What is Bitcoin?
Updated August 14, 2022
Updated August 14, 2022
Bitcoin is a cryptocurrency built on distributed ledger technology, which is also known as blockchain technology. Sounds complicated right? In this article we’ll try to simplify it down for you!
Let’s start with the blockchain. Bitcoin is built on blockchain technology but what exactly is a blockchain?
Imagine having a virtual library of books. Each book containing records of transactions and other information. Each of these “books” is connected to another book to make a sequence of books.
If we think of the “book”, each “book” has header information. This has information of the “book” in the first sequence and the “book” that goes after. This “book” also has a long list of transaction info as well as other information that is crucial to the book, such as the time each transaction was sent, who sends the transaction and who mined the book; more on this later though.
These “books” are all organized in a very specific order which cannot ever be changed. If the order does change then the entire network is compromised.
The entirety of these organized books is in technical terms called the Blockchain.
The first “book” ever created, or block is the genesis block. You can think of the first block as the first book in the bookshelf. The first block or “book” began with 50 Bitcoins.
Every time someone sends a transaction of Bitcoins, the transaction is recorded into a new block or “book”. A group of computers in the network then try to solve a mathematical problem.
The first computer to solve the problems is allowed to write the new block or “book” onto the blockchain, like publishing a new book onto the library. This is known as “mining”. The computer is then rewarded with Bitcoin. The blockchain is secured by algorithms to keep everything in check and safe.
Remember the virtual library mentioned in the beginning? This “library” is recorded by every computer working to solve the problem in the network. This process is ran in a decentralized manor.
It is decentralized because of the network protocols that run Bitcoin. Every time a calculation is solved, the network choses another computer at random to add the new block to the blockchain.
One of the great features about Bitcoin is that there will ever only be 21 million Bitcoins in existance.
Every transaction is visible because the “library” is accessible to anyone. Anyone can also download the “library” or blockchain and run a computer to take part in the mining process. Bitcoin is open source which makes this possible. Every block is also searchable.
Every 210,000 blocks or “books” that are generated or “published” , the reward for the miners gets cut in half. This means that the amount of Bitcoin produced decreases about every 4 years. Because of this, Bitcoin is a deflationary asset.
To wrap this up, the key fundamentals behind Bitcoin are transparency, decentralization and limited supply. Anyone can access the Bitcoin blockchain and anyone can see transactions, from any part of the world.
The Bitcoin network is not controlled by anyone agency or entity, it is ran by the community that uses it. More Bitcoin can not be created after a set amount is reached. The process that is used to make more Bitcoin (or mine more Bitcoin) requires computing power and mathematical processing.
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