Summary of talk on "Disruptive Payment Technologies" given by Mr. Ninad Purohit, KPMG, at workshop organised by ISACA Mumbai on 27th Feb, 2016.
Bitcoin is a virtual currency - without a central issuing authority. It is the most popular of the 669 virtual crypto currencies currently existing. It was first conceptualised by a person called Satoshi in 2008. The current value of a bitcoin is USD 147.
It offers absolute anonymity, and uses a peer to peer network (Nodes) to create this currency.
What is a Bitcoin? It is a chain of transactions - each of which is verified by digital signatures. So if A pays B, then other peer individuals need to ratify that this payment has indeed taken place by "voting".
Unlike a traditional currency like the Rupee which is issued by a central issuring authority, the Bitcoin only exists in cyber space (no physical form exists). Many people need to vote on a transaction and vote on it, before a bitcoin is created. This transaction time (to vote) takes about 10 minutes per transaction.
People participating in validating the transaction (i.e. voting) have to solve a series of puzzles to authenticate it. In return for their efforts, they get "brownie" points in terms of bitcoin. So the process of creating bitcoins results in more bitcoins being created.
Each block of transaction get attached to a previous block of transations - hence resulting in a block chain. Hence there is a complete history of the creation of every bitcoin - like a giant open ledger accessible to all - but yet protecting privacy as it only keeps track of transactions, and not who owns the bitcoins.
The owners of the bitcoins access their "wallet" containing bitcoins by using a Private key (like a digital password). The peer group validates that the person owns it by using a Public key. If a owner loses his Private key (e.g. when formatting his computer drive), he will lose all his bitcoins. Interestingly, if a certain number of bitcoins get lost or deleted, the value of the remaining bitcoins goes up.
The transaction fee earned for generating bitcoins halves every 4 years. The year 2041 is a significant year as the maximum amount of bitcoins (21 million) will be reached in that year.
Bitcoins are increasingly used to make online payments and is being accepted by an increasing number of online retailers - and the chances of fraud is much lower than that for currency issued by central authorities.
Risk : The following are the risks or fraud possibilities of bitcoins.
- Double spend : where a owner of bitcoins tries to use the same currency to make payments to 2 different people simultaneously. When he does that, the person with the longer transaction chain gets the bitcoins, and the other person gets cheated. Hence only believe in a transaction when the bitcoin actually gets credited into a wallet.
- Hot wallet attack : a malicious attack to steak the private keys of an individual - and hence steal his bitcoins. To protect their wealth, many individuals stock the bulk of their bitcoin assets in "cold wallets" which are offline. They take a paper print out of these cold wallets and keep it in an offline safe place such as a bank locker. One needs to be careful of taking back-ups of hot wallets (online) as restoring the back-up could result in the more recent transactions getting deleted and the owner losing his bitcoins.
Bitcoin is a virtual currency - without a central issuing authority. It is the most popular of the 669 virtual crypto currencies currently existing. It was first conceptualised by a person called Satoshi in 2008. The current value of a bitcoin is USD 147.
It offers absolute anonymity, and uses a peer to peer network (Nodes) to create this currency.
What is a Bitcoin? It is a chain of transactions - each of which is verified by digital signatures. So if A pays B, then other peer individuals need to ratify that this payment has indeed taken place by "voting".
Unlike a traditional currency like the Rupee which is issued by a central issuring authority, the Bitcoin only exists in cyber space (no physical form exists). Many people need to vote on a transaction and vote on it, before a bitcoin is created. This transaction time (to vote) takes about 10 minutes per transaction.
People participating in validating the transaction (i.e. voting) have to solve a series of puzzles to authenticate it. In return for their efforts, they get "brownie" points in terms of bitcoin. So the process of creating bitcoins results in more bitcoins being created.
Each block of transaction get attached to a previous block of transations - hence resulting in a block chain. Hence there is a complete history of the creation of every bitcoin - like a giant open ledger accessible to all - but yet protecting privacy as it only keeps track of transactions, and not who owns the bitcoins.
The owners of the bitcoins access their "wallet" containing bitcoins by using a Private key (like a digital password). The peer group validates that the person owns it by using a Public key. If a owner loses his Private key (e.g. when formatting his computer drive), he will lose all his bitcoins. Interestingly, if a certain number of bitcoins get lost or deleted, the value of the remaining bitcoins goes up.
The transaction fee earned for generating bitcoins halves every 4 years. The year 2041 is a significant year as the maximum amount of bitcoins (21 million) will be reached in that year.
Bitcoins are increasingly used to make online payments and is being accepted by an increasing number of online retailers - and the chances of fraud is much lower than that for currency issued by central authorities.
Risk : The following are the risks or fraud possibilities of bitcoins.
- Double spend : where a owner of bitcoins tries to use the same currency to make payments to 2 different people simultaneously. When he does that, the person with the longer transaction chain gets the bitcoins, and the other person gets cheated. Hence only believe in a transaction when the bitcoin actually gets credited into a wallet.
- Hot wallet attack : a malicious attack to steak the private keys of an individual - and hence steal his bitcoins. To protect their wealth, many individuals stock the bulk of their bitcoin assets in "cold wallets" which are offline. They take a paper print out of these cold wallets and keep it in an offline safe place such as a bank locker. One needs to be careful of taking back-ups of hot wallets (online) as restoring the back-up could result in the more recent transactions getting deleted and the owner losing his bitcoins.
1 comment:
is it like points one earns while playing online games which can then be redeemed against either newer, better versions of the game or gifts. Only difference being that the bitcoins can be traded for anything which accepts this form of currency? Also a little confused about why if multiple transactions are using bitcoins (one being fraudulent), ideally shorter transaction gets the bitcoins as it is closed faster right?
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