What is Bitcoin? How Does it Work?
Cryptocurrencies have opened the doorway of decentralized finance for pro investors all across the globe.
Many individuals have started investing in cryptocurrencies to learn and earn from their investments. However, only a few people know about cryptocurrencies very well and understand the crypto market.
Well, here in this article, we are going to learn about the first cryptocurrency bitcoin…
I will try my best not to use too much complicated words and make this as simple as I can so that everyone over here can clearly understand what bitcoin is all about..
Let’s begin …
Bitcoin is the first ever cryptocurrency invented back in 2008 by an unknown person or a group of people known as Satoshi Nakamoto.
The bitcoin currency began its use after the year of its invention, and its implementation was released as open-source software.
In May 2010, one year after the initial Bitcoin transaction, history was made when a Florida-based computer programmer attempted to pay for a pizza using Bitcoin. The day he used Bitcoin to buy the pizza is now known as Bitcoin Pizza Day.
22 May 2010: The Bitcoin
There are three types of people globally: the creator, the customer, and the middleman.
For example, if you have a youtube channel and you provide educational videos to the people out there, then youtube takes 30 to 40 percent of your income.
Here in this example, you are the creator; your subscribers are the customers, and youtube is the intermediate platform(The middleman).
Banks all across the globe do the same they keep records and then charge fees to do this service.
Bitcoin was created to remove intermediate: The banks
If you want to send money from your country to another country where your friend lives, the bank takes a particular amount of fee charged for your transaction. An anonymous man or group of men created the bitcoin to cut this overhead expense.
Bitcoin is one of the first ever crypto currencies introduced back then in 2009.
Let’s understand how bitcoin works?
How Does Bitcoin Work?
Just like a bank keeps all the transaction data on its internet servers, bitcoin also keeps all the recorded data on the blockchain ledger.
Blockchain is a system where a record of transactions made in cryptocurrencies is maintained across several computers linked in a peer-to-peer network. Blockchain acts as an immutable shared ledger in a corporate network to record transactions and track the network.
Bitcoin uses the proof of work algorithm.
Proof of work:
When one party (the prover) demonstrates to another (the verifiers) that a given amount of computing effort has been made, this is called a proof of work (PoW), a type of cryptographic proof. Later on, this expenditure can be confirmed with little effort by the verifying party.
Proof of Stake:
For each block in PoS, only one miner can mine it. When a new block is generated, another miner is randomly selected to mine it. In this manner, only one miner consumes power for each block. That’s far more economical and eco-friendly.
Simply entering “www.google.com” into your browser will initiate a two-way interaction between your computer and Google’s servers. Then the two computers will begin exchanging data, at which point your browser will display relevant graphics, buttons, etc. These photos and links wouldn’t be visible if Google’s servers were experiencing technical difficulties. This is so because all the information is stored in one convenient location on a centralized network.
Explaining Bitcoin’s Architecture, including Both Centralized and Distributed Logic.
To grasp Bitcoin’s inner workings, it is necessary to understand what constitutes a decentralized network. Information in a decentralized network can be found anywhere. Even if Google switched to a decentralized network, you could still get the information, as it is spread in many everywhere. Consequently, Google would never experience an outage again and never get offline!
Cryptography was widely utilized during World War II. It changed radio transmissions into unintelligible code. You would have to convert it back to the original message in order to read it. You required a key in order to do that. Mathematical formulas made it possible!
The same cryptography is applied in Bitcoin. Bitcoin converts transaction data using encryption as opposed to radio communications. Due to this, Bitcoin is referred to as a cryptocurrency. That brings you one step closer to comprehending how Bitcoin functions.
Bitcoin uses the blockchain to accomplish this. Blockchain technology was created by the inventor of Bitcoin!
Demand and Supply:
Only one cake remained when John went to the bakery last week. Four other people also desired it. The cake usually only costs $2. He had to spend $10 on the cake because four other people also wanted it.
The fundamental tenet of supply and demand is that when something is scarce, its value increases. The price will directly increase the number of individuals who desire it. Similar to expensive vintage automobiles.
This idea underlies Bitcoin. Bitcoin has a finite amount of supply. Bitcoin’s production rate is capped and will gradually decrease; every four years, it will be cut in half. Once the cap of 21 million Bitcoins has been reached, no more will be created; no further coins can be produced. How many Bitcoins exist right now? As of today (27.07.20), 18.5 million new Bitcoins have been produced. There is still a very, very long way to go till it hits 21 million!