What is Bitcoin? A Simple Introduction
Everyone has heard of Bitcoin, but not many people know this digital asset. This is why this article shares all about Bitcoin — From history, uniqueness, potential, security, mining, costs involved, and more. Here's our simple introduction to Bitcoin. What is bitcoin? Bitcoin is a cryptocurrency that acts as a virtual currency to complete transactions. This payment method is beyond the control of an administrative entity, and that removes any third-party involvement in the transactions. Introduced in 2009 by an anonymous group of developers, Bitcoin has since become a household name in the crypto field. Currently, Bitcoin is the largest cryptocurrency in the world by market capitalization. It is also the first cryptocurrency to gain massive popularity and inspired many virtual currencies to follow in its path. All the cryptocurrencies are a part of a decentralized blockchain. Any data stored within the blockchain get protection from cryptography. This decentralized nature allows Bitcoin to transfer in a network in a peer-to-peer fashion. Bitcoins are rewards that go to blockchain miners for their work in verifying transactions. They are also available for purchase in many cryptocurrency exchanges. The value of bitcoin is something that has had both ups and downs. Bitcoin Public Addresses There are no accounts to store bitcoin in, and this ensures the anonymity of the bitcoin holder. When sending bitcoin to someone on the network, it uses the public bitcoin address. The wallet is the place where this generates, and that helps to keep the identities of the sender and receiver a secret. The code usually consists of a sequence of random letters and numbers. Wallets, where these cryptos are stored, are also a collection of files that give access to several public addresses which are unique to each wallet. You have the freedom to either use it continuously or discard it once the transaction is completed. With this address, a private key and a public key will also become available. The public key is visible to the entire network, while the private key is only visible to you. When a transaction occurs, the private key needs to be signed cryptographically. These private keys are unique, and no one else can forge or replicate them. Bitcoin Security The security of bitcoin and blockchain is one of the most discussed topics among the new crypto users. They often ask questions like, how safe is bitcoin? or can hackers steal my money? These questions are only fair as investing in crypto is a huge financial decision. When it comes to bitcoin, trust and security are two terms that go hand in hand. The only way to continue a decentralized currency is by all participants having 100% confidence in it. The original whitepaper of bitcoin states that unless one party controls 51% of the network, no one can tamper with it. Even if, somehow, at least a small change happens in a block, it will start the creation of a new blockchain. This makes it easy for the miners in the network to identify and terminate any unwanted incidents. Thus the immutability of blockchain makes it impossible for hackers to alter any data in the network. Bitcoin Mining If you want to create bitcoin, you will have to mine it first. Many consider bitcoin as a digital version of gold and view it as a haven asset with limited supply. While miners use mining equipment to mine gold, crypto miners use computers. The bitcoin mining process involves solving complicated equations with brute force computing. Bitcoin is the reward for solving the complicated problem. This is how bitcoin enters the market, and 21m BTC is the limit of bitcoins that can exist. Just like gold, the mining process needed to mine bitcoin will get harder as more of it gets mined. This slows down the supply of bitcoin to the market, increasing its value. Bitcoin being a limited resource is one of the main reasons for it being this valuable. When a miner clears a block, they also get the transaction fees for all transactions as well as the bitcoin reward. Inside the Block Since we talked a bit about the blockchain, let's get to know what a block is. Blocks are where all the transaction information, timestamp, and hash of the block get stored for some time. The size of one of these can go up to 1MB. However, the new SegWit 2 scaling implementation proposed is to increase the maximum block size from 1MB to 4MB. Here’ each block shares the hash of the previous block, and this makes an unbreakable bond between them. If someone tries to alter a block, they will have to change every single block because of the shared hash. That is an impossible task as a block contains information of all prior blocks through a technology called Merkle trees. Bitcoin fees and costs You need to pay a fee when doing transactions with bitcoin on the network. When compared with transaction fees of a traditional banking system, these fees feel very inconsequential. You will have to pay a fee of 2% to 3% of the transaction value when using online merchants like PayPal. When it comes to bitcoin, a 0.1mBTC per 1000 bytes is the stated charge. The current charge for using the bitcoin network is about 0.760%. The time it takes to do an international transaction with the bitcoin network is about 25 minutes. On the other side of the spectrum, there are normal international transactions. These can take anywhere from 3 to 5 days and will charge a higher fee from the sender. Future of bitcoin If this mainstream acceptance of bitcoin and blockchain keep on going at a steady rate, they will be what controls the majority of the world's finances soon. People are now starting to see the value of a decentralized approach to things, and this favors bitcoin. As the cryptocurrency with the highest market share, bitcoin reigns supreme in the crypto world. Even though there are other great options like Ethereum available, it is hard to see anyone challenging bitcoin shortly. Even with all of these things going for it, bitcoin still is an asset that comes with some risk. Investing in it is something you should consider after doing thorough research on the subject. To be honest, the real hero is the blockchain technology that bitcoin is implemented upon. It is what allows the decentralization and lets the cryptographic security of bitcoin shine. So it is guaranteed to take over the internet as people are already calling it web 3.0. Conclusion Bitcoin is the king when it comes to cryptocurrencies. As the bitcoin creator Satoshi says, it is an electronic payment system based on cryptographic proof instead of trust. Things like the ease of transaction, its security, and its value help the case of bitcoin. Because of bitcoin, many other types of cryptocurrencies got invented, and that makes. As we mentioned earlier, do your research and prepare yourself for any situation before investing in any asset. Because digital assets are highly volatile and investment can go both ways. |