What is Bitcoin?
What is Bitcoin?
There is more and more talk about Bitcoin and the price per Bitcoin has been rising cyclically for years. At first glance, it seems that Bitcoin cannot be taken seriously. Therefore, over time, many myths have arisen around the subject of Bitcoin. So what is behind this "internet currency", how are new Bitcoins created, who determines the rules and how can digital units be stored safely? On BitBeginner these and many other questions are answered in an understandable way.
Bitcoin is the first and most well-known application of blockchain technology. All the basics and achievements of the new technology are described by "Satoshi Nakamoto" in a white paper published in 2008. Bitcoin is a digital unit, limited to just under 21 million, which is produced in a decentralized manner on a global level through a process known as "mining".
Properties of Bitcoin
The basic features of blockchain technology and the advanced layer 2 solutions, such as the Lightning Network, enable Bitcoin to have crucial advantages over all other currencies:
There is no centralized management - nodes are distributed on a global scale, so the system cannot be shut down.
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 on-chain transaction is publicly viewable on the blockchain.
A Bitcoin transaction is settled in just a few minutes - regardless of where the sender and recipient are located. Lightning transactions take milliseconds to settle.
Bitcoin is a means of payment that is transferred directly, without any detours and without a third party that must be trusted.
No transaction can be stopped arbitrarily. 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 much less than a dollar, regardless of how large the amount is. With the lightning network, a transaction usually costs a fraction of a cent - enabling micro-payments.
Bitcoin - like the euro - is divisible into subunits. While the euro can be divided into 100 subunits (eurocents), 1 Bitcoin can be split into 100 million smaller units. If the adoption rate of Bitcoin continues to increase in the future, the price rises accordingly and the means of payment gains wider acceptance, price tags will not read 0.000001 BTC, but in this case, for example, 100 Sats.
How are new Bitcoins created?
New Bitcoins are produced exclusively through so-called "mining". The production of new Bitcoin has nothing to do with mining directly, but describes figuratively how the "extraction" of new Bitcoin works:
Gold is available in limited quantities. At first it was easy to mine gold, then it became more and more difficult. Over time, mining required more labor, despite smaller and smaller quantities. This is similar with Bitcoin, as the number of Bitcoins is limited to 21 million, and over time the "mined amount" of Bitcoins, with the same amount of time, decreases.
The total amount of Bitcoin that will ever exist is just under 21 million. Approximately every 4 years, the amount of newly created Bitcoin halves. For example, from 2012 to 2016, 25 new Bitcoin were produced approximately every ten minutes. From 2016 to 2020, the production rate is 12.5 new Bitcoin every 10 minutes.
The "miner" (cf. miner) who finds a new block receives a reward of (currently) 12.5 Bitcoin sent to his Bitcoin address. To find a new block, the miner must solve a so-called "hash". Because a new block is found every 10 minutes, miners solve exactly one hash during this period. Since all miners are interconnected by the network, the difficulty of a hash adapts dynamically and automatically to the overall computing power of the network. This results in an average of 10 minutes per hash solved.
The graph shows the increase in the hash rate of the Bitcoin network over the last two years. With each miner that joins the Bitcoin network, the hash rate increases.
The graph shows that the difficulty of finding a new block has increased in the last two years. The higher the computing power in the Bitcoin network, the more difficult it becomes to solve a hash and thus to find a new block.