What is Bitcoin?
Bitcoin is a cryptocurrency created in 2009 by an anonymous person or group of people named Satoshi Nakamoto. The identity of the creator is not yet verified. Bitcoins are first decentralized digital currency that uses P2P (peer-to-peer) technology that helps with instant payments. Bitcoins are digital coins that one can send through the internet. It is a worldwide cryptocurrency and digital payment system that is accepted many countries and companies for transactions.
Bitcoin can be exchanged for other currencies (Dollars, Euros or more), products, and services. Bitcoins can be stored in your digital wallets on computer or mobile device. Sending bitcoin is same as sending an email. Bitcoin network is secured by an individuals called miners. Miners are rewarded newly generated Bitcoins for verifying transactions. These transactions are verified by network nodes and recorded in a public distributed ledger called a blockchain. Bitcoin can also be held as an investment. Bitcoin is split into two derivative digital currencies – the classic bitcoin (BTC) and the Bitcoin Cash (BCH).
Bitcoin is opening up a whole new platform for innovation. The software is an open source and anyone can review the code. Bitcoins are changing the financial system.
How are Bitcoins created and mined?
Process of Bitcoin creation is known as Bitcoin Mining. Bitcoins are discovered and not printed like money. Computers around the world mine for Bitcoins by competing with each other. Bitcoin operates as P2P Network. Everyone who uses bitcoin is tiny fraction of the bitcoin bank. Bitcoin doesn’t have a central government.
Bitcoin miners use special mining software to solve special math problems in order to issue bitcoin in exchange. This provides a smart way to issue the currency and also creates an incentive for people to mine. Since miners are required to approve transactions, more miners means more security.
The bitcoin network automatically changes the difficulty level of math problems depending upon how fast it is solved. In early days miners use to solve using computers. Soon they used graphic cards used in gaming for mining bitcoins. The graphic cards are faster but use lot of electricity and generate lot of heat. The first commercial product used for creating bitcoins used chips. These chips were faster but used power. ASIC (Application specific Integrated Circuit) Chips are designed specifically to mine bitcoins. This technology has made bitcoin mining faster and using less power.
As popularity of Bitcoin increases more miners join the network thus making it difficult for individuals to solve math problems. To overcome it, miners developed pooled mining where miners together find solutions to solve the math problem. Each miner gets rewarded with bitcoins depending upon their contribution in solving the problem. Mining is important and integral part of generating bitcoin.
Bitcoins are limited. Only 21 Million Bitcoins will be created ever for circulation. So as the price of Bitcoin goes up, each unit can be further divided to its 8th Decimal point. Each bitcoin holds a 100 million pieces. Bitcoins are easily divisible, scarce and portable.
Bitcoin network is more powerful and world’s biggest companies have started accepting bitcoins. The price of bitcoin keeps on changing. The price has been rising enormously.
How Blockchain is essential in Bitcoin transactions?
An open ledger that stores history of financial transactions is known as Blockchain. Blockchain can be adapted to store any kind of digital information. Bitcoin can be future of all digital transactions.
Bitcoin blockchain is a peer-to-peer (P2P) ledger. It allows users to transact directly. In Bitcoin Blockchain all users are equal, new users can join any time, runs on TCP (Transmission Control Protocol, usually), has random topology and Forgets a non-responding user three hours after they joined.
A blockchain user is referred to as a node. Bitcoin blockchain nodes don’t have a determined long-term identity – Constant identity is hard to realize in a P2P network and Pseudonymity is an inherent goal of Bitcoin blockchain.
The Bitcoin blockchain puzzles are known as hash puzzles or proof of work.
Types of Nodes
- The full-functioning nodes varies between five and ten thousand. Full-functioning nodes are characterized by those having permanent connection to Bitcoin blockchain, Stores the entire blockchain, read and forward every node and transaction (ensuring distributed consensus).
- The light node is also known as a think client or simple payment verification client. They Store only the parts of the chain they need, stores block headers only, requests transactions and trust full-functioning nodes.
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