Bitcoin is the first virtual currency to use cryptographic technology and is the first demonstration of the blockchain idea.
Many of the technologies used in Bitcoin had already been published by researchers many years before the official presentation of Bitcoin.
The Bitcoin whitepaper summarizes the idea of Bitcoin.
To this day, we still do not know the identity of who actually created Bitcoin.
Satoshi Nakamoto, the Bitcoin controversy
There has been a lot of speculation surrounding the origin of Bitcoin. Some writers refer to the founder as a he. This is, of course, just speculation.
In the groundbreaking white paper on Bitcoin was first published in 2009. Satoshi Nakamoto had already released an outline of this project in 2007.
Satoshi argued that Fiat currency was legitimate simply because we all agree on its value. He also pointed out that monetary trust has been repeatedly violated throughout history.
The timing of the new proposal along with the global financial crisis was surprising.
What is the Bitcoin network
Bitcoin is a public decentralized distributed network of transactions.
It is a ledger spread across multiple computers that control each other.
These transactions are secure, transparent, virtually immutable, and relatively fast.
With Bitcoin, we don’t need to rely on central financial institutions to act in the public interest. These centralized institutions are potentially corruptible.
What is the chain of blocks?
A chain of blocks is a reliable historical record of transactions, it is like a ledger that is distributed among the miners. The function of the miners will be clarified in the course of the article.
This would mean that everyone can see what is happening on the rest of the network.
Bitcoin uses the idea of the blockchain to make the network secure.
In turn, the miners who are in charge of maintaining it have to carry out a work test; here, they are demonstrating their competence and at the same time they are being supervised.
Providing this proof in the case of Bitcoins requires a large use of energy, which is why the network is frequently criticized for this “inefficiency”. It might be fair to say that hardly anyone talks about the amount of energy that banks consume.
(More will be said about the work of the miners below).
How does the blockchain work?
In short, nodes or computers control the Bitcoin network and anyone can become a node. they have to download the entire transaction history on the network. These nodes perform the checks to make sure that new transactions on the network are valid.
A larger volume of nodes distributes and ensures an impenetrable system.
A valid transaction meets the network parameter. Mining Bitcoin would be like extracting gold from the ground. The difference here is that miners spend electricity and CPU power in exchange for a reward (Bitcoins and fees).
How long does it take to make a Bitcoin?
Creating a Bitcoin takes around ten minutes.
The maximum number of Bitcoins that will exist is 21 million. Miners who meet the proof of work required to create new blocks will start receiving Bitcoins as reward fees.
Reward fees decrease progressively. They are reduced by 50% (called Halving) every 4 years.
This halving event occurs every 210,000 blocks. The last halving was on May 11, 2020. Reduced the mining reward in half from 12.50 Bitcoins to 6.25. Doing it this way helps reduce the supply of Bitcoins and avoid inflation.
The goal of 21 million Bitcoins, at this rate, will not be reached until around the year 2130.
What is the function of the nodes/computers within the Bitcoin network?
Nodes (usually a network of computers) add transactions to their copy of the ledger and pass the transaction on to other nodes.
Everyone on the Bitcoin network can see each other’s transactions. It’s different from centralized systems like banks, where you only see your own transactions.
Bitcoin is designed with a collective transparency, produced and guaranteed by special mathematical functions. Trust is important in centralized financial systems, but in Bitcoin it is guaranteed to be decentralized.
When transmitting a transaction, nodes must ensure that the request is authentic. To verify the authenticity of a transaction, Bitcoin rules require a password.
The password, known as a digital signature, allows you to unlock and use funds. A new digital signature is required for each unconfirmed transaction.
Digital signatures consist of private keys and public keys. It uses private keys to create transactions and the public key to allow others to verify that transaction. Your digital signature is proof that you are the owner of your private key. With it, you prove ownership of a transaction without revealing the private key.
What are Bitcoin private keys and how does it work?
Your private key is your actual password. This key, in a way, gives you ownership of some Bitcoin content on the blockchain.
All Bitcoin ownership is verifiable by possession of the private key.
Each private key has a unique digital signature embedded in it.
When you send someone Bitcoin, you have to prove ownership. To do this, you must prove that you have the corresponding private key to access the funds.
The digital signature of a transaction is generated from the transaction messages (mathematical result) and its private key. These messages operate on the network and allow other nodes to verify that you are the owner of your private key without seeing your private key.
The signature is unique for each transaction and its integrity is verified in the system.
What happens if we lose the private key of our Bitcoin address?
If you lose your private key, your funds will be lost forever.
Transactions on the Bitcoin network are recorded by nodes/computers that are rigorously controlled. One can see the transaction on the network along with some other data such as when those transactions were created and where they are going.
What is proof of work?
The proof of work is a control method that develops during mining. A nonce is a short term for a number used only once.
In this context, it is a number added to a hashed or encrypted block on a blockchain. When it is repeated again, it resolves the difficulty level restrictions.
The nonce is the number that blockchain miners use to solve the puzzle.
Of course, this is a challenging operation and inevitably only the most powerful systems can win.
Successful miners are rewarded with cryptocurrency for their time and processing power.
Is it safe to invest in Bitcoins?
The price of a Bitcoin is volatile and has its risks. It is traded all over the world 24 hours a day, 7 days a week and is exposed to many factors.
Now private investors as well as big financial companies like PayPal, MasterCard and Tesla declare their support for Bitcoin.
Therefore, Bitcoin is becoming more and more part of the investment portfolio due to Fiat (legal currency) inflation and other risks. No one is sure how far the price of Bitcoin can go.
If you decide to invest, we suggest you read the article 3 steps to invest in Virtual Currencies.
Conclusion
Finally, if you consider how much Bitcoin has risen in the last few months (mid 2021), you will understand that cryptocurrency is here to stay.
Tesla and other companies have added billions of Bitcoins to their balance sheets, and many other companies are following the trend.
The bottom line is that Bitcoin is rapidly gaining global interest and value.
We are seeing a global financial paradigm shift, and cryptocurrencies are gaining traction as an alternative safe haven for financial transactions.