What is Bitcoin and how does it work?


 During 2008, a white paper was published online, in which a peer-to-peer payment system was described which should be able to operate in a fully decentralized manner. The white paper’s author calls himself Satoshi Nakamoto, a pseudonym to which the white paper’s creator has since remained anonymous. 

What is Bitcoin?

With the increase in the number of online transactions and the growing distrust of banks after the 2008 financial crisis, the demand for a new digital payment system is growing. This system should be able to exist alongside the current financial system and, above all, the system should be decentralized so that it does not have a single point of failure. Bitcoin is the solution in the search for a new digital payment method. You could think of bitcoin as a digital form of cash: it allows value to be exchanged directly from one person to another, without the need for a third party. This is called peer-to-peer.

About blockchain

The technology behind Bitcoin is called blockchain technology. This technology allows value to be transferred digitally. A blockchain is a chain that contains transaction data in chronological order, which cannot be changed later. With Bitcoin, every ten minutes new transactions are collected in a block. This block is then added to the chain, which forms a chain of blocks: the blockchain. The blockchain is a kind of database. The power of the Bitcoin blockchain lies in its decentralization. This means that there are thousands of computers around the world that have a copy of the complete bitcoin transaction history. Using these copies, computers verify whether new transactions are legitimate. In addition, the system makes it impossible to dismantle the network. To do this, it would be necessary to destroy all these thousands of copies all over the world.

A computer that stores all transaction history is called a node. When a node has validated the legitimacy of the transactions, the miners collect them. They collect new transactions, put them in a block and add that block to the chain. Miners are also computers, but not ordinary computers. They are often designed specifically to mine bitcoins and do nothing else. They mine bitcoins by solving an extremely difficult mathematical puzzle. It takes a lot of computing power, and they compete with other miners trying to solve the puzzle. The computer that solves the puzzle the fastest, and adds its block to the chain, receives 12.5 new bitcoins!

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