What is Bitcoin? - The First Decentralized Peer-to-Peer Network

What is Bitcoin? - The First Decentralized Peer-to-Peer Network
“Bitcoin will be a big part of Twitter’s future.” - Jack Dorsey.
“Tesla is more likely to accept Bitcoins as a payment, again.” - Elon Musk.
“The world will never be the same after Bitcoin.” - Gary Vaynerchuk.

The world of Bitcoin is traveling with lightning speed. Since its inception in 2009, it was valued at $0 when the first Bitcoin was mined, and the rest is history. So let’s learn about the revolutionary currency system that is set to replace fiat currency in the near future, providing us a safe, secure, and superfast transaction experience.

Welcome to the world of Bitcoin!

Table of Contents:

  • What is Bitcoin? And How does it work
  • Understanding Bitcoin: Bitcoin definition
  • Bitcoin mining
  • How Bitcoin works: Peer to peer technology
  • The history of Bitcoin: Who is Satoshi Nakamoto?
  • What is the purpose of Bitcoin?
  • Is Bitcoin real money?
  • How to buy Bitcoin?
  • Bitcoin FAQs

What is Bitcoin? And How does it work?

Bitcoin uses peer-to-peer technology to operate without any central authority / party. Managing transactions & issuing of bitcoins is carried out collectively by the network.

Bitcoin is open-source; its design is public, nobody owns or controls Bitcoin and everyone can take part.

BTC is a decentralized digital currency that can be sent from user to user on the peer-to-peer bitcoin network.

It is similar to digital cash that you can use to make online purchases, buy products and services, etc. But there are not many businesses habitual to earn Bitcoin as a part of their daily transaction. However, some of them have started an early adoption of this decentralized currency.

To put it simply, Bitcoin is a computer file stored in a digital wallet on your computer or mobile device. All the transactions that happened are recorded on a public ledger known as Blockchain. It makes it easy to trace the Bitcoin history and prevents people from duplicating their transactions.

Understanding Bitcoin in simple terms

Let’s get it straight,

Bitcoin (₿) is a decentralized digital currency that operates without a central authority (bank) or (single person) on a peer-to-peer network without the requirement for intermediaries.

Transactions are validated and verified by the network nodes, and every verified transaction is then added to the Blockchain.

The reason for introducing Blockchain was to eliminate the need for the central authority to dominate the monetary systems for vested interests.

Thanks to blockchain technology that enables transparency of a public ledger and provides privacy, security, and anonymity of the transactions.

Blockchain is nothing but the fostering technology that manages the Bitcoin transaction ledger.

What is Bitcoin Mining?

The most common question arises after Bitcoin is, What is Bitcoin Mining?

Bitcoin mining is the process when new Bitcoins are put into circulation when specific computers with full computational power solve extremely complex computational math problems.

Mining Bitcoin is expensive, challenging, and, luck by chance, rewarding also. Nevertheless, mining has attracted many investors towards cryptocurrency because the miners reap crypto tokens as a reward for their computational work.

Many people consider Bitcoin the new gold rush as all we have to do is put high power computers to solve complex mathematical problems and receive Bitcoins that are skyrocketing in terms of their value.

Here is the process to mine your first Bitcoin

  1. Get a Bitcoin mining rig -
    A mining rig is required to mine new Bitcoins. During the initial mining period, the miners used personal computers and moved to GPU for better chances. In recent times, There is customized hardware that is specifically created to mine Bitcoins and other cryptocurrencies. They are known as ASIC (Application-Specific Integrated Circuit chips). The main benefit of using an ASIC is less power consumption and more computational output.
  2. Set up a Bitcoin Wallet -
    Now that your mining rig is set, it’s time to create a Bitcoin wallet. It stores Bitcoins and can be used for future transactions. Technically, Bitcoins are stored on a blockchain, but the Bitcoin wallet contains an address with a public key and a matching private key.
  3. Join a mining pool -
    Day by day, mining Bitcoin is getting difficult as the problems are getting more complex, and a single machine cannot handle all the load. Hence, the miners create a mining pool to provide computing power to a group where Bitcoins are mined. The gain is then divided among members according to their contributory computational resources. The income is probably less but generated regularly. However, the pool operator has to pay a small fee for managing the mining pool, generally 0 to 2% of the reward.
  4. Get a mining software -
    Now that you have robust hardware, a Bitcoin wallet, and an active mining pool, now let’s get a mining program for your computer. This program connects you to the Bitcoin and the Blockchain Network. The Mining Programme delivers work to the miners, collects their total work, and adds all the data to the Blockchain. Also, the mining software analyzes miner’s activities and monitors basic statistics of the overall mining process.
  5. Start mining -
  • Connect your miner to the power outlet
  • Link it with your computer and install mining software
  • Add wallet information and mining pool details into the mining software
  • Choose a device, and you are all set to mine your Bitcoins

How Bitcoin works? - Peer to Peer technology

Bitcoin uses a peer-to-peer network to operate with no central authority or banks; transactions are recorded on a public ledger. Miners verify and validate the transaction by utilizing their computational power. Once a transaction is confirmed, it is automatically listed to the Blockchain, and the miner who verified it first receives Bitcoins in reward.

Bitcoin is open-source, decentralized and nobody owns or controls it. Anyone can participate in the process and own Bitcoins in small amounts. Although the governments of various nations have implied strict monetary rules, Bitcoin transactions provide an apex level of transparency and indomitable security, which today’s financial system fails to deliver.

The history of Bitcoin - Who is Satoshi Nakamoto?

When it comes to Bitcoin, Satoshi Nakamoto has become a name that no one can deny. He is the person believed to invent Bitcoin. He originally published the Bitcoin whitepaper The identity of Satoshi Nakamoto is still not revealed. It’s still unaware that Satoshi Nakamoto is a single person or a group of people. During the initial days of Bitcoin, the communication with Satoshi Nakamoto was performed electronically. Hence, no more details were available rather than the name.

The inability to cover the name had led to significant hype and curiosity towards Nakamoto’s identity, especially when cryptocurrencies skyrocketed in figures and popularity.

While it’s still unclear about Nakamoto’s identity, It is estimated that Satoshi Nakamoto has a 5% stake in Bitcoin holding, that values around $50 Billion. (The Anonymous Richie Rich)

What is the purpose of Bitcoin?

Bitcoin was a counter-response to the 2008 financial crisis. The founder of Bitcoin, Satoshi Nakamoto, proposed a new idea of creating decentralized currency. Satoshi created a peer-to-peer payment system that did not rely on third-party confirmation. This system eliminates the bank from the transaction process.

Bitcoin operates on “proof of work,” which solves mathematical algorithms to verify and confirm transactions using a peer-to-peer network.

Is Bitcoin real money?

Technically yes,
Bitcoin is a digital currency, you cannot see it, but you can make online transactions for your required products and services. However, many businesses are not aware of this currency, and it will take significant time for wide circulation in the economy.

Some businesses in the US, Canada, and the UK have started regulating Bitcoin as one of their payment methods.

  1. What is Bitcoin?
    Bitcoin is a cryptocurrency-powered by a peer-to-peer network to manage transactions without the need for a third party. The first decentralized currency eliminates the middle man providing complete security and privacy of our transaction.
  2. Who created Bitcoin?
    Satoshi Nakamoto was the first identity to publish the Bitcoin whitepaper on the crypto mailing list. In 2010, satoshi left the project without revealing his details. Since then, the community is growing exponentially.
  3. Who controls the Bitcoin network?
    Bitcoin is independent and autonomous. There is no single entity to control Bitcoin; people worldwide hold the decentralized public ledger. The developers keep improving the software, but the people on the network are free to accept the updates or work on the previous ones.
  4. How does Bitcoin work?
    Bitcoin is nothing but a decentralized personal wallet that exchanges currency with other networks using cryptography. It works just like we do an online transaction. The only difference here is that we are not answerable to any bank or central authority for sending and receiving Bitcoins.
  5. Do people use Bitcoin?
    Yes, Many businesses are understanding this infant technology and projecting its futuristic applications. Businesses like restaurants, apartments, and law firms have started accepting Bitcoins as their payment method. Although the technology is just a decade old, it’s spreading like wildfire.
  6. Why do people trust Bitcoin?
    Bitcoin is fully decentralized and has open-source code. Anyone can access the entire source code from anywhere, at any time, and verify how Bitcoin operates. No organization, no government, or any single individual can control Bitcoin. The trust on this platform is built by the users’ collective contribution who power this distributed network.
  7. How are Bitcoins created?
    New Bitcoins are generated by mining. Every transaction that happens on Bitcoin is verified. When the community validates a complete transaction, It is then added to the Blockchain, and new Bitcoins are introduced in the circulation.
  8. Why do Bitcoins have value?
    Bitcoins can be used as real money. Bitcoin has the specific characteristics of money based on mathematical properties rather than relying on commodities like gold and silver or a liquid monetary system.
  9. What determines Bitcoin’s price?
    Bitcoin follows the demand and supply policy. When the demand is high, the price rises; the price drops when the demand is low. It is assumed that the Bitcoin pricing will rise until all the Bitcoins are mined, achieving its stability.
  10. How many Bitcoins are there?
    There are 21 million Bitcoins, from which only 17 to 18 million are mined. It is estimated that the last Bitcoin will be mined in 2140.