What is Bitcoin (BTC) and how does it work?

The story of Bitcoin

On October 31, 2008, an unknown software developer, possibly several, proposed an electronic payment system based on mathematical evidence , using the pseudonym Satoshi Nakamoto . The intention behind this idea was to create a means of payment that could be  cryptographically  secured, verifiable, immutable and used independently by central authorities and governments.

By the time the white paper was published, the global economic crisis was already taking its devastating course in 2007. One of the causes of this financial crisis is the bursting of the real estate bubble on the US market. Many people lost their homes as a result of the financial crisis. So that bankers and speculators can no longer create such bubbles, and accordingly can no longer create emergencies, Nakamoto wanted to provide the world with a transaction system with more integrity, through which people regain full control over their own monetary values.

What is Bitcoin (BTC)?

Bitcoin (BTC) refers to a digital token within its own blockchain. A digital token is a cryptographically encrypted file that is stored on the Bitcoin blockchain. The  blockchain or blockchain, is an open ledger. All transactions are saved in it. This can be compared to a bank employee who keeps a record of when Peter Brandt, the bank’s fictitious customer, deposited or withdrew how much money from his bank account. The bank employee also records how much money Peter Brandt transferred to Hedi Schumann. In the case of a transfer or a transaction, a fixed, monetary value is deducted from one bank account and credited to another bank account. When Peter Brandt transfers € 100 to Hedi Schumann, the bank employee deducts € 100 from his account balance and credits it to Hedi Schumann’s account.

In principle, the same thing happens with transactions. A Bitcoin transfer is logged in the digital ledger, the Bitcoin blockchain. The special thing about the blockchain is that it is not managed by a single bank employee, but is stored in parts or in full on every computer within the network. This means that Bitcoin users no longer have to rely on individual banks to manage their money. The decentralized architecture of the Bitcoin blockchain not only offers the advantage that banks are superfluous as middlemen, but also ensures a high level of transparency and security.

Anyone interested can publicly view the transaction network’s account book at any time. This gives Bitcoin users the opportunity to build trust in blockchain technology.

The benefits and the possibilities

Bitcoin was originally designed as a decentralized payment method and an alternative to the classic banking system. Unlike international bank transfers at the time, it was cheaper and faster. An additional benefit for merchants was that a transaction is irreversible, which prevents chargebacks, which are often associated with expensive fees.

In some parts of the world, bitcoins are still a more efficient and cheap way to transfer money across borders. Many users also appreciate the pseudo-anonymity of the blockchain. However, the cost and speed advantages of Bitcoin are increasingly dwindling as newer blockchain projects with better technology and scalability hit the market, while traditional channels work to improve their systems at the same time. To know morw about bitcoin , check bitcoin price analysis citytelegraph

How does Bitcoin work?

Transactions in the Bitcoin network are  verified by miners using the  proof-of-work algorithm . The  SHA-256 algorithm  is used as a basis. On average, the confirmation of a transaction takes around 10 minutes. In reality, however, it can take significantly longer. This is due to the large number of transactions that the miners can hardly handle. Users either have to pay more or have to wait longer for their transactions. For micropayments, the additional fees that would be incurred are not worthwhile. Therefore, small amounts in particular have to wait several days for confirmation.

The result was a lack of scalability, which means that the  cryptocurrency  has not yet made the leap to a means of payment in everyday use. Like  Ethereum and other larger cryptocurrencies with the same problem, Bitcoin also tries to increase scalability with different approaches in order to be able to guarantee more data throughput. This includes, among other things, the use of the  Lightning Network , which is ultimately intended to relieve the main chain of the blockchain. Another measure was the implementation of the  SegWit protocol  in August 2017.

Some members of the community saw the solution to the scaling problem in increasing the block size. From this idea, the first hard fork finally took place in August 2017   and  Bitcoin Cash  was founded. In total, Bitcoin went through two more hard forks, from which Bitcoin Gold and Bitcoin Private emerged.

What is Bitcoin Mining?

Bitcoin mining  is the process by which bitcoins are created. Mining primarily ensures that transfers in Bitcoin are written to the digital account book. Anyone around the world with Internet access can download the protocol and use the computing power of their computer to generate bitcoins. Bitcoins are distributed as a reward when a transaction block on the Bitcoin blockchain has been calculated. For each transaction block generated, 12.5 Bitcoin are currently distributed as a reward. This is currently roughly equivalent to $ 100,000. In 2020 this reward will be halved

What is a Bitcoin Wallet?

A  Bitcoin wallet  is software. The software is used to store the coins. A wallet is comparable to a real wallet. Since Bitcoins is a digital currency, a wallet is a digital purse. A Bitcoin wallet is important if you want to mine, trade or just own Bitcoins. A payment process in Bitcoins is also not possible without a corresponding wallet. A wallet assigns each user their own ID, which is a hexadecimal number. This ID is also used as the  wallet address called. The wallet address ensures anonymity, because Bitcoin users are not displayed with their real names within the Bitcoin blockchain. Only your own wallet address, transactions in BTC and the recipient address can be viewed on the Bitcoin blockchain.

Wallets differ from one another depending on the end device. Wallets for storing Bitcoins are available as desktop wallets ,  hardware wallets ,  mobile wallets   or  web wallets .

A hardware wallet (  e.g. Trezor  and  Ledger Nano S ) is a USB hardware storage medium that Bitcoin holders can use to store their own Bitcoins offline. They are suitable for users who do not want to lose their coins through a hack.

What is Bitcoin Trading?

Bitcoin trading refers to the process of buying or selling bitcoins. The aim of trading is to increase your own capital. This is achieved by reselling purchased bitcoins more expensive than they were bought. The cryptocurrency can be traded on more than 400 crypto exchanges worldwide. Miners can sell mined Bitcoins on the exchanges. Anyone who wants to own bitcoins can also purchase bitcoins on these exchanges, provided they have a wallet. In many cases, Bitcoins (BTC) are traded on crypto exchanges. There are high profit opportunities for trading in the cryptocurrency. For example, if you bought a Bitcoin for 120 US dollars in April 2013, you received 20,000 US dollars for it in December 2017. That is significant. The course is characterized by high volatility. It fluctuates very strongly and it cannot be precisely predicted whether and when the price will rise or fall.