What is Bitcoin and how does it work?
Bitcoin is a cryptocurrency that can be used to buy any good or service wherever it is accepted. It is a free and decentralized digital currency that allows transactions without the need for intermediaries. It uses a peer-to-peer technology, which reduces the transaction to the parties involved who send and receive the Bitcoins through a digital wallet or wallet that has a Bitcoin address, similar to a bank account but free of all kinds of control or bureaucracy .
Making a bit of history
On October 31, 2008 , Nakamoto published the Bitcoin whitepaper , describing in detail how a peer-to-peer digital currency could be implemented. In it they proposed to use a decentralized ledger of transactions packed in batches (called "blocks") and secured by cryptographic algorithms or blockchain as we know it today.
Just two months later, on January 3, 2009 , Nakamoto mined the first block on the Bitcoin network , known as the genesis block, thus launching the world's first cryptocurrency.
The Bitcoin source code archive on GitHub lists more than 750 contributors, some of the most important being Wladimir J van der Laan, Marco Falke, Pieter Wuille, Gavin Andresen, Jonas Schnelli, among others.
How does Bitcoin work?
Although it does not physically exist, it works like any other fiat currency such as the dollar or euro. They do not have a serial number or mechanism to be able to track those who use this coin. Although it should be noted that the blockchain contains all this information within the large accounting book where, if required, the Token Migration Platform transaction can be tracked. Which rules out the myth that it's totally anonymous. It is in the sense that they do not request data to be able to operate with them.
This is supported by the community itself, which through the “Proof of Work” consensus confirms each transaction and adds it to the blockchain blocks. It should be clarified that once confirmed, it cannot be deleted or made any type of return.
What are their characteristics?
The money supply is limited to 21 million tokens, which are reduced to 50% in the halvings that take place every four years, reducing the miners' reward.
- Transactions that have been validated cannot be banned or censored
- It is created with an open source
- It is not necessary to identify yourself to use them
- Can be exchanged with any fiat currency or other cryptocurrency
How are Bitcoins produced?
The miners are responsible for producing the Bitcoins through the "Proof of Work" consensus method as we said before.
This also serves to provide security to the network. Some nodes, called full nodes, are a kind of software 'station' that safeguards a copy of the block chain , where all transactions are registered, and these are only validated when they appear in each of those copies, thus ensuring their legitimacy.
Miners can work individually or join a pool. For more information on this, you can read our article about the aforementioned consensus method.
The hash rate is one of the most important aspects of Bitcoin mining as it determines how much computing power you are willing to use to mine the cryptocurrency. The higher the hash rate, the more secure the blockchain will be.
The generation rate is scheduled to be reduced every 4 years by 50% until 21 million tokens are reached.
As of January 25, 2021, the total BTC in circulation was 18,844,750. In 2014 it was just over 12 million bitcoins.
What can I use Bitcoins for?
Bitcoin has three functionalities:
- Accounting unit
- Exchange medium
- Preservation of value
Bitcoin was a break in electronic commerce by being able to channel transactions without the need for a bank as we were used to. Eliminating fees or commissions for the service provided.
