In essence, Bitcoin is a digital currency with a decentralized system which means that there are middlemen overseeing every transaction being made. The creation of Bitcoin started small, where only a few people know of it. Now, it is one of the most important investments today due to its high value. While it is already mainstream, it is never too late for new investors to start investing in Bitcoin. Hence, they should find out more about it through this article. If you are interested, you can start by learning its roots and how it all started:
How Bitcoin began
Satoshi Nakamoto is the one behind the creation and development of Bitcoin. Although, this is just a pseudonym to represent the person or people behind this cryptocurrency. Until now, his identity and whereabouts are still unknown, which makes him a mystery.
In 2008, Nakamoto published a research entitled ‘Bitcoin: A Peer-to-Peer Electronic Cash System’ was published. The research discussed how fiat currencies require tedious preparations that include setting up a bank, processing documents and following the government’s value for the money. Aside from that, Nakamoto argues that the history of fiat currencies contains a lot of security breaches and fraudulent acts.
As a solution to the current problems and flaws of traditional currencies, Nakamoto released Bitcoin, the first digital currency, to the public in January 2009. Aside from that, they believe that this can also solve the problem of double-spending – the disruption of the blockchain, which can let hackers steal tokens.
With its contribution to society and financial security, Bitcoin gained relevance, which motivated people to invest. That is why they take their time to study the inner workings to get a better understanding of how it works. To give you an idea, here is how Bitcoin operates:
Bitcoin: How does it work?
To further understand the concept of Bitcoin, you need to learn the flow of its process. This includes a lot of elements and factors as seen in the following section below:
One of the things that make Bitcoin secure is its blockchain system. The data is stored in a decentralized ledger that makes transactions secured. Moreover, the blockchain has these qualities that guarantee security:
A decentralized network means the information is duplicated among computers. Moreover, it uses a peer-to-peer system, which means that everyone has access on the blockchain. As such, no one has sole control over the blockchain, that’s why it’s considered a public domain.
Cryptography means ‘secret writing’ which maintains the exchange of messages between two recipients. With cryptography, a transaction remains secure since it generates encryption keys that are unreadable for unauthorized recipients.
To confirm transactions and create new blocks, Bitcoin uses the Proof-of-Work system (PoW). This is a mechanism that contains complex mathematical puzzles that require extensive knowledge and effort to solve. This process prevents fraud and malicious intent that breach security.
PoW involves miners competing with each other to confirm transactions and be rewarded with BTC. If miners can solve the puzzle, a new block is created and transactions are placed in this block. The PoW system serves as proof that the work done by miners makes it possible for them to add more information to the blockchain.
Besides that, the difficulty of the mathematical puzzles gets harder in a way that you cannot solve it alone and would require technological assistance, especially when more miners are competing in the network.
To release new tokens, Bitcoin requires people to ‘mine’ by solving complex and complicated mathematical equations to generate the ‘hash’ of a block, which is a unique alphanumeric that serves as a block’s fingerprint. Moreover, this process requires huge amounts of energy and high-powered equipment such as mining rigs that can be a central processing unit (CPU), graphics processing unit (GPU) or application-specific integrated circuit (ASIC).
As payment, miners are incentivized with new bitcoins, which is added to the circulation – hence the term ‘mining’ since bitcoin is also likened to the value of gold that is limited. This entire process repeats but stops once it reaches its limit of 21 million tokens. Currently, the number of Bitcoin tokens in existence is 18,000,000.
The limited supply of tokens is important since this determines the value of Bitcoin. When there is a high supply but low demand, the value will drop, making it invaluable to the people and the market. Moreover, fiat currencies also use this logic, especially when there is a surplus of bills since this can cause hyperinflation of prices.
Where can you buy Bitcoin?
If you cannot ‘mine’ tokens, you can buy them instead! If you’re interested in buying Bitcoin tokens, take a look at the guide below for an easy and fast purchase of Bitcoin.
- Bitcoin exchange sites
There are a lot of exchange sites where you can buy Bitcoin. Depending on the exchange site you’ve chosen, you are allowed to purchase Bitcoin using debit and credit cards, bank transfers or cryptocurrencies.
- Peer-to-peer exchanges
Peer-to-peer exchanges are sites that allow sellers and buyers to directly interact with one another and create transactions. Similar to exchange sites, this type doesn’t need the help of a third party. However, this method requires you to take note when selecting a seller, so you avoid getting scammed.
- Bitcoin ATM
You can easily purchase Bitcoin tokens by withdrawing from its ATM. From the Bitcoin ATM, this is different from banks since it requires the QR Code of your digital wallet. Additionally, it has blockchain-based transactions that will transfer cryptocurrencies directly to the recipient’s digital wallet. With a Bitcoin ATM, your tokens are transferred after depositing cash as payment.
You can use Bitcoin with the following
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