What is Bitcoin?
A Comprehensive guide to the first cryptocurrency
Bitcoin is a cryptocurrency that is widely regarded as the best investment of the decade has broken the internet and will forever change how we do business and interact with each other through a decentralized internet (Also known as Web3)
The peer-to-peer network uses open-source software (decentralized ledger), which means that the design is public, to manage transactions and generate new bitcoins because no central authority or banks are involved.
Because no one owns or operates the network, it is safe to call it a decentralized network of nodes (computers).
The Bitcoin network is driven by ground-breaking Blockchain technology. In simple terms, it consists of a few blocks connected by a cryptographic chain. More on this later.
In response to the fraud and poor management of conventional financial institutions, Bitcoin was created during the financial crisis of 2008.
The goal of Bitcoin is to provide an alternative for those excluded from society due to unfair laws, corrupt banks, and a lack of other options. A bank does not govern Bitcoin or a central government like fiat money.
In August 2008, a person or group of people going by the name Satoshi Nakamoto published the Bitcoin WhitePaper. Bitcoins software was released in January 2009 after five months of arduous work, and the first transaction involved Satoshi and developer Hal Finney.
As we mentioned, Bitcoin is a digital currency built on blockchain technology. Interestingly, there is no bitcoin without blockchain technology.
Understanding the Blockchain Technology
Blockchain technology is a distributed database or ledger shared by computer network nodes. A blockchain serves as a digital database for data storage.
Maintaining a safe and decentralized record of transactions in cryptocurrency systems like Bitcoin is the most well-known application of blockchain technology.
A blockchain's innovation is its ability to ensure the security and fidelity of a data record, which promotes trust without the need for a responsible third party.
How does Blockchain work?
Blockchain aims to enable the distribution and recording of digital information without editing. The Blockchain is a foundation for immutable ledgers, records of transactions that cannot be changed, removed, or destroyed.
Because of this, blockchains are also known as distributed ledger technologies (DLT).
Blockchain 1.0: Cryptocurrencies
In 2005, Hal Finney unveiled the first application of distributed ledger technology that allowed computer node runners to earn money by resolving math problems.
However, it was not until Satoshi Nakamoto created the first digital currency in 2009 that we witnessed its potential.
Blockchain 2.0: Smart-contract
Blockchains contain free computer programs called smart contracts. They are executed automatically to look for facilitation, verification, or enforcement requirements.
The Blockchain made it possible to secure automated programs, making them hard to hack.
Now, programmers can build and release blockchain-based applications (dApps). One practical application of smart contracts is on the Ethereum blockchain.
Blockchain 3.0: Decentralized Apps (dApps) and Non-fungible tokens
These are decentralized applications built on the Blockchain. They use decentralized communication and storage systems. The user interface of a dApp is created in any language that can call its backend, just like a conventional app, and is hosted on decentralized storage.
The Blockchain operates through engineering, cryptography, and mathematical formulas and leverages the Proof-of-Work (DLT). To provide proof of work, a computer is tasked to randomly perform hashing operations until it generates an output with the required minimum number of leading zeroes.
Depending on who you ask, you will hear various views on how different people classify Bitcoin.
Some will call Bitcoin an investment, while others will call it an inflation hedge. Many people would instead use it as money.
A second group rarely acknowledged or discussed is the billions of people who do not have access to a banking system.
A blunt way to put it is to call bitcoin a series of 1's and 0's on a computer screen, just like the figures in your bank account. However, unlike it, there can't be more than 21 million bitcoins.
The Tokenomics of Bitcoin
Bitcoins are both inflationary and deflationary, so new coins are created with each block successfully mined. At the moment, making a new block earns bitcoin miners 25 bitcoins.
Since the number of rewards is halved every four years, it is also deflationary. The user base of Bitcoin has consistently increased. and the demand for Bitcoin will increase as it grows in popularity because it gives users access to recently created Bitcoin and encourages them to use it.
Demand and supply (economics) cause the steady rise in the price of bitcoin. For every 210,000 blocks, the mining rewards for bitcoin are halved, gradually leading to scarcity. Investors are encouraged by this deflationary nature.
Everybody has an equal voice in the decentralized Bitcoin network, where no foundation or nonprofit organization has ultimate authority (Unlike a bank).
Instead, miners oversee and manage the Bitcoin ecosystem, following the now-absent Satoshi Nakamoto rules. However, you, the user, have the sole authority to determine what must be done and how things should function.
To keep things organized, all significant updates are reviewed by other active members with a lot at stake (i.e., more hashing power).
In this case, a meritocracy is a form of democracy that guarantees that those who contribute the most will be fairly represented when it comes time to make significant announcements, like new editions of Satoshi's white paper series.
The Blockchain cannot be used to undo Bitcoin transactions; if a transaction is deemed suspicious by the community, it will not be included in blocks after they have been mined.
This implies that users of Bitcoin have no defense against scammers, but it's essential to keep in mind that, like the internet, every new technology is simultaneously a force for good and evil.
How to Trade Bitcoins?
It's relatively simple to trade bitcoins; all you need to do is use one of the many exchanges or brokers available.
Using exchange services like Gemini, Coinbase, or Binance, you can easily exchange your bitcoins for fiat. These services typically offer fiat and cryptocurrency wallets, making conversion and withdrawal to the desired watch incredibly simple.
Bitcoin Wallets - What Are They?
In April 2011, the value of one hundred bitcoins was barely $100. This amount of bitcoin (100 BTC) would have increased by $2 million if you had sold it in December 2017, at the height of the cryptocurrency bull run. Smooth deposit to your bank account (ching!).
Unfortunately, an estimated 3–4 million bitcoins (billions of dollars) are lost forever due to people not making adequate preparations and not having a reliable method to store their coins (Bitcoin Wallet).
Bear in mind that these coins are still on the Blockchain, but since the owners probably lost access, there is no actual ownership or possession. This is why you must use a device that can protect your Bitcoins. What does this mean?
A bank can usually be trusted to keep your money safe, even in theft or massive hack. However, if you keep cash in your wallet and lose it, the money is lost. Forever.
Backing up your digital assets and storing them offline, distinguishing cryptocurrencies from traditional money. You can still access your funds even if you misplace your cryptocurrency wallet and have private keys or passwords to the account.
Bitcoin wallet storage solutions
While it's recommended that anyone with at least $500 of cryptocurrency buy a hardware wallet, different choices are depending on your needs.
Types of Bitcoin Wallet:
You have probably used one of these if you've ever used Bitcoin for a transaction. As opposed to the other hardware wallets mentioned above, the wallet you receive on web and mobile platforms is less secure.
The reason is that a wallet, in this case, does not hold your bitcoin; instead, it has private keys that give access to your bitcoins. Using private keys to store your funds is highly risky. Only experienced cryptocurrency users should attempt this method, as you can be vulnerable to various ways to steal your coins.
We cannot emphasize how valuable hardware wallets are as opposed to an online option, which is less secure and rife with security pitfalls.
Banks use hardware tokens to authenticate transactions, mainly when they involve large sums of money. Here, the same holds. You purchase one of the top bitcoin wallets; then you can send bitcoins to the address and lock them up for however long you like in a safe or vault.
Hardware wallets are strongly recommended because bitcoins can be left to loved ones in the unfortunate event of death.
Frequently Asked Questions
Can the Blockchain for Bitcoin be shut down?
Bitcoin operates on millions of computers, which duplicates data. The Blockchain can function normally even if one or more computers disappear. Users are encouraged to contribute their computing power because they can get paid in Bitcoin as a reward.
The only way to completely stop Bitcoin would be to eliminate the internet, which at this point doesn't seem possible. Bitcoin should continue to exist as long as there are incentives and the internet is functional.
What is Bitcoin mining?
Mining bitcoins is similar to extracting gold, but it takes place digitally. Specialized computers are used to solve hash functions or algorithmic equations—these issues aid miners in validating blocks of network-stored transactions.
By paying out in Bitcoin, bitcoin mining rewards miners, who then validate transactions on the blockchain. Bitcoin miners add new coins to the network while also securing the network by confirming transactions. Additionally, they receive network fees when they find new coins, and mining will continue until the last Bitcoin is discovered.
How Much Time Is Needed to Mine 1 Bitcoin?
A typical Bitcoin block takes around 10 minutes to mine, and the miners who successfully solve that block are rewarded with 6.25 Bitcoin. Usually, a pool of miners divides these rewards per the computing power that each user contributes. This is due to how challenging it is for a single miner to extract even a single block when up against high-tech machinery costing billions of dollars.
Is Bitcoin Mining Harmful to the Environment?
Bitcoin mining is not friendly to the environment because it consumes a lot of energy. However, the sector is looking into more environmentally friendly mining techniques, like El Salvador's use of a volcano as an alternative energy source for Bitcoin mining. Most of the Bitcoin community argues that the energy use is justified, citing examples like the annual use of Christmas lights as an example of a less-important practice that consumes more energy.
How Many Bitcoins Are Actually in Circulation?
Only a maximum of 21 million bitcoins can ever exist, of which 19.2 million are in circulation and held by members of the Bitcoin community and investors. Currently, the market capitalization exceeds $370 billion. The consensus is that one bitcoin will be worth more than $50,000 by 2023. Here you can find the most recent Bitcoin price.
What is Bitcoin Halving?
In 2009, each block's mining effort was rewarded with 50 BTC. The reward was lowered to 25 BTC in 2013 and has since been halved every four years. 6.25 BTC is the current incentive for adding a block to the Bitcoin Blockchain. We expect the reward for mining each block of Bitcoin will decrease by half in 2024 to 3.125 BTC. Until the final Bitcoin is mined in the year 2140, this number will continue to drop.
1st Halving -Decreasing the block reward from 50 to 25 Bitcoins on November 28, 2012.
2nd Halving -The 2nd halving saw a decrease in the block reward from 25 to 12.5 bitcoins on July 9, 2016.
3rd halving -on May 11, 2020, the block reward was decreased from 12.5 to 6.25 Bitcoin.
What Effects Do Bitcoin Halvings Have?
Previous Bitcoin price halvings have been associated with sharp price increases. Over a year, the first halving increased from $12 to $1,217. Bitcoin cost $647 at the time of the second halving and rose to $19,800 in December 2017 — about a year later. The most recent price halving was at $8,787, and about a year later, it rose to $64,507.
In conclusion, although not as most people think, bitcoin is a significant innovation. Globally verifiable proof of publishing at a specific time makes bitcoin genuinely innovative. By securing history, the Blockchain defies Orwell's maxim that "He who controls the present also controls the past and the future."
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