Bitcoin is a form of digital cash, but unlike the fiat currencies you use, it is not controlled by any central bank. Instead, the Bitcoin financial system is managed by thousands of computers distributed around the world. Anyone can participate in this ecosystem by downloading related open source software.
Bitcoin was the first cryptocurrency introduced in 2008 and launched in 2009. Bitcoin allows users to send and receive digital money (Bitcoin, lowercase b or BTC symbol). What makes Bitcoin so appealing is that it is not censored, it cannot be spent more than once, and transactions are possible anytime and anywhere.
What is the function of Bitcoin?
People use Bitcoin for a variety of reasons. Many use Bitcoin because of its unlicensed nature. Anyone having access to the Internet can send and receive it. This feature of Bitcoin is almost like cash, because no one can stop you from using it. However, the digital nature of Bitcoin means that it can be transferred worldwide.
Simply put, you can send Bitcoin to anyone anywhere in the world and make sure that no asset is stolen and deposited exactly in the destination wallet. Meanwhile only the owner of that wallet has access to the Bitcoins inside wallet. This is the main application for Bitcoin.
What makes Bitcoin valuable?
Bitcoin is decentralized, anti-censorship, secure, and borderless. These features make Bitcoin attractive to be used in international remittances and payments that people want to keep anonymous (such as credit cards).
According to Mr. Hosseini, many people do not spend their Bitcoins and decide to keep it for a long time, instead (also called hodling). Due to the limited availability of Bitcoin, it has been dubbed digital gold. Some investors consider Bitcoin to be a store of value. Due to the scarcity of Bitcoin and the difficulty of its production, it has been compared to precious metals such as gold or silver.
Bitcoin owners believe that these features – combined with global access and high liquidity – make it an ideal tool for storing wealth for a long time. They believe that the price of Bitcoin will increase over time.
What is the blockchain?
The blockchain is a ledger that is only append_only; that is to say, data can only be added to it. After the information is added, it is very difficult to modify or delete it. To create this feature, the blockchain places a pointer toward each block in the previous block.
This pointer is actually a hash from the previous block. Hashing involves the transfer of data through a one-way function to generate a unique “fingerprint” of the input. If the slightest change is made to the input, this fingerprint will be completely different. Since the blocks are interconnected, if someone wants to edit an old entry, they must cancel all subsequent blocks. Such a structure is one of the components that makes blockchain secure.
In the case of Bitcoin, it is not impossible to edit or manipulate the Bitcoin blockchain, but it requires a lot of processing power, and logically, no one will attack the network, because what it gets is much less than the cost of attacking the network.
Is Bitcoin legal?
Bitcoin is perfectly legal in most countries. Of course, many countries have declared it illegal in the past, and even China, which is now the largest country active in Bitcoin mining, once did not consider it legal. There are a few exceptions, though. However, before investing in cryptocurrencies, you must read the laws of your country.
In countries where Bitcoin is legal, governments take different approaches to levying tax and compliance issues.
Mohammad Hosseini says: Bitcoin’s regulatory landscape is still underdeveloped and is likely to change significantly in the coming years. In our country, Iran, there are still no coherent and comprehensive laws in this regard. Recently, however, in the summer of 1999, the government announced a special set of rules for the mining of Bitcoin and some cryptocurrencies, and set a specific electricity quota for it, which, of course, are very strange numbers.
History of Bitcoin
- Who created Bitcoin?
Nobody knows! The creator of Bitcoin used the pseudonym of Satoshi Nakamoto, but we know nothing about his/her identity. Satoshi can be a person or a group of developers anywhere in the world. The name is originally a Japanese one, but Satoshi’s fluency in English has led many to believe that he / she is from an English-speaking country.
Satoshi has released Bitcoin White Paper as well as the related software. However, this mysterious creator disappeared in 2010.
Did Satoshi invent blockchain technology?
Bitcoin actually combines a number of current technologies that have already been around for some time. The concept of blockchain was not born with Bitcoin. The use of immutable data structures like this can be traced back to the early 1990s, when Stuart Haber and Scott Storentta proposed a system for scheduling documents. Much like today’s blockchain, the system relies on cryptographic techniques to secure data and prevent tampering.
Interestingly, nowhere in the Satoshi white paper is the term “blockchain” used. But this technology was used in the implementation of the network and somehow became the first successful blockchain project in the world.
Digital cash before Bitcoin
Bitcoin was not the first attempt to create digital cash, but it is certainly the most successful one. Previous designs that paved the way for this Satoshi invention are as follows:
DigiCash was a company founded in the late 1980s by David Chaum, a cryptographer and computer scientist. The company has introduced a way to protect privacy in online transactions based on an article written by Chum.
The DigiCash model was a centralized system, but it still had an interesting experience. The company later went bankrupt, which Chaum believes was due to the introduction of the system before e-commerce began.
B-money was first described in a proposal published by the computer engineer, Wei Dai, in the 1990s. This currency is also mentioned in Bitcoin white paper, the reason of which is not difficult to understand.
B-money suggested a proof of work system (used in Bitcoin extraction) and the use of a distributed database in which users verify transactions. The second version of B-money also described an idea similar to sticking that is used in other crypto-currencies today.
In the end, B-money was never launched and could not pass the draft stage. Bitcoin is said to be clearly inspired by the concepts provided by Dai.
The resemblance between Bit Gold and Bitcoin has led some to believe that Nick Szabo, the computer scientist and creator of Bit Gold, is the same Satoshi Nakamoto. The Bit Gold core consists of a ledger that records data strings generated from proof-of-work operation.
Like B-money, Bit Gold never developed. However, the similarities between Bit Gold and Bitcoin have caused it to be known as the “Bitcoin introduction”.
How many Bitcoins are there?
The Bitcoin protocol has set a maximum supply of 21 million coins. By 2020, nearly 90% of this amount has been generated, but it will take more than a hundred years to produce the rest of the Bitcoins. This is due to periodic events called halvings, which gradually reduce the extraction reward.
The Bitcoin network is designed so that every ten minutes, a set of transactions is approved and added to the main blockchain in the form of a block. With the extraction of each block, a certain amount of new Bitcoins is born and is paid as a reward to the person who did this, so-called miner.
Initially, 50 new Bitcoins were generated for extraction of each block. The first halving took place in 2012, after 4 years, and the block mining bonus was halved to 25 Bitcoins. The second halving took place in 2016 and mining bonus was halved again to 12.5 Bitcoins. The last halving was done in 2020 and now the mining bonus is about 6.25 Bitcoins.
The process of halving the mining bonus means that fewer Bitcoins will be produced over time, which is why the last Bitcoins will be produced in more than a hundred years.
- How does Bitcoin mining work?
Participants add blocks to the blockchain through mining. To do this, they must designate computing power to solving a cryptographic puzzle. In order to motivate the participants, anyone who offers a valid block will be rewarded.
Producing a block is expensive but cheap to check. If someone tries to cheat with an invalid block, the network will immediately reject it, and the extractor will not be compensated for the extraction costs.
This reward -often called block reward- consists of two components: transaction costs and block reward. Block rewards are awarded to new Bitcoins. By extracting each block, a certain amount of coins is added to the total supply.
- How long does it take to extract a block?
The related protocol sets the extraction difficulty in such a way that it takes approximately ten minutes to find each new block. Blocks are not generated exactly at the top of ten minutes, and the time spent around this value fluctuates.
This means that if a supercomputer wants to extract all the Bitcoins in a short time with a lot of processing power, the network will prevent such attacks by increasing the network dificulty and will not allow 4 blocks to be extracted earlier than the scheduled time.
- How to buy Bitcoin?
To have Bitcoin, you either have to mine it or buy it from a person or a store or an exchange. There are different types of Bitcoin mining. For example, you can buy mining machines and after installation, start earning some Bitcoins every day with the activity of those machines. Of course, there is another type of mining called cloud mining, in which you actually rent the processing power from one site and use the mining equipment of another company for a fee.
There is another way to buy Bitcoin: It is to use a cryptocurrency store or exchange. In international exchange, you have to pay Dollars, Euros, etc., but in Iranian exchange, it is possible for you to pay Tomans to buy Bitcoin or other cryptocurrencies, and this value will be deposited in your special wallet. for more information about digital money and cryptocurrencies see the link below: