Bitcoin can be defined as a decentralized digital currency that came into existence in 2009. When we talk about its creation, all credit goes to the financial crisis of 2008. The crisis situation proved to be a backbone for the development of this digital currency. This article will help you to understand more about Bitcoin and how it works. Along with it, you will learn about Bitcoin’s mining and many associated factors.
To explain more about this incredible digital invention, I must tell you that a group of people named Satoshi Nakamoto wrote a white paper, after which Bitcoin was invented. The crisis of 2007-8 was enough to disturb the financial markets worldwide. The subprime mortgage crisis led to the destruction of the economy, mainly due to the flaws in housing markets.
All of this was done to minimize the transaction fees. In online banking, the fee was way more than cryptocurrency transactions. The white paper built a base for a Peer-to-Peer (P2P) electronic payment system. The system did not include the involvement of any third party to transfer the money.
Bitcoin is a crypto asset that is not governed by any central authority. It is independent of any specific body that controls it. Cryptocurrency itself can be explained as a digital mode of exchange in which encryption technology ensures a secure and verified transaction.
Encryption technology converts or encodes the plain text into a random or meaningless text called ciphertext. Cryptography, on the other hand, refers to the study of safe communication procedures. It only allows the sender and receiver of the information to read the content.
Reasons Behind Bitcoin’s Creation
To continue the guide, I must add reasons to support its origin. It was made as an alternative to all the fiat currencies that run around the globe. Some of them are the British pound and the American dollar. Central authorities and the government support the supply and creation of fiat currencies. Bitcoin is not handled that way. Instead, its makers have the vision of making it a global digital currency.
Unlike other currencies, Bitcoin uses P2P technology to support protected and verified ways of exchange. This exchange method is independent, and no interference of central authorities is involved in its trading or transaction.
It is essential to know that this specific asset had no presence in the late 20th century. But there were factors that supported this coin to get designed. It was the point in time where people used to trade silver and gold as assets to gain profits. But due to their physical existence, they were prone to losses and thefts.
Moreover, to exchange physical assets, it was essential to add the third party that is the bank. Users were wholly relied on banks to preserve their funds and to maintain the value of their currency. Until the crisis came in 2008, it led to the failure of the banking system and the destruction of multiple financial authorities.
There was a need to decentralize the financial co-operations to improve the users’ experience by this time. The crisis was intense to the extent where people started to find other ways of transaction and exchange. Bitcoin came into the financial market as a savior to those who wanted a secure method of transacting capital electronically.
If we discuss Satoshi Nakamoto, he intended to replace the financial transaction through banks with P2P technology. This technology did not allow any confirmation from a third party such as the bank for transaction processes.
If we talk about the creator, then it is unknown to date. The creator has not revealed who it is. It may be because Bitcoin as a currency is continuously growing, and its worth is increasing day by day. This currency is, without a doubt, a competition to all the fiat currencies of the world. Also, it has the ability to eliminate all of them. It can basically be called a threat to all the other real currencies which carry great worth. It may actually lead governments to take legal steps against the creator.
When the discussion is about blockchain, then it is the most secure place to buy cryptocurrencies, including Bitcoin. It is a network-based ledger and platform from where the digital coins develop trust. On January 3, 2009, the first bitcoin was mined, and blockchain was officially launched. It was a week after its launch when the first transaction was made through it. Also, in the first few months, only miners were allowed to do the Bitcoin transactions.
Miners can be described as machines that solved complex mathematics problems to explore new Bitcoin and to check that the current transactions were accurate and valid. Even to this time, Bitcoin had not shown any significant rise.
It was 2010 when the first-ever Bitcoin transaction was made. On May 22, a man from Florida agreed to pay 10,000 Bitcoins for two 25$ worth Papa John’s Pizzas. Since then, May 22 has been celebrated as Bitcoin Pizza Day. Due to this transaction, Bitcoin was initially being set for four BTC per penny. Even till 2010, Bitcoin did not show significant growth, and at that time, people were also not aware of its advantages.
Working of Blockchain
As mentioned earlier, Bitcoin as a currency is not backed by any government or authority. Unlike all the other currencies, it has an independent entity. Factors such as inflation rates, economic growths, and monetary policy which impact fiat currencies do not apply to it
Blockchain is a properly linked system that carries data as blocks. These small units or blocks hold the information of each and every transaction. The block includes data such as the seller and buyer, date and time, the total value, and a different identification code for each and every exchange happening on the platform.
Whenever any transaction is made, and the block is uploaded on the blockchain, it becomes available to everyone. It serves as a record for the public that is interested in cryptocurrencies transactions. The block is not under the rule of any authority that makes it workable. No owner is there, and any of the transactions done through cryptocurrencies can change or edit the record.
Bitcoin mining can be explained as the procedure of adding transactions in the blockchain through blocks. It is undoubtedly a complicated task. In this process, miners have to be in competition with the computers. Those miners use PoW, the proof-of-work technique so that the transactions can be validated.
In the whole mining process, the miners attempt to generate a 64 digit hexadecimal number. The Bitcoin hash rate shows the approximated estimate of hashes produced by miners trying to solve the Bitcoin block or any given block. The hash rate is measured in Hashes/second, and to mine successfully, miners need a high rash rate.
The miners are awarded by Bitcoin code with extra Bitcoin to motivate them to support the system by solving multiple riddles and racing to achieve more.
If we talk about Bitcoin mining now, then it is showing a downward trend. It is not as profitable now as it used to be. It is because purchasing Bitcoin and making a profit has been made accessible due to the creation of multiple cryptocurrency exchanges. These exchanges provide services in which investors of crypto assets can buy or sell crypto assets such as Bitcoin pretty quickly. There are other services, too, which are provided by various brokers and exchanges that attract the user to select them and leave the traditional mining technique to gain profits through digital coins.
Advantages of Bitcoin
The fact is that the investors of crypto assets are much more independent than the users of all the fiat currencies. Usually, the banks charge a high fee to transact the capital. The point to note is that making a transaction through Bitcoin does not require any other party to get included to confirm the payments. On the contrary, the whole system and Bitcoin were made up to support Peer-to-peer payments and minimal usage of banks for the transaction of money.
One of the advantages of using Bitcoin is the security such sort of transaction has. The cryptography method’s implementation leads to fewer security risks, and it is ensured that individuals’ identities are protected. But when we talk about the physical world, the risk of identity theft is high as people can reach out to you through your name, location, and number. When we discuss blockchain’s ledger, then it is true it is protected. A great network security system has been established in the Bitcoin blockchain.
One of Bitcoin’s advantages is that it is growing unconditionally. Due to its volatile nature, people are more and more interested in investing in this particular asset. The worth of even one Bitcoin at this point in time is pretty high. It is predicted that it may take over the whole financial world in the coming years.
In most cases, the transactions done through Bitcoin are fast and secure. Thanks to all the online trading platforms that assisted many traders in making the purchase and selling this specific asset. The trading platforms also have implemented some robust security measures to provide users with a faultless experience. By executing such majors, it is ensured to minimize the identity thefts and money laundering issues.
Disadvantages of Bitcoin
The future is unknown to each one of us. Nobody knows the future of this digital coin. It is because maybe in the near future, governments may realize that the growing Bitcoin may take over their currencies. Hence, they may improvise or regulate policies against it. This can lead to the crypto miners or traders going into losses. Also, due to such actions by the government, Bitcoin users may hesitate to spend their money on it.
Unfortunately, Bitcoin is also being used in money laundering and in numerous illegal operations. Also, frauds are possible everywhere. Multiple online exchanges and brokers who are not legitimate do affect the investors with money. Botched transactions and attacks might lead the users of Bitcoin into difficult and critical situations. In such cases, the users might get into trouble.
Future of Bitcoin
It was due to the technological advancements that supported the creation of such software that includes digital coins such as Bitcoin. Bitcoin’s value is every time on the top of the list, as it is the very first cryptocurrency in the world.
Just after the creation of Bitcoin, multiple other digital assets came to the financial world to support the same motive of Bitcoin. Bitcoin makers give reasons for its creation: it was made to make transactions straightforward and less money-taking.
We’ve seen this asset growing throughout. In just a single decade, this currency got recognition which no one had ever imagined. Currently, a single Bitcoin’s value is above 50,000$ and is far more than its value in 2010, where 10,000 bitcoins were given to a seller just for two 25$ pizzas.
As I have mentioned previously, it is pretty sure that the crypto market, especially the worth of Bitcoin, will increase in the future. Maybe ten years later, it may become double the value it is now. The latest technologies and future technologies may further take Bitcoin to the highest levels. It is also considered that this currency may take over all the physical currencies that currently exist. Not because they may fail, but because people are more involved in crypto-related transactions than traditional ones.
Crypto trading is increasing day by day, but people are also engaged in keeping the Bitcoin with them and selling them when their prices rise. In my view, the future of cryptocurrencies and specifically Bitcoin, is going to be phenomenal.
But it would be best if you did not forget that a government governs every country. Mostly, all the financial controls and authorities are a part of the government and have the authority to prove any activity legal and illegal. Also, the government has the right to decide that what businesses can be run through the country. Additionally, the government is responsible for currency matters. For the government, a downfall in the currency might lead to inflation and multiple economic issues around the country.
Bitcoin, without a doubt, is a huge warning for multiple prominent currencies. It is growing without a full stop, and many people are now comfortable making transactions through it. Even big companies like PayPal has added the option of payment through Bitcoin in their payments method. It can be said that this world is accepting Bitcoin as a currency, but there are some solid setbacks at a higher government level that will only impact its investors.
So the answer to the question about the future of Bitcoin is pretty simple. The fact is, it is unknown. Yes! It is unknown as there are many reasons to support the point that Bitcoin is going to be one of the best assets in the near future. But the contrasting facts cannot be ignored too.
The guide to Bitcoin started from the explanation of its origination. It is explained above that the crisis hit the globe financially that actually drove the makers of this coin to build software where online transactions were made apparent through mining Bitcoin.
Secondly, we studied the reasons behind its creation and that how makers of this digital asset made Peer-to-peer transactions possible through the invention of blockchain, which is described as a digital ledger.
The main motive, which actually was the reason to build the software, was to minimize the involvement of the third party in the capital transaction. Also, to give users independence where they could use their money in the way they want. It is because there is no central body that governs the blockchain system or Bitcoin itself. All the decisions are dependent on the users, and there are no restrictions from any financial authority in this regard.
Thirdly, we discussed the working of blockchains. Here, we discussed that how a single transaction functions as a single block or unit in the blockchain. We also examined the mining processes and their functionalities, like hash rates and hash values.
Then we reviewed the advantages and disadvantages of Bitcoin. The edges are enormous in numbers. So are the disadvantages. It is true that through Bitcoins, you can gain a lot of profit, but it is also true that a little wrong decision can lead you to losses. Because of the volatility of the Bitcoin market, thousands of online investors are already present to risk their money. The fact is, only those individuals should go for bitcoin who are wealthy enough to bear the loss. Because when it is about Bitcoin, nobody knows what is going to happen.
In the last, we discussed the future of Bitcoin, and we reached a conclusion that its future is unknown. Nobody knows if it takes over as a single currency worldwide or gets totally vanished due to strict government policies.