Many of you in the last few months will have heard of Bitcoin, or on social media, or in some computer magazine, or by some friend who talked about it, but have you ever wondered what it is about?
Obviously you have come to the right place because in this article I will explain what Bitcoin is and how it works.
Ok we can start.
Bitcoin is a decentralized system.
Bitcoin was born in 2009 and its creator is still unknown today who he is but the community gave him a pseudonym: Satoshi Nakamoto, I’ll talk about him in another article now we focus on Bitcoin.
As I said, the white piper that is the bitcoin project is published towards the end of 2008, Da Satoshi and a first version is announced at the beginning of 2009, and reports the definition: “Bitcoin: A Peer-to-Peer Electronic Cash System“, (which you can find it here), but what exactly does it mean?
Bitcoin is a cryptocurrency that is managed by a blockchain that would be like a huge ledger that shows every single transaction of every single individual who makes the transaction in blocks.
This blockchain is a database distributed in nodes where each individual validates the transactions, and therefore makes the entire Bitcoin system a decentralized system.
So to make a transaction no institution is needed when we ourselves are the holders of the money and anyone can validate the transaction when each wallet is a node, therefore the system is Permissionless, that is without permission.
Bitcoin is considered by traditional finance not a currency but a system of money exchange due to its very high volatility, this is due to the fact that the cryptocurrency is limited and the availability of 21 million is known from before.
This makes it a deflationary resource that acquires value over time precisely from the fact that it is limited, unlike fiat currencies that lose value over time.
In the last period we are thinking of transforming bitcoin as a reserve of value similar to gold, in fact digital gold is defined as when there is very little storage space, it is easily exchangeable thanks to its innovation and much more rare when more limited gold itself.
The Bitcoin protocol is open source and this makes it very versatile as it can be modified over time, making it even better, and even the available quantity of the 21 million could be modified, however, only with the approval of the community.
Currently bitcoin is followed by Craig Steven Wright who would be the one who was commissioned by satoshi himself and there is a real community on the official site where you can download the bitcoin source code and help the community improve it.
The bitcoin network, as I said, is a set of nodes that validate transactions, and each of these nodes is managed by the blochchain.
The consensus algorithm that uses Bitcoin is in POW (proof of stakes), ie the miners work to validate the blocks.
The blochchain (block chain) would be the backbone of the entire bitcoin ecosystem, without which bitcoin would not exist.
It is formed, as the word itself says, by blocks, each block contains the information that occurred in the network ie: transaction, mining, validation, etc., and each block has a size between 0.50 and 2 mb (currently), but this it may increase over time because more network operations will require more storage space as a result.
Currently the entire Bitcoin network weighs about 223 GB, the statistics are available here, so if we want to create a node we would need 223 GB of space on our PC.
In fact if you see the graph, going down and clicking on it all the time, you will notice that the size has increased considerably since 2009, this could be a problem in the future because it would take a huge amount of storage space, and in fact Light Network is being introduced , but in this we will return to another article.
Also here, we can see many interesting statistics such as the number of transactions, the price, or mining.
In the blochchain we find the validation nodes that can be:
- The Wallets, where bitcoins are stored and transactions are made (similar to a current account);
- And the Miners, who are those who undermine (produce) bitcoins.
The wallets (wallets) are cryptocurrency containers and can be of various types depending on the cryptocurrencies we use, I refer you here for the details and the creation of a wallet.
Then we find the miners, who are the ones who produce digital currency and validate transactions.
Bitcoin can be produced by special computers that perform complex mathematical calculations provided by the famous block described above.
Originally these calculations were performed with the CPU of a simple home computer when the difficulty was very low.
Subsequently, due to the involvement of bitcoin, the difficulty began to increase and to undermine it needed a GPU (sceda video) when it could do calculations in parallel, and then move on to the current Asics, which are equipped with powerful processors capable of do calculations in parallel by consuming a lot of electricity.
miners are the only ones who earn bitcoins for their work (but they are thinking of a subsequent project to pay even those who own a wallet node because they are also validated), in fact by solving these calculations they are entitled to a payment, but due to the ‘high difficulty are forced to participate in the pool that is a community of minations where the calculation powers are combined so there will be less extraction time when you are paid who solves the block first.
In this article I don’t want to talk about mining but I only mentioned it to get an idea of how it works but I’ll talk about it in another article.
Where to deposit Bitcoin?
Bitcoin can be stored in wallets (wallets).
There are several but the function is the same, the important thing is that when you make a transaction you need to make sure that the sending or depositing address refers to bitcoin and you don’t mistake a value because you could be confused with other currencies is this will cause the irreversible loss of the currency.
All wallets are free and do not have a monthly or annual cost (except for those hardware wallets), a very popular wallet is useful is the one provided by the blockcain site.
Just go here on the official website and proceed with the registration of the wallet itself.
This wallet is very good because there is the possibility to deposit different currencies being a multicoin, and the possibility to instantly convert bitcoins with other currencies or vice versa having the connection with the exchanges.
Transactions take place in the wallets and each transaction has a unique code called Hash that identifies the transaction in the blockchain.
Every transaction is anonymous, in fact the hash is an alphanumeric code, which is connected to the address of the wallet and not to our person as it happens in the bank current account.
Of this it is thought that bitcoin should be suppressed because it would be a problem for governments to control transactions, but it could never happen when one cannot destroy anonymity would be a paradox, in fact bitcoin has existed for 10 years and will continue to exist.
Any transaction cannot be changed or violated by anyone because it would be a utopia to violate the bitcoin blockchain when it will take so much computing power that the game will not be worth it.
Bitcoin can carry out 7 transactions on the second, which makes it very slow compared to its rivals paypal and visa, but this cannot be a problem because the system is constantly evolving and can be improved more and more.
The wait for the transaction is about 10 minutes much less than a bank transfer that I want at least 3 days.
With Bitcoin one could transfer very high figures of millions of dollars by paying very low taxes.
Where to buy bitcoins?
Obviously you will have asked yourself, when not miners, but where can I buy bitcoins?
Originally there were private exchanges, that is to say meeting or in a bar or internet coffe, that is the miner or a holder who had bitcoin sold to another who wanted to start owning the cryptocurrency, this is how it went on until it was created the first Exchange.
The exchange is the meeting of the demand and supply of the entire crypto sector, there are many exchanges but the most important one is the one when it can be purchased with any existing payment method.
Currently the exchage is the only place where you can buy crypto in a regulated and safe way, you can also trade on the various pairs, and also hold your currencies by turning into a wallet.
To conclude bitcoin can be a solution to the inflation of the current economic systems, thanks also to its transaction speed and to the few taxes that are necessary for the transfer unlike a bank transfer, but above all we autonomously control our money.
It has a long way to go when it is 10 years old compared to the currencies that have more than 100, there is still some perplexity in this sector when it is thought to be manipulated and could fall into one day, but this had to happen already since several years since bitcoin has reached very high figures considering that at the beginning for a dollar it took more than 1200 bitcoins and today 1 Btc is worth $10000 .
My advice is to always evaluate carefully, and invest figures that can be lost, because it is always an investment that can make us lose everything.