Bitcoin -- money of the future

Bitcoin is a P2P virtual money what is used as real money on the Internet for several years now. Some sais that this is the greatest innovation and the most dangerous thing since the born of the Internet. It is fully anonymous, decentralized and secure payment system. It doesn't needs a central authoritative to make it work and even governments can't control, tax or stop it. But for me the mathematics and the idea what makes it work is the greatest about it.

First of all it is backed up with RSA. So you have your private and public key (you have more actually to make it more private) and you can spend and receive money with them. Second it is backed up with a clever distributed time stamping solution to prevent double spendings.

Bitcoin as it is a chain of transaction blocks. This chain is maintained by the whole network and contains all transactions since the beginning (if it gets very long, there is ways to compress it). When you want to spend your money you concatenate the amount of money, the last blocks signature wih the recipient's public key and sign them with your private key then broadcast it on the network.

Clients do a proof-of-work process to include all new transactions in the chain. They form a block with the last block's signature, the new transactions and a special random part. This last random part is what is the prof-of-work. The client have to guess this part as to make the new block's hash (sha256) start with a fixed amount of zeros. Finding this kind of block is hard, the whole network can find just one in every ten minutes. When the machines become fast or the network grows the number of required zeros will grow.

So you have this chain of blocks with many zeros, does it good for you? Yes, because if your transaction is in the chain and is followed with several new blocks you can be sure that it is extreme hard to double spend that money what you got. Only an attacker who owns the majority of CPU power of the network can undo a transaction, and this scenario is very unlikely.

Every client works on his chain as it knows it and computes the proof of work. If a longer chain appears (some other client manages to do the work) it switches to it. Always the longest chain considered to be the real one. This is why the majority of CPU power rules the thing, because they can make the chain grow faster. An attacker's alternative chain will fall behind fast and gets ignored by the network and the first real spending remains the true.

How can someone get coins to spend? How Bitcoins are created? Since there is no central issuer Bitcoins materializes from thin air. There is a limited amount of Bitcoins can exists (21.000.000, but the smallest amount is 0.00000001 BTC, so inflation will take care that there will be enough for everyone) and till this amount is not created (the creation slows as time goes by, around 2100 will the last created) Bitcoins given to those who creates the proof-of-work. Those who does this coin creation seriously called the Miners. But Bitcoins can be exchanged from any ordinary money too (I think it can be a good investment as the price of Bitcoins rises).

As you can see the thing works. The details and the proofs for the method can be found in Satoshi Nakamoto's paper Bitcoin: A Peer-to-Peer Electronic Cash System. You can get the program from www.bitcoin.org and start using Bitcoins. You don't need to register, just run the program. It is available for Linux, OS-X and Windows. The Bitcoin users and accepting businesses number grows rapidly.