What is bitcoin?

What is bitcoin?

Bitcoin is a digital currency created in January 2009. It follows the ideas set out in a white paper by the mysterious and pseudonymous Satoshi Nakamoto. 1 The identity of the person or the person who created the technology is still a mystery. Bitcoin promises lower transaction fees than traditional online payment mechanisms and, unlike government-issued currencies, is operated by a decentralized authority.

Bitcoin is a type of cryptocurrency. There is no physical bitcoin, only a balance kept on a public ledger, which everyone has transparent access to. All bitcoin transactions are verified by a huge amount of computing power. Bitcoin is not issued or backed by any bank or government, nor is an individual bitcoins valuable as a commodity. Despite it not being legal tender in much of the world, bitcoin is very popular and has led to the launch of hundreds of other cryptocurrencies, collectively known as altcoins. Bitcoin is commonly abbreviated as “BTC”.

Understanding Bitcoin

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The bitcoin system is a collection of computers (also called “nodes” or “miners”) that all run bitcoin’s code and store its blockchain. Metaphorically, a blockchain can be thought of as a collection of blocks. Each block contains a collection of transactions. Since all computers running the blockchain have the same list of blocks and transactions, and can transparently see these new blocks being filled with new bitcoin transactions, no one can spoof the system.

What is bitcoin?
What is bitcoin?

Anyone – whether they run a bitcoin “node” or not – can watch these transactions happen in real-time. To accomplish a nefarious act, a bad actor would need to operate 51% of the computing power that makes up bitcoin. Bitcoin has about 10,000 nodes as of June 2021, and this number is increasing, making such an attack very unlikely.2

But if an attack occurs, bitcoin miners-those who participate in the bitcoin network with their computers-will likely fork over to a new blockchain, rendering the effort the bad actor made to sabotage the attack useless.

The balance of bitcoin tokens is kept using public and private “keys”, which are long strings of numbers and letters linked through the mathematical encryption algorithm that was used to create them. The public key (compared to a bank account number) serves as the published address for the world and to which others can send bitcoins.

The private key (compared to an ATM PIN) is a protected secret and is only used to authorize Bitcoin transmissions. Bitcoin keys should not be confused with a bitcoin wallet, which is a physical or digital device that facilitates the trading of bitcoins and allows users to track the ownership of coins. The term “wallet” is a bit misleading, as the decentralized nature of bitcoin means that it is never stored “in a wallet”, but rather decently on a blockchain.

Peer-to-peer technology

Bitcoin is one of the first digital currencies to use peer-to-peer technology to facilitate instant payments. The independent individuals and companies that own the governing computing power and participate in the bitcoin network – bitcoin “miners” – are in charge of processing transactions on the blockchain and are motivated by rewards (the release of new bitcoins) and paid transaction fees. . bitcoin.

These miners can be thought of as the decentralized authority enforcing the credibility of the bitcoin network. New bitcoins are issued to miners at a fixed, but periodically decreasing rate. There are only 21 million bitcoins that can be mined in total. As of June 2021, over 18 million bitcoins are in existence and less than 3 million bitcoins are yet to be mined.3

In this way, bitcoin and other cryptocurrencies operate differently from fiat currencies; In centralized banking systems, the currency is issued at a rate matching the growth of goods; The objective of this system is to maintain price stability. A decentralized system, such as bitcoin, sets the release rate ahead of time and according to an algorithm.

Bitcoin Mining

Bitcoin mining is the process by which bitcoins are released into circulation. Normally, computationally difficult puzzles need to be solved in order to find a new block for mining, which is added to the blockchain.

Bitcoin mining adds and verifies transaction records across the network. Miners are rewarded with some bitcoin; The reward is halved every 210,000 blocks. The block reward was 50 new bitcoins in 2009. The third halving took place on May 11, 2020, reducing the reward to 6.25 bitcoins for each block discovered.4

A variety of hardware can be used to mine bitcoins. However, some reward more than others. Some computer chips, called application-specific integrated circuits (ASICs), and more advanced processing units, such as graphic processing units (GPUs), can reap greater rewards. These elaborate mining processors are known as “mining rigs”.

A bitcoin is divisible to eight decimal places (100 millionths of a bitcoin), and this smallest unit is referred to as a satoshi. 5 If necessary, and if the participating miners accept the change, Bitcoin could eventually be made divisible to even more decimals. Location.

History of Bitcoin

August 18, 2008
The domain name bitcoin.org is registered. Today, at least, this domain is “WhoisGuard Protected,” which means the identity of the person registering it is not public information.

October 31, 2008
An individual or group named Satoshi Nakamoto makes an announcement to the cryptography mailing list on metzdowd.com: “I am working on a new electronic cash system that is completely peer-to-peer, with no trusted third parties.” This now-famous whitepaper published on bitcoin.org titled “Bitcoin: A Peer-to-Peer Electronic Cash System” will become the Magna Carta for the conduct of bitcoin today.

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