Bitcoin
What Is Bitcoin
Bitcoin is a decentralized digital currency and it was created in 2008 by an unknown person or group using the name Satoshi Nakamoto and launched as open-source software in 2009. Unlike traditional currencies issued by governments, Bitcoin operates without a central authority or single administrator. Instead, it uses a peer-to-peer network and cryptographic methods to process transactions and create new bitcoins.
Often called "digital gold," Bitcoin is valued for its limited supply and its potential as a store of value. There will only ever be 21 million Bitcoins, with this limit expected to be reached around the year 2140. This scarcity, along with increasing demand, has significantly increased Bitcoin's value since it was first introduced.
How Does Bitcoin Work
Bitcoin operates on a technology called blockchain, which is a public ledger that records all transactions across a network of computers, known as nodes. The blockchain is a series of linked blocks containing transaction data. Each block includes a reference to the previous block, a timestamp, and transaction information. This setup ensures that once a block is added, it cannot be changed without altering all subsequent blocks, making the blockchain very secure and tamper-resistant.
The Bitcoin network (Bitcoin with capital letter ‘B’ refers to the network) is decentralized, meaning it runs across thousands of nodes, each storing a copy of the blockchain and helping to validate and share transactions. This decentralization prevents a single point of failure, making the network robust and secure against attacks. Transactions are verified by participants called miners through a process called mining.
Mining is the method by which new bitcoins are created and transactions are added to the blockchain. Miners use powerful computers to solve complex mathematical problems that validate transactions and secure the network. The first miner to solve the problem adds the new block to the blockchain and is rewarded with newly created bitcoins (bitcoin with small letter ‘b’ refers to the asset that powers the Bitcoin network) and transaction fees, a process known as proof of work (PoW).
Bitcoin transactions involve transferring value from one Bitcoin address to another. Each transaction is broadcast to the network and grouped into blocks by miners. A transaction typically includes the sender's address, the recipient's address, the amount of Bitcoin being transferred, and a digital signature to verify the sender's ownership of the funds. Once confirmed by the network, the transaction becomes part of the blockchain and is irreversible.
Bitcoin's security relies on cryptographic techniques to protect transactions and control the creation of new bitcoins. Public key cryptography ensures that only the owner of a Bitcoin address can transfer the bitcoins associated with that address. The network's decentralized nature and the difficulty of the mining process make it extremely hard for anyone to alter the blockchain or create fake transactions.