Economics & World

What Is Bitcoin & How Does It Work? Facts About Bitcoins

Bitcoin has been a hot and trending topic for last few months.You might have heard your friend or parents talking about it, isn’t it? Where Japan declared it as a legal tender while on the other hand, many of the financial advisors and analysts called it a “fraud.”So, you might be thinking what is the truth and the whole story about it?

You must be thinking a lot of questions if you’ve heard about it. Let’s dive deeper to get the exact idea what a bitcoin is and let’s try to find answers to your questions.

What Is Bitcoin?

Bitcoin is a cryptocurrency which is used for online transactions.

“A cryptocurrency is a digital asset that is used as a medium of exchange, it uses cryptography to control its creation and management, rather than relying on central authorities.”

“Cryptography is an art of writing and solving codes”

Cryptocurrency uses a system of cryptography(AKA encryption) to control the creation of coins and to verify transactions.

There are two keys to a bitcoin account – Private key and Public Key.

Some features of bitcoin are:-

  • Bitcoin is a digital currency which is not tied to any bank or government and allows users to spend money anonymously
  •  No single institution controls the bitcoin network
  • It’s like an online version of cash.You can use it for online transactions.
  • It works on “Blockchain” Technology

Blockchain Technology

All confirmed transactions from the start of bitcoin’s creation are stored in a public ledger. This complete record of transactions is kept in the blockchain, which is a sequence of records called blocks.

107 GB of space has been occupied by this date as of late 2016.Blockchain Technology

This technology was originally devised for bitcoin and digital currency, but tech geeks and communities are finding the other potential ways to use it.

By design, it is a decentralized technology. You don’t need to know about it to use it. But we’ll discuss it to get a basic idea what blockchain is and how does it work.

The data that has been kept in that ledger is not stored in a single place or a central place.It is hosted and shared by millions of computers, so it is accessible to anyone on the internet. It is easily verifiable and transparent. Since there is no centralized version of this database, it is difficult for the hacker to corrupt it.

Blockchain technology can’t be controlled by any single entity, and it has no single point of failure as anyone can make changes in the database and there’s no control over it.

It cannot be corrupted at the moment because changing any unit of information on the blockchain would require a large amount of computing power to override the entire network.

 

Origin/Genesis of Bitcoin

  • On 18 August 2008, a domain name “bitcoin.org” got registered
  • In January 2009, the bitcoin network came into existence
  • Satoshi Nakamoto, A Username used for registering the whole process is presumed to be the owner
  • The value of bitcoin was negotiated on the bitcoin forum with individuals as 10000 BTC used to purchase two pizzas delivered by Papa John’s indirectly

Who Created Bitcoin?

No one owns the bitcoin and no one knows the person who invented it.

Yes, you read it right. It is one of the biggest mysteries on the internet along with cicada 3301 puzzle, Mariana web, deep and dark web. The inventor of the bitcoin is unknown till yet.

Satoshi Nakamoto was a pseudonym used by the person.Satoshi Nakamoto

But there have been a lot of attempts and claims made by some people or researchers that they have found the real Satoshi Nakamoto, but all they did was just a guess. No one knows who really created bitcoin.

Let’s see what did they research and what guesses they made to give you an idea who Satoshi Nakamoto could be.

Satoshi Nakamoto invented the bitcoin so that should be a clear starting off point. However, Satoshi Nakamoto doesn’t exist. Well, he does as a person, but it’s just a pseudonym which means “Clear Thinking Inside The Foundation.”

The appetite to uncover the identity or the identities of Nakamoto is tremendous. Various investigations have been published online claiming to have put the clues together and identified the real Satoshi Nakamoto.

New Yorker Report

Joshua Davis

The New Yorker published a piece by Joshua Davis in which he claimed to have identified the mystery man, or woman. After analyzing all Nakamoto’s posts and a 2008 research paper on bitcoin, he studied the linguistic style, prose, and spelling.

Interestingly, Nakamoto switched from the US way of spelling to the English style. Davis deduced that the man he was looking for was an English and a world-class programmer. After attending a crypto 2011 conference, Davis’s working out led him to James clear, who denied being Nakamoto.

Though intriguingly he said he wouldn’t admit it if he were indeed the Bitcoin creator.

Adam L. Penenberg

On the back of the New Yorker piece, another armchair detectives set to work. Adam L. Penenberg, a journalism professor at NYU, had also been trying to find out who Satoshi Nakamoto was. He didn’t share Davis’s belief that the James Clear was the wanted man.

Instead, he came to the conclusion that there were three men in the frame. Penenberg’s investigation kicked off in earnest when he discovered a patent for a system and method of providing secure communications with an application date of three days before the domain name of bitcoin registered.

The three inventors listed on the patent are Neal King, Vladimir Oksman, and Charles Bry. Penenberg set about attempting to link them to Satoshi Nakamoto. There were various compelling points made in his article to tempt us into believing any of these men could be Nakamoto.

Such as their previous areas of expertise, their links to the similar technology, and in the case of Neal King, an apparent skepticism about the financial system.

Interestingly, Penenberg states in his investigation that the point isn’t to find the identity of the creator(s) but to show just how circumstantial evidence which is what the New Yorker has based its conclusions on, isn’t synonymous with the truth. He added

I doubt the New Yorker found the right guy. I also believe that our evidence is far more compelling, yet we also probably haven’t nailed it either.

But has the NSA got the right guy?

NSA

Back in 1996, they wrote this super catchy document called “How to make a mint the cryptography of anonymous electronic cash which basically which says something like Bitcoin will happen at some point. In this report, they refer to the work of this chapter- Tatsuaki Okamoto.

Many Bitcoin experts are convinced this is the man behind Satoshi Nakamoto. While some wondering if Nakamoto is the brainchild of Okamoto in conjunction with Satoshi Obana, the combination of their names certainly be a clue.

Then, of course, there’s a chance of thought that the NSA themselves created Bitcoin as their 1996 prediction was eerily accurate.

Not everyone is keen to uncover the mystery identity though. Many think that the point of Bitcoin is anonymity and that uncovering the identity of Satoshi could topple the system altogether.

While some people think that artificial intelligence is the creator of the whole system and is still controlling it.

 

Satoshi Nakamoto is assumed to have 1 million bitcoins with him which amounts 8957795000$ (US dollar).

How To Get/Buy Bitcoins

Now, you might be having a basic understanding of what bitcoin is and how it works, isn’t it? But you might be thinking how to earn bitcoins or how to buy bitcoins or how to get bitcoins?

Don’t worry!! I will tell you all the easy and possible ways to earn or get bitcoins. Let’s see the ways to get bitcoins-

Earn Bitcoins By Completing Tasks On The Different Websites

There are a lot of websites on the internet that give you free bitcoins for completing the tasks given by those websites. Usually, these sites pay you for watching ads or videos given by them just like you earn some coins after watching ads in games. In the same way, you get paid for watching these ads.

Here are some of those sites-

  1. ads4btc
  2. COINADDER
  3. vidybit
  4. coinworker
  5. freedigitalmoney.com
Earn Bitcoins As A Means of Payment

It is the easiest way to get bitcoins. If you have a small business or service to provide, then you can accept bitcoin in return. Meanwhile, you can sell these bitcoins to reap the profit out of it. You have to complete the given three steps to get bitcoins-

  1. Get a free bitcoin wallet
  2. Display your QR-code and your bitcoin address
  3. Display the logo “Bitcoin Accepted Here” at your shop
Earn Bitcoins Through Trading

You should have a little bit knowledge or idea about trading before doing it. CEX.io allow you to buy bitcoins and convert it into other cryptocurrencies according to the price variations. You can trade these cryptocurrencies and earn profit and bitcoins through it. There would be a high risk involved with higher returns.

Now “various stock exchanges” for the cryptocurrencies are there to trade and are created for specifically cryptos to provide flexibility and convenience,

Earn Bitcoins Through Mining

This is the most popular way to get/earn bitcoins. It is not that easy nowadays as 90% of the bitcoins have already been mined. Now, what is mining?

“Mining is the process by which new bitcoins are generated.”

In layman terms, It is the commission generated or given to the person who has authenticated the given transaction successfully. It helps the person to earn as well as it ensures the authenticity of the transaction.

But now this process is difficult because it requires a lot of electricity and expensive hardware to solve the advanced algorithms.  Sometimes the reward earned as mining is less than the cost of mining that bitcoin which is ultimately a loss.

So It is a costly and time-consuming process. Only those people who have access to advanced hardware and graphic-cards and power of electricity can do it easily.

Earn Bitcoin Through Gambling

Although I don’t suggest or encourage anyone to gamble. But it is also a way to earn bitcoins. If you want to gamble, then you can search gambling sites for bitcoins, and you can find plenty of sites on the internet.

Is it Safe To Invest In Bitcoins?

Initially, people were sketchy about bitcoin, possibly due to its lack of an accountable creator, and largely due to its link to cryptocurrencies and drug purchases on the dark web.

However, the world has changed since 2009, with more and more people seeing the benefits of a paperless, nonphysical money system as opposed to fractional reserve banking. Now, over 100,000 merchants accept Bitcoin as a form of payment.

But How safe is it?

In many ways, Bitcoin is safer than placing your money in a bank or building society. A lot of times banks are corrupted. For safety purpose, no one can access or steal your money unless you give the person private key password to your bitcoin wallet.

Also, with the process of mining, public ledgers of all bitcoins are created which means there is a digital record of every payment.

However, there are few issues with the cryptocurrencies that are worth noting at this stage.

  1. The currency hasn’t stabilized yet which is why we see such huge rises and falls in its value
  2. It is difficult to affix goods to the currency value, making trading with bitcoin at the moment a slightly risky.
  3. Inflation bubble could burst anytime, and it could go to its initial US dollar exchange rate which will affect a lot of people and investors
  4. The other issue with bitcoin is that it is stored in online wallets. These wallets have pin numbers, and if you forget that pin number, you cannot access your money.
  5. You cannot reverse a transaction if you send your money to the wrong person.
  6. A lot of countries have considered Bitcoin as Illegal which includes India too. And a lot of economists call it a hoax and not safer to invest.

So, it has its own pros and cons. It’s up to you whether you want to invest in it or not. Now, you must be having a good understanding of Bitcoin and related concepts and issues. Feel free to add something I’ve forgotten and you can ask the query for same.

Article written by Ronit Masih

A blogger who wants to spread knowledge.A critical thinker as well as a truth-seeker.Always inspired to do anything that people consider difficult.He likes new challenges to develop himself. A person who follows only two basic rules in life-1. Question Everything 2. Help Everyone

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