Bitcoin is a decentralized digital currency. There is no physical existence of Bitcoin, just the verification and value it has been given by a global peer-to-peer network. All these transactions are recorded in Blockchains.
The blockchain is very much like a public shared ledger. All the confirmed transactions performed ever using Bitcoins are recorded in this ledger. These blocks are an ultra-secure data, treated like cash. All the transactions are received and sent through wallets which are digitally signed. To ensure security, bitcoin wallets come with a private key or seed. These signatures ensure that the transaction is performed by the current owner of the wallet and provides with the mathematical proof. In reality, there is no transfer of Bitcoins but the change of ownership and quantities of Bitcoins.
How Does a Transaction Work?
If person A needs to transfer Bitcoins to person B, the transaction carries three parts.
- An Input- record of wallet of person A
- An Amount- the number of bitcoins person A sends to person B
- An output- person B’s wallet
How Can You send Bitcoins?
To send the Bitcoins to anybody you require two things.
- Bitcoin address
- Private key
A bitcoin address is generated by an individual randomly. It mainly consists of a sequence of numbers and letters.
A private is a secret key with a unique sequence of numbers and letters.
When person A wants to send coins to person B, she signs a message with her private key to authorize the transaction. The transaction will include,
- Input (source wallet)
- Number of Bitcoins to sent
- Output (person B’s address)
Person A then sends the number of Bitcoins to the Bitcoin network from her wallet. Once entered in the network, miners will then verify the transaction included in the blockchain. The miners will then solve the mathematical puzzle and in the end, it will verify that person B is the new owner of the specified number of coins.
Just like account ledgers containing amount and names, blockchains function almost the same. People exchange money by changing this file.
For instance, if person A sells a product to person B for $5, person A’s balance goes up by $5 and person B will have a reduced balance of $5.
There are no third parties involved in the system, like banks or other financial institutions. So, who takes control and responsibility of controlling and maintain this ledger? Every coin holder maintains their own copy of the ledger. All the participants can see each other’s ledger and their balances. In Bitcoin ledgers, these names are exchanged with specific numbers to ensure anonymity.
To keep every ledger synced and harmonized, there is a protocol that needs to be followed. To do a transaction you tell everyone by broadcasting a message with your account number, the receiver’s account number and the amount to be transferred. Every coin holder around in the world will update their ledger.
There are people who help in maintaining the system. You can simply use the system to perform the transaction without maintaining the ledger.
To ensure sender is the real owner of the account, Bitcoin requires a signature to verify it, but a mathematical signature.
When an account is created, a private key is generated mathematically linked to that account number. The private key and the text from the transaction are processed through a special cryptographic function to generate a signature. To make sure the signature is done by the wallet owner and to the specific transaction, another function allows the other people to verify the signature. These signatures cannot be copied as they are unique to each transaction.
The main problem with the system is that this cannot verify when a transaction was performed.
For example, if a person falsely has to withdraw 2 cheques out of an account but it has enough money to cover one account. the bank will refuse the second cheque due to an inadequate amount of cash after the with drawl of the first cheque. It is much harder to determine the order in Bitcoin. Due to the scattered individuals all over the world taking part in the transaction, there may be a delay in different orders in different places. Fraudsters could lie about these time lapses.
Two recipients might both think their transaction is first and ship a product allowing the fraudster two spent the money twice.
New transactions go into a pool of pending transactions. These transactions then get into the giant chain that locks in their order. A lottery is then held, enabling participants to choose a transaction of their choice to solve a special problem to link them to the end of the chain. The person to find the solution first wins and gets their transaction next in the chain.
That’s how pretty much all the transactions in the Bitcoin system are performed.
Ant Financial Services Group was formerly known as Alipay and is an affiliate company of the Chinese Alibaba Group. Since Ant Financial Services Group is an operator of AliPay, a perilous stance has been taken by it over ICOs (Initial Coin Offerings).
CEO of Ant Financial, Eric Jing spoke during the speech, which was held on 24th March at the annual China Development Forum in Beijing and according to him, most of the existing blockchain fervour comes from speculation about the main perception of the blockchain.
Jing also advised that there are numerous projects behind the ICOs (Initial
Coin Offerings) which can offer nothing but a destitute white paper. Jing seemed to exclude the possibility of his company holding an ICO.
Eric Jing Views
According to Eric Jing:
“The current phase is like the internet bubble period in the 1990s.” While saying that, he added:
“Ant Financial has drawn a clear line with ICOs.”
The local media source “The Paper” reported that the CEO, Eric Jing further described that, despite the fact he has his full confidence in blockchain’s ability as a trust mechanism for the upcoming digitalized society, the bubble at this time is probably going to burst within the next two or three years and only after that, the industry will be capable of seeing real blockchain applications coming into place.
Eric Jing’s Role in Alibaba Group
Alibaba Group is a famous internet entrepreneur in the country, China and Jing is a long-time veteran of this Group as he has helped a lot in growing the AliPay business, along with its operator, Ant Financial and now it seems like he’s ruling out the ICO fundraising.
Last year, the latter firm made headlines for its obstructed attempt to buy MoneyGram, which is a U.S. payment service. Even with the criticism of ICOs, Alibaba did its best to make a move into the blockchain space as it took great interest in the technological development.
As it was earlier reported, a blockchain-powered platform has been already developed by Ant Financial for charity donations. Moreover, China’s State Intellectual Property disclosed a data and according to that, around 50 patents related to the blockchain have been filed by Alibaba Group, which are currently pending for approval.
On Thursday, a letter was issued to parliament by Dutch finance minister, Wopke Hoekstra, to encourage a global approach to cryptocurrency regulation. The main focus of Hoekstra is on new consumer protections and to start it up, he wants to have a dialogue with credit card companies about potentially introducing stronger protections for those people who prefer to buy cryptocurrency with their credit cards.
According to Hoekstra, by the end of 2019, all local exchange platforms, plus, the cryptocurrency regulation and services would deceptively get registered with the government and should be also obeying their customers necessities. The finance minister also proposed some new regulations in the letter, that could also be helpful in protecting the ICOs (initial coin offering) contributors.
“It is being investigated whether investors in ICOs can become just as good protected as investors with a normal IPO or bond issue. The current framework is not sufficient for this.”
In the past, particularly in ICOs, some issues were highlighted by the regulators, making these proposals more noteworthy. Last November, a statement was released by AFM (Authority for Financial Markets) of Netherlands, which is a Dutch version of U.S. SEC (Securities and Exchange Commission) and referred the ICO market to a dangerous-cocktail. Linked with these statements, a ban was proposed by Hoekstra that’d forbid marketing of risky financial products to random customers.
Moreover, Hoekstra also promised to work in the European Union with other countries as well and encourage collective research to discover the market’s cross-border nature. Yet, Hoekstra specified that even inside the Netherlands, more work is required for updating the laws of the country to account for cryptocurrencies and more erratic activities around it.
As in the letter Hoekstra wrote;
“The current supervisory framework and instruments are insufficiently tailored to cryptocurrency,”
Some famous names in the financial or economic industry are buying Bitcoin which is a good sign for Bitcoin.
Bill Miller is one of the renowned names in Bitcoin community. According to Forbes report on Tuesday, Bill put 1% of his net wealth into Bitcoin in the year 2014. The report reveals that the cryptocurrency is one of the top properties in Miller’s $120 million hedge fund.
Showing its image of volatility, Bitcoin fell in January 2014 from a peak of $1023. According to CoinDesk, on October 2014, it was just around $287. That’s the reason which puts the return of Miller’s Bitcoin anywhere from 126% to 707% – based on the price of Bitcoin which was $2315 on Wednesday.
The other name is Josh Brown – Chief Executive of Ritholtz Wealth Management and a CNBC contributor. In a blog post on Tuesday, Josh stated that he used Coinbase to purchase Bitcoin by a “Small Amount of Money”.
He said I think I have been through proper seasoning at this point. In case it does not drop this year after the fork, the developers argue that this could split Bitcoin. He revealed that it is going to drive mainstream among financial pros. Brown said: My main thing is, this would not go away”.
If a greater number of developers don’t favor an upgrade system for the Bitcoin, the cryptocurrency may split on 1st of August. However, a majority of Bitcoin miners have started to show their support.
Lastly, the announcements of this week follow the Standpoint Research’s Ronnie Moas. Ronnie Moas purchased a small amount of Bitcoin and thinks that it could hit $5,000 within a year.
Most commonly known for running the traveling site Expedia, Dara Khosrowshahi has just accepted the CEO job for Uber.
Khosrowshahi made a bold move when Expedia had announced that it will accept bitcoin as means of payment back in 2014. Back then the currency was still quite new and not many institutions were willing to invest in it.
Now, it’s very intriguing to think how Khosrowshahi is going to experiment with the world’s best cryptocurrency and the largest ride-sharing platform. Travis Kalanick, the founder and former CEO of Uber never gave in to the ideas of having Uber accept bitcoin but, this could change under Khosrowshahi’s charge. With the increase in interest shown by major companies, one can only imagine how far Uber would go if it joins forces with the cryptocurrency.
Nonetheless, we have only well wishes for Dara Khosrowshahi as he takes on this new challenge. No doubt, he’s got the potential to take the ride-sharing platform to places.
News Credits: fortune.com