Bitcoin and How It Works
Explore in detail the concept of Bitcoin and understand how it works.
The digital currency market is expanding, with new types of cryptocurrency offered as an alternative to physical money. Therefore, exploring the concept in detail is essential to understanding Bitcoin and its workings.
A Quick History of Bitcoin
Bitcoin was the first cryptocurrency offered on the digital market. Bitcoin allows you to send and receive digital money securely and directly over the internet.
The principles behind Bitcoin first appeared in a white paper published online in late 2008 by an anonymous person or group named Satoshi Nakamoto.
The concepts of Bitcoin were two different parts:
A Bitcoin private key and the blockchain ledger. Bitcoin generates a private key for each Bitcoin holder unique to that individual. It comprises a random sequence of letters and numbers that unlocks a virtual vault containing the purchase.
The virtual ledger or blockchain tracks the key and keeps track of customers' transactions in and out of a bank. The Bitcoin tracking system or blockchain distributes across the entire network. No one owns the blockchain, and anyone using Bitcoin can be a part of the network.
Bitcoin is a decentralized transaction system that allows people to send bitcoin to anyone anywhere in the world without banks, governments, or any other financial institution.
Bitcoin is purchased with real money and can be purchased in whole or in part, one coin at a time or a portion of a coin. Since it is a digital currency, it is not subject to inflation or manipulation like real money. Nakamoto created only 21 million Bitcoin, and that number never changed. There is around 3 million Bitcoin still available for mining. Some experts predict that since the mining is slowing, the last blocks of Bitcoin will be mined by 2140.
Bitcoin began publicly offered in 2010 at a fraction of a penny. But during the first quarter of 2011, the price increased to over a dollar per coin. By 2017, the cost of Bitcoin suddenly skyrocketed to almost $20,000.
The price of Bitcoin can be found and tracked on the Coinbase website.
Bitcoin as Legal Tender
Since Bitcoin bypasses banks and financial institutions, it creates the opportunity for money to be moved globally across the internet more cheaply and quickly. It also allows individuals to have complete control over their assets.
Bitcoin is a legal currency. It can be used, held, or used for trading. Although some people don't believe Bitcoin to be money, it is a medium of exchange or barter. But, since it exists only digitally, there is no physical version.
As of September 7, 2021, Bitcoin is an official and legal currency of El Salvador alongside the US dollar. The Central American nation became the first country to adopt Bitcoin as legal tender.
El Salvador hosted 32 central bankers and 12 financial authorities from 44 countries this week to meet in the country for an event about achieving financial inclusion and banking for the unbanked through Bitcoin's digital economy.
Check out this article covering the event by Bitcoin Magazine.
Specialized computers called "mining rigs" verify and record individual transactions through the blockchain. The computers required to complete the "mining" operation are massive, very specialized, and owned by many individuals or businesses. For example, in October 2019, it required 12 trillion times the computing power to "mine" one Bitcoin than it did at the beginning of the concept in 2009.
The Motivation to Mine Bitcoin
What is the motivation for miners to continuously maintain the blockchain? Simply put, it is a lottery.
The Bitcoin network conducts a lottery that is a constant. Mining rigs around the globe are in a race to be the first ones to solve a math problem generated by the network. Once a winner is declared, the lottery winner updates the Bitcoin ledger. The winner of the lottery also receives a prize of Bitcoin.
Do Your Due Diligence
Other types of cryptocurrencies exist, but Bitcoin was the first and still is the most popular one to purchase. If you consider getting into the digital currency market, due diligence and research to validate venturing into the digital currency trend.
A Quick Disclaimer
I am not a Bitcoin, crypto, or financial expert. I'm just someone sharing what I know. I encourage you to do research before getting into the crypto ocean.
If I made any mistakes in this article, please educate me by leaving a comment! Thank you for your support!