Recently a service called Bitcoin has been gaining a lot of buzz. As most of you must have guessed, Bitcoin is actually a virtual currency that exists on the internet only. Bitcoins can however be exchanged for real world currencies like dollars and euros. It’s just like in app currencies we have in apps, but this one’s a little more elaborate a scheme.
Bitcoin is an open source peer-to-peer digital currency. I know it sounds strange and ridiculous, but that’s what it is. As bitcoin.org points out explaining what Bitcoin is,
Bitcoin is a digital currency, a protocol, and a software that enables
Instant peer-to-peer transactions
Low or zero processing fees
And much more!
Sounds very exciting? Hang on.
Bitcoin isn’t managed or backed by any regulatory authority as such, and is free from any kind of regulation that occurs in the values of real world currency.
So how does this thing work?
It is totally controlled by the network it’s being used on. The Bitcoin currency is using a cryptographic code to control its creation and transactions so as to ensure that no fake Bitcoins come into circulation.
How can you get Bitcoins?
Bitcoins are available through what is known as a Bitcoin exchange. The most popular exchange is mt.gox, claiming 80 percent of the Bitcoin online trading transactions.
But wait, read on, there’s more to it.
So what has happened now is that this system has been hacked by a Bitcoin mining malware.
The malware’s being run on a link poisoning campaign on Skype. Those who click the link get infected with the malware.
The malware files are on hotfile.com, which get instantly downloaded to the victims PC. This infected PC now becomes a slave to the Bitcoin generator, a command-and-control server located in Germany.
Lets talk a bit about Bitcoin mining to understand how this Bitcoin hacking is working.
As of now, Bitcoins are being created by a process called “mining,” and about 11 million Bitcoins are already in existence. Once this number reaches to 22 million, Bitcoin production will stop.
Mining basically involves several computers to do the many CPU intensive crypto-calculations that make the Bitcoin blockchain, which is a sort of transaction record for the Bitcoin. It’s basically a way of ensuring that a Bitcoin hasn’t been used multiple times.
This Bitcoin abstract from the Bitcoin paper by Satoshi Nakamoto, talks more about how Bitcoin actually works,
A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution. Digital signatures provide part of the solution, but the main benefits are lost if a trusted third party is still required to prevent double-spending.
We propose a solution to the double-spending problem using a peer-to-peer network. The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work. The longest chain not only serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of CPU power. As long as a majority of CPU power is controlled by nodes that are not cooperating to attack the network, they’ll generate the longest chain and outpace attackers. The network itself requires minimal structure. Messages are broadcast on a best effort basis, and nodes can leave and rejoin the network at will, accepting the longest proof-of-work chain as proof of what happened while they were gone.
Now the computers that are involved in these crypto-calculations get a small Bitcoin payoff for their efforts.
What the hackers aim to do is, involve several other computers to do these CPU intensive crypto-calculations, and get the credit for it, in terms of a Bitcoin payoff.
The problem with Bitcoin is that exploits such as these really cause investors a huge hit. It is a very high risk sort of investment, and not the equivalent of real currency actually. Well, at least not so far.
Does it really have a future? That can be argued.
Moreover the Bitcoin currency isn’t that popular as well. Its more of a trading commodity than a real currency that can be used to buy your daily groceries.
A wee bit more
You can read more about Bitcoins in this paper published by Satoshi Nakamoto, which as the word is around (unverified), is not a single person but a team of developers who started this open source Bitcoin project.
Some interesting comments that I found at observer.com,
That’s a cute fantasy world you have there, but Bitcoin is a pyramid scheme. Get in early before the pyramid collapses.
So what does Bitcoin seem like to you? Do you really think it has any real potential? Or is it just someone making money somewhere, out of this whole gig?