What is Bitcoin & How does Bitcoin work ?


What is Bitcoin & How does Bitcoin work ?

Cryptocurrencies are probably the most talked about thing these days. Once hailed as the future of finance, the crypto coins have already taken over the world. Bitcoin was the first cryptocurrency to truly explode and since then, others like Ethereum, Cardano, Ripple and even Dogecoin have appeared.

It has picked pace in India too and a lot of people don’t want to miss out on the opportunity. A number of exchange platforms have made it easier for the investors to buy and sell cryptocurrencies in India but, there are a lot of questions that keep popping up. We try to answer some frequently asked questions about cryptocurrencies.

✔️ What is Bitcoin?

Bitcoin is a digital form of cash or currency. But different from the fiat currencies used to in genarel, there is no central bank or any authority controlling Bitcoin. Instead, the financial system in Bitcoin is run by thousands of computers distributed around the globe. Anyone can participate in the eco-system by downloading open-source software.

Bitcoin was the first cryptocurrency in the world, announced in 2008 (and launched in 2009). It provides users with the ability to send and receive digital money. What makes it so attractive is that it can’t be censored, funds can’t be spent more than once, and transactions can be made at any time, from anywhere. This system is called peer to peer decentralized transaction system without any bank or cnetral autonity.

✔️ How does Bitcoin work?

When Jack makes a transaction to Peter, He’s not sending funds in the way you’d expect. It’s not like the digital equivalent of handing him a dollar bill. It’s more like his writing on a sheet of paper that he’s giving one dollar to Peter. When Peter goes to send those same funds to Henry, He can see that Peter has them by looking at the sheet.

The sheet is a particular kind of database called a blockchain. Network participants all have an identical copy of this stored on their devices. The participants connect with each other to synchronize new information.

When a user makes a payment, they broadcast it directly to the peer-to-peer network – there isn’t a centralized bank or institution to process transfers. In order to add new information, the Bitcoin blockchain uses a special mechanism called mining. It is through this process that new blocks of transactions are recorded in the blockchain.

✔️ What is the blockchain?

The blockchain is a ledger that is append-only: that is to say, data can only be added to it. Once information is added, it is extremely difficult to modify or delete it. The blockchain enforces this by including a pointer to the previous block in every subsequent block.
how blockchain uses the hash from the previous block to produce the following block

The pointer is actually a hash of the previous block. Hashing involves passing data through a one-way function to produce a unique “fingerprint” of the input. If the input is modified even slightly, the fingerprint will look completely different. Since we chain the blocks along, there is no way for someone to edit an old entry without invalidating the blocks that follow. Such a structure is one of the components making the blockchain secure.

✔️ What is the purpose of bitcoin?

Bitcoin was created as a way for people to send money over the internet. The digital currency was intended to provide an alternative payment system that would operate free of central control but otherwise be used just like traditional currencies.

✔️ What is Bitcoin used for?

People use Bitcoin for a number of reasons. Many appreciate it for its permissionless nature anyone with an Internet connection can send and receive Bitcoin. It’s a bit like cash in that no one can stop you from using it, but its digital presence means that it can be transferred globally. No banks or government can’t stop You to send or receive Bitcoin.!

✔️ How many bitcoins are there?

The Bitcoin System fixes Bitcoin’s maximum supply at 21 million coins. As of 2021, just under 90% of these have been generated, but it will take over 100 years to produce the remaining ones. This is due to periodic events known as halvings, which gradually reduce the mining reward every 4 year.

✔️ How are new bitcoins created?

Bitcoin has a limited supply, but not all units are in circulation yet. The only way to create new coins is through a process called mining – the special mechanism for adding data to the blockchain.

✔️ What is Bitcoin Mining?

Bitcoin mining refers to the process of digitally adding transaction records to the blockchain, which is a publicly distributed ledger holding the history of every Bitcoin transactions. Mining is a record-keeping process executed through computing power. Each Bitcoin miner around the world contributes to a decentralized peer-to-peer network to ensure the payment network is safe and secure.

To securely add to the blockchain ledger, Bitcoin mining computers solve complex mathematical problems. When a solution is found, the latest block of confirmed transactions is added as the next link in the blockchain. As an incentive to mine and contribute to the network, the miner who solved the problem is rewarded a block of Bitcoin.

✔️ What makes Bitcoin valuable?

Bitcoin is decentralized, censorship-resistant, secure, and borderless trust-less System.
This features has made it appealing for use cases such as international remittance and payments where individuals don’t want to reveal their identities.

Many don’t spend their bitcoins, instead choosing to hold them for the long-term. Bitcoin has been nicknamed digital gold, due to a fix supply of coins available. Some investors view Bitcoin as a store of value. Because it’s scarce and difficult to produce, it has been likened to precious metals like gold or silver.

Bitcoin Holders believe that these traits – combined with global availability and high liquidity – make it an ideal medium for storing wealth in for long periods. They believe that Bitcoin’s value will continue to appreciate over time as fixed supply of Bitcoin.

world’s largest organisation like Tesla microstrategy grayscale square and more already include Bitcoin in their portfolio. Many big Corporation like Microsoft Tesla Star Bucks etc already accept payment in Bitcoin In their store. H institutional interest on Bitcoin increase day by day and retail investor also attracted to invest on Bitcoin therefore price of Bitcoin shoot up crazily.

✔️ Is Bitcoin legal?

Bitcoin is perfectly legal in most countries. Be sure to read up on the laws of your jurisdiction before investing in cryptocurrency.
In countries where it’s legal, government entities take varying approaches to it where taxation and compliance are concerned. The regulatory landscape is still highly underdeveloped overall and will likely change considerably in the coming years.

Also Read: Top 10 Free Crypto Research Sites & Tools | find out Next 100× Gem

History of Bitcoin

✔️ Who created Bitcoin?

Nobody knows the actual creator of Bitcoin. Bitcoin’s creator used the name Satoshi Nakamoto, but we don’t know anything about their identity. Satoshi could be one person or a group of developers anywhere in the world. The name is of Japanese origin, but Satoshi’s mastery of English has led many to believe that he/she/they originate from an English-speaking country.
Satoshi published the Bitcoin white paper as well as the software. However, the mysterious creator disappeared in 2010.

✔️ Did Satoshi invent blockchain technology?

Bitcoin actually combines a number of existing technologies that had been around for some time. This concept of a chain of blocks wasn’t born with Bitcoin. The use of unalterable data structures like this can be traced back to the early 90s when Stuart Haber and W. Scott Stornetta proposed a system for timestamping documents. Much like the blockchains of today, it relied on cryptographic techniques to secure data and to prevent it from being tampered with.
Interestingly, at no point does Satoshi’s white paper make use of the term “blockchain.”

✔️ How To Store Bitcoin?

When you buy, earn, or send Bitcoin (BTC), the coin should be store securely. Where your store your Bitcoin it called Bitcoin wallet.
This wallet is typically an app that you download to your phone or desktop, but there are other variations, such as web wallets and hardware wallets and paper wallet.
Depending on how much Bitcoin you own and how often you want to access it, different types of wallets will be better suited to you.

✔️ Software wallets or Hot Wallet:

For frequent Bitcoin trading, software wallets are ideal.
These take the form of an app which is downloaded for free to your phone or desktop. You simply open up the app and can make Bitcoin transactions in an instant.
Since software wallets are connected to the internet, it’s important to make sure your device is well secured to prevent online theft.
We only recommend storing a limited amount of your coins in a software wallet for regular trading and spending.
Make sure the software wallet you’re using is fully non-custodial. This means only you can access your coins — not the wallet provider.

✔️ Hardware wallet or cold Storage

If you own a significant amount of Bitcoin, the best storage option is a hardware wallet (often called a cold wallet).
These are physical devices created specifically for the purpose of storing cryptocurrencies, and they offer the best security for your digital assets.
This is because hardware wallets are not connected to the internet, making them invulnerable to online hacking.
Since they take more time to access, hardware wallets aren’t ideal for making frequent Bitcoin transactions: use them for long-term storage instead.
Hardware wallets are well worth the money—especially if you own a lot of Bitcoin. To make sure the device is legitimate, only buy one from a company you Trust.

✔️ Storing Bitcoins on an exchange is safe?

Cryptocurrency exchanges are a popular place for many newcomers to buy their first Bitcoin because they make the buying process very simple.
However, the cryptocurrency exchange itself has control over the funds in your account (web wallet), making them far more prone to theft and fraud.
As such, we recommend using cryptocurrency exchanges only for trading—not for storing your Bitcoin.
Cryptocurrency exchanges are not a secure place to store your coins. Once you’ve bought your Bitcoin, move it to your software or hardware wallet as soon as possible.

Note – Study thoroughly before investing in Bitcoin. You must consult your personal financial advisor before making any investment. Bitcoin has not been approved by the government in all countries of the world, so please know the laws of the country well before investing. Storing Bitcoin on any exchange is not secure in any way, so please pay special attention to store Bitcoin securly.

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