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What is Bitcoin?

Published on
June 22, 2022
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What is Bitcoin?

Since the advent of blockchain technology, Bitcoin has become the first and one of the most valuable crypto-asset in existence. It is central to the cryptocurrency market. It is often referred to as the most successful application of this new invention. It allows people to transact across the globe without the involvement of a third party for the first time.

Created by fusing existing ideas and technologies to successfully solve the Byzantine Generals Problem (the fallout from the financial crisis of 2008) by Satoshi Nakamoto, bitcoin is an electronic currency stored on a blockchain. This Financial crisis portrays that banks and other government-controlled financial institutions cannot be trusted. As such, an electronic currency is needed. It became the first peer-to-peer digital currency that is not governed or controlled by the authority of a state or country.

Concepts that make Bitcoin work

Bitcoin is known as a decentralized currency because the parties involved controlling the bitcoin generation and transaction.

Bitcoin is a network that runs on a protocol called the blockchain. The blockchain is often referred to as the original bitcoin blockchain. A single chain of chronologically arranged discrete information is contained for every blockchain. This feature eliminates the need for any third party during the transaction, and at the same time, it provides access to peer-to-peer financial products such as loans. Another name given to the blockchain is the distributed ledger. This means that the blockchain is public and allows easy access to the general public.

Bitcoin wallets are public/private key pairs. When someone gives you his wallet ID, that ID is his public key. When you send coins to another wallet, the Bitcoin software uses your public key to verify that the transaction came from you, not an imposter.

Bitcoin is protected by cryptography. The private key is the starting point for bitcoin. It consists of a huge number of 78 digits. Every bitcoin transaction relates bitcoin to a private key. For instance, when a bitcoin is received, it is linked to a private key. This private key is created in random and different ways and can be deterministically generated from the master key.

Hashing

Hashing is also another feature that makes the bitcoin process work. It is an algorithm for validating the integrity of data. It takes a data input, mostly streams of letters and numbers, then chops it up to achieve an output. For the hashing, the same input often produces the same output. The hash values are important components of the bitcoin because it is how new blocks are created, added, and protected. Any message can generate a hash value. A computer has to solve a math problem to create a new bitcoin. Also, every block has its hash value called block ID. Every transaction has its hash value (transaction ID). The bitcoin uses hashes to detect if the ledger has not been tampered with.

Mining

Mining is how bitcoin is generated. It is the reason why bitcoins are called proof-of-work cryptocurrencies. This proof-of-work is gotten by solving the hash problem. It allows a miner to create a new block and pay themselves a reward. Until another innovation to make cryptocurrency reliable and inflation-proof, the proof-of-work model will remain.

Another feature that makes bitcoin that makes it valuable is Halving. This process cuts down the reward by half for every 210,000 blocks. On average, bitcoin mines a block every ten minutes, or 144 daily or 52,560 per year. So, the reward is divided in half every four years.

After the halving occurs, the rewards are cut in half. It can reduce the number of miners as the less profitable leave the business. This means that the miners will become fewer miners.