Bitcoin and How It Works

Explore in detail the concept of Bitcoin and understand how it works.

Bitcoin and How It Works
Bitcoin is a decentralized digital currency you can transfer on the peer-to-peer bitcoin network.

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 online.

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 that is 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 join 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.

Purchasing Bitcoin

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 are around 3 million Bitcoins 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. However, 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.

Since Bitcoin bypasses banks and financial institutions, it allows 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 to adopt Bitcoin as legal tender.

El Salvador President Nayib Bukele announced the Bitcoin meet-up.

El Salvador hosted 32 central bankers and 12 financial authorities from 44 countries this week to meet 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.

Bitcoin Mining

Specialized computers called "mining rigs" verify and record individual transactions through the blockchain. The computers required to complete the "mining" operation are massive, 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 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 constant lottery. Mining rigs around the globe race to solve the first math problem generated by the network. Once a winner is declared, the lottery winner updates the Bitcoin ledger and receives a prize of Bitcoin.

Do Your Due Diligence

Other cryptocurrencies exist, but Bitcoin was the first and still is the most popular. If you are considering entering the digital currency market, do due diligence and research to validate your venture 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! I appreciate your support!