itself is, a history of transactions that are linked to the balance of all accounts. You never "have" the account, and you do not want to have it in reality, you just want to have access and validation to operate with it. That is achieved with the keys. In a bank account it is a password, a pin or maybe a 2FA. In Bitcoin is the private key, an alphanumeric set of 64 characters that has certain security properties given its length and difficulty.

HOW DO I KNOW ANYBODY WAS GOING TO GENERATE THE SAME WALLET THAT ME?

Question of probability. The number of possible wallets to be created is huge (21?? specifically).

A total amount of 1.461.501.637.330.902.918.203.684.832.716.283.019. 655.932.542.976 wallets

Neither the brute force attacks (repetitive attempts) of the most powerful supercomputers in the world could hit a wallet in less than 1.000.000 years.

The wallets that humanity could create are an insignificant number compared to this mathematical paradigm.

Security test of a private key by brute force at https://password.kaspersky.com

HOW DO I KNOW THAT A WALLET HAS THE MONEY I SEND?

The transactions made from that wallet are analyzed, thanks to the fact that they are all published in the Blockchain.

If the sum of deposits is equal to or greater than the money you want to send, the transaction will be possible.

You really know what you are investing? Did you know everything behind cryptocurrencies? A world of infinite possibilities and an incredible computer security capacity with us.