What is Bitcoin And How does it Work

Stacy Adams

Bitcoin (BTC) is a digital currency that trades, uses, and distributes electronically.

Bitcoin is a decentralized P2P network that is not controlled by centralized institutions or individuals.

Bitcoin cannot be printed separately, and the supply is limited to 21 million from the beginning.

Who Made Bitcoin?
Bitcoin was first introduced in 2009 as open source software created by an anonymous programmer (or multiple programmers) nicknamed Satoshi Nakamoto. Numerous rumors have circulated about who the creators of BTC are, but all the people who are named Nakamoto have publicly denied it.

Nakamoto himself claims to be a 37-year-old male residing in Japan, but seeing his fluent English-speaking abilities or the lack of a Japanese label on the software leads him to suspect that Nakamoto isn’t actually Japanese. Around mid-2010, Nakamoto was interested in other things and left Bitcoin-related work to a few people in the BTC community. He also appointed Gavin Andresen as the lead developer.

According to some reports, Nakamoto owns 1 million bitcoins, with a market value of $3.6 billion as of September 2017.

Who controls Bitcoin?
In the words of Gavin Andresson, immediately after Nakamoto left the Bitcoin project, his first focus was on further decentralization. Andreson wanted bitcoin to survive autonomously, even if he was “hit by the bus”.

For many, Bitcoin‘s greatest appeal is its independence from any government, bank, or corporation around the world. None of these people can get involved in BTC trading, they cannot charge transaction fees or take people’s money. Moreover, Bitcoin’s transaction history is extremely transparent, so all transactions are recorded on a huge decentralized public ledger called a blockchain.

While Bitcoin is not being controlled as a network, it gives its users total control over their finances.

How does Bitcoin work?

What users can see is just the amount of bitcoins and transaction details stored in their wallet.

However, in the Bitcoin network behind it, a public ledger called a’blockchain’ shares the results. In this ledger, all transactions that have been processed are recorded. Digital records of transactions are combined into’blocks’.

If someone tries to change a letter or number in this transaction block, it will affect all subsequent blocks. Since this is a public ledger, mistakes or fraud attempts can be caught very easily and corrected by others.

The user’s wallet can check the validity of each transaction. The authenticity of each transaction is protected by a digital signature that matches the sender’s address.

Due to this verification process, and depending on the trading platform, it may take a few minutes for the BTC transaction to be finalized. The Bitcoin protocol is designed to take about 10 minutes for each block to be mined.

Scheme How does Bitcoin work, Bitcoin transaction

Characteristics of Bitcoin
Decentralization
One of the main objectives Satoshi Nakamoto focused on at the time of creation of Bitcoin was that the network should be independent without interference from any government or private institutions. The system is built so that all individuals, businesses, and everything, including the machines involved in mining and transaction verification, operate as part of a huge network. Moreover, it is designed so that money can continue to work even if part of the network does not work.

Anonymity
Today, banks know everything about their customers, including credit history, addresses, phone numbers, and shopping habits. Bitcoin, on the other hand, has no idea who is doing what because the wallet is not associated with an individual. Some argue that they simply don’t want to know what others are doing with their own money, while others claim that they use this anonymity to engage in illegal or dangerous behavior, such as drug trafficking or financing terrorism.

Transparency
Bitcoin’s anonymity is a relative concept, and all BTC transactions are recorded on the blockchain. So, at least in theory, anyone can easily see how much BTC I have with a little effort if their wallet address is publicly visible to others. However, it is almost impossible to track a specific bitcoin address associated with an individual.

People who don’t want to show their transactions to others can remain completely anonymous. One way is to use some wallet services that value opacity and security, but an easier way is to use multiple wallet services and not move too much money into one wallet and store it.

Quickness
The Bitcoin network processes payments in near real time. For example, if one person sends money to someone on the other end of the globe, it can be processed in minutes. On the other hand, bank transfers still take days.

Irrevocability
If you send Bitcoin to someone, it is impossible to cancel it unless the recipient returns it. Because of this characteristic, it is impossible to scam because someone made a remittance but did not receive it.

What can you buy with Bitcoin?
In 2009, when Bitcoin was first introduced, few people knew what to buy with Bitcoin. Now things have changed and you can buy almost anything in the world. Big companies like Microsoft and Dell, for example, are also allowing various products and digital content to be bought in BTC. Meanwhile, airlines like AirBaltic and Air Lithuania are accepting Bitcoin payments. You can also use bitcoin to buy tickets for performances from Theater Tickets Direct, a UK performance ticketing company, and craft beer from Honest Brew.

Other options include paying hotel room rates, buying real estate, paying for yourself at multiple bars and restaurants, paying membership fees on dating websites, buying gift cards, gambling at online casinos, and making donations to charities. You may. In addition, you can buy items from a number of online marketplaces, or even buy expensive luxury goods from illegal goods such as drugs.

Bitcoin has been relatively young and the payment method is complex, so there are still not many options available. However, the use of bitcoin is expanding day by day, and a growing number of businesses, from coffee shops to large corporations, are receiving bitcoin.

Also, the investment value is very high due to the fluctuations in the exchange rate of Bitcoin. Even though it is still unstable and not yet widely known, Bitcoin has increased in value 7 times in a year, reaching more than $5,000 per BTC.

How can you get bitcoin?
The easiest way to get bitcoin is to buy it. Bitcoin can be bought on a number of exchanges, but it is also possible to buy it directly from others through the marketplace. Bitcoin purchases may include cash, credit cards, debit cards, and other cryptocurrencies. However, first of all, it is necessary to secure a Bitcoin wallet.

There are several types of wallets, but the most common are online wallets and software wallets that you save on your computer’s hard drive. Hard drives can be damaged, and online wallets are susceptible to hacking attacks, so neither of these options is 100% secure. In addition to this, there is a mobile wallet, which is a very simplified version because it requires a fairly high storage capacity since all of the blockchain data has to be stored. There are also dedicated devices called hardware wallets and paper wallets that have two QR codes that cannot be stored digitally, and there is no risk of losing funds due to cyber attacks or hardware problems.

Another way to get bitcoin is through mining. Just a few years ago, even a home computer could mine as much bitcoin as long as it had enough computing power. But today it is no longer possible. As BTC is becoming more and more popular and its value continues to rise, the minimum equipment requirements for Bitcoin mining have become significantly higher than before, as large companies with funding power are working on mining in proportion. Moreover, the amount of bitcoin that can be obtained through mining is constantly and rapidly decreasing.

The Creation of Adam painting with Bitcoins

Advantages of Bitcoin
freedom
When BTC was founded, the most important thing was to guarantee the freedom of users. Such freedom, above all, was that there would be a centralized institution to control transactions, charge transaction fees, and avoid taking people’s money. In recent years, buying goods and services in cryptocurrency has become as easy and legal as buying it in fiat currency. Moreover, considering the existence of a number of deep-web markets that do not accept other payment methods other than Bitcoin, he said that purchasing items with BTC has become much easier than before.

Can I buy bitcoin?
One of the most popular characteristics of Bitcoin is its price volatility. Bitcoin has suffered a lot of rapid price declines and rises. In mid-December 2017, Bitcoin reached a record high of $19850. However, it plunged a few days after that, dropping to $12,000, and plummeting to $7,000 in February of the following year. Sometimes the price has dropped by $2,000 in just an hour.

No one knows how much the bitcoin price will change in one year. In theory, it could even go down to zero dollars. And maybe it can stay at the same level as it is now, or it can jump double, triple, or even quadruple, tenfold. No one knows exactly what the price of Bitcoin will be, and no matter how advanced price prediction techniques they use, this is unpredictable.

For example, John McAfee is very optimistic about the future of Bitcoin, so in his Twitter message, if the future BTC price does not exceed $500,000, he will appear on a terrestrial broadcast channel that covers the United States. He even professed to eat his X. On the other hand, Warren Buffet predicted that Bitcoin would end up seeing bad endings in the end.

A man drinking coffee in a ‘Keep calm and HODL’ cup

The most well-known investment strategy in the cryptocurrency community is the so-called’hodl’, a strategy that keeps holding on to the asset without selling it. This expression has become widely known since December 2013 when a drunk user wrote the expression’I am hodling’ on the Bitcoin forum. This expression has since become known as a joke and has become a common slang word in the cryptocurrency community today. Arcs are also known as an abbreviation for’hold on for dear life’.

Last but not least, again, you should remember this one thing. In other words, Bitcoin is an extremely risky investment asset, and you should never invest money in it that you cannot lose. We’ve already warned you, so be careful.

What is a’Bitcoin Whale’?
Whales are the largest animals in the world, and the Bitcoin Whale is the largest investor in the Bitcoin market. In many cases, they are not individual investors, but rather institutional investors, such as hedge funds or bitcoin investment funds. Examples include Pantera Capital, Bitcoin Reserve, and Bitcoin Investment Trust.

In many cases, these institutional investors buy and sell hundreds of thousands of bitcoins. Their transactions are made very secret, and they make special trading contracts with exchanges and usually trade huge amounts of coins so that investors do not notice them.

Bitcoin whale

According to a recent Bloomberg article, at most 1,000 investors own 40% of the total market cryptocurrency assets. In fact, they own a fair amount of assets, and selling only a fraction of them can lead to a market crash.

According to a survey, there are currently 25 million investors who own Bitcoin worldwide. But one interesting fact is that in terms of bitcoin holdings, owning only 0.153 BTC can make it the top 30% of the total. Meanwhile, to be in the top 1% of the total, you need to hold 15 BTC.

Reviewer overview

What is And How does it Work - /10

Summary

0 Bad!