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What is Bitcoin

Neironix
October 1, 2018 12:00 AM
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What is Bitcoin

To begin with, Bitcoin presents itself a new kind of payment system and digital money. It is also known as the first decentralized payment network that does not have a central authority  and operates from users. From the point of all users, Bitcoin is mostly like Internet cash with a special triple-entry bookkeeping system.

Being a blockchain, it is divided into 2 main components. The first one is called Bitcoin Cash or BCH, constituting an upgraded system of Bitcoins used as decentralized and inexpensive quantities of network transactions. What is BTC? This is the abbreviation of Bitcoin Core – less usable type of money due to its delayed transactions and high fees, though it creates the basis of the network by becoming a true store of value. So, we hope that now you know what BTC means.

Who Created Bitcoin?

Despite Bitcoin’s popularity and value, the real names of its founders remain unknown. Let’s take a look at some people who could be connected with its creation.

Satoshi Nakamoto

Satoshi, a pseudonymous software developer, is mostly known as the founder of this cryptocurrency. Though the first specification and the proof of this Bitcoin concept appeared in 2009 in the form of a cryptography mailing list prepared by Satoshi, he left his project in 2010 without telling any information about himself. Such an attitude caused many doubts and concerns that were also confirmed by a mysterious open-source nature of this currency. It means that developers from all over the world can review the code or make a bit modified version of it. Thus, Nakamoto’s influence was limited to changes and adoptions undertaken by other developers. The identity of Bitcoin’s inventor could be compared with the person who invented paper.

Hal Finney

Hal appeared to be the first person who noticed Nakamoto’s proposal on his mailing list. Being famous for a reusable cryptographic proof of the working concept, he rendered to mine the coins and became the first one who tested a transaction from Satoshi. Also, Finney was a true pioneer of first code changes by modifying it at an early stage. He saw a big potential in Bitcoin protocol and the proposal itself. His attempts to improve the code were taken by many followers as creator actions.

Nick Szabo

Nick, a mysterious expert in cryptocurrency, might also be a founder of Bitcoin because he has made big contributions to Bitcoin realization. Even his colleagues mentioned his interest and involvement in startup by revealing his belonging to Bitcoin or at least its development and distribution.

Besides, some experts say Szabo is a real name of Satoshi. According to some researches, he is related to Bitcoin white paper and its writing together with Finney. Moreover, writing peculiarities of Nick and Satoshi had some evident similarities in choice of word order and phrases.

Craig Wright

Craig may be called one of the candidates for a real name of Satoshi. Unlike other experts, he confirmed this in 2016, but not so many people believed in his self-proclamation. Still, he tried to prove his identity by talking about cryptographic keys, but everybody knew only Satoshi could have them. The ability to provide this transaction could become true evidence, but he refused to make it at the last minute.

So, who controls Bitcoin? In fact, nobody. The network is controlled by users all over the world. Developers can only make some changes or improvements in software, but they have no access to the protocol itself.

When Did Bitcoin Start to Spread?

We all remember how several years ago this cryptocurrency appeared in all news, financial reports, exchanges, and other information portals. It was a kind of boom when all people started to read about it and try to buy. Though the first mention Bitcoin is dated by 2009, various virtual currency projects emerged in the 1990s. Therefore, it happened long before Bitcoin introduction.

Why Bitcoin Was Created?

Bitcoin allows sending payments without asking for permission from authority like a banking institution or payment gateway. As it is created and hosted electronically, there is no need in issuing or printing – it is produced by computers and used in free software. But this is only the beginning; let’s get to know with other benefits and distinctive features of decentralized digital currency. Neironix reveals answers on many questions, referring to the necessity of a new cryptocurrency introduction.

  • Anonymity. While users of all well-known payment platforms and services are identified, those who have Bitcoins can count on semi-anonymity. There is no central authority; thus, users do not need to be verified or identified. When you submit a request on transaction, the protocol just takes control over previous transactions in order to make sure the sender has the necessary quantity of Bitcoins. The system does not require information about their identity. The only identification that is made is the wallet address. Of course, the government tries to oblige most exchanges to identify checks as they want to control all Internet transactions, but it is not always possible or easy.
  • Decentralization. The main feature and peculiarity is that it is decentralized. Bitcoin is maintained by a group of people who have access to codes and run by a transparent network. So, what is Bitcoin? It appears be an alternative way of using virtual money if you want to be hidden from banks and government.
  • Immutability. Unlike online fiat transaction, Bitcoins cannot be reversed – it is impossible to modify the transaction if it has already happened and has passed bout an hour. Still, you can send it back.
  • Limited supply. Currencies like euros or dollars have an unlimited supply – banks are ready to issue as many as people need. With Bitcoin, the supply is controlled by underlying algorithms – cryptocurrency is mined every hour. It makes Bitcoin more valuable as the supply remains the same while the rate grows.
  • Divisibility. The smallest Bitcoin unit is called a Satoshi. It amounts to one millionth of 1 Bitcoin. If we convert it into cents, it will be about 1/100th of a cent. That is why Bitcoin features microtransactions most currencies cannot provide.

How Bitcoins Are Mined?

The process of Bitcoin creation is called mining, but it has nothing in common with those actions to dug coins you used to know. It seems a bit similar to protocol design – just in the form of the gold existing underground. Bitcoins have not been taken to the light yet. All in all, about 21 million Bitcoins can be mined.

What Is Bitcoin Made Of?

Let’s take a closer look at such a term as ‘node’. It is known as a powerful computer to run software for creating Bitcoins. Anyone can take part in it by downloading a free version of software and leaving some port open. One node can send data to several nodes at once; that is why nodes help to spread Bitcoins around the network very quickly.

Who makes Bitcoins? Some nodes serve as mining nodes, also referred to as miners. They are responsible for grouping transactions into various blocks and then adding them to one big blockchain. How does it work? You should solve a mathematical puzzle included in a Bitcoin program. When you find an answer and insert your number, it is combined with some data in the block. This process appears to be more difficult than it sounds at first.

How to Guess a Number?

For this, you have to use randomizers. Such hash options will help you to predict a possible output. So, miners get this number and add it to the block. It is noteworthy a hash number should be started with a combination of pre-established zeroes. Nevertheless, you cannot know for sure whether the number will work or not. Miners just continue guessing with a different configuration of blocks.

For instance, one miner gets a fast result within the desired range of options and receives his Bitcoins. If one person wins, all miners have to stop working at this block and turn to another one.

Economics

At the time of this article writing, the reward for a successful block is 12.5 Bitcoins, but all these processes are not that appealing as they seem. There can be a lot of miners at the same time who try to guess the number. As they all compete for this reward, luck in this matter is very important. Think about the number of people who participate in it right now, you will be able to calculate how lucky you are. 

What is more, the cost of an opportunity to become a mining node is rather expensive. Pay attention, the higher processor speed you have at your computer, the more chances you give to go round your competitors. Another important aspect here is the amount of electricity you consume as a powerful hardware needs lots of energy.

Moreover, the number of rewarded Bitcoins decreases every 4 years. The cost of electricity spent and hardware you bought might be compensated within several years, but nobody is able to affirm it for sure.

As for other difficulties, you have to spend not less than 10 minutes to guess the number with this long list of zeroes. Why so? That is a minimal amount of time required for diminishing a flow of coins.

Is Bitcoin Legal?

In accordance with most known jurisdictions, Bitcoin cannot be called illegal. Nevertheless, government of such countries as the Russian Federation or Argentina banned or restricted some worldwide and other currencies like Bitcoin. Others like Thailand have limited some entities, for example, cryptocurrency exchanges.

Special regulations are provided to give all businesses and individuals the rules how to invest in cyber currency and make it in conformity with current financial system. For instance, an American Treasure Department issues a special guide to categorize all activities virtual currency may need.

Can Bitcoin Be Used for Illegal Activities?

Bitcoin is nothing else but money, that is why it can be used for any activity a user consider appropriate. It can bring some positive changes to habitual payment systems by expanding their borders. To begin with, it is based on innovations, which serve as a big step forward in making money safer and more secure. With time, it may become a great protection from financial crimes. For example, it is impossible to counterfeit it, while users take a full control over payment they make, not having an opportunity to get unapproved charges. These transactions are specified as irreversible and immune to fraud and other actions. Bitcoin helps money to be secured and safe from losses or theft thanks to strong mechanisms like encryption, backups, etc.

Some Internet users are concerned that criminals may consider online transactions to be really attractive because of irreversible and private payments. These characteristics apply to well-established and widely used money transfers; thus, it will not be a problem as well. In general, it is an ordinary practice when innovation is not fully estimated with all its benefits.

How to Regulate Bitcoins?

Due to the existence of Bitcoin protocol, it cannot be modified until all users turn to the same software version. Any big corporation has the right to buy mining software and gets control over a half of the network, meaning it can block some transactions. Still, this situation seems to be unreal since hardly any company would use this power to invest so huge sums of money like all other miners worldwide.

Taking into account available Bitcoin information, it may be used as all similar instruments: use for a variety of purposes, buy products or goods, and send it to your friends. Countries that ban the cryptocurrency prevent small and big businesses from shifting innovations and developing. So, regulators face the problems of empowering new solutions as they forbid too much.

Bitcoin and Taxes

Not being a fiat currency with an approved status in all jurisdictions, Bitcoin still has some tax liability. The specific rules depend on the country and its laws, but it might require various forms of taxes like payroll or capital gains in general.

Consumer Protection for Bitcoin Holders

Bitcoin allows people to provide transactions, following their own terms and conditions. You can choose as a simple procedure, so turn to some complex contracts. As it is based on the principle of multiple signatures, you will not be able to carry out an operation without getting signatures from all specified people. It provides absolutely new and innovative services for the future when you will not be able to make some unapproved payments. Besides, all transactions are transparent and presented on the Internet; therefore, you will always have a public proof in case of any strange circumstances. This way, you will be protected from any fraudulent operations or practices.

It is worth mentioning businesses, which use ordinary payment systems, are not defended from charge backs while Bitcoin holders will get the transaction in case if it will be confirmed and stated as a secure one.

How to Send and Receive Bitcoins?

With Bitcoins, you will receive a notification about a payment instantly. Still, you have to wait for some time before the system starts to process a request. A confirmation supposes a consensus on the network because these Bitcoins should receive verification for a future transaction. So, if you want to know how digital currency works, get ready to wait. As soon as your transaction is mentioned in some block, it goes through other blocks and, finally, reaches consensus. It decreases the risk of reversed or fraud transactions. Thus, it takes from a few seconds to 90 minutes while an average parameter equals to 10 minutes. If you make a transaction for the first time or the sum is too small, the transaction may last a bit longer. Each user decides an own number of transactions to determine it as a confirmed one, but it usually requires at least 6 transactions conducted. This number amounts to 6 months of transactions by credit card. That is what Bitcoin payment is.

How Much Transaction Fee Might Be?

Transactions can be absolutely free of charge, but be ready to wait for days and weeks to be approved. So, it is easier to pay some fee. It will cost you an affordable some money, but it may increase with time. The charge will be shown to you before the transaction; that is why you do not need to worry about huge sums.

These fees serve as protection from overloading the network, as well as payment for miners, who provide a secure service. Principles of charging will definitely change with time because it is connected with the amount of money you want to send. Depending on some situation, it may seem too high or extremely low. Instead, this fee hinges on the quantity of bytes in the transaction. Thus, simple transactions will cost you less than those multiple amounts of money received previously. If you meet the requirements of conventional transactions, you will not need to pay high fees.

How to Receive Bitcoins If Your Computer is Turned off?

There is no problem in it because Bitcoins will be sent to your wallet the next time you open it. It is noteworthy Bitcoins are not actually got at your computer or software themselves; they are added to a public system which is shared between all devices. If you get cryptocurrency when your device is powered off and your wallet is not active, it will download all blocks but continue transactions later. Bitcoins will appear at your account when you open the wallet next time.

Synchronizing: What Does It Mean and How Much Time Does It Take?

Synchronizing constitutes the process of Bitcoin downloading and verifying current transactions of the whole network. For some Bitcoin owners, especially who conduct lots of transactions, it may take a lot of time to become aware of previous transactions and spendable balance of the wallet. Besides, clients of full nodes should be ready to wait longer as they prefer validating transactions to remain secure.

FAQs or Tell Me about Bitcoin

What Is Bitcoin Cost at the Moment? 

At the moment of article writing, the price amounts to $6.937. If you want to know the current rate, open the corresponding page of our service. We provide all information as an official website of Bitcoin.

Will the Bitcoin Price Grow or Decrease?

Nobody can say for sure what will happen in a month, but last years saw a great growth of Bitcoin cost. Most cryptocurrency experts think this tendency will continue. Check our page with charts and diagrams to make sure of everything right now.

What Currencies Does Blockchain Support?

Blockchain supports BTC, BCH, and ETH, also known as ether. So, you should send only these currencies to Blockchain wallets.

Who Has the Most Bitcoins in the World?

The list of the biggest Bitcoin players includes Winklevoss brothers (who have took control over Facebook), Barry Silbert (one of Bitcoin proponents), Tim Draper (a billionaire who has invested in Skype), etc.

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