Remember when Tesla created a thunderstorm wave in the cryptocurrency world, when they publicly stated their invested amount in Dogecoin ( a cryptocurrency). And everyone started talking about investing in Bitcoin and other cryptocurrencies, while suddenly the prices start to fall. What a mess it was! Well let’s understand it together and figure out if it is a viable investment option, shall we?
WHAT IS A BITCOIN?
A domain name bitcoin.org was registered on Aug 18 2008, where the identity of the owner is “whoisguard protected” meaning the identity of the owner is not a public information. On Oct 31 2008 a person or a group using the name satoshi nakamoto announces about this ‘peer-to-peer’ system of transferring digital currency on metzdownd.com mailing list, which would become the magna carta of how bitcoin operates today.
Bitcoin is a type of cryptocurrency. There is no physical bitcoin, only balances kept on a public ledger that everyone has transparent access to. All bitcoin transactions are verified by a massive amount of computing power. Bitcoin is not issued or backed by any banks or governments, nor is an individual bitcoin valuable as a commodity. Bitcoin offers the promise of low transaction fees than traditional online mechanisms, unlike government issued agencies they are decentralized.
It was launched in 2009 and it is one of the biggest crypto-currencies, Bitcoin is traded, distributed, stored as a decentralized ledger system known as Blockchain. It has gain large popularity widespread as a peer-to-peer digital currency. Bitcoin’s history as a store of value has been turbulent, it has gone several burst and boom in its relatively short-span.
Bitcoin is a collection of computers also know as nodes or miners, the all run a bitcoins code and store it in the blockchain. Metaphorically a Blockchain is a collection of blocks which consists of transactions, these transaction are bit coins which are constantly stored in these blocks. As of june 2021 bitcoin has 10,000 nodes and are still increasing making a attack quite unlikely. Balances of bitcoin tokens are stored in the form of Keys ( private or Public). These keys are a long string of numbers through which the transaction takes place. A public key is comparable to the Account number, where bitcoin is to be sent. While a private key is similar to the ATM pin it is to be guarded secret and to be authorized only during transmission of bitcoins. Bitcoins keys should not be confused with Bitcoin wallet, Bitcoin wallet is like a storeroom for the value of bitcoins a individual owns, however the bitcoins are never stored in the wallet directly it is stored in the decentralized manner in the blockchain.
Bitcoin is a peer-to-peer technology, which helps to do a transaction between 2 people without the involvement of a trusted third party. It has a very lean transaction fees compared to other government institutions. These transactions are operated or managed by ‘miners’. Miners are the decentralized governing authority which looks after the blockchain and other transactions held in the blockchain. These miners are motivated by rewards which are fixed at a declining rate of period. There are only 21 million bitcoins which can be mined out of which 18 million bitcoins are already mined as of june 2021, and less than 3 million are remaining. The currency is released at a rate matching to the rate of goods, producing a price stability in bitcoin. In 2009 the reward was 50 bitcoin per block and every four years or every 210,000 blocks the reward is halved, on 11th may 2020 the rewards were halved at 6.25 bitcoins per block.
Bitcoin mining is done by people on the bitcoin network ( nodes or miners), by solving a complex mathematical puzzles. A large amount of computational power is needed for the process of solving these mathematical puzzles. Till the last decade it could be easily mined with the help of our desktop computers, but now as the miners are increasing it has led to more competition on the miners to solve these complex problems. This complex problem is nothing but guessing the 64- digit hexadecimal number, if the solution which the computer generates is closer to this number bitcoins are mined. This 64- digit number is also called ‘Hash’. Nothing But A Gamble it seems.
A variety of hardware can be used to mine. However some yield higher rewards than others. Certain computer chips called application system integrated circuits (ASCI) and advance processing units like graphic processing units achieve more rewards. These elaborate mining processors are called mining rigs. Now who is satoshi Nakamoto? Is Bitcoin legal in India ? Are there any advantages and disadvantages to invest and make money in Bitcoin? Is bitcoin manipulated by filthy-rich billionaires? Let’s look at these related topics in the next article – Bitcoin: a saviour or loser 2.
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