Bitcoin 101 - Basics of Bitcoin That You've Got to Know

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Bitcoin is virtual money that was first introduced in January 2009. It is based on the principles presented in a whitepaper by the enigmatic and pseudonymous Satoshi Nakamoto. The identity of the individual or people who invented the technique is still unknown.

Bitcoin offers lower transaction costs than traditional online payment systems and, unlike government-issued currencies, is controlled by a decentralized authority.

Bitcoin is a type of currency:

There is no physical bitcoin; rather balances are recorded on a public ledger that everyone can see. Every bitcoin transaction needs a massive amount of computing power. Bitcoin is neither issued nor guaranteed by any banks or governments, nor is it worth anything as a commodity.

Although it is not legal money in most areas of the globe, bitcoin is extremely popular and has sparked the creation of hundreds of rival cryptocurrencies known as altcoins. The term "Bitcoin" is frequently shortened to "BTC."

Let’s Understand Bitcoin:

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The bitcoin system comprises a network of computers (also known as "nodes" or "miners") that all execute bitcoin's code and store its blockchain. A collection of transactions is contained within each block.

No one can trick the system since all computers running the blockchain have about the same set of blocks and transactions and can observe these fresh blocks being filled with new bitcoin transactions in real-time. Anyone, whether or not they operate a bitcoin "node," may view these transactions in real-time.

To commit a heinous crime, a bad actor would need to control 51% of the computing power that makes up bitcoin. As of June 2021, Bitcoin has about 10,000 nodes, and that this number is rising, making such an assault implausible.

However, if an assault were to occur, bitcoin miners—the individuals who participate in the bitcoin network via their computers—would most likely fork to a new blockchain, rendering the bad actor's effort to carry out the attack futile.

The balances of Bitcoin tokens are stored using public and private "keys," which are long strings of numbers and characters linked by the mathematical encryption process that produced them. The public key (similar to a bank account number) acts as the address that is made public and to which others may transfer bitcoin.

The private key (similar to an ATM PIN) is supposed to be kept private and is only used to approve bitcoin transactions. Bitcoin keys are not to be confused with a bitcoin wallet, which is a physical or digital device that facilitates bitcoin transactions and allows users to track coin ownership.

The name "wallet" is a little deceptive because bitcoin is decentralized, it is never held "in" a wallet, but rather decentralized on a blockchain.

Bitcoin Mining:

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Every Bitcoin transaction is broadcast to the network and validated within 10-20 minutes via a process known as ‘mining.' Similar to crypto mining, a group of individuals uses powerful computers to execute sophisticated computations in an attempt to estimate a random number that solves a difficult equation created by the system in Bitcoin mining.

The higher the computer's power, the more predictions it can make per second, boosting its odds of success. Bitcoin mining is essentially the equivalent of a competitive lottery.

The system that solves the equation is given the chance to update the blockchain by verifying Bitcoin transactions over a certain period and grouping them into a block. It ensures chronological order in the blockchain, preserves network neutrality, and lets various computers agree on the system's state.

In other words, miners function as auditors, updating the blockchain in the same way that banks maintain ledgers. The lottery mechanism makes it difficult for anybody to add additional blocks. These restrictions prevent prior blocks from being changed since doing so would render all subsequent blocks invalid. Nakamoto mined the first Bitcoin block, known as the genesis block, on January 3, 2009.

As a result, no group, individual, or institution can control what is included in the blockchain or alter sections of the block chain to roll back their spending. Furthermore, as recompense for their time and work, the system pays the miner who solved the equation with a predetermined amount of bitcoins, presently 12.5 bitcoins.

The complexity of mining Bitcoins is determined by the amount of network power required in the mining process. The degree of complexity rises proportionally to the number of computers participating in mining; in other words, mining becomes simpler as the number of humans involved decreases.

Presently, the 'level of difficulty of mining bitcoins is over 6.379 million, up from merely 1 in 2009. As a result, Bitcoin mining is now extremely complex, energy-intensive, and far less rewarding. As a result, individuals frequently join mining pools (groups of miners that pool computing resources over a network) in order to increase their chances of success and share the benefits with pool members.

Trading:

Bitcoins may be exchanged on any digital asset trading platform known as a Bitcoin Exchange, where users can buy bitcoins using fiat currency or alternative cryptocurrencies known as Altcoins. Bitcoin exchanges, similar to stock exchanges, operate as middlemen, matching buyers and sellers.

A Bitcoin wallet is required to exchange Bitcoins.

Current Value of Bitcoin:

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In late 2017, the value of Bitcoin hit a record high of US$20,000 per Bitcoin but then plunged. In February 2020, the worth of one Bitcoin reached US$9,900, before dropping to roughly US$5,900 in March as a result of the rapid spread of Coronavirus and its catastrophic financial ramifications.

The legal standing granted by governments determines the value of fiat currency. These currencies are ‘legal tender,' which means they must be accepted as payment when presented. Bitcoin, on the other hand, gets its worth from the rising number of individuals, merchants, and enterprises ready to accept it as a means of exchange.

Written By - Kirthiga Morais P

Edited By - Daniel Deepak Charles