Understand about Bitcoin, its working, and the mining process!

A digital currency was created in 2009 after the depression stage in 2008, and the market crash took place in the USA. This has its existence in almost all the developing and developed countries across the world. 

Digital currencies refer to the mode of payments that solely exist in an electronic form. These currencies are not tangible like other fiat currencies like a coin or dollar. The transactions are carried out and accounted for using the computers. You can use either any cryptocurrency exchange online or make payment using a credit card or smartphone. This can be converted into fiat currency and subsequently withdraw through ATM. You can Invest in Oil by investing in bitcoin for a long time. 

Amongst all the versions of cryptocurrencies, Bitcoin is the most famous and accepted one amongst. This is the most widely used one out of all digital cryptocurrencies. 

This cryptocurrency is based on the ideas of the mysterious Satoshi Nakamoto. However, it is still not known whether Satoshi Nakamoto is the name of a person or a group of entrepreneurs or a collective group of a few people. But since its invention, this cryptocurrency has gained huge currency to itself. It is used in all the forms in which a currency is used, like using as a medium of exchange, a measurement method, a store of value, and a standard. 

Another feature that increases the worth of this cryptocurrency is that it offers a very low transaction fee compared to the traditional modes of payment that exist online. This currency is of decentralized nature, i.e., it is not a currency issued by any central government. 

Salient features of Bitcoin that fascinate its users are as follows:

  • Bitcoins have no physical presence
  • The transaction records and balances are recorded on a public ledger, and anybody can access that ledger, and the user can protect it through the number assigned to them.
  • The verification of transactions is done by the huge computing powers of the systems.
  • There is no specific bank or central government that backs the cryptocurrency.
  • Even though it’s not a legal tender, it is the most popular out of all the cryptocurrencies that exist.

Understanding cryptocurrency in a simple language 

A currency in which money is in the form of digital files is known as a cryptocurrency. Cryptography is the science that is used for hiding information is used for creating the files. The makes it almost impossible for a user to double-spend. In order to maintain the security of the transactions, digital signatures are used. This also helps people to verify if the transactions are authentic. 

The prominent feature of Bitcoin is that there is no central authority that intervenes or can manipulate the currency prices. 

How does a Bitcoin work?

  • It is a digital currency that is decentralized in nature and records all its transactions through Blockchain, i.e., a decentralized ledger.
  • A Blockchain is a chain of blocks that stores digital information.
  • There are miners across the world that run complex power computers to solve complex puzzles to confirm the transactions in the form of blocks.
  • The blocks get added to the records maintained in the blockchain. Once it gets added, the miner gets reworded in the form of Bitcoins.
  • The Blockchain protects its transactions from all kinds of fraud.
  • The participants of the market can either purchase or sell Bitcoins via cryptocurrency exchanges and get also get them using the peer-to-peer transaction method.

Understanding Bitcoin Mining Process

The process using which the bitcoins are brought into circulation in the market is known as Bitcoin Mining. The miner is required to solve a computational problem or puzzle on the Blockchain. Once the miners successfully solve the given equation, they get rewarded in the form of a Bitcoin. This is how Bitcoin is brought into circulation. 

There are high-powered computers required to solve complex mathematical puzzles. It requires specialized knowledge by the miners to solve these equations. The release of new Bitcoin as a reward to the miner is done at a fixed price. 

One bitcoin can be divided into eight decimals, and each of these decimals is known as a Satoshi.

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Last modified: April 13, 2021

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