Everything You Need to Know About Bitcoin
Bitcoin as a digital currency is a defiance of the conventional system. In contrast to what we are accustomed to, Bitcoin is created, distributed, and transferred on an open-source protocol over the encrypted network called Blockchain. The revolutionary Blockchain technology is considered as the technical wonder of the century. Bitcoin network is self-governing and resistant to any central control or human interferences. Anyone can send and receive Bitcoin through pc or smartphones without any intervention from third trusted parties such as banks and governments.
Just like the dollar or other national currencies, Bitcoin can be used for payments or traded for goods and services. One Bitcoin can be divisible to one hundred million micro values and can be sent instantaneously with very little cost. Blockchain allows users to extend their innovations on the protocol level. It can be programmed to unleash unlimited potentials.
Bitcoin was introduced in 2008 by an unknown person named Satoshi Nakamoto. Satoshi Nakamoto published a white paper “A peer-to-peer electronic payment system.” On January 3, 2009, Satoshi started the Bitcoin network.
The very first block initiated by the creator is called Genesis Block. A new block is created approximately every 10 minutes endlessly. Blocks are sequentially tied together with one after another like an endless chain. Each block contains immutable record (ledger) of the all transaction activities of the network. The Bitcoin ledger system is called Blockchain.
This revolutionary innovation was introduced 10 years ago. Bitcoin has been undergoing slow but gradual global adaptation. Because of its disruptive characteristic and the massive potential, it can be recognized as a significant threat to the financial, political, and corporate system of the current world.
Even though Bitcoin payments for goods and services are not widely accepted yet, BTC has been used to purchase products and services worldwide. Bitcoin is great ways to send or make donations over the Internet. Emergencies can also gain from these donations because Bitcoin reaches those in need faster without any intermediaries.
Blockchain is the p2p technology of the network. No authority, government or institution can control the distribution and issuance of Bitcoin.
How are they created?
Conventional (fiat)money is created by central governments or the Federal Reserve. How do they do it? simply someone adds numbers to their national system ledger. Some people call it “printing money”. It depends on their judgment of the needs, unlimited amount of the money can be created. Do you ever wonder why the price of our food goes up constantly? It means more money has been printed, and our hard-earned savings is diluted continually by an excessive supply of the money.
Unlike, the conventional money system, BTC is created and controlled by an immutable mathematical algorithm on the network, and the coin are created by a process known as mining.
In very simple terms, the Bitcoin network is millions of computers connected together. To make sure the rules of the protocol are kept within the network, the exact same copies of all transactions (the ledger) are distributed to all nodes instantly and updated simultaneously and continuously. Each node keeps the exact identical copy of the ledger just like every cell in your body have the same copy of DNA. If one node attempt to create or spend money outside the rule. It will be ignored by the majority of the nodes because it doesn’t match the millions other books. In order to hack the system and create or steal Bitcoin, the hacker must break into millions of computers of the network at the same time to modify the entire length of the ledgers on each computer simultaneously. That is logically not possible.
Unlike the fiat currencies, Bitcoin does not rely on the trust of another human being as an issuer and the manager of the system. Instead, Bitcoin protocol is ruled by an encrypted complex of immutable mathematic algorism. The protocol runs on its own 24/7 (without human interference) creating a block every ten minutes. it is impossible to shut down the Bitcoin network. The only way it can be stopped is to shut down the global Internet infrastructure.
Whenever someone uses Bitcoin to make a payment, the transaction is recorded on the public ledger. The process which runs the Bitcoin protocol algorithm to confirm the operation is called Mining.
The process of Bitcoin Mining
Bitcoin platform is a peer-to-peer network, it means that everyone who is connected in the system is helping the network by being part of the network. Satoshi started the network 2009. Any computer; as long as it is connected to the network can technically mine bitcoins. Bitcoin is mined with the use of special software that solves Mathematics problems. Bitcoin network automatically alters the difficulty of the problem depending on how fast it is being addressed.
As miners continue to run the software on their machines, what they receive in return is a certain number of bitcoins. As more people join in mining, the network becomes more secure.
In the early years, bitcoin miners use regular computers or laptops to mine, but when new hardware for mining was introduced, it became harder for the regular desktops or laptops make any practical amount of BTC.
Miners are paid or rewarded at the end of each block. A block contains all transaction information of the network, and a block is created in every ten minutes approximately.
Those bitcoins are distributed among miners according to the computing power they contributed. The total possible rewards for each block are 12.5 BTC currently. This rewards per block drops to ½ every 4 years until the reward becomes zero (0) in the year 2140. The maximum supply of 21 million BTC will reach in year 2140.
Next halving will reduce current block rewards of 12.5 to 6.26 per block. ETA for the halving is May 22, 2020.
Unlike dollars, supply, the issuance of the BTC goes down, and the demand for the BTC goes higher as more people adapt to the system. This explains why Bitcoin value constantly goes up.
Where can Bitcoins be kept?
While fiat monies are kept in physical wallets and purses, Bitcoins are saved in software called a wallet, which can be used in computers, smartphones, or even on online wallets. The users can install and run the wallet on their own machines. The wallets allow the users to save the bitcoins and process transactions which is just as convenient as sending an email.
Download and installing wallet is much safer than a web-based wallet. It is very important to use a strong password and back up the wallet. Backup details including a private key and secret seed phrase should be stored offline in a safe place. Safekeeping wallet backup information offline or using hardware devices are the only way to completely eliminate the constant threat of malware and viruses. Errors on the equipment or hardware could then compromise access to these stored Bitcoins. However, wallets can be recovered easily from the backup seeds.
Recommended Wallet software includes:
– Bitcoin Core. With a drive for the community and as a free-software project initially, its primary function is to identify which blockchain contains valid transactions.
– Electrum. Developers contributed to the source code since its creation in November 2011 by Thomas Voegtlin.
– Armory. What makes this program exceptional is how it’s the only open-source wallet that comes with cold storage and multi-signature support.
Alternatively, users have the option to create an online wallet from numerous service suppliers. The credibility and reliability of the wallet provider should be put into consideration before start using the web-based wallets. There are many fake fishing websites out there to harvest passwords and the secret keys to your wallet. It is highly recommended to check and double-check the website URL before entering your password or secret key to any website.
How can I get Bitcoin?
Bitcoin can be mined or simply purchased.
Not like the old day, Bitcoin mining is now dominated by corporate mining farms with mega computing powers. Bitcoin mining operation is not feasible for small scale startups unless you have a cheap source of electricity. Bitcoin mining operation also requires a constant upgrade of the machines to keep up with the competition of growing hash power.
Buying bitcoin is much easier and faster options for starters to obtain Bitcoins.
Bitcoin can be purchased on peer to peer network like LocalBitcoins. LocalBitcoins permits users to find people within the vicinity buy and sell Bitcoins. Both parties can then agree to a meeting for business or take advantage of the escrow service from the Localbitcoins platform.
Using known Bitcoin exchange service is the most popular ways to buy and sell Bitcoins. There are over 300 bitcoin exchanges globally available for trading bitcoins and other cryptocurrencies. It depends on your location and the local currency that you would be using to the purchase BTC, there are many exchanges to choose from. It is recommended to use a reputable exchange with a long history. Click here to see the list of exchanges.