What is a Bitcoin
Bitcoin is a decentralized digital asset. It is a new type of asset such as cash, gold, and real
estate.
It was the first and most popular crypto currency.
Bitcoin (abbreviation: BTC[a] or XBT;[b] sign: ₿).
Use of Bitcoin:
You can use it like money or as a store of value.
History of Bitcoin:
The domain name bitcoin.org was registered on 18 August 2008.
Satoshi Nakamoto was released a paper titled Bitcoin: A Peer-to-Peer Electronic Cash
System On 31 October 2008.
Nakamoto implemented the bitcoin software as open-source code and released it in
January 2009
How it is different from traditional finance:
Traditional finance:
Traditional finance is always a business in between your transactions.
The third parties act as go-betweens, and are often called intermediaries.
Bitcoin:
Bitcoin is a decentralized and “trustless" model.
The trusted third parties (middlemen such as banks) aren’t necessary with Bitcoin.
Bitcoin can be transacted directly, without third parties, and without asking for permission
to create an account.
Exchanging cash directly doesn’t require intermediaries.
What gives Bitcoin value?
The value of Bitcoin comes from two connected aspects:
Its features
Its network effects
Network effects:
When a network grows, its utility grows also.
The classic example is a telephone network. When there are only a few people on the
network, it’s hardly valuable. But when you can call anyone, the network is more valuable.
The same is true of money networks.
Features:
It has a limited supply:
There will only ever be 21 million bitcoins.
It's easily divisible:
You can divide one bitcoin into 100 million pieces (100 million sats), whereas 1 US dollar can
be broken into 100 pieces (100 cents).
It can always be divided into smaller and smaller pieces.
Currently 1 SAT is worth about 0.000169 cents. A single dollar is about 5920 SATS.
It's durable:
A huge globally distributed network of independently operated computers tracks Bitcoin
ownership. This ensures that no bitcoin is lost.
It's more portable:
Sending any amount of bitcoin to anyone in the world can be done in minutes .
It’s more easily verified
It's easy to verify the authenticity of bitcoin.
It has stronger network effects
Bitcoin has grown from zero in 2009 to over 100 million today,
Bitcoin’s network effects benefit from the scale and speed of the internet. That’s because
Bitcoin is a digital asset whose proponents are digital natives.
Working of Bitcoin:
Bitcoin mining:
Bitcoin mining is a complex computational and technological
process of validating the bitcoin transactions over the Bitcoin
network. It is like a process of validating a block on the chain
network and getting paid in Bitcoin. People who are involved in this
process of mining are known as miners.
Proof of working:
Proof of work (PoW) is a decentralized consensus mechanism
Proof of work is also called mining.
Proof of work is a software algorithm used by Bitcoin and other
blockchains.
Proof of work allows for secure peer-to-peer transaction processing
without needing a trusted third party.
Proof of work requires vast amounts of energy.
The following figure explains the concept of proof of work:
The “work” in proof of work is key : The system requires miners to
compete with each other to be the first to solve arbitrary mathematical
puzzles to prevent anybody from gaming the system. The winner of this
race is selected to add the newest batch of data or transactions to the
blockchain.
Winning miners only receive their reward of new cryptocurrency after other
participants in the network verify that the data being added to the chain is
correct and valid.
The following figure explains the concept of mining process:
