It was the year 2010 when I first heard about Bitcoin. It was valued 0.40$. If I had invested in Bitcoins worth 500 INR back then, I would likely be a millionaire by now. Bitcoin has reached its greatest heights since its launch in 2009. But what is Bitcoin? What is behind its mechanism? How does it work? The list of questions is long enough to create curiosity in our minds. In this blog, we will explore the mechanism behind the most successful cryptocurrency in the world. So here we go!
What is Blockchain?
Before we dive deep into Bitcoin, we should at least know a little about Blockchain to make it easy for us to understand. Bitcoin is the backbone of Bitcoin. It is a type of digital ledger or database that maintains data in a safe, transparent, and decentralized manner is known as Blockchain. Blockchain functions within a distributed computer network known as nodes, where the entire system is not controlled by one entity, unlike conventional databases, which are governed by a single entity. Blockchain enables every participant to view the transactions recorded in Blockchain. This helps to maintain transparency by making it easy to trace transactions without depending on intermediaries. Also, the transactions recorded in the blockchain can’t be altered. Changing a block would involve changing every block after it, which is practically impossible and would take a lot of processing power.
What is Bitcoin?
It is well known to us that Bitcoin is a cryptocurrency. But what beyond that? On 18th of August, 2008, the domain name bitcoin.org was registered. Is it not surprising that true identity of the creator of Bitcoin is not known till date? & it is absolutely right. But it is said that a link to Satoshi Nakamoto’s white paper, Bitcoin- A Peer-to-Peer Electronic Cash System, was shared on a mailing group for cryptography. When Nakamoto mined the genesis block, the first block of the chain, on January 3, 2009, the Bitcoin network was born. It is said that Satoshi Nakamoto had mined more than 1 million Bitcoins before his disappearance in 2010. He gave Gavin Andresen control of the code repository and the network alert key prior to his disappearance.
It is said that the very first transaction of Bitcoin was for 2 pizzas, when Leszlo Hanyecz paid 10000 Bitcoins for 2 pizzas. 10,000 BTC was worth roughly $41 USD at the time, or about 0.0041 USD per Bitcoin. This was the first ever recorded transaction of Bitcoin. As more people started mining and trading Bitcoin, market supply and demand started to determine its value. BitcoinMarket.com, the first legitimate Bitcoin exchange, was established in 2010. Users were able to exchange Bitcoin for fiat money as a result. At first, each Bitcoin was only worth a few cents. For the first time, Bitcoin’s value hit $1 USD in 2011. Bitcoin’s value gradually began to touch new heights when it’s demand increased. As on date, A Bitcoin is worth $84417.79 (22:36 hours, 11-11-2024).
How Bitcoins are Produced?
The process of producing Bitcoin is called mining. It is used to safeguard the blockchain and validate transactions on the Bitcoin network by resolving challenging cryptographic problems. Mining makes it possible for both the decentralized verification of transactions and the creation of new bitcoins, it is essential to the functioning of the cryptocurrency.
What is Mining?
Mining consists of a network of computers that are spread across the globe. This network of computers works together to solve cryptographic problems. A consensus method known as Proof of Work (PoW) is used by Bitcoin. Miners compete with one another to solve a challenging mathematical puzzle in this system. The hash function, which is a one-way function that produces an output of fixed length, is the foundation of the riddle. A nonce is a particular value that miners must find that, when entered into the hash function, produces a hash that satisfies a set of requirements (a number of leading zeros).
On successfully solving the puzzle, they create a block of transactions and each of the blocks contains verified Bitcoin transactions along with a reference to the previous block in the blockchain. The Bitcoin ledger’s immutability and security are attributed to this chain of blocks.
The miner receives a specific quantity of freshly created bitcoins in exchange for solving the puzzle and adding a block to the network. This is the procedure that creates new bitcoins. As of 2024, the block reward is at 6.25 BTC, although it will gradually drop.
Supply Chain of Bitcoin
Do you know there will only ever be 21 million Bitcoins created? Yes, it is right. This fixed supply, which is incorporated into the coding of Bitcoin, makes sure that the currency cannot be inflated by governments printing more money, unlike fiat currencies of various nations.
The prize miners get for cracking a block is halved roughly every four years. A Bitcoin halving, also known as a block reward halving, is an occurrence that is built into the Bitcoin protocol to slow down the creation of new Bitcoins. In addition to keeping inflation under check, the halving guarantees that there will eventually be close to 21 million bitcoins in circulation.
In addition to block rewards, transaction fees are an essential part of the mining process. To incentivize miners to prioritize their transactions in the upcoming block, users can choose to pay a fee when transacting with Bitcoin. Transaction fees are predicted to become an increasingly important source of revenue for miners as the block reward gradually decreases due to halving events.
Conclusion: Bitcoins Value & Blockchain
As we have concluded this blog post, i have realized that not buying Bitcoin in 2010 is why I am not a millionaire. Okay, poor jokes apart. As we have explored Bitcoin, the value of Bitcoin is governed by the demand in the crypto market and its role as a store of value or medium of exchange. Bitcoin is available in various crypto exchanges. Investors and traders determine its value by buying and selling Bitcoin in these crypto exchanges. The value of Bitcoin is also affected by market sentiments, regulatory news, and many other factors.
The responsibility of blockchain is to ensure decentralization, transparency, and security in every transaction of Bitcoin. It allows Bitcoin to exist without being controlled by a single entity or authority. Its widespread computer network ensures that each and every transaction is verified and recorded, making it safe from fraud.
The wave of Bitcoin & Blockchain has opened the door for innovation in the crypto market. The transparency and security of decentralized systems have the capability to revolutionize finance and various other sectors. Bitcoin & Blockchain a growing technology, however, there are challenges like scalability, regularity laws of various nations, and market volatility. Let’s see, how Bitcoin is going to reshape finance in the future.
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