Bitcoin
–What is
It and How
Does it Work?
Bitcoin
–What is
It and How
Does it Work?
In a
Nutshell
Bitcoin is a digital currency which is designed to act as a medium of exchange. Bitcoin uses cryptography to create, manage and secure its network. It is one of the many cryptocurrencies currently used for trading. The Bitcoin network is not controlled by any central authority, government or bank and Bitcoin can be purchased by anyone with fiat currency.
Additionally, the Bitcoin network is decentralised and all transactions are recorded in a public ledger which can be witnessed by anyone and accessed from anywhere in the world. Transactions are verified by nodes who compete to solve complex cryptographic formula in a battle to confirm and secure the network.
BITCOIN
-HISTORY-BLOCKCHAIN-MINING-WALLET-EXCHANGE
-HISTORY-BLOCKCHAIN-MINING-WALLET-EXCHANGE
A quick
History on Bitcoin
The Bitcoin white paper titled ‘Bitcoin: A Peer to Peer Electronic Cash System’ was released in 31st October 2008 in the wake of the global financial crisis. Its author, Satoshi Nakamoto, remains anonymous to this day.
The aim of Bitcoin is to provide a trustless alternative to the traditional fractional reserve banking system which can be used worldwide and could facilitate the world wide financial crisis of 2008.
The Bitcoin network itself began operating on 3rd January 2009 with 50 Bitcoins mined in what is known as the Genesis block.
Bitcoin's
Blockchain
and Token
A blockchain is a series of transactions recorded on a public ledger and formed into blocks of data.
The exchange of Bitcoin uses blockchain technology. The Bitcoin blockchain holds around 500 transactions per block with the average block size of around 1MB.
To transfer value across the Bitcoin network, a user must purchase an equal dollars worth of Bitcoin (current price at $57,000). The Bitcoin is then sent to a receiving address and the transaction verified and recorded on the blockchain.
Bitcoin
Mining and
Proof of Work
The maximum supply of Bitcoin is capped at 21 million which gives Bitcoin scarcity and guarantees future value growth.
Bitcoins are created through a process called mining in which high powered computer programs solve complex computational puzzles. The same process also helps to secure the Bitcoin network with each computer competing to solve the puzzles and verify transactions. This important cryptocurrency concept is known as Proof of Work.
Bitcoin
Wallets
In order to store, send or receive Bitcoins, a user must create a Bitcoin wallet.
Bitcoin wallets can be stand alone or integrated within computer programs or applications but their essential function remains the same. Wallets are cryptographically secured with a private key and, if the correct procedures are followed, extremely hard to hack into.
Bitcoin
Exchanges
In order to store, send or receive Bitcoins, a user must create a Bitcoin wallet.
Bitcoin wallets can be stand alone or integrated within computer programs or applications but their essential function remains the same. Wallets are cryptographically secured with a private key and, if the correct procedures are followed, extremely hard to hack into.
Immutability and Anonymity
All transactions across the Bitcoin network are immutable and anonymous. That means they cannot be reversed or changed and information regarding the sender or receiver remains anonymous.
Uses of Bitcoin
Bitcoin was originally designed as a medium of exchange and a digital, trustless alternative to the traditional banking system. Over time, Bitcoin has evolved to become a trusted store of value which, due to its limited supply, is seen as a rival to gold. In the current world wide economic climate, many people are turning to Bitcoin as a hedge against inflation and the rising cost of living.
The Future
of Bitcoin
The future of Bitcoin and cryptocurrency in general looks very bright indeed. As the first to market cryptocurrency, Bitcoin enjoys an enviable position as the king of virtual currencies. Bitcoin currently makes up over 45% of the total share of the cryptocurrency market and has a market value of over $1 trillion. Whilst its use case may have changed since 2009, Bitcoin is becoming increasingly popular as a place to store wealth amid turbulent economic waters. Many of the world’s largest financial organisations hold Bitcoin reserves and provide Bitcoin exposure to their customers.
Frequently Asked Questions
FAQ