Bitcoin is a digital currency (also called crypto-currency) that is not backed by any country’s Central Bank or Government. Bitcoins can be traded for goods or services with vendors who accept Bitcoins as payment. Bitcointo-Bitcoin transactions are made by digitally exchanging anonymous, heavily encrypted codes across a peer-topeer (P2P) network. The P2P network monitors and verifies the transfer of Bitcoins between users. Each user’s Bitcoins are stored in a program called a digital wallet, which also holds each address the user sends and receives Bitcoins from, as well as, a private key known only to the user. The Bitcoin network is designed to mathematically generate no more than 21 million Bitcoins and the network is set up to regulate itself to deal with inflation. The Block Chain is a shared public ledger on which the entire Bitcoin network relies. All confirmed transactions are included in the block chain. This way, Bitcoin wallets can calculate their spendable balance and new transactions can be verified to be spending bitcoins that are actually owned by the spender. The integrity and the chronological order of the block chain are enforced with cryptography.

Transactions – Private Keys are a transfer of value between Bitcoin wallets that get included in the block chain. Bitcoin wallets keep a secret piece of data called a private key or seed, which is used to sign transactions, providing a mathematical proof that they have come from the owner of the wallet. The signature also prevents the transaction from being altered by anybody once it has been issued. All transactions are broadcast between users and usually begin to be confirmed by the network through a process called Mining. Mining is a distributed consensus system that is used to confirm waiting transactions by including them in the block chain. It enforces a chronological order in the block chain, protects the neutrality of the network and allows different computers to agree on the state of the system.

To be confirmed, transactions must be packed in a block that fit very strict cryptographic rules that will be verified by the network. These rules prevent previous blocks from being modified because doing so would invalidate all following blocks. Mining also creates the equivalent of a competitive lottery that prevents any individual from easily adding new blocks consecutively in the block chain. This way, no individual can control what is included in the block chain or replace parts of the block chain to roll back their own spends. Bitcoin has increased in popularity in the pass three (3) years and as such we at KAW think it is important for you our readers to be well informed of this new currency. This Newsletter should assist you in doing just that. If you have any questions or are in need of further advice, contact us at KAW and we will be ready to assist. Remember that any comments and queries can be sent to us at training@kawmanagement.com, training.kawmgmt@candw.ag or info@kawmanagement.com or visit our website at www.kawmanagement.com