Bitcoin is a term that has gained quite a popularity over recent years. We hear the term quite often especially in the business sector more so in the trading arena. So, it is only necessary that we get a brief introduction into what bitcoin is and what it’s about.
What is bitcoin?
Bitcoin is a form of currency. This currency is a digital currency and therefore it is completely paperless. This currency was created about 11 years ago following the horrendous crash in the housing market in 2009. This concept follows the scheme set up by Satoshi Nakamoto, a peculiar and inexplicable man. The identification of the person who created bitcoin technology is still unknown.
Bitcoin gives the assurance of cheaper transaction fees than normal traditional online payment systems. It is run by a decentralized power not similar to government-issued currencies. Bitcoin doesn’t exist in physical form. The only physical representation of bitcoin is the balances kept on a public ledger that is accessible and transparent to everyone who wishes to access it. It is verified by a large mass of computing power.
Bitcoins are not given out by banks or governments. They are neither backed up by the same. Despite bitcoin not being legal tender, it has gained a lot of popularity and so many people are using it. This has set off the launch of many other virtual currencies which are cumulatively known as Altcoins.
Bitcoin’s history as a store of value has been quite unstable; the cryptocurrency climbed up to roughly $20,000 per coin in the year 2017, but as of two years down the line, the bitcoin currency is trading for less than half of the initial amount.
How bitcoin works.
Bitcoin is more of a collection of nodes that all run on bitcoin’s code and store its blockchain. to make this simpler to understand, we can view a blockchain as a collection of blocks. In every block is a cumulation of transactions. All these computers have a similar list of blocks and transactions and can transparently view the blocks being filled with new bitcoin transactions, no one can hoax the system.
The transactions can be seen running live by everyone, whether they run a bitcoin computer or not. For anyone trying to cheat the system, such a person will need up to 51% of the computing power that makes Bitcoin. Bitcoin itself has about 47000 nodes and growing as of May 2020, an attack would be close to impossible.
On the occasion where an attack like this happens, the people who deal with bitcoin with their computers would most likely change to a new blockchain making all the effort put in by the attacker a waste.
Bitcoin is a form of cryptocurrency. The balances of bitcoins are preserved using private and public keys which are lengthy strings of letters and numerals linked through the mathematical encryption algorithm that was incorporated to make them. The public key, which can be compared to a bank account number, plays the role of an address that is published to the world and which other people can send bitcoins.
The private key on the other hand, which is more comparable to an ATM pin, is supposed to be protected and only used to authorize Bitcoin transactions. An important piece of information is that bitcoin keys and bitcoin wallets should not be confused. A bitcoin wallet is a physical device that facilitates the operation of bitcoin by a bitcoin user. It allows the users to track the ownership of bitcoins. The term wallet can be slightly misleading. This is because the decentralized nature of bitcoin means that it can never be stored in a wallet but rather on a blockchain decentrally.
Bitcoin is among the first digital currencies to use peer-to-peer technology to offer immediate remittance. The self-sustaining people and companies who have the ownership of the leading computing power and take part in the Bitcoin network, are made up of nodes or miners. “Miners,” or rather the people who operate the transactions on the blockchain, are encouraged to keep working by being offered rewards (new bitcoin releases) and transaction fees that are paid in bitcoin. These miners can be referred to as the decentralized power enforcing the dependability of the Bitcoin network.
The new bitcoin is being released to the miners at a fixed, but occasionally reducing rate, such that the total supply of bitcoins reaches a whopping 21 million. As of July 2020, there is an average of 3 million bitcoins that have not been mined yet. In this way, Bitcoin (and any cryptocurrency produced through a like method) works a bit differently from fiat currency; in centralized banking systems, the currency is released at a rate that is the same as the growth in products to balance price stability, while a decentralized system such as Bitcoin sets the release rate before time and based on an algorithm.
The process of Bitcoin mining is a system where bitcoins are released into circulation. In general, mining requires the solving of computationally hard puzzles in order to discover a new block, which is added to the blockchain. In giving to the blockchain, mining adds on and confirms transaction records across the network. For adding blocks to the chain, bitcoin miners get a reward in the form of a few bitcoins; the reward is cut in half for every 210,000 blocks. The block reward in 2009 was 50 new bitcoins and currently, the reward is at 12.5 new bitcoins.
On May 11th, 2020 the third halving happened, taking the reward for each block discovery lower further to around 6.25 bitcoins. Various types of hardware can be used to mine bitcoin but some produce higher rewards than others. Some particular computer chips that are known as Application-Specific Integrated Circuits (ASIC) and other processing units that a bit more advanced like Graphic Processing Units (GPUs) can obtain much more rewards. These detailed mining processors are commonly known as “mining rigs.”
One bitcoin can be divided into eight decimal places (100 millionths of one bitcoin), and the smallest unit of a bitcoin is known as a Satoshi.
Bitcoin can be a difficult concept to grasp especially if you are new to it. It may take a bit of time and effort on your end if you are attempting to understand the concept and begin mining bitcoins. Hopefully, this article has been insightful in your efforts of trying to grasp this concept.