Bitcoin
Finally to the point, why we’re all here. What is Bitcoin, and why should I care? Bitcoin is a decentralized The process in which tasks, planning and decision making is delegated away from a central authority, location, or group. and Peer to Peer (P2P)A network in which each device acts as a server for others. currency. If you have ever used a torrent before you already know how bitcoin works. The only difference is you are sharing mining The process by which the bitcoin network is secured and validated. power instead of National Lampoons Van Wilder, all of this to create the most secure network that has ever existed. Bitcoin has grown to be at this time the most significant digital grouping of power that has ever been recorded, currently around 44 terawatt-hours per year, or that of 4 Irelands. The beauty is that Bitcoin is mostly ran off renewable energy, believe it or not.
Bitcoin is becoming money. Soon it won’t matter what currency you would like to use, any and all will be accepted as long as there is a means for transfer.
How does Bitcoin work?
Bitcoin works in a fascinating way. Bitcoin is a distributedSpread out. network, meaning it doesn’t exist all in one place. Each user of the Bitcoin network helps make sure it is secure. There are 2 methods for assisting the Bitcoin network. Those methods are MiningThe process by which the bitcoin network is secured and validated. , and Validating.The process of verifying transactions on the Bitcoin network. It’s good to know that all miners are also validators, but not all validators will be miners. It’s completely up to you if you decide to be a miner, or just a validator.
Mining
In the early days of mining a user could load up the Bitcoin-Client softwaresoftware developed by the creator of Bitcoin. It allows users to send/receive and mine bitcoin from any computer., and begin mining with only the processor in their computer. This was back when Bitcoin was fairly unknown and had a low amount of users. At this time, the network has grown considerably and the only way to mine is with powerful ASICApplication Specific Integrated Circuits are specialized hardware designed to run Bitcoin mining software only. miners. All this means is, the method of producing Bitcoins has been so sought after that we have developed a way to be completely efficient in creating them.
The way these miners create new bitcoin and secure the network is through a discovery process called Proof of WorkPoW is a system that requires a not-insignificant but feasible amount of effort in order to deter frivolous or malicious uses of computing power. Proof of work is an AlgorithmA sequence of well-defined, computer code, typically used to solve a class of problems or to perform a computation. used to develop inherent trust in the system. Each time the algorithm is completed the system checks to see if it has discovered the correct answer, this process is known as a HashA hash is a function that converts one value to another.. In the case of Bitcoin the algorithm is attempting to find a number below a target number, which has already been determined by the system, and continues based on the previous solution. One of the best features of Bitcoin is that the cryptographic hash functionsan algorithm that takes data and produces a fixed-size output of enciphered text called a hash value, or just “hash.” That enciphered text can then be stored instead of the password itself, and later used to verify the user. In other words, the answer to the algorithm. cannot be reversed, so the data that is used to create Bitcoin transactions is unable to be reverse engineered, only discovered through the Proof-of-Work algorithm. Think of it like checking your work in math, only when you are able to check your work, and reach consensusA general agreement. are you able to complete your block(work) and add it to the chain of existing blocks. Once that has happened, the miner who solved the problem is rewarded with the Block Rewardreward for successfully mining a block in a blockchain., and then another block is set up to be mined.
This elegant process has been ongoing in the Bitcoin ecosystem since it was created in 2009. Mining is also the process that creates new Bitcoin. With each new block, a reward is given to the actora participant in an action or process that finds the solution to that block, the reward for discovering a block is currently 6.25 new bitcoin. An event known as The HalveningAn event that happens roughly every 4 years, that cuts amount of new Bitcoin created by mining in half., cuts the rate at which bitcoin are created in half, and occurs roughly every four years. The rate at which Bitcoin is created will continue to diminish until all of the Bitcoin have been minedThis is currently set to occur sometime near the year 2140, at which point only the miner feesMiner fees are payments to miners for including a transaction in a block. will be given to miners to keep the network going.
This graph shows the strength of the Bitcoin network over time. The hash rate is the result of all miners working together to secure the network.
Validating
Bitcoin validating is an even simpler process than mining, as all a validator on the network does is check the work of the miners to be sure that they are accurate. This amazing process is what lets us create Bitcoin transactions without needing to trust the miner. We only need to trust their work, as the correct answer can only be found by doing honest work, otherwise the avalanche effect A desirable property of cryptographic algorithms where if an input is changed slightly the output changes significantly occurs. One way I like to explain it is, think of every validator on the network as an ant helping create an anthill. Each ant is doing work, and adding to the overall system, however, in order to manipulate even 1 transaction, that actora participant in an action or process would need to redo the work that every ant has done since the creation of the network, all the way up to the current time in order to make an impact. Which given the length of time the network has been around, 10+ years now, makes me believe it would be an insurmountable task.
Each link in the chain corresponds to a transaction. They are all linked together in a block. Cryptography and therefore the avalanche effect helps secure all of the transactions since the beginning (Genesis) of the network.
Intrinsic Value of Bitcoin
Now with all of that in mind, we have basically stumbled across a noteworthy achievement which I believe in itself gives Bitcoin inherent value. The sheer magnitude of the power behind the network is what I’m speaking of. Beyond that it’s a permissionless No permission is required to join or participate in the network, it is open to anyone that wants to learn about it. system that can be used by anyone, anywhere. There are even satellites in space to be sure the network never goes down. It’s this kind of robust security, and resiliency that led me to believe in Bitcoin the way that I do. The only thing I can foresee that could possibly derail Bitcoin, is the invention of a new currency that is more fair and balanced. However, to this day many have tried and failed, with there currently being around 6,000 other cryptocurrencies in existence. A majority of those in existence are built on the Ethereum network, which we will get into at a later point when we’ve brushed up on our technical proficiencies. Bitcoin has stood the test of time, and has hit a point of no return in my opinion.
Bitcoin has been touted as the Internet for money, or digital gold, but the truth is, Bitcoin shows us that there is a way to escape from the current confines of our economy and go beyond even what our country has to offer. These ideas are being worked on and refined from people of all cultures and backgrounds, and are constantly growing, and showing what can be done when we all put our heads together and work with liberty in mind.
Below is Satoshi Nakamoto'sThe undisputed inventor of Bitcoin white paperA white paper is an authoritative report or guide that informs readers concisely about a complex issue and presents the issuing body's philosophy on the matter. It is meant to help readers understand an issue, solve a problem, or make a decision.. The white paper was released on October 31, 2008. No one has been able to discover the identity of Satoshi.