Introduction

Source: https://news.mit.edu/2017/bitcoin-study-period-exclusivity-encourages-early-adopters-0713

Hi guys, Hope all is fine and safe.

Off late I am watching more advertisements on Bitcoin’s where many popular celebrities are promoting it.

Always when it’s a case of financial trade or market, make sure you learn about all the intricate terms and conditions before trading on it to avoid risk aftermath.

Branding alone will not be enough for you to make a decision.

So, let’s see an overview about Bitcoin in this blog.

What is Cryptocurrency? 

Source: https://www.howtogeek.com/748405/what-is-cryptocurrency/

A cryptocurrency is a tradable digital asset or digital form of money, built on blockchain technology that only exists online. 

Cryptocurrencies use encryption to authenticate and protect transactions. 

Bitcoin was the first released decentralized cryptocurrency in an open-source software in 2009.

Since the release of bitcoin, many other cryptocurrencies have been created.

What is Bitcoin?

Source: https://becominghuman.ai/what-is-blockchain-with-3-features-9557a6bc9259

Bitcoin (₿) is a decentralized digital currency, without a central bank or single administrator.

The cryptocurrency was invented in 2008 by an unknown person or group of people using the name Satoshi Nakamoto.

In 2009, Bitcoin became the largest cryptocurrency by market capitalization

Bitcoin is not issued or backed up by any banks or governments.

An individual bitcoin is not valuable as a commodity.

Bitcoin is commonly abbreviated as BTC (Bitcoin (digital currency)) when traded.

Timeline of Bitcoin

Source: https://cryptomaniaks.com/what-is-bitcoin

Timeline in India

Source:https://timesofindia.indiatimes.com/india/cryptocurrency-is-legal-what-next/articleshow/74511520.cms

Features of Bitcoin

Sources: https://thevirtualassist.net/bitcoin-tax-reporting-and-calculations-process/

1. Open-source network

The concept of Bitcoin being an open-source software network means that everything about Bitcoin must have visibility and auditability to everyone.

That is anyone, including average non-coders, will have access to download the entire language.

2. Peer to peer network

It can be sent from user to user on the peer-to-peer bitcoin network without the need for intermediaries.

(A peer-to-peer(P2P) is a network in which interconnected nodes (“peers”) share resources amongst each other without the use of a centralized administrative system)

The main aim to create this concept was to have a hassle-free transaction system i.e., free from intervention by any central or monetary authority.

It is based on a mathematical algorithm instead of “third-party trust”. 

The payments are done electronically in a protected, verifiable, and incontrovertible way. 

In simple terms, it implies a payment system wherein all transactions happen directly between the owner and the receiver through a peer-to-peer network.

3. Cryptography

Transactions are verified by a network of nodes(peers) through a method called cryptography. 

(Cryptography is the study of secure communications techniques that allow only the sender and intended recipient of a message to view its contents.)

Source: https://www.cryptocompare.com/wallets/guides/how-do-digital-signatures-in-bitcoin-work/

In the above diagram, the sender generates a private key and public key. 

Then he signs the message with the signature and send their public key, the signature, and the message through peer -peer network 

The node or receiver receives the public key sent by the sender and then decodes the verification algorithm which has the message signed by the sender.

The private key will be protected by the sender with a password.

4. Block Chain

Source: https://www.euromoney.com/learning/blockchain-explained/how-transactions-get-into-the-blockchain

Blockchain in Bitcoin is used in a decentralized way in such a way that all users collectively retain control.

This means that transactions are permanently recorded and viewable to anyone.

A blockchain is a decentralized, distributed, and public, digital ledger consisting of records called blocks that is used to record transactions across many computers so that any involved block cannot be altered retroactively, without the alteration of all subsequent blocks. 

Digital ledger 

Digital ledgers means independent computers (referred to as nodes) which are used to record, share, and synchronize transactions in their respective electronic ledgers instead of data centralized as in a traditional ledger.

When a ledger update happens, each node tends to construct a new transaction, and then the nodes by consensus algorithm will vote on which copy is correct. 

Once it has been decided, all the other nodes update by themselves with the new, correct copy of the ledger.

Security is accomplished through cryptographic keys and signatures. 

SHA-256

Blockchain protects the blocks from unwanted access by encrypting them with the SHA-256 hash algorithm.

They have a digital signature. Their hash value can’t be changed after it’s been created. 

SHA-256 accepts any length input string and returns a fixed 256-bit output.

It is a one-way function, meaning you can’t fully deduce the input reverse from the output (what you have generated).

Proof of work

Proof of work is a consensus mechanism used to confirm that the network participants, called miners, will calculate valid alphanumeric codes which are called as hashes, to verify a particular transaction and add the next block to the blockchain.

6. Mining

Source: https://imiblockchain.com/how-profitable-bitcoin-mining-works/

Bitcoin mining is a process of verifying and recording new Bitcoin transactions.

Bitcoin miners usually will have sophisticated computing equipment to process.

They compete to become the first to verify bitcoin transactions and are paid with transaction fees and newly created digital currency.

Cryptocurrency mining can be highly energy intensive, requiring access to a low-cost energy source to be profitable.

Source: https://www.investopedia.com/tech/how-do-you-mine-litecoin/

Bitcoin Halving

After every 210,000 blocks mined, or roughly every four years, the block reward given to Bitcoin miners for processing transactions is cut in half. 

Halving’s reduce the rate at which new coins are created and thus lower the available amount of new supply, even as demand increases. 

This is Bitcoin’s way of curtailing the price inflation until all bitcoins are released.

This rewards system will continue until around the year 2140, when the proposed limit of 21 million is reached.

Nonce

Nonce, refers to “number only used once,“.

It is the first number a blockchain miner needs to discover before solving for a block in the blockchain.

Nonces are difficult to find and are considered a way to weed out the less talented crypto miners.

Nonces are used for a range of computer networking applications, including authentication for purchases, two-factor authentication, or other kinds of account recovery and identification.

Conclusion

My aim when I start with every blog is that it must be interesting and educational at the same time.

Bitcoin is a digital currency, running with an open-source software with peer-to-peer network encrypted using cryptography.

When a transaction happens, it is formed as a block encrypted with information in a mathematical algorithm and it is sent to the nodes(peers) in the network.

They are then decrypted by miners with help of sophisticated computing equipment and after they verify the valid block by decoding the hash, they add the new block to the existing block chain and complete the transaction.

I have made best efforts to explain the concepts involved in bitcoin first as before we proceed further it’s important to understand the basics first.

In the next blog we can see about how it works, its trade market and the related future for it.

Hope you all enjoyed the blog. See you soo