What Is The Bitcoin Blockchain And How Does It Work

Cryptocurrencies are becoming more popular as time goes by. The crypto markets are constantly increasing in value and investors buy XRP, Ethereum, and bitcoin to make the most of this price rally.

 

Blockchain technology is evolving and vital industries such as healthcare, logistics, or entertainment are being improved by its presence. However, none of this would have been possible without the original crypto - Bitcoin.

 

In this article, we will give an overview of Bitcoin and the technology that makes it tick. We will try to explain how this revolutionary asset gets its value and the benefits it brings to the financial world. Let’s get started, shall we?

What is Bitcoin?

Bitcoin is the original cryptocurrency, created by Satoshi Nakomoto in 2008, and released to the public in 2009. Worth noting that Satoshi is just an alias and that the identity of Bitcoin’s designer remains unknown to this day.

 

Bitcoin was created as an answer to the 2008 housing crash. Nakamoto felt that our financial system is flawed and that banks and governments have too much power over our finances. His answer was a digital, decentralized peer-to-peer currency that was independent of any central authority.

 

For its issuance, Bitcoin relies on a mathematical process called mining. Consequently, there’s no central authority that can issue more Bitcoins. Instead, the number of BTC put into circulation follows a deflationary model called halving. Every 4 years, the number of BTC received with each newly discovered block is cut by half.

 

In addition, the maximum supply of Bitcoin is fixed to 21 million, of which 18.5 are already in circulation. This increases Bitcoin’s scarcity over time, which has impacted the price of Bitcoin in a positive manner in the last decade.

What is Blockchain?

Blockchain is the technology that allows us to record bitcoin transactions as they happen. It’s a distributed ledger of records where everything that happens on the Bitcoin payment network is permanently recorded.

 

This ledger is distributed among thousands of computers that are connected to the internet and hold an exact copy of it. Consequently, before each transaction happens, the nodes of this network verify the integrity of the data before validating it.

 

This means that the data on the blockchain is immutable, as any discrepancy would be detected by the other nodes that hold each other accountable for the transactions. Additionally, blockchain technology possesses the following characteristics:

 

  • Permissionless - because there’s no central authority to answer to, anyone can join the network and use it to transfer bitcoins on it.
  • Transparent - all the transaction data on the bitcoin blockchain is available for anyone to consult. This helps establish a trustless payment network.
  • Secure - thanks to its decentralized nature, the blockchain doesn’t present a single failure point for hackers to exploit. This makes it inherently secure versus bad actors.

What is Bitcoin mining?

Bitcoin mining is the process of discovering new transaction blocks and adding them at the end of the data chain. It is the backbone of the network, as it fulfills three vital functions:

 

  • The creation of new Bitcoins.
  • Securing the network.
  • Validating transactions.

 

Miners compete with each other to receive Bitcoin rewards from the transaction fees and the newly minted BTC. To do this, they solve increasingly complicated mathematical problems called hashes. The miner that solves the problem receives the reward, adds the block to the chain and miners try to unravel the next hash.

 

The mining process is executed with powerful machines called ASICs and miners spend electricity to participate in this system.

How does a Bitcoin transaction work?

In a nutshell, here’s what happens during a BTC transaction.

 

  1. User A wants to send 0.1BTC to user B.
  2. User B provides his public address where the coins will be sent.
  3. User A uses his private key to sign the transaction.
  4. Miners add the transaction to the next hash.
  5. Once the new block is discovered, it gets added to the blockchain.
  6. User B receives the 0.1BTC on their public address once the transaction is confirmed. 

What are the benefits of Bitcoin over traditional assets?

Bitcoin was created as a solution to the growing woes of FIAT currencies. More precisely, it brings the following benefits:

 

  • Deflationary - because of its limited quantity, the value of BTC increases over time, making it a great store of value.
  • Cheap and fast remittances - compared to international transfers that are expensive and can take days to process, BTC transactions take a couple of minutes and are quite cost-effective.
  • Economically inclusive - because it’s permissionless, Bitcoin allows individuals in countries with depreciating currencies to access a deflationary asset that can help them store value. Additionally, it allows them to participate in the growing internet economy.

Wrap-up

This short article had the goal to introduce you to Bitcoin and blockchain. Bitcoin is a revolutionary asset that solves many issues of FIAT currencies, with the most important being inflation and government control. In the future, we can expect Bitcoin to become even more popular as a store of value thanks to the many benefits it presents to its users.

 

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