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The curiousity continues to grow around what Bitcoin is, and why there is so much hype around the online currency.
In short, Bitcoin is a digital currency, created in 2009 and it works with a decentralized network which means that no single entity controls it and eliminates the need for intermediaries like with cash transactions.
Bitcoin was created to create a peer-to-peer (no central authority) network that enables users to perform their day-to-day transactions fast, with ease, and without the need of a middleman.
Cash transactions have to go through your bank and sometimes take days before it is received at the intended destination, and this can be frustrating for many.
Bitcoin works with a network where your transactions are private, secure, fast, and personal. To understand Bitcoin better, we can’t do without discussing what Blockchain is. Blockchain is the mechanism or technology behind all Cryptocurrency through which they operate.
Before the era of cryptocurrencies, data of transactions were stored in a central authority. With the discovery of Blockchain, the history of transactions is transferred across nodes of servers all over the world.
You might start to wonder such extensive data stored all around might be susceptible to manipulations and also how is this data held together?
Blockchain works with a security system known as “Cryptography” for holding this data in a block array and even prevents this data from being accessed by third parties.
With Cryptography, any attempt to alter this data renders this data invalid and useless. Also, with the open-source code used in the creation of Bitcoin, such alterations are easily detected by programmers.
Attributes of Blockchain
Key things Blockchain provides, which shows it’s better than traditional means of storing data:
Bitcoin, a cryptocurrency created in 2009, was created by a person or a group under the alias “Satoshi Nakamoto.” Similar to all Cryptocurrencies, Bitcoin had a low value and was mostly held by Miners at the time.
There have been many failed attempts to figure out the identities under the name of Satoshi Nakamoto. A report later claimed Satoshi to be a Japanese man, but with no concrete evidence to back the claim so, no conclusions can be drawn at this point.
But generally, Bitcoin was invented by Satoshi in 2009, and it was created using open source code which means that the code is available to any programmer for inspection.
It also shows the limitation of the influence of the creator towards the operating process of the Cryptocurrency.
Bitcoin is a digital currency and can only be obtained through mining. There is a limited number of it as only 21-million bitcoins can be created. Satoshi owns an estimate of 1-million Bitcoin out of the 21-million Bitcoin available for mining.
In mid-2010, Management of Bitcoin was left in the care of Gavin Andresen, a famous and influential member of the Bitcoin community. When Gavin took charge, he worked on making Bitcoin More Decentralized.
New bitcoin is introduced into the Crypto world when a Miner successfully mines a valid Bitcoin block. To get a legitimate Bitcoin, the Miner needs to make a highly educated and constrained guesses which are power intensive.
Humans can not make these guesses as they are advanced mathematical algorithms so, there are specially designed systems manufactured to carry out this task.
Mining performs two functions in the Cryptocurrency world; it is used to verify transactions and add data to the Blockchain and also to make new Cryptocoin available.
New Bitcoin currency is released through mining but, what is mining? Bitcoin Mining is a power-intensive method of bringing new Bitcoins into the Crypto world. Bitcoin had become relatively difficult to mine as compared with when it was newly created.
Formerly, all you needed to start mining Bitcoin is your Domestic Computer and a few years later, a graphics card. In recent times, this gadget will only mine you a little coin after a very long time.
Nowadays, due to increased competition, mining is done only by Special hardware manufactured mainly for that purpose.
Explaining the Mining process in a non-technical way is just like the normal gold mining process. To successfully mine a block, a Miner must successfully guess an advanced mathematical algorithm.
This is not random guesses but calculated and educated guesses which are mostly wrong most times. The guessing process is consuming a lot of energy and wastes time; however, every 10 minutes every day, a Miner successfully mines a block.
The Miner is therefore granted access to add the new block to the Blockchain, and he receives the allocated mining reward. The allocated reward for successfully finding and adding a new block to the Blockchain is 12.5 newly created Bitcoin.
The reward was much higher back when the coin was created; the reward was 50 freshly created Bitcoin.
The Bitcoin halving takes place approximately every four years when the block reward is cut in half. There are many benefits to the halving, and we discuss it in more detail in our post, “What does Bitcoin Halving Mean?“
In-order to explain the Mining technical process, some technical terms must be explained first:
Bitcoin makes use of the SHA-256; this mathematical function takes an input of any size and generates a fixed-length output every time. The generated output is called Bitcoin Hash.
The Merkel tree is similar to a tree but is a tree of hashes and the last hash on the tree is called the Merkel root. This is a concept in informatics and Cryptography, which is based on Bitcoin mining.
Target is a 256- bit digit extracted by hashing the previous block’s header in a particular method, that every Bitcoin user shares while difficulty is a measure of the difficulty it takes to generate a hash below or equal to a provided target. The difficulty is measured in Hash Rate.
For a Miner to successfully mine a block, the Miner is required to hash the block’s header in a style that is less or equal to the “Target.”
If you don’t understand much of this terminology, we created a helpful A-Z Crypto Glossary to help you learn called, “Crypto Terminology | A Helpful Crypto Glossary.”
Decentralization as said earlier, is the way to eliminate central authority is Bitcoin. It is the method of distributing control over Bitcoin to all its users rather than with a particular group.
The elimination makes Peer-Peer transactions faster and secures as no single entity can manipulate the process.
The failure of the Cryptocurrency doesn’t depend on a single person, but all the Holders of the coin.
Also, with the use of the Decentralization process, transaction charges associated with transactions are practically removed, saving cost for the parties involved in the case of frequent cash transactions.
Another critical advantage of decentralization is that the history of transactions is safely kept, spread across nodes of all servers rather than in a central place.
Therefore, the risk of manipulation is reduced, and also, the data cannot be lost. Anyone can join the Blockchain network to download a part of the Blockchain data.
Just like with everything there are advantages and disadvantages. Decentralization is no different.
The question we help you determine below is if the advantages outweigh the disadvantages.
Fraud prevention: since the Decentralization of Blockchain operates with an open-source system, and it contains every detail of transactions, it is straightforward to detect any act of fraud. The integrity of Blockchain is ensured by Miners who confirms the details of every transaction. With decentralization, it is nearly impossible to perform an act of fraud undetected.
Protection from Government Interference: Since Blockchain is not controlled by the government and details of every transaction is private and cannot be viewed, Interference of Government in the daily running of the business has been eliminated. The government is known to have an enormous influence on the traditional currency, but with Bitcoin, you don’t have to worry.
Faster transaction times: For most bank transactions, it can take days before the transaction is verified and received. However, with Blockchain technology, your transaction only takes minutes; it is faster and easier since there are no intermediaries to verify and process the transactions.
Improved financial Efficiency: Decentralized Blockchain ensure the transaction is made through the Peer-Peer system, removing the need for a third-party. This allows users to rely less on financial institutions, and this can save people from a lot of cost from transfer fees associated with using banks.
Crime: Due to the increased attention in Bitcoin, it has become a ground for fraud. It has also been used by people to purchase illegal goods online.
Volatility: A large percentage of the Cryptocurrency that uses the Blockchain is very volatile. However, with the volatility, the price of Bitcoin has increased considerably over the years.
Storage Issues: For people who are not tech-savvy, where to securely store Bitcoin might be an issue. The most secure storage for Bitcoin is known as the “Cold Storage,” such as Trezor Hardware Wallet. The cold storage is a storage that can’t be accessed by the internet, therefore, decreasing the risk of hacking. Alternatively, you can also store your Bitcoin on Exchanges such as Coinbase if you are not comfortabel maintaining your own crypto at the start. (Find a cold storage solution as soon as possible!)
No one has absolute control over Bitcoin. Due to the decentralization in the system, no one is responsible for the overall control of the system. It also means the success and failure depends on everyone from the:
Users– the day-to-day trader of the coin (people who buy and sell Bitcoin).
Miners– who process confirmation of transactions and make new Bitcoin available in the market.
Developers– this is people who work further improving the system and the open-source nature of the network.
So the failure and success of the system depend on all the sectors. Now back to the question “who controls Bitcoin?”, the sector that carries the highest Vote Controls Bitcoin; could be the Users, Miners, Companies, and Shareholders, or developers.
Bitcoin works like the usual day-to-day transaction and the only adoption being decentralization in its transactions.
Bitcoin is created through mining, and its information is protected using Cryptography. To own or perform any Bitcoin transaction, you need to have a Crypto wallet to keep the coin; this coin works like a bank where our cash is kept.
The only difference between the two is that a Crypto wallet is accessed online. You need to open a Crypto wallet to be able to maintain and trade Bitcoin.
How does a Crypto wallet work? In the real sense, your Crypto wallet doesn’t keep your Bitcoin, but it keeps the history of your transactions, your Bitcoin is kept in the Blockchain. Crypto wallet works with three main components, namely:
Every Bitcoin available after mining is stored in the Blockchain and the evidence of Bitcoin you own is available in the Bitcoin Wallet. The process involved in the Mining process is listed below:
There are mainly four ways by which you can acquire Bitcoin; the approaches are:
If you are interested in how to Earn Bitcoin without always needing to trade your fiat take a look at our article called, “How to Earn Bitcoin | Little to No Investment Needed.”
Like investing in anything, there is always a positive and negative side. It is the same with Bitcoin, it has managed to eliminate or provide an upgrade on some areas and has fallen short in others.
Based on an analysis published in The Wall Street Journal by Campbell Harvey, a finance professor at Duke University, Bitcoin has experienced a 7.5 times volatility more than gold, and over eight times as volatile as the S & P 500…
This is a vital question, especially after the boost and fall in price from the last bull run.
Relatively speaking, since the day and age of the internet bulb in the late 1990s, the returns of Bitcoin as well as its digital partners on the crypto asset space were never seen.
Bitcoin, however, has fundamental values very distinct from early web inventories and a much successful path of development.
Bitcoin is not a Bubble. Why?
One of Bitcoin’s most significant challenges until now, given its decentralized nature and its unfortunate link to the criminal activity carried out on the dark web, the acceptance of lawmakers and financial regulatory authorities.
But the “authorized” recognition of Bitcoin is growing. Japan formally announced in April 2017 that it would start to accept Bitcoin as a legally accepted method of payment.
Which increased the value of bitcoin instantly and led to a significant rise in commercial implementation throughout Japan.
Citizens in the Philippines are more and less sending and receiving low-cost transfers using Bitcoin.
The central bank in February 2017 declared that it would allow the Bitcoin to be used as a formally approved transfer method. This allowed Bitcoin to have complete political and legal status.
Another reason why Bitcoin is probably not a bubble is that it has a much needed real-world implementation in economically disadvantaged nations.
Bitcoin, for instance, has been a fruitful exchange and an alternative investment currency in locations like Venezuela, Bolivia, and Zimbabwe, when national currencies become low in value.
This can be seen through growing amounts of Bitcoin trade that are adversely linked to national currency output and financial development in affected areas.
Finally, one of the main reasons why Bitcoin is significant is that a restricted supply meets its growing demand.
Just 21 million coins can ever be mined due to how Bitcoin was made.
This leaves plenty of room for upside if you plan to trade or get Bitcoin and hold for a while.
For an even more in-depth look at the topic of Bitcoin being a bubble check out our article called, “Is Bitcoin and Bubble | Both Points of View.”
We are at the beginning of the shift in the way we handle our transactions and secure our data.
Bitcoin is reveloutionary and the signs of world wide acceptance is showing more and more as time goes on.
If we look at history the price of Bitcoin has the potential to continue to rise and give investors of all ranges a chance to capitalize on getting involed early.
Time will tell!
Just be sure to use only trusted, secure crypto tools to keep your crypto as well as your identity safe from the growing scams and hackers in the crypto space. See our list of battle-tested recommended crypto tools for all-around protection.