This key is needed to spend and move available funds in your Bitcoin account

This key is needed to spend and move available funds

This preview shows page 8 - 10 out of 29 pages.

securely. This key is needed to spend and move available funds in your Bitcoin account. Private keys can be kept on computer files and also if the code is short enough they can be printed on a piece of paper. “The private key acts as a digital signature during a transaction to verify the identit y of the Bitcoin user. The signature also prevents the transaction from being altered once it has been issued” (Bitcoin, 2014). The Bitzuma website (2014) provides valuable insights into the important role that Private Keys and Public Keys play in the Bitcoin network. “Imagine Alice wants to pay Bob 10 bitcoin (BTC). She begins by creating a transaction identifying Bob as the payee and 10 BTC as the amount to be transferred. Alice then broadcasts this transaction to all users of the Bitcoin network. In using this system, Alice faces two fundamental problems. First, she needs a way to identify both herself and Bob in the transaction. Alice can't employ a central authority such as a government registry or email provider because that would conflict with Bitcoin's decentralized, trustless nature. Second, Alice needs a way to prevent others from changing her transaction and forging transactions in her name. Bitcoin solves these problems through a system called public key cryptography. This system uses two pieces of information to authenticate messages. A public key identifies a sender or recipient, and can be distributed to others. A private key is used together with the public key to create an unforgeable message signature. The private key must be kept secret. P ublic and private keys are mathematically linked” (Bitzuma, 2014). So in summary the public and private keys are designed to protect the security of Bitcoi n users’ transactions.
Image of page 8
Bitcoin (Technology and UX Project) 9 2.5) Finite Supply Bitcoin was designed as an online currency and commodity that is deflationary by nature. It is modelled on existing commodities such as gold. Therefore, the Bitcoin supply is finite. There will only ever be 21 million bitcoins in circulation and it is believed that at the current rate of creation, the final bitcoin will be mined in the year 2140 (Volastro, 2014). This maintains the value of the Bitcoin currency. 2.6) Processing Mining The process of mining is to add authority, security and value to the Bitcoin network. Mining is how new bitcoins are created. So how does Bitcoin achieve this and how does one mine Bitcoin? The production of bitcoins is called mining with millions of dollars mined or exchanged electronically each day. Every Bitcoin transaction is verified using an extremely complex algorithm and these verifications are done by a large network of mining computers competing against each other (Coindesk, 2014). When a miner successfully verifies a transaction, he or she is rewarded with a small amount of bitcoin and can also receive a transaction fee. This is also how new bitcoins are introduced into the system (Bitcoin, 2014).
Image of page 9
Image of page 10

You've reached the end of your free preview.

Want to read all 29 pages?

  • One '13
  • Bitcoins

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture