Well the terms like bitcoin & block chain are being coined and referred to everywhere over the internet or over any investment or financial platform the reason being its increasing popularity and the mammoth returns that people have made by investing in these avenues.
Although the concept of bitcoin is known to many but still there are many that are confronted with this question that what is a bitcoin and how does it work? so, in this blog I have made a sincere effort to explain the same in the easiest of manner for you to understand this concept. So as we move ahead we will dive in this concept of What is Bitcoin? How is it related to White paper of Satoshi Nakamoto? to understand the basics of bitcoins and how would its future be like.
How does cryptocurrency work?
- 1 How does cryptocurrency work?
- 2 Cryptocurrency- A Digital asset as a medium of exchange:
- 3 Decentralized Cryptocurrency Explained in Easy:
- 4 Bitcoin Explained in Easy terms
- 5 What is bitcoin mining Process:
- 6 In easy sense:
- 7 Who pays the bitcoin mining reward &How much?
- 8 How to start Bitcoin mining?
- 9 Bitcoin mining electricity consumption:
- 10 Bitcoin and its wide acceptance:
- 11 Other important Digital/ Cryptocurrencies:
The term crypto currency is being coined everywhere due to its increased popularity worldwide, it is being looked at with great aspiration to park one’s money for a lucrative and manifold return. One can well imagine the return percentage on his/her investment in bitcoins by the fact that 1 bitcoin was worth $0 in 2009 and it now values at $55,353 (at the time of writing this article).
This means you could have been a millionaire or a billionaire if a reasonable investment was made in bitcoins in 2009 and was to be redeemed now.
Cryptocurrency- A Digital asset as a medium of exchange:
Crypto currency is a digital asset that is designed in such a manner that it offers the benefits of a medium of exchange like any other currency, so you can buy any item in exchange of these digital assets that you possess from the seller that accepts these forms of payments.
These digital assets are stored in computerized databases as they do not exist in physical form, using strong cryptography to secure the transaction records.
Decentralized Cryptocurrency Explained in Easy:
Whenever these digital currencies are minted, mined or created by the originator , the process is said to have exercised a centralized control, however when these are further disseminated to larger groups a decentralized control is said to have exercised. Each cryptocurrency functions through a distributed ledger technology that is typically known as block chain technology that serves as a public financial transaction database.
Although there are several other Cryptocurrencies that exist in the digital world and they too have offered good returns over a period of time, but the major issue involved in these digital currencies is that they are not backed by any of the apex bank of any country nor do they are traded in any banking channel.
Usually these digital currencies or cryptocurrencies that are not backed by any government or banking channel have no intrinsic value and nor do they will have in future.
Their values are derived purely on the basis of market forces of demand and supply and are a private fiat money. The market of these digital assets is highly volatile and have no capping on their price increase or decrease, in short your invest could generate manifold returns or it might deplete your investment, therefore it is always advisable and wise to invest a very small portion in these class of assets that won’t end you up in pain upon its depletion in this volatile market.
Bitcoin Explained in Easy terms
Brief History on Origin of Bitcoins:
In 2008 the domain name bitcoin.org was registered on the internet and after 2 months a paper which titled as “Bitcoin: A Peer to Peer Electronic Cash System” was passed in a cryptography emailing list.
The paper marks the first introduction of the mysterious figure “Satoshi Nakamoto” a Japanese entity, and since then the same is assumed to be inventor of Bitcoins. However the physical identity of the same is still not known.
What is bitcoin mining Process:
The source of Bitcoins finds a stipulation set that means that there would be only 21 Mn of total bitcoins that ever will be produced as of now 18.6 Mn of bitcoins have been mined already and are in circulation. There have been cases where holders of bitcoins have lost bitcoins due to technical issues, forgotten key to digital wallets etc.
The bitcoin mining process involves extracting bitcoins from the web, it is performed by using high powered computers that are capable of performing complex mathematical computations. The person having possession of these high technological powered computers is known as a miner or an auditor.
In easy sense:
Whenever a transaction involving a bitcoin or any other digital currency takes place between the two parties, the miner also known as auditor that possess these high powered complex mathematical computational abled computers verifies the legitimacy of these transactions by solving complex mathematical problems and upon his verification this is added to a block(an approved transaction) and the chain of these complex solved problems or blocks is known as block chain (i.e. group of approved transactions).
The miners in return are rewarded with some bitcoins for solving these block chains. First mining was done in the year 2009 and this process was developed to stop double spending of the same bitcoin by the holder by Satoshi Nakamoto. When these high powered bitcoins solve approximately 1MB worth of It is estimated that regardless the number of miners involved in the mining process it takes roughly around 10 minutes to mine 1 bitcoin.
Who pays the bitcoin mining reward &How much?
In the year 2009 the reward for successful mining for miners was 50 Bitcoins but it halved after every four years since then, it was 6.25 Bitcoin in the year 2020.But it is anticipated that miners will still continue to mine bitcoins even though the reward is reducing since there is fees involved in mining these bitcoins and it is expected to rise further per block as the rewards are decreased after every 4 years.
How to start Bitcoin mining?
Everybody cannot mine bitcoins on their personal computers but for that one needs to have an access to the mining rig- means a specialized computer used for mining bitcoins, a rig could be a dedicated miner means exclusively made for bitcoin mining or for some other gaming purposes.
Bitcoins could be mined by using personal arrangements or using cloud platform, the difference between the two is of cost where the former requires an expensive hardware known as ASIC miner having cost of more than thousand US dollars, whereas the latter is quite affordable but not that rewarding due to break even point receding due to increased difficulty level of blocks.
Bitcoin mining electricity consumption:
When such high powered computers are involved in mining electricity consumption is way high than one can imagine. According to a research of scientists the power consumption involved in data mining is appropriately around 1% of total power consumption worldwide and further leads to global carbon emissions in Mn tons of quantity.
Therefore there is a need to find conventional sources of energy for this bitcoin mining process in the long run.
Bitcoin and its wide acceptance:
One of the first tangible items that had been purchased with the cryptocurrency was a pizza in 2010.
There are many other big companies that have also started to investing in bitcoins.
Recently, Tesla has purchased over $1 billion worth of bitcoins and has allowed customers to buy its cars in return of digital currency.
Other important Digital/ Cryptocurrencies:
Other than bitcoins there are other important and rewarding cryptocurrencies such as:
Etherium (ETH), Dogecoin(DOGE), Litecoin (LTC), Cardano (ADA), Polkadot (DOT) etc.
Also Read: The future of internet i.e. Web 3.0
Also Read: Top 10 Cryptocurrency to invest in 2022
Source& Credits: Above information is collected from sources like Investopedia, Wikipedia, Thebalance.com, Yahoo finance.
Disclaimer: Please form your investment decisions based on your personal research work as the above information is a part of my personal research and may or may not be suitable for your investment decision making.