Bitcoin is called as “digital gold”, and rightly so. There has been no other technology that has given massive returns like bitcoin. The cryptocurrency has captured global attention due to its innovative blockchain technology, SegWit proposal, and the news about bitcoin fork giving rise to new cryptocurrency like Bitcoin Cash. Here’s a quick overview of all of these!
What is Bitcoin?
“Right now Bitcoin feels like the Internet before the browser.” – Wences Casares
The idea of bitcoin, an open source code, was developed by a yet-to-be-identified developer who is known by the pseudonym, Satoshi Nakamoto.
Bitcoin is basically a peer-to-peer virtual currency with no central authority. This means that no government, bank, or official entity have the power to issue bitcoin, or have control over bitcoin. Whenever you send bitcoin to someone, it goes instantly and directly to that person without the need for any middlemen or banks.
The backbone of this revolutionary technology is the ingenious invention called as the blockchain. Bitcoin essentially exists through this cloud network known as the blockchain. Let’s now understand a little bit more about blockchain technology.
Blockchain: A Quick Explanation
Just like your bank keeps track of all the transactions in your bank account, the record of all the transactions that occur in the bitcoin peer-to-peer network is recorded in the blockchain.
What is a Blockchain?
- A blockchain is basically as decentralized, digitized, public ledger that contains all bitcoin transactions.
- The blockchain is transparent, with the numbers and statistics fully disclosed about every transaction.
- The blockchain is also pseudonymous which means that the companies or users are identifiable only via their Bitcoin wallet address and not by their real name or address.
Blocks, Databases, and Nodes of Blockchain
Blocks: Just like how a book is made of pages, in the blockchain, the records are arranged in batches called as ‘blocks’. These blocks are a continuously growing list and the records within these blocks cannot be altered.
Each block basically consists of two parts: a header and a body. The header contains a cryptographic hash of the previous block, time signature, and other data. The body stores the transactions, sender data, and receiver public keys.
Now, there were two rules set by Nakamoto for the bitcoin blockchain. Rule #1: Anyone should be able to write to The Bitcoin Blockchain. Rule #2: There shouldn’t be any centralized power or control. The blockchain ecosystem was designed keeping in mind these two rules.
Databases: The Blockchain contains a network of replicated databases. This means that the Blockchain database is distributed across many peer-to-peer networks of computers.
Node: Each individual system in this network of computers is called as a ‘Node’ or validator. Every node on the network has a full copy of the entire transaction history of Bitcoin from 2009 till now and run the Bitcoin wallet software. The function of a node is to detect and validate new Bitcoin transactions. The validation done by the nodes occurs using some known algorithms.
- Whenever someone requests a transaction, it is broadcast to the network of nodes for verification.
- Each node independently checks the payment and block data that is passed around.
- After the verification happens, the details of this transaction are encrypted and a new block is created for the ledger.
- This is then added to the blockchain and the transaction is then deemed complete.
- Each node gets a copy of the updated blockchain, which is downloaded automatically.
Note that there are certain consensus rules in place to make the network operate as intended.
The Scaling Debate
With the original bitcoin blockchain, each block had a limit of 1 MB. But as bitcoin became popular, it faced mainly three challenges due to this size restriction – high network congestion, increased time for verifying transactions, and higher transaction fees. Hence, it became necessary for bitcoin to scale. In short, an upgrade was required to the bitcoin’s legacy protocol.
What is A Fork?
Now, whenever there is an upgrade to the underlying bitcoin protocol, it is referred to as a fork. In other words, forks represent any change/upgrade done to the bitcoin protocol. Reasons for a fork could be a change in the core rule like altering the block size, the creation of a new rule to improve the functionality of the network etc.
The Two Types of Fork
There are mainly two types of fork – a soft fork and a hard fork.
Whenever a software upgrade happens that is backward compatible with older versions, it is called as a soft fork. This means that old nodes would accept new blocks in the case of a soft fork. A soft fork can be a temporary divergence in the blockchain that is caused by non-upgraded nodes not following new consensus rules.
On the other hand, software upgrade that isn’t compatible with older versions is called as a hard fork. This means that old nodes would not accept new blocks in the case of a hard fork. A hard fork can either be planned or contentious.
When there is a hard fork, it is mandatory for all participants (Nodes) to upgrade to the new software. Those who do not upgrade would not be able to validate the new transactions and would be separated from the network. This separation causes a permanent divergence of the blockchain.
This hard fork scenario happened in the case of Bitcoin splitting into Bitcoin and Bitcoin Cash on August 1, 2017. Let’s see how that came about.
Bitcoin’s SegWit Solution
One of the scaling solutions proposed for overcoming the challenges faced by bitcoin was a soft fork called Segregated Witness (SegWit) software upgrade. The SegWit protocol proposed to basically break down the original block into two parts, the original block and an extended “witness” block using sophisticated data compression.
According to the proposal, the original section would retain the sender and receiver data. But SegWit would remove the script or code from the transactions and puts it into an extended block. This means that the new “witness” segment would contain the scripts, signatures, and the public key of the sender.
So, after SegWit upgrade, more vacant space would be created in the original block. This means that the block size would remain the same, but it would be able to contain data more efficiently, thereby improving the bitcoin transaction speeds. This compression would lead to a smaller blockchain, which would lead to more nodes hosting it and better decentralization.
Why Did Bitcoin Fork Happen?
Although many preferred the SegWit proposal, it wasn’t unanimously supported by the bitcoin community. So, a new solution was proposed for scalability – to simply increase the block size. The supporters of this proposal were called ‘Big Blockers’.
The logic was that if each block held more data, the network can process more transactions per second. But the drawback of the proposal was that on increasing the block size, the blockchain would also grow bigger. Bigger blockchain would result in fewer nodes, leading to less decentralization as not many nodes could afford the high expense required for the storage of that much amount of data.
There was ultimately no consensus formed between the two proposals. This lead to Bitcoin hard fork wherein Bitcoin split into two – Bitcoin and Bitcoin Cash.
After the Bitcoin Fork
Bitcoin (BTC): The Bitcoin Classic chain retained the 1 MB limit and the legacy ticker symbol, BTC. It activated the scaling solution called Segregated Witness (SegWit) protocol. The block size limit on a blockchain was increased by removing signature data from Bitcoin transactions.
Bitcoin Cash (BCC/BCH): The Bitcoin Cash chain increased the limit to 8 MB and adopted a new ticker symbol, BCH (or BCC).
Bitcoin Vs Bitcoin Cash
The two coins, Bitcoin and Bitcoin Cash have almost the same cryptographic credentials, but their prices vary. All past transactions on Bitcoin Cash’s new blockchain is identical to Bitcoin core’s blockchain while future transactions and balances are totally independent of each other for Bitcoin and Bitcoin Cash.
Hard Fork vs Soft Fork
You’ve probably heard of a fork by now, but what is it? What’s the difference between a Hard Fork and a Soft Fork?
Definition of a “Fork”
A “Fork” in programming terms is where the existing codebase is taken, and split off into a new path. At the point of the split, they are both identical branches of code, with a shared history. The record of transactions on each of the chains (old and new) is identical prior to the split, however as time goes on, the branches begin to differ. Often it’s used to implement significant changes that the creators or owners of the original code don’t want or can’t implement in the existing code.
Not all forks are intentional. With a widely distributed open-source codebase, a fork can happen accidentally when not all nodes are replicating the same information. Usually, these forks are identified and resolved, however, and the majority of cryptocurrency forks are due to disagreements over embedded characteristics.
A soft fork can be thought of as forward-compatible.
If, for example, a protocol is changed in a way that implements tighter rules, asthetic changes or functions that do not affect the structure in any way, then any new version blocks will be accepted by old version nodes. It’s important to note however that the newer, more restrictive version would reject old version blocks.
An example of a soft fork might be an update which restricts the block size limit from 1MB to 500kB. Even though a 1MB block was previously considered valid, full nodes that upgrade to support this soft fork will reject any blocks larger than 500kB after the soft fork.
A hard fork is a change to a protocol that renders older versions invalid. If older versions continue running, they will end up with a different protocol and with different data than the newer version. This can lead to significant confusion and possible error. An example could be a hard fork which increases the block size limit from 1MB to 2MB. Previously, a 2MB block was considered invalid. However full nodes that upgrade to support this hard fork will accept any blocks up to 2MB in size after the hard fork has activated.
With bitcoin, a hard fork would be necessary to change defining parameters such as the block size, the difficulty of the cryptographic puzzle that needs to be solved, and almost any other factor. Bitcoin Cash was a Hard Fork from Bitcoin. A change to any of these rules would cause blocks to be accepted by the new protocol but rejected by older versions and could lead to serious problems – possibly even a loss of funds.
Bitcoin Cash ABC
Today (May 15th 2018), Bitcoin Cash (BCH) Is going through a Hard Fork, called BitcoinABC. This hard fork includes many changes, the most significant being:
- A Block size increase from 8MB to 32MB.
- The OP_RETURN data carrier size is increasing to 220 bytes. This will enable smart contracts.
- Bitcoin Unlimited [BU], the full node implementation for Bitcoin and Bitcoin Cash networks has an important role in the hard fork along with ABC developers.
What is 0x Protocol (ZRX)?
0x was founded in October 2016. Co-founders Will Warren and Amir Bandeali had a vision of a future where all kinds of assets, stocks, currencies, precious metals, could be traded publicly on the blockchain as tokens.
0x will be used for powering decentralized exchange
According to their website, “0x is an open, permissionless protocol allowing for ERC20 tokens to be traded on the Ethereum blockchain” and will be used for “powering decentralized exchange.”
A big issue in the cryptocurrency industry (and most industries in general) is that many of the systems used are centralized. Exchanges are entirely open to hacks and other attacks, while a decentralized platform would be much safer for traders. While it’s currently only for ERC-20 tokens, the 0x protocol is trying to address the centralisation issue, meaning exchanges implementing it step above Coinbase, Binance, and other major platforms. (There’s the possiblity that these existing exchanges will move to accept ERC20 tokens in future).
Trading is done via an off-chain relay. This helps to keep the network clear and lowers gas prices that users must pay when trading Ether. With a normal decentralized exchange, trades, deposits, and withdrawals are made through smart contracts.
While this is a step above a centralized exchange, which relies on third-parties to manage transactions, users are still required to pay a myriad of gas fees for each step.
The off-chain relay allows a user to send their order off to another user, a relayer, who then files it. The only trades made on-chain are value transfers.
Relayers transmit orders via public or private networks. Essentially, they are doing the same thing an exchange does. However, the relayer can only document transactions. They cannot execute one.
For a trade to be executed, the recipient (the taker) must submit the signature of the trade maker, alongside their own into a smart contract. The relayer is paid in ZRX, 0x’s currency, for overseeing these transactions.
0x also allows for Point-to-Point Orders, which are simply two users transferring funds directly to one another through a messaging system. Some supported examples are e-mail, Facebook messenger, and others. These orders stay secure by allowing only the recipient’s address to accept the trade.
Finally, 0x can also be used for building decentralized applications. Applications can “plug-in” 0x as a protocol to take advantage of their coin systems, like a government, fund management, or the stability of the 0x token.
As mentioned, relayers are paid via ZRX for facilitating transactions. Otherwise, this token is used to maintain a sort of government on the network.
Essentially, ZRX token works on a proof-of-stake system, meaning that holders can stake their coin to vote on the future of the entire network. This ensures that users who contribute most to the network get the most voting power, but ones that don’t contribute as much can still get their word in.
0x: the roadmap
0x coin spent a lot of 2017 working to hire new members, host their ICO, launch a beta for their relay system, and release new updates on their network. Now that a lot of their initial work is done, 2018 is to be spent working on the governance system and updating the user interface. The upcoming future means that the 0x team intends to have their governance white paper published and have some new features ready in beta. According to their subreddit, there are plans to support ERC721.
0x: the future of cryptocurrency exchanges?
The 0x protocol could very well be the future of cryptocurrency exchanges. The really fascinating part of it is the sheer amount of flexibility it provides. Watch this space!
How To Buy Bitcoin Without Coinbase
Coinbase is a great platform for cryptocurrencies. While Coinbase makes an excellent wallet manager, there are other ways to buy bitcoin which don’t necessitate all the I.D. verification that Coinbase just loves.
So you’re probably wondering how to buy bitcoin without Coinbase while also using a low risk, trusted platform. For those unfamiliar, you can sign up to Coinbase here.
Coinbase: an excellent choice of wallet provider
Firstly, no matter where you buy your bitcoins, or other cryptocurrencies, Coinbase is still an excellent choice of wallet provider. Alternatives exist, but if you just need somewhere to store your balance, then Coinbase is likely your best choice. Don’t forget to enable two-factor authentication.
Because bitcoin is decentralised you can buy or sell bitcoin from anyone in the world. At its most basic, you just need to find someone willing to accept your dollars, euros or pounds who you can trust to send you bitcoin in return. Fortunately, there are buying and selling marketplaces out there that enable exactly this – while providing an escrow service in the middle, to allow both parties to trust the platform.
Other ways to buy bitcoin
The best recommendation for these platforms is LocalBitcoins.com which not online provides and online marketplace, but also real life buyers and sellers in your local area – if cash is your preferred medium!
- LocalBitcoins is one of the most private ways to purchase bitcoins
- In some countries it is the only way to buy bitcoins
- It allows you to buy bitcoins with many payment methods
- One of the oldest Bitcoin exchanges
- Not a scam
- No buying or selling limits imposed by LocalBitcoins
- Wide range of payment methods available
Additional bonus – LocalBitcoins is private and does not require I.D. verification or any personal information besides an email address to signup. However, you should definitely enable two-factor authentication and while LocalBitcoins itself does not require personal details, some buyers or sellers may request identification before making a trade.
Why Litecoin Is Dying
Will ripple be on Coinbase?
What is Ripple?
Ripple is a payment network exclusively created for banks and financial institutions. It enables those institutions to settle transactions faster and cheaper than through their existing back-end systems.
Are the odds stacked against it being listed on Coinbase?
In 2015, the CEO of Coinbase, Brian Armstrong, tweeted that Ripple, Stellar and other altcoins were a distraction, and that his focus was solely on Bitcoin and its forks. At the time Ripple had a market capitalization of approximately $250 million, positively small compared to todays $130 billion.
Coinbase Releases Digital Asset Framework
Coinbase’s Digital Asset Framework
Coinbase has announced that it will add additional assets over the coming months. In fact, it has even published the yardstick by which new assets will be measured, known as the Digital Asset Framework.
Currently, offering only Bitcoin, Ethereum and Litecoin, Coinbase is very selective with regards to the coins it accepts.
Coinbase’s Digital Asset Framework highlights its criteria for supporting new assets. In essence, they must meet the following criteria:
- The network is public, decentralized, and enables trustless consensus.
- Open-source code, well-documented peer-review, and testing by contributors separate from the initial development team on GitHub, etc.
- History of interacting with the community, setting a reasonable budget and managing funds, and achieving project milestones. Thoughtful cash management is a key driver of the project’s long term viability.
- The asset would not affect Coinbase or GDAX’s ability to meet compliance obligations, which include Compliance Obligations Anti-Money Laundering AML program and obligations under government licenses in any jurisdiction e.g. Money Transmitter Licenses .
- Fiat and crypto trading pairs exist.
- Customer demand is carefully considered, however, any asset which is created from a fork, airdrop, or automated token distribution is subject to a separate set of criteria.
- It is a service, work, or hybrid token. Tokens backed by fiat or other physical assets are categorized as US securities and will not be considered at this time.
- The ownership stake retained by the team is a minority stake. There should be a lock-up period and reasonable vesting schedule to ensure the team is economically incentivised to improve the network into the future.
As well as these, the project must meet a high standard of sustainability, security, decentralisation and governance.
Which cryptocurrencies are on Coinbase’s radar in 2018?
Taking those criteria forward, we can begin to understand which currencies Coinbase might be most interested in for 2018.
With such a high standard for academic integrity and technology, Cardano makes for an easy choice based on the amount of research and intelligence put into the project. Its founder, Charles Hoskinson was previously the CEO at Ethereum, bringing with him a strong reputation to this project. There is also a lot of buzz surrounding updates to the Cardano blockchain and its Daedalus Wallet
With its recent rebrand from Raiblocks, Nano would be exciting for being the first coin on Coinbase to utilize Directed Acyclic Graph technology which could soon become the next iteration of blockchain technology. The project is already running tests of hundreds of transactions per second that dwarf more well-known competitors such as Bitcoin and Litecoin.
While Ripple touted a The Ripple fork has taken significant strides to prove its decentralized structure and maintain better technology than its counterpart. It has formed partnerships with banks and financial institutions across the world to build its brand. There is also reason to believe that Stellar is undervalued and should be worth much more than its current market price.
A coin that is helping revolutionize blockchain privacy, PIVX is a rising star with great technology and a firm place in the cryptocurrency industry. It’s use of CoinJoin for private transactions instant transactions via SwiftTx give it a solid technological foundation. It’s one of the newer coins on the market, being released under the name Darknet in 2016, but it has quickly made a name for itself.
The biggest privacy coin on the market, Monero is a cryptocurrency that could have more of an impact than Bitcoin. It has proven it’s ring signature and confidential transactions provide an extremely secure blockchain environment. Add this to a solid development team backing the project and there is a lot of potential upside to Monero being listed on Coinbase.
[Update: The newly announced MoneroV hard fork of Monero could be more likely to be listed than Monero itself]
This could be the most exciting proposition on the list. If 0x is integrated into Coinbase it will, in theory, allow for the adoption of any ERC20 token through the 0x platform which creates a decentralized exchange for any token on the Ethereum blockchain. The 0x team was even spotted having happy hour drinks at Coinbase. Could this be a sign of things to come?
While there are other options to Coinbase and some potential close contenders, like Neo and Dash, we believe the ones above truly have the greatest chance of being list on Coinbase first. By the same reasoning, we have good reason to believe some currencies will not be making it to Coinbase any time soon. Namely, Bitcoin Gold, Tether, Ripple, EOS, Tron as they fall short on one or more of Coinbase’s requirements. Frankly, Dogecoin has more chance of being listed than Ripple!
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