While Bitcoin has been around since 2008, not everyone has a deep insight into the tech behind Bitcoin and Blockchain in general. Today, we’re going to take a deep dive into how Bitcoin, Blockchain, and Mining Work—And Why They Matter now and in the far future.
As already mentioned, everyone found out about Bitcoin (BTC) at the end of 2008; then, it became clear that a new era of digital currencies had begun, among which BTC was and remains the main figure. Why has BTC become so in demand? It turns out that BTC was the first currency that did not have a single center, meaning a bank, fund, or government could not control this resource.
It is now possible to exchange funds between users without an intermediary. Such a system is called peer-to-peer. In simpler words, a third party is not involved in the transfer of coins. The advantage of such a system lies primarily in anonymity and security because no one knows to whom and how many coins you have transferred.
Another advantage is that your savings cannot be blocked or withdrawn without your knowledge. Fraud is also extremely difficult: stealing BTC is very difficult due to the encryption of transactions.
In this article, we answer the question “What is Bitcoin?” and analyze how this cryptocurrency works. First of all, we list the advantages of this cryptocurrency:
- secure transactions;
- anonymity;
- high coin value;
- convenient storage;
- fast exchange for fiat currencies.
The Bitcoin Payment System
This payment system is currently in high demand and considered innovative, as it provides a level of security that is impossible when transferring fiat currencies. The BTC system is based on the latest technology called blockchain.
In short, this is a global registry that is accessible to every participant; all coin transactions are recorded in this registry. It is interesting to know that the blockchain allows for cross-border transfers, but there are limits. Registration in the system is automatic, and you can find information about your actions at any time and from anywhere in the world.
Bitcoin is unusual in that its value has increased thousands of times and now stands at over $80,000 per 1 BTC. That is, many companies invest in BTC for the purpose of making money. Due to the great support around the world, this digital currency continues to hold its position and shows steady annual growth.
Blockchain and PoW
When you make another transaction, information about it is recorded in the general registry. On this page, a block is formed, which contains a record of your transaction. The block is placed in a row of the same blocks and forms a chain. At this stage, the block must be checked by other participants. If necessary, you can find this block in the registry later. After adding a block, it cannot be changed, which greatly reduces the possibility of fraud.
Next, we talk about what PoW (proof of work) is. This is a mechanism that is used to test completed transactions and to complicate access to the server. To ensure that access to the server is normalized, users solve puzzles (which are called “client-side” puzzles), the result of which is quickly verified by the server.
As a result, hackers cannot abuse frequent access to the server. This way, you can protect yourself from DoS attacks. “Client puzzles” are actively used to enhance the security of the cryptocurrency system.
Mining
Each person or company can receive their own Bitcoins, but this requires powerful equipment and, above all, a video card. To receive coins, you need to solve a complex mathematical problem, submit the results to the server, and pay a commission.
In the Bitcoin system, only the one who solves the problem first and generates the entire next block can receive a reward. The coins received can be spent only after one day. The more powerful your equipment is, the more likely you are to earn coins.
Remember that the network capacity is growing, so the miner needs to upgrade the equipment to compete. Interestingly, there was previously the possibility of mining using a CPU, but later this opportunity disappeared, as it turned out that the processor was less productive than the graphics card for solving specific puzzles.
Storing Bitcoins
To carry out transactions with BTC, you need to have two cryptographic keys, one of which is open to everyone, and the other is open only to you. You can store these keys in any form: software, electronic, or paper.
In other words, you can store keys on a USB drive, in the cloud, on paper in the office, or encrypted. Theft of keys is rare, as it is a technically complex process. It is much easier for fraudsters to steal transaction data in fiat currency.
One of the advantages of BTC is that you can exchange coins for fiat money online at any time and then cash them out. BTC is highly valued and accepted by almost all currency exchangers on the internet. Anyone can join the Bitcoin system, regardless of which country you are registered in.
As with any financial asset, you should trust only trusted brokers and follow the rules of financial security on the internet. Remember that there are many cryptocurrencies, but the most relevant one today is Bitcoin.
