Bitcoin is the very first, most popular and valuable cryptocurrency today. The blockchain technology underlying it has led to a new round of progress in the information field. Many famous personalities predict enormous success in the future, and some compare it with gold. MTC is now an ideal trading tool and attracts the attention of many investors and traders. This is due to the basic idea and unique features of the project.
What is bitcoin in simple words
Bitcoin is a digital currency that is created and circulated only in the virtual space of the Internet. For the formation and interaction between the owners, a special decentralized network is organized, which does not require the participation of intermediaries. Its work is based on blockchain and p2p technology, which allows users to interact without risk, while the reliability of operations is guaranteed by a software algorithm.
History of bitcoin
For the first time, Bitcoin subscribers learned in 2008 about gmane.comp.encryption.general, who received emails from Satoshi Nakamoto, then unknown. The text of the message said that work is underway to create a cryptocurrency bitcoin, its essence and features are described. It was also said that the new digital currency does not depend on third-party organizations, all operations are safe and eliminate fraud, and the owners remain completely anonymous. A bit later, the article “Bitcoin P2P e-cash paper” was published, which described in detail the technology and program code.
Despite the huge popularity of Bitcoin and the demand for blockchain technology, which specifically created this product is still unknown. Satoshi Nakamoto is the pseudonym of a person (or group of people), who was the first to realize the brilliant idea of virtual money. Many doubt the accuracy of his profile information on the forum, where he indicated his age and place of residence.
In one of the forum posts, Satoshi wrote:
“I have been working on bitcoin since 2007. At some point, I came to the conclusion that all this can be done without any intermediary. I could not resist and continued to reflect on this. There was much more design than code writing. ”
Whoever it is, but in January 2009, he launched the network and formed a genesis block, receiving a reward of 50 coins. Then the first version of the special wallet was created, and a little later the first transaction was made to the address of Hal Finney. In October of the same year, the exchange rate against the US dollar was first set. The cost was calculated based on the cost of electricity needed to extract one coin using a computer processor and amounted to only $ 0.000003 for one bitcoin.
Technical features of bitcoin
The cryptocurrency program code is completely open, so anyone can study or use it. The main difference from previous payment systems is the use of blockchain technology (a detailed description is available in the corresponding section of the knowledge base ), due to which the network does not need centralized organs for functioning, and the internal account cannot be destroyed, blocked or faked. In the process of managing and maintaining the system, each user can participate.
Since the digital currency is completely virtual, it is actually a set of characters in the established format. You can create an unlimited number of special wallets for placing MTC, but each of them includes three main elements:
- The address is a sequence of characters to which cryptocurrency is credited. It can be compared with a bank account, but the principle of operation is significantly different.
- The private key is a special file that is a unique identifier. Using a cryptographic individual signature, it allows you to access funds and perform operations with them. It must be isolated from third-party access, as it is necessary to confirm the transfer.
- Balance – the amount of cryptocurrency placed in a particular wallet.
Any internal transfers are called transactions, each of them has an individual digital signature and is recorded in a single chain of public register blocks. Such a scheme makes operations irreversible and completely transparent. Each transaction consists of three parts:
- Sender address
- transfer amount;
- recipient addresses.
However, translation completion requires confirmation in order to prevent errors, fraud, and work safety. This is achieved through the internal principle of consensus, so the transaction must comply with the established requirements. After checking the data, the network independently forms a new block, which must be closed using cryptography in order to get into the general chain of records. This is done by users, solving complex tasks, and the process is called mining. New blocks are formed approximately every 10 minutes, so the transfer system is fast enough, but requires significant energy costs for operation.
How to earn bitcoins
Coins can be obtained in various ways. The easiest way is to purchase cryptocurrency on special trading floors or at exchange points. The first option is preferable because of the better course and the possibility of conducting more profitable speculations. Learn more about how to buy bitcoin.
You can get virtual currency while maintaining the network’s performance, that is, by mining. There are several types of coin mining:
- using PC elements (CPU, GPU, FPGA) or special equipment (ASIC chips);
- cloud mining – rental of computing power in a remote service that deals with this on an industrial scale;
- Web mining – used by sites that use the equipment of visitors to mine coins. Not a good example of how to earn bitcoin, so software developers are fighting this direction.
Now, due to the high complexity of the Bitcoin network, to increase the economic efficiency of production, participants are pooling, where their computing power is added up, and the reward is distributed in proportion to the contribution.
About six times per hour, a new block closes and miners receive a reward from the network itself and a commission from confirmed transactions. The size of the system reward is halved every 210 thousand blocks and currently stands at 12.5 coins. The issue of military-technical cooperation has a limit of 21 million units, but due to the regular increase in the complexity of the network as it approaches the limit, the process will significantly slow down and gradually stop. The level of cryptographic tasks is reviewed by the system approximately every two weeks.
Such measures prevent inflation, add value and allow talking about the security of cryptocurrency. Highly profitable mining requires an initial investment, but due to the increase in efficiency as the equipment capacity increases, the payback period of investments is reduced.
Unlike our usual cash, stocks or assets, bitcoin is not backed up by absolutely no material values. States, banks and corporations do not support the rate of virtual currency, so the real value is determined solely on the basis of objective market laws. The idea initially did not imply standard support, for example, there are many rare minerals and elements that do not have practical value, but because of their limited nature, they have a high price.
“Instead of changing, in order to fix the price, the number of stocks here, on the contrary, stocks are predetermined, and the price is changing. With the growing number of users, the value of coins is growing. This has the potential for positive feedback: the more users, the higher the price. ” Satoshi Nakamoto, a message to the P2P fund.
How much bitcoin costs depends on the real market demand and the valuation of the MTC community. The value increases over time due to increased mining costs, which are actually the cost of producing coins. In addition to increasing the energy consumption for maintaining the network due to gradually increasing complexity, production and operation require equipment that wears out over time, and therefore depreciation is added.
Coin issuance is limited to 21 million MTC, which will be mined by about 2034. Further, the number of units in circulation will gradually decrease for natural reasons. This is due to the inability to access due to the loss of private data from wallets by the owners, their death (if no one else owns the information). Even now, according to various sources, from 1.5 to 3 million military-technical cooperation units have been withdrawn from circulation. About a million are still owned by the creator, but they never left the account.
The high demand and liquidity of the virtual currency along with the convenience of active speculative operations lead to the establishment of market value. An example is the events of the end of 2017 when in one month the rate rose from $ 6 thousand to $ 20 thousand. Legalization in Japan and the adoption of business contribute to strengthening the position.
Additional support factors are:
- complete decentralization and anonymity;
- high level of protection against fraud and hacking;
- consensus principle for network reliability and integrity;
- regular increase in the list of goods and services that are available for bitcoins, increase its liquidity;
- any changes to the protocol require the consent of 90% of the participants.
Statistics show that more than 100 payment transactions using bitcoin are performed every minute.
Cryptocurrency development and course dynamics
Initially, the network participants were advanced IT specialists who were engaged in mining for entertainment, but, gradually delving into the details of the technology and realizing what Bitcoin really is, they began to treat this as a profit. At first, the size of the community grew slowly, mainly due to programmers and libertarians. However, as the scale of the network and the price of digital currency increased, the project began to attract the attention of investors.
The dynamics of the development of value so far is fully consistent with the words of the creator of the first virtual currency. However, now it is rather an excellent means of speculation than a full replacement for fiat money.
Many experts believe that bitcoin will be in demand in the future, and its rate will become less volatile, which will reduce risks and attract new investors, various funds. The formation of legislative bases in many countries will provide control in this area and a full understanding of the rules for participation by all parties.
The community of bitcoin network optimizers is actively working to improve the protocol and the functioning of the system as a whole. First of all, a gradual transition of all products and companies to the SegWit and Lightning network is planned, the process has already begun, but has not yet reached 100% distribution.
Many users believe that cryptocurrency has an insufficient level of anonymity. Since all transactions are public, their analysis can potentially tell a lot about counterparties and their interaction. There are already several protocols in this direction:
- TumbleBit – it “mixes” coins in a special toggle switch to create communication channels between all participants in each session. As a result, the amounts are saved, but everyone gets “alien” bitcoins, which each time confuses the traces of transactions. The whole process is based on the use of complex cryptographic algorithms to hide the relationships between users.
- ZeroLink – uses a central server to “merge” all transactions into one. This does not allow privacy and is a cheaper solution.
For a long time, there is an idea to create sidechains – alternative blockchains with cryptocurrencies tied to the MTC. They will allow you to move digital currency in third-party networks but use “original” coins. The introduction of such a solution will increase the anonymity, speed of confirmation and allow the use of smart contracts. Several versions already exist, for example, Liquid or RSK, but they are still being tested.
Some developers believe that you should replace the existing ECDSA model with the Schnorr signature, which allows you to immediately certify all elements of the transaction, and not each separately. This can increase network performance by a third by increasing scalability.
There are other areas, but so far there are no significant developments. However, even when implementing the next innovations, users will be able to reconsider questions about what bitcoin is and how it functions.