Have you ever wondered what Bitcoin is? In simple terms, Bitcoin is a form of digital or cryptocurrency that operates based on cryptographic principles. It differs from traditional currencies stored in our bank accounts.
The Birth of Bitcoin
During the financial crisis of 2008, on November 1st, an individual using the pseudonym Satoshi Nakamoto proposed the idea of a peer-to-peer electronic cash system in a groundbreaking paper, now famously known as the “Bitcoin Whitepaper.” In it, Nakamoto envisioned a decentralized electronic accounting system, challenging the need for centralized institutions like banks to maintain transaction records.
Bitcoin VS Traditional transactions
While traditional transactions involve trust in banks to maintain accurate records. Nakamoto’s proposal however introduced the concept of decentralized electronic accounting, where all transactions are public and broadcasted to everyone for verification. This system relies on a process called mining, where individuals compete to validate transactions for incentives.
How does Bitcoin Mining Work?
Bitcoin mining is the process by which new bitcoins are created and transactions are added to the blockchain – the public ledger of all Bitcoin transactions. Here’s a simple explanation:
Transactions:
People around the world make transactions using Bitcoin. These transactions are grouped together in a “block.”
Problem-Solving:
Miners compete to solve a complex mathematical problem related to the transactions in the block. This problem is known as a “proof-of-work.”
Finding the Solution:
Miners use powerful computers to guess the correct solution to the problem. The first one to find the correct solution broadcasts it to the network.
Verification:
Other miners verify if the solution is correct. Once verified, the block is added to the blockchain, which is a chain of blocks containing all previous transactions.
Rewards:
The miner who successfully adds a block is rewarded with newly created bitcoins and transaction fees from the transactions in that block.
Halving:
Approximately every four years, the reward for mining new bitcoins is halved. This is known as the “halving” and is programmed to continue until the maximum supply of 21 million bitcoins is reached.
