You may have heard a lot of talk about Bitcoin (or BTC) lately, and are asking yourself “What is Bitcoin?”. In this tutorial we talk about Bitcoin, one of the most popular cryptocurrencies.
What is Bitcoin?
Bitcoin (BTC) is a store of value and a peer-to-peer electronic cash system that allows users to send BTC freely without having to rely on a third party. The creation of Bitcoin was by Satoshi Nakamoto in early 2009. In wake of the 2008 financial crisis, Satoshi saw the need for a new kind of money.
The current financial system relies almost exclusively on third parties they trust to process payments. They require middlemen are to mediate disputes, which lead to expensive fees and slow processing. Satoshi hoped to create a decentralized peer-to-peer payment system with no reliance on central authorities.
How Bitcoin Works
How does Bitcoin Transaction work?
Bitcoin is Not a Physical Currency
Unlike the traditional fiat currency, BTC is not a physical currency. However, the value of Bitcoin equates to the dollar amount on the current market price of BTC. This price typically has a high volatility, but in the long run has grown exponentially over the past 10 years.
Bitcoin is similar to Gold
Similar to gold, Bitcoin has a very finite supply with a total of 21 million BTC that ever be in circulation. At Bitcoin’s current mining rewards rate of 6.25 BTC per Block, Bitcoin’s annual production is equal to Gold.
This is one of the many reasons why people refer to Bitcoin as “Digital Gold”. In addition, the fact that BTC the first cryptocurrency. By and large though, the primary reason for this nickname is due to the scarcity of supply.
Why is Bitcoin Decentralized?
There is no centralised authority in the Bitcoin network. The blockchain ledger distributes across nodes all over the world and is open for anyone to view. The Bitcoin network is a peer-to-peer network where nodes reach consensus collectively. This mitigates the risks of data tampering and data loss.
The Bitcoin is operated by decentralized authorities having no bank or government control. This allows the individuals and companies to trade BTC anonymously and freely. Those who purchase the Bitcoin are a part of a system that buy/sell and mine BTC. So, in order to maintain the system’s credibility, it requires the “miners” of BTC to continuously mine for new Bitcoins by solving difficult computational problems.
Once a miner solves the problem, the system logs the transaction onto the blockchain where it collects all transactions. The transactions are then available on the public record where anyone can view it. Protection for each transaction is also and made through a unique secure address making the payee anonymous. This process makes it difficult to falsify any payments.
Why is Bitcoin Secure and Immutable?
As a digital currency, bad actors may attempt to double-spend. Bitcoin’s network solves this problem by time stamping transactions.
Each block contains a hash of itself and the hash of the previous block. If a bad actor attempts to tamper with a transaction in the past, the hash of the blocks will change completely. Then other honest nodes will reject the block.
– Block size: 1MB
– Average block time: 10mins
– Consensus algorithm: Proof-of-Work (SHA-256)
– Supply limit: 21,000,000 BTC
Ways You Can Aquire Bitcoin?
There are a few ways for you to trade Bitcoin. It can be done through an online marketplace cryptocurrencies, an OTC (over the counter) service, or through a Bitcoin ATM. So, once you purchase BTC, you can store them in a digital wallet that functions the same as a physical wallet.