The Bitcoin has the distinction of being the world’s first decentralized cryptocurrency. It was introduced in the year 2009. B-money and bit gold were the earlier attempts at actualizing digital cash technologies.
Satoshi Nakamoto, the creator of Bitcoins, started working on the concept using ideas from cypherpunk community while creating the digital currency. It was created as open source software. Bitcoins can be created by any person using some mathematical formulae that are freely available. The name Satoshi Nakamoto is presumed to be a pseudonym and the anonymity intended was to prevent control of the currency by any central authority. Recently, Craig Steven Wright, an Australian, has purportedly claimed that he is Satoshi and the creator of Bitcoin. He backed the claim using signature Bitcoins associated with the inventor of the digital currency.
A little More On How Bitcoins Can be Used
Bitcoins can be created, received or sent over the Internet. It is becoming increasingly popular and being used just as any other conventional currency by different kinds of businesses. Stored Bitcoins may be accessed only with a software application called a Bitcoin client. This can be downloaded into a mobile or a PC from the Internet or accessed through third party service providers. The Bitcoin network consists of a large number of people that share processing power and facilitate the transactions of this digital currency. These people in the network are referred to as miners and the process of facilitating the transactions is called Bitcoin mining.
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The most discerning characteristic about Bitcoins is that the currency is decentralized. This makes the transaction fees low and it can transferred from one account to another in very short periods without any control from any centralized authority. The software code that governs the creation and use of Bitcoins has put a cap of a maximum of 21 million numbers that can ever be mined for use. Any machine that mines Bitcoins forms a part of the Bitcoin network. However, the network continues to work even when a single or a few machines go down. The smallest denomination of a Bitcoin is named Satoshi and its value equals one hundred millionth of a Bitcoin. Thus, Bitcoins can be used to make purchases of very high or vary low values.
Bitcoin Mining and Transactions
Officially, Bitcoin mining is defined as the act of adding records to Bitcoin’s official public ledger called blockchain. This is like the general ledger that is available in traditional banks. However, this ledger contains all the transactions involving Bitcoins that have ever taken place. Whenever a new transaction is created, miners verify the validity of the transaction. This confirmation ensures that the Bitcoin is not used more than once. Any Bitcoin can only be spent once.
It is very easy to set up a Bitcoin account/address. There is no fee to be paid or questions that are to be answered including names and addresses when one sets up a Bitcoin account. There is no identifying information that is linked to a Bitcoin account and its user. An individual can have any number of Bitcoin addresses. Any public Bitcoin address will show the number of Bitcoins that are currently stored in the specific location. Transactions may, however, appear vague in case more than one address is used. Once a Bitcoin is sent to another address, there is no way one can get it back, unless the receiver sends back.
How Bitcoins are Mined
In the case of a traditional currency system, the government prints more money when the need arises. In case of Bitcoins, computers mine more of them. All the Bitcoin transactions taking place at all times are recorded to figure as to who has transferred how many Bitcoins. A specific list of transactions is stored as a block. Miners confirm such transaction blocks that are later transferred to a ledger.
The ledger thus forms a blockchain. It is very lengthy and every miner and anyone that transacts with Bitcoins will have a copy of this ledger. This is done for the sake of reference as well as transparency. The blockchain is heavily encrypted and this prevents anyone from trying to tamper with the records of the ledger. Typically miners encrypt a block when a new one is created. The result of encryption is a string of numbers referred to as a hash. The hash is also stored at the end of a blockchain. It is not easy to decrypt a hash and check the embedded data. Every new hash is encrypted with the hash of the last block in the blockchain. This helps to prove whether a new blockchain or the data contained has been tampered with.
Any user that can create a new hash is usually awarded 25 Bitcoins. Thus, the transaction is updated in the blockchain and all miners are notified immediately. This is a great incentive for miners to earn Bitcoins. However, any common hash would do to earn the Bitcoins. The miner creates a new hash by following a specific set of tough rules.
These rules include the one that every hash has to be preceded by a specific set of zeros and no miner should use the transactions that are already present in a block. To get around this, a ‘nonce’, which is a random piece of data, is used to create the new hash. The nonce is used along with the transactions to create a new hash. The nonce is usually changed to create a new hash. When the number of miners increases, the computing resources that are required become enormous and the generation becomes more difficult. As of now the design of the Bitcoin network is such that about 25 Bitcoins can be released every 10 minutes. The rate of generation would then halve every 4 years until all the Bitcoins have been mined.
Why Bitcoins are Popular
With the transaction fees nearing zero unlike bank charges that are expensive, and the transactions being fast, Bitcoins are becoming popular the world over. The processing time is only dependent on the network processing speed.