What is Bitcoin?
What is Bitcoin?
Welcome to BitBeginner, the ultimate guide to understanding Bitcoin and blockchain technology. Bitcoin has become a buzzword in recent years, and its price has been on the rise cyclically. However, many myths and misconceptions surround this "internet currency." Therefore, it is essential to understand what is behind Bitcoin, how new Bitcoins are created, who determines the rules, and how digital units can be stored safely.
Bitcoin is the first and most well-known application of blockchain technology. The basics and achievements of this technology are described by "Satoshi Nakamoto" in a white paper published in 2008. Bitcoin is a digital unit limited to just under 21 million, produced in a decentralized manner on a global level through a process known as "mining."
The blockchain is a constantly expanding chain of transactions that cannot be changed retrospectively. The transparent and globally secured database system becomes a public accounting ledger. Bitcoin is just one of many applications made possible by blockchain technology.
The Bitcoin blockchain contains information about all "Bitcoin accounts" (also called Bitcoin addresses) and all transactions within the Bitcoin network. Every transaction is synchronized globally at every node in the network, ensuring that all transactions are properly accounted for, and no counterfeit Bitcoins can exist. Due to these characteristics, the blockchain enables trustworthy systems without intermediaries or central regulating instances to verify, identify, and secure information, saving time and costs while increasing efficiency, security, and transparency.
BitBeginner provides comprehensive information about Bitcoin in an understandable way. Our aim is to educate and inform everyone interested in Bitcoin, its potential, and its limitations. Join us on this exciting journey to discover the future of money.
Properties of Bitcoin
Bitcoin has several unique properties that make it stand out from traditional currencies:
Bitcoin has no centralized management. Nodes are distributed globally, making the system immune to shutdown.
Bitcoin is not limited to one country or region but can be sent to any Bitcoin address in the world.
Every past, present, and future Bitcoin transaction is publicly viewable on the blockchain.
Bitcoin transactions are settled in just a few minutes regardless of sender and recipient locations. Lightning transactions take milliseconds to settle.
Bitcoin is a means of payment transferred directly without intermediaries.
No transaction can be stopped arbitrarily, and every transaction is carried out.
There will only be just under 21 million Bitcoins. The monetary unit cannot be printed at will.
Low transaction fees
Bitcoin transactions usually cost less than a dollar, regardless of the transaction amount. Lightning network transactions typically cost a fraction of a cent, enabling micro-payments.
Bitcoin, similar to traditional fiat currencies, is divisible into smaller units. While the euro can be divided into 100 subunits called eurocents, Bitcoin can be divided into 100 million smaller units. These smaller units are called Satoshis, named after the creator of Bitcoin, Satoshi Nakamoto.
As the adoption rate of Bitcoin continues to increase in the future, and the price of Bitcoin rises accordingly, it is possible that price tags will not be denominated in decimal places of a single Bitcoin, but rather in smaller units. For instance, if the price of Bitcoin reaches significant heights, a price tag might display 100 Sats instead of 0.000001 BTC. This division into smaller units makes Bitcoin more practical for everyday use and ensures that it can remain a global means of exchange, regardless of the value of each Bitcoin.
Another benefit of Bitcoin's divisibility into smaller units is that people can purchase fractional amounts of Bitcoin. It means that even if the price of a whole Bitcoin is beyond someone's budget, they can still invest in Bitcoin by buying a fraction of it, such as 0.1 BTC or 0.001 BTC. This feature enables wider access to Bitcoin and makes it more accessible to people with different financial means.
1 Bitcoin (BTC) = 100,000,000 Satoshis (Sats)
1 Bit = 100 Satoshis
1 MilliBitcoin (mBTC) = 1,000,000 Satoshis
1 MicroBitcoin (μBTC) = 100 Satoshis
Bitcoin's smallest unit is the Satoshi, which is equal to one hundred millionth of a Bitcoin (0.00000001 BTC). The Bit, mBTC, and μBTC are other common units used to express smaller amounts of Bitcoin. The Bit is equal to one hundredth of a millionth of a Bitcoin (0.000001 BTC), the mBTC is equal to one thousandth of a Bitcoin (0.001 BTC), and the μBTC is equal to one millionth of a Bitcoin (0.000001 BTC).
These different units of Bitcoin allow for easy conversion and use of Bitcoin, whether in small or large amounts.
How are new Bitcoins created?
Bitcoin is produced exclusively through a process called "mining." While it is figuratively similar to the mining of gold, the production of new Bitcoin has nothing to do with actual mining. Instead, it refers to how new Bitcoins are created.
In Bitcoin mining, miners use powerful computers to solve complex mathematical problems in order to validate transactions and add new blocks to the blockchain. A block is a collection of transactions that are grouped together and added to the blockchain as a single unit. The blockchain is a public ledger that records all Bitcoin transactions, and each block added to the blockchain represents a new set of transactions that have been validated by the network.
To find a new block, the miner must solve a complex mathematical problem called a "hash." A hash is a unique digital fingerprint of a block, generated by a complex algorithm. The hash function takes data from the block and creates a unique string of letters and numbers that is a fixed length. The miner's computer generates and tests millions of different hashes until it finds one that meets the network's criteria for a valid block.
The difficulty of a hash is automatically adjusted dynamically based on the computing power (or hash rate) on the network. The hash rate measures the amount of computing power being used to mine Bitcoin. The higher the hash rate, the more computing power is being used to solve the mathematical problems and validate transactions. A higher hash rate also means that it is more difficult to mine new Bitcoin because the difficulty adjusts to maintain a constant rate of new Bitcoin creation.
In summary, mining is the process of validating transactions and adding new blocks to the blockchain using powerful computers to solve complex mathematical problems called hashes. A block is a collection of transactions grouped together and added to the blockchain as a single unit. The difficulty of a hash is adjusted dynamically based on the hash rate, which measures the amount of computing power being used to mine Bitcoin.