Okechukwu Solomon April 05, 2018 Technology
What is Bitcoin?
As digital trust and decentralized finances are taking over the world economic system, cryptocurrencies are gradually taking their seats in the commodities market. Speculators can safely assert that Bitcoin is the leader and most valuable of them all. As it is the case with other cryptocurrencies like Swisscoin, it is an entirely electronic means of acquiring and transferring of wealth in the digital world.
While it is not one of the hard currencies, it has the characteristics of currencies being used in forex, stocks exchange and commodities markets. Therefore, Bitcoin can be weighed against the USD and its values in relation to more the popular among the conventional currencies like the euro, pound, yen, and deutschmark is very high.
How Bitcoin is different
The major differentiating factor between Bitcoin, called BTC together with other cryptocurrencies, is how they are created.
Currencies like naira, lira or dollar are issued by and carry the logo of countries’ central bank and they are supported by the credit of the apex institution authorized to issue it. However, in the case of Bitcoin, there is no central bank or a money regulator of a nation that is authorized to issue it and control its circulation. This means that Bitcoin is neither under the control of any country nor is it governed by any nation’s economic policies.
Bitcoin is mined by its users. Yes, it is created and backed up by the all the users and miners that connect to the network of the blockchain by means of the Bitcoin protocol.
Process of creating Bitcoin:
Miners who mine Bitcoins are the first and most critical operators in the blockchain network. “Miners”? Yes. It’s not a big deal to be a miner here. You don’t need to go to a physical mining site, doing some sort of physical work of excavating. You “mine” the coins through your computer with graphic processors.
But you must first understand or remember that these currencies, called cryptocurrency, is a product of mathematical reality that the basis of blockchain and Bitcoin protocol is the sha-256 cryptographic algorithm being been used for data encryption for quite a while. You could then see that you are faced with some mathematical problems regarded as equations.
As you solve those incredibly ever complex equations, you are already mining Bitcoin big time, because by solving one of these cryptographic equations, you generates a new block in the blockchain. If it is confirmed that that is the solution by the network, the award is in Bitcoin assigned to that block.
Let’s face it. Gone are the days when a miner could with just his computer and a few graphics card mine Bitcoin. It should be so because the more difficult the solving of problems the more complex the data encrypted and in effect the computing power needed to achieve it.
That is why software developers and their companies have not stopped developing programs specifically designed to mine these coins.
These programs are more precise than graphics cards in tackling the cryptographic hashes.
The gigantic ledger that keeps all records of any Bitcoin transaction is the blockchain. Since all computing machines are connected, when a transaction takes place or a new block is solved, every computer on the Bitcoin network will check the change to be occasioned by the transaction against their local copy of the blockchain as part of process of validating the transaction.
Once at least 51% of the computers on the network agree that the transaction is valid it will be included in the blockchain which serves as the ledger. Invariably, every fraction of Bitcoin is thereby accounted for as unique somewhere in the blockchain. A mathematical problem develops each time a new block is found, and this system through this regulates the number Bitcoin in circulation.
It has actually been programmed that the number of coins to be produced will never exceed 21 million. So shall it be because the difficulty of finding new block will always increase while the reward for the same effort will decrease. This would compel the miners to rely on the transaction fees to cover the cost of running the network.
While the earnings for solving blocks are small, the transaction fees are smaller. However, Bitcoin is a self-grower in that the more miners operating on the Bitcoin network, the more the transaction. This trickles down to transaction fees. Certainly, Bitcoin has made a giant stride among the cryptocurrencies.
I know this introduction to Bitcoin will trigger a thirst for more on the nitty-gritty. Let us explore it some more.
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