Bitcoin is the first successful cryptocurrency that solved the double-spending problem. It was created in C++ by the mysterious cryptographer who called himself Satoshi Nakamoto in 2007 and 2008. The Whitepaper was released on October 31, 2008, and the Bitcoin blockchain was launched on January 3, 2009.
History
In the backdrop of the 2008 Global Financial Crisis, Bitcoin was conceptualized as a peer-to-peer digital currency that would not require any centralization. The system will be secured as a network of computers working together in exchange for rewards.
Although Bitcoin was introduced to the world on October 31, 2008, and launched on January 3, 2009, it is believed that Satoshi began coding it as far back as May 2007.
Working
Put simply, Bitcoin works as a software that runs on a virtual computer. This computer draws computational power from the network’s nodes, which are individual computers that verify Bitcoin transactions.
Let us understand it in detail.
Bitcoin comprises five things: the Bitcoin blockchain, a Virtual Machine, a cryptocurrency, a network of miners, and users.
The Bitcoin Blockchain is a decentralized ledger that runs on software called Bitcoin Core. This software runs on a virtual machine that aggregates computational power from all the individual miners. All of these are required to add transactions to the Bitcoin blocks. A string of such immutable blocks makes the blockchain.
When a user makes a transaction, it goes through these steps.
- The transaction is submitted to a memory pool (called mempool).
- A miner picks it, runs it through algorithms to check validity, and attaches a value called a nonce to it.
- The transaction is then broadcast to the entire network.
- After multiple confirmations, it is added to a block in the Bitcoin blockchain.
- The transaction is considered final after 5 blocks have been added to the chain following the initial block.
Features
- Immutability – All transactions done on the Bitcoin blockchain cannot be altered by any miner. An alteration is only possible when a majority of Bitcoin users agree.
- Decentralized – Bitcoin is decentralized in both governance and operation. Its decisions are taken via community voting, and its operations are run by individual miners working together.
- Anonymous – Bitcoin addresses and transactions do not contain any personal details that could identify the user. However, some limited identification is possible by indirect means.
Advantages over Fiat Currency
- Fast Transactions – Bitcoin roughly takes an hour to transact money from one corner of the world to another. Compared to this, traditional finance often takes days.
- Cheaper Transactions – Bitcoin takes a few dollars to transact funds, while traditional channels can take up to hundreds, depending on the transacted amount.
Addressing Limitations
Bitcoin has a few limitations with respect to other chains.
- Slower – Bitcoin processes only 7 to 10 transactions per second, compared to Ethereum, which does around 32,000 a second.
- Expensive – Bitcoin takes much greater fees than all other blockchains for the transfer of the same value.
Bitcoin Hard Forks
- Bitcoin Cash – A fork of Bitcoin that is faster and is oriented towards daily usage.
- Bitcoin SV – A fork of Bitcoin created by Craig Wright to foster the original vision of Satoshi Nakamoto.
Bitcoin Related Projects
- Lightning Network – A Bitcoin layer-2 network for faster but smaller transactions.
- Wrapped Bitcoin (WBTC) – A token that is equivalent to Bitcoin but exists on the Ethereum ecosystem as an ERC-20 token.
- BRC-20 – ERC-20 inspired token standard in Bitcoin that lets users create their own cryptocurrencies from Satoshis.
- Bitcoin Ordinals – A token standard and NFT standard on Bitcoin that allows users to use unspent transaction outputs (UTXOs) to create tokens and on-chain assets.
Frequently Asked Questions
Answering the ever-growing questions on Bitcoin.
