In the simplest sense, it is a form of digital currency that doesn’t need someone (such as a bank, company, or government) to transact. A more technical definition is a peer-to-peer network enabling secure and transparent transactions without the need of a central authority. It is a public ledger, where anyone can view the transactions online, although not necessarily the identity of the person. It operates on a technology called blockchain, where all records of transactions made in Bitcoin are stored forever. It ensures transparency, security, and immutability.
Key features
- Decentralization: Bitcoin operates on a decentralized network of computers (nodes) that collectively maintain and validate the blockchain. This decentralization makes the network resistant to censorship and tampering.
- Blockchain Technology: The blockchain is a distributed ledger that records all transactions made with Bitcoin. It consists of a chain of blocks, each containing a list of transactions. This technology ensures transparency, security, and immutability.
- Limited Supply: Bitcoin has a capped supply of 21 million coins. This scarcity is built into the protocol to mimic the scarcity of precious metals like gold. The fixed supply is intended to prevent inflationary pressures.
- There are countless stories how hundreds of thousands of Bitcoin are permanently lost, and this number may be in the millions. Here is one such story of 8,000 lost in a landfill.
- Mining: Bitcoin transactions are validated by miners, who compete to solve complex mathematical problems. The first miner to solve the problem gets the right to add a new block to the blockchain and is rewarded with newly created bitcoins. This process is known as mining.
- Bitcoin as a Currency: Bitcoin can be used as a digital currency for peer-to-peer transactions. It allows users to send and receive value globally without the need for intermediaries like banks. Bitcoin transactions are pseudonymous, meaning that while transaction details are recorded on the blockchain, the identities of the parties involved are not directly tied to their public addresses.
- Volatility: Bitcoin’s price is known for its volatility. It can experience significant price fluctuations in relatively short periods. Factors influencing its price include market demand, regulatory developments, macroeconomic trends, and overall adoption.
- Store of Value: Some proponents view Bitcoin as a digital store of value, akin to gold. The idea is that Bitcoin can serve as a hedge against inflation and a long-term store of wealth.
- Security and Ownership: Bitcoin transactions are secured by cryptographic keys. Users have a public key (address) for receiving funds and a private key for signing transactions and accessing their funds. It is crucial for users to securely manage their private keys.
FAQs
- How many Bitcoin are there?
- There will only ever be a maximum of 21 million coins.
- Do I have to buy a full Bitcoin?
- No. Each Bitcoin is broken down by 100,000,000 satoshis (sats), and you can purchase any number of Sats.
- What is mining Bitcoin?
- The solving of complex mathematical problems using computational power. Bitcoin uses a consensus mechanism called Proof of Work (PoW). Miners compete to solve a complex mathematical problem related to the transactions in the block. The first miner to solve the problem gets the right to add the new block to the blockchain and is rewarded with newly created bitcoins.
- Bitcoin operates on a decentralized network of computers (nodes) that maintain a shared ledger known as the blockchain. The blockchain records all transactions made with bitcoin.
- Mining Hardware:
- Miners use specialized hardware, known as Application-Specific Integrated Circuits (ASICs) or Graphics Processing Units (GPUs), to perform the necessary computations. These machines are designed for the high computational demands of Bitcoin mining.
- Reward:
- The miner (or mining pool) that successfully mines a new block is rewarded with a fixed number of newly created bitcoins. This reward is called the “block reward.” As of my last knowledge update in January 2022, the block reward is 6.25 bitcoins, and this amount is halved approximately every four years in an event known as the “halving.”
- Transaction Fees:
- In addition to the block reward, miners also earn transaction fees paid by users for including their transactions in the block. Transaction fees become more important for miners as the block reward decreases over time.
- Blockchain Security:
- Mining serves a crucial role in securing the Bitcoin network. The computational effort required for mining makes it computationally infeasible for a single entity to control the entire network and manipulate the transaction history.
- Block Creation:
- Transactions on the Bitcoin network are grouped together into blocks. Approximately every 10 minutes, a new block is created containing a set of transactions. The creation of a new block is part of the process known as mining.
- What is the point of Bitcoin?
- This is opinion based. Fiat currency is mostly controlled by the governments, and Bitcoin aims to separate/decentralize state and money. It has a known inflation rate, capped at a total of 21 million Bitcoin ever in existence. Comparatively, governments around the world are constantly creating fiat out of thin air, which can cause unpredictable inflation over time. They are also spending your hard-earned tax dollars in ways that you can’t track or vote for, and Bitcoin’s public ledger is transparent, allowing people to see where the currency ends up.
- Another factor is the constant bailing out of banks that exhibit abusive behavior, only to get the equivalent of a slap on the wrist. Bitcoin enables you to self-custody your currency and avoid banks misappropriating your funds, and telling you what you can or cannot spend on.
- Who created Bitcoin and when?
- Currently unknown whether it was a person or a team, but they went under the pseudonym of Satoshi Nakamoto. Nakamoto claimed that the Bitcoin code began in 2007, and on October 31st, 2008, the Bitcoin white paper was released. The full white paper can be read here.
- On January 9th, 2009, Nakamoto released version 0.1 of the software and lunched the network on block number 0.
- What is the halving?
- See this link dedicated to the halving.
