Bitcoin is the world's first decentralized cryptocurrency - a type of digital asset that uses public key cryptography to record, sign, and send transactions on the Bitcoin blockchain.
Launched on January 3, 2009 by an anonymous computer scientist (or group of programmers) under the pseudonym "Satoshi Nakamoto", the Bitcoin network (with a capital "B") is a peer-to-peer electronic payment system that uses crypto - native currency called bitcoin (lowercase "b") to transfer value over the internet or act as a store of value like gold and silver.
Each bitcoin is made up of 100,000,000 satoshis (the smallest units of bitcoin), which makes each bitcoin divisible up to 8 decimal places. This allows people to buy fractions of a bitcoin with as little as one US dollar.
Bitcoin and other cryptocurrencies are like the email to the financial world. Currency does not exist in physical form, value is traded directly between sender and receiver, and there is no need for banking intermediaries to facilitate the transaction. Everything is done publicly through a transparent, immutable, and distributed ledger technology called blockchain.
Here are the main characteristics of blockchain technology:
How does Bitcoin work?
Bitcoin users send and receive coins over the network by entering the public key information attached to each person's digital wallet.
In order to encourage the distributed network of people verifying bitcoin transactions (miners), a fee is attached to each transaction. The fee is assigned to the miner who adds the transaction to a new block. Fees work on a first-price auction system, where the higher the fees attached to the transaction, the more likely it is that a miner will process that transaction first.
Every bitcoin transaction that takes place must be permanently committed to the Bitcoin blockchain ledger through a process called 'mining'. Bitcoin mining refers to the process by which miners compete against each other using specialized computer equipment known as Application-Specific Integrated Circuit (ASIC) chips to unlock the next block in the chain.
Unlocking blocks works as follows;
This method that forces miners to use machines and spend time and energy trying to accomplish something is known as the Proof of Work system and is designed to deter malicious agents from spamming or disrupting. the network.
Whoever succeeds in unlocking the next block is rewarded with a set amount of bitcoins called "block rewards" and can add a certain number of transactions to the new block. They also collect any transaction fees associated with the transactions they add to the new block. A new block is discovered about once every ten minutes.
Bitcoin block rewards decrease over time. Every 210,000 blocks (or roughly four years), the number of bitcoins in each block reward is halved to gradually reduce the number of bitcoins entering space over time. Since 2021, miners receive 6.25 bitcoins every time they mine a new block. The next bitcoin halving is slated to take place in 2024 and will see bitcoin block rewards drop to 3.125 bitcoins per block. As the supply of new bitcoin entering the market decreases, buying bitcoin will be more competitive, assuming the demand for bitcoin remains high.
Bitcoin's energy consumption
This process of forcing network contributors to spend time and resources creating new blocks ensures that the network remains secure. But this security comes at a price. The Bitcoin network currently consumes around 93 terawatt-hours (TWh) of electricity per year, roughly the same energy consumed by the 34th largest country in the world.
This appetite for electricity has sparked much criticism from celebrities such as Tesla CEO Elon Musk from government agencies such as the Chinese State Council and the United States Senate regarding Bitcoin's impact on climate change. . But while these numbers are alarming, it's important to note that Bitcoin mining accounts for at most 1.29% of a country's energy consumption. Not to mention, Bitcoin is a complete financial system whose energy consumption can be measured and tracked, unlike the fiat system which cannot be accurately measured and requires a range of additional layers to function, including ATMs, card distributors, branches ba
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