Bitcoin was created after the global financial crisis of 2008, when big banks were found to be misusing borrowers’ money, playing with the system, and charging outrageous fees. To solve these problems, the people who made Bitcoin wanted to put the people who owned bitcoins in charge of transactions, get rid of the middleman, lower interest rates and transaction fees, and make transactions clear. They made a system where people could control their money in a clear way through a distributed network.
In a short amount of time, Bitcoin has grown quickly and spread far. From a big jewellery store in the UK to a private hospital in Netherlands, businesses all over the world accept bitcoin currency. Bitcoins are used by companies with revenues in the billions of dollars, such as Dell, PayPal, Microsoft, Expedia, etc.
Websites promote bitcoins, magazines write about bitcoin news, and forums talk about bitcoins and other cryptocurrencies. Bitcoin has its own Application Programming Interface (API), price index, exchanges for trading, and exchange rate.
But there are problems with bitcoins, like hackers breaking into accounts and stealing money, the high volatility of bitcoins, and long wait times for transactions. People in other places, especially in the third world, find Bitcoins to be a reliable way to send and receive money without having to deal with middlemen.
How do Bitcoins work?
We can buy and sell bitcoins just like we do with fiat currencies. Even though we use Bitcoin, the buyer is really told to look at our digital signature, which is a security code made up of sixteen different symbols. The buyer uses his device to decrypt the code and get the cryptocurrency. So, we can say that cryptocurrency is a way to buy and sell goods and services by exchanging digital information.
Running the transaction on a peer-to-peer network, which is like a file-sharing system, makes it safe and reliable.
How does Bitcoin deal with the problem of spending money twice?
A payment network must have valid accounts, balances, and records of transactions for digital cash to work. Every payment network has the same biggest problem, which is double spending. This is when the same money is used more than once to make a transaction.
So that people don’t spend the same money twice, every transaction has to be recorded and checked in a central server where all the records of the balance are kept. In a decentralised network, on the other hand, every node has to do the work of a server and keep track of transactions and balances. So, all nodes/entities in the network must come to an agreement about all of these records. The blockchain technology in bitcoins was used to make this happen.
So, we can say that bitcoins and other cryptocurrencies are just token entries in the decentralised databases that keep track of all balances and account records. It’s important to know that cryptography is used a lot to keep the consensus records safe. More than anything else, math and logic are what keep Bitcoins and other cryptocurrencies safe.
Bitcoins and other cryptocurrencies have become known and used because their creators and users think they have value.
The same idea applies to Bitcoin: the more people use it, the more value is created.
Bitcoins: A Brief History
In 2009, a mysterious person or group going by the name Satoshi Nakamoto published a Whitepaper with the first Bitcoin protocol and proof of concept. In the end, the mysterious Nakamoto left the project in late 2010. After that, other developers took over, and the Bitcoin community has grown by leaps and bounds since then.
Satoshi Nakamoto’s real identity is still a mystery, but it is known that he communicated a lot in the early days of Bitcoin. Let’s guess about things like when he started working on Bitcoin, how much similar ideas influenced him, and why he came up with Bitcoin.
The first bitcoin domain was made.
Satoshi may have started writing code for Bitcoin around May 2007. He reportedly signed up for the domain bitcoin.org in August 2008. Around that time, he started sending emails to a few people he thought might be interested in the idea of bitcoins.
In October 2008, he wrote a white paper about the Bitcoin protocol and made it public. He also gave out the Bitcoin code. Then, he stayed in touch for about two years. During that time, he was active in forums, talked to a number of developers, and later added patches to the original code. He and other developers took care of the source code and fixed problems as they came up. By December 2010, other people had slowly taken over, so he left quietly.
Following are the general ideas regarding Bitcoin:
- Blockchain is a platform.
- The math is behind encryption technology.
- Bitcoin miners are computers or other machines that create the currency and make transactions possible.
- People who take part in transactions and help the payment system move forwards
- Bitcoin, and all cryptocurrencies in general, are based on the idea that they are distributed systems in which there is no single entity in charge of running things like transactions. It is a peer-to-peer (p2p) system that works at the level of the people who use it.
Ownership of Bitcoin
Bitcoins are linked to bitcoin addresses in the blockchain. To make a bitcoin address, all you have to do is pick a valid private key at random and figure out the address that goes with it. This math problem can be solved in a flash. But it is almost impossible to figure out the private key of a given bitcoin address.
Users can tell others or make a bitcoin address public without giving away the private key that goes with it. Also, there are so many valid private keys that it is very unlikely that someone will figure out a pair of keys that is already in use and has money. Because there are so many valid private keys, brute force can’t be used to break into a private key.
The owner of the bitcoins must know the private key and digitally sign the transaction in order to spend them. The network uses the public key to check the signature, but the private key is never shown.