Bitcoin for E-Commerce: Principles and Applications

Bitcoin for E-Commerce: Principles and Applications

Xunhua Wang (James Madison University, USA), Brett Tjaden (James Madison University, USA) and M. Hossain Heydari (James Madison University, USA)
DOI: 10.4018/978-1-4666-9787-4.ch072
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Introduction

Amateurs study cryptography; professionals study economics − Allan Schiffman, 2 July 2004

Few people took note on January 8th, 2009, when an email (see Figure 1) was sent to the cryptography mailing list to announce the first release of a new electronic cash system, called Bitcoin (Nakamoto, 2008). About four and half years later, when Ross William Ulbricht was arrested in October, 2013 for allegedly running the online black market Silk Road where Bitcoin was adopted as the payment system (Grossman & Newton-Small, 2013), Bitcoin was already well known, if not widely used. Today Bitcoin is traded on exchange markets for several hundred dollars per coin unit, and merchants such as Amazon, eBay, and Target now accept bitcoin payments.

Figure 1.

The 2009 email announcing Bitcoin v0.1

So, what is Bitcoin? How does it work? Why do people accept it? What is its future? How will it affect electronic commerce? Despite significant media coverage on Bitcoin (Goodman, 2014; Andreessen, 2014; Grossman & Newton-Small, 2013) and quick adoption of Bitcoin by an increasing number of merchants, the complex technical details of Bitcoin remain elusive to both the general public and many professionals. This chapter aims to answer all these questions in a straightforward manner.

Key Terms in this Chapter

Bitcoin: A peer-to-peer-based, anonymous electronic payment system.

Bitcoin Mining: the process to create a new Bitcoin block for the block chain.

Cryptographic Hash Function: A hash function that is both one-way and collision-resistant.

Bitcoin Block Chain: Bitcoin’s global ledger, which is linked and universally verifiable.

Bitcoin Proof of Work: A computation-intensive operation in creating Bitcoin blocks.

Digital Signature: A digital string calculated from a digital document and a cryptographic private key. A digital signature is bound to both the document signed (hence document-dependent) and the signing key and is universally verifiable.

Bitcoin Block: The basic data structure of Bitcoin’s global ledger.

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