Bitcoin for Nonmathematicians: by Slava Gomzin

Author:Slava Gomzin [Неизв.]
Language: eng
Format: epub
Publisher: Brown Walker Press

Part I Summary

Money and payments began from barter and commodities, which eventually inspired the creation of the first metal coins more than 2500 years ago. Since the creation of coins, invention of new tenders, such as paper money, bank checks, credit cards, mobile checkout, and online currencies, did not eliminate previous payment methods.

Digital gold currencies such as e-gold and e-Bullion were the first successful online payment systems that were backed by real gold. Ecash was the first electronic payment system based on cryptography.

There are two major groups of electronic payment systems: centralized and decentralized. E-gold, ecash, Liberty Reserve, PayPal, and Amazon Payments are all examples of centralized payment systems. However, e-gold and Liberty Reserve have been operated independently from traditional financial institutions. Bitcoin is the first decentralized payment system that also does not depend directly on banks, clearinghouses, or credit card networks.

The stories of e-gold, e-Bullion, and Liberty Reserve demonstrate that most attempts to create an independent, centralized e-money ecosystem that would be more than just an extension of traditional banking and credit card systems, but introduce a real alternative currency and protect user privacy, eventually have been executed and failed. Unlike centralized currencies, bitcoin cannot be destroyed simply by shutting down the group of Internet domains.

The principles of the bitcoin design, which are currently used by other cryptocurrencies, were first defined in a technical white paper published by Satoshi Nakamoto, a person (or a group of people) whose real identity is still unknown.

There are a few basic points of bitcoin design:

Provides a solution to the double-spending problem by processing the transaction through a peer-to-peer network and storing them in a publicly accessible blockchain

Decentralizes the “account” management, which protects transactions from DoS attacks and national governments

Gives bitcoin users limited anonymity, called pseudonymity

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