19 Dec What is bitcoin?
Bitcoin is classified as a cryptocurrency. But what exactly is it and what does it mean for real currencies?
It is essentially a digital unit of value that can be exchanged electronically. Not available in physical form. Bitcoins are created and monitored by a network of computers using complex mathematical formulas rather than by a single authority or organization.
How did bitcoin start and how does it work? Why does it offer more security in transactions and this and all cryptocurrencies? How can we (and if we should) buy it? A small guide for those who would like to understand how blockchain technology changes data in transactions.
What need was the cause of the “birth” of bitcoin?
There has always been an obsession with some. How would it not be bad at all if people could do their transactions, however far away, without the mediation of a bank or even more that would collect a good share based on the amount traded. The amount is collected by the bank as a guarantor that the transaction will be done correctly without one of them… dropping the other.
So why don’t the two sides come to terms with each other and have a mechanism next to us that will almost costlessly guarantee both that the seller got his money and that the buyer will not make a fool of himself by sending a seller the amount due and then in a flash, once the transaction is validated, withdraw it and send it to someone else as well? Furthermore, no one but the two of you will know any details about the transaction other than that it took place.
Why did they call bitcoin “cryptocurrency” in the first place? Who is bitcoin hiding from?
From no one, even though with bitcoin help several dark and insidious transactions are carried out every day. “Crypto” has to do with the encryption of elements and processes absolutely necessary for a… cryptocurrency to exist.
What is being encrypted?
From the first time someone wants to make a bitcoin transaction, two (cryptographic) keys are “born” on their behalf. The private and the public. Each is a mixture of numbers and letters. Only the owner knows what is private, it is his personal identity and he guards it as best he can and away from prying eyes.
Based on the private key, the public key is also created, which is shared with as many as possible to those with whom one transacts. There are also special public key servers (public key servers), to which one can turn to find the public key of the user of interest or to upload one’s own public key to be available to the public. Because knowing the public encryption key does not allow in any way to calculate the private encryption key. But these two keys (private and public) have a mathematical relationship between them. If one is used to encrypt a message, then the other is used to decrypt it.
And how do these two keys work?
For example, making an amount available for purchase is encrypted and somehow “sealed” by the private key with the sender’s attributes. From his public key, which is a whole “string” of digits, after compression and shortening, the so-called “public address” of each one emerges. That is, we have: Private key > Public key > public address.
The two traders have communicated to each other essentially only their public addresses and nothing else. These play the role of the account number used in banking transactions (while, in a way, the private key is a bit like the PIN). By combining the two above it is possible to achieve confidentiality of the message and authentication of the sender.
That is, on the one hand, the message remains known only to the sender and the recipient, and on the other hand, the recipient knows for sure who sent him the message. To achieve this, the sender can encrypt the message first with its own private key and then with the recipient’s public key.
When the receiver receives the message, he must use his private key to decrypt it (confidentiality) and then, using the sender’s public key, verify that he was the one who sent the message or the amount.
So simple?
Not exactly. The transaction, to be a fact, must appear somewhere public, be checked for validity, and be recorded forever.
Without exaggeration, there are registered and accessible (without the personal information of those who made them, but only with their public addresses) all transactions since the first one in 2009!
Any transaction, such as transferring money from one person to another, is encrypted with a hashing method, as it is called. With this, a multi-digit number (hash) is produced that integrates the transaction data. Together are each user’s private and public keys.
The same happens with the other transactions, until a number of transactions are completed, which are included in a block of 1 Mbyte. The cryptographic elements of each transaction generated (i.e. the numbers produced through the hashing process) are further encrypted. Per two or more transactions, also with the same method, until a final “hash number” is created, finally corresponding to the given block.
Who checks that everything was done correctly?
There are now some 12,000 control stations, nodes in a global network, and everyone is aware of (every) bitcoin transaction. They each carry out a separate check to see if the specific amount actually existed from that address that the payment order was sent to, and an approval signal is sent or not.
It’s like playing bridge on a computer. Everyone separately records everyone’s points after each game and before starting the next game they compare what they wrote to make sure everyone has entered the same.
There can be only one transaction in a block, but there can be thousands. The ones behind the certification machines are the miners, the mining people, who must first certify the transactions and include them in blocks.
When the block with approved transactions is ready, it must be entered into a large electronic ledger. There it will join (=connect) as another link in the chain of previous blocks (blockchain).
But it matters who among all will have the privilege to include it in the chain, earning the reward (6.25 bitcoins today). The hunt begins. So a mathematical “puzzle” has to be solved, essentially making the machine of one of the miners guess a 64-digit number that is obtained through an extremely complex mathematical task.
How is this hunting done?
We can imagine that someone from the company thinks of a number between 1 and 100 and closes it in an envelope. The rest of us are asked to guess this number. Then we open the envelope and compare.
The winner is the one who fell, if not exactly, but at least closer, without exceeding the required number. That is, if it was 21 and the other three suggested 22, 18 and 16, those with the numbers 16 and 18 are preferred.
And with computers?
So a miner’s computers must come close to, but not exceed, a number that is each 64 digits long in hexadecimal (that is, one that uses the numbers 1 to 10 and the letters A, B, C, D, E, F). The difficulty level is adjusted again after processing a group of 2,016 blocks, up or down depending on the number of computers involved, to keep the processing time of one block every 10 minutes or so.
And this in time corresponds to a period of about two weeks. As of April 2021, the degree of difficulty of hitting the 64-digit number in one fell swoop was 1 in 23 trillion. But if you consider that the hunters have extremely fast computers, specially tuned for the job, to make billions or even thousands of billions of guesses per second, someone comes close enough about every 10 minutes. There is always one winner.
Why are they known as miners?
For all that work they do, verifying transactions and competing for the 64-digit number, whoever settles a block will get paid an amount in (what else) bitcoins. It’s like sifting through the numbers to find a small nugget of gold.
Mining is a specialized and competitive market where fees are divided according to how much calculation is done. Not all users do Bitcoin mining and it is not an easy way to make money. Instead they prefer cloud minting.
How much is he worth?
Every four years the price for owning a block is pre-agreed to drop by half. It started from 50 bitcoins, in 2012 it became 25, as of May 2020 it is at 6.25. Of course, this week (on 19/4) the exchange rate was 1 bitcoin = 46,223 euros, while on 11/4/2021 it had climbed to 53,193 euros. To date, approximately 18.5 million bitcoins have been mined and finally it is set not to exceed 21 million, which they estimate will reach approximately 2,140, if they “live” until then.
Then the miners, who are left, will only get a transaction fee which is estimated to be a few thousand dollars for each block, while today it is a few hundred dollars. Somewhat small compared to 6.25 bitcoins and the current exchange rate.
However, since this occupation is now very expensive (10 years ago a powerful computer at home was enough, today it takes custom-built computing monsters to mine some bitcoins), many band together to create “computing herds” to share the profits, while also reaching deep into Asia, even Mongolia, to find cheap electricity for the voracious machines their!
And with the now tidy block what happens?
Appended to its beginning is the unique number from the hash encoding of the previous block, also the exact hour, minute, second, and creation date. Anyone who tries to change something in previous blocks must then change all the codes in the links of the chain, and that would be far from easy.
How is its parity with other cryptocurrencies determined?
From supply, demand, circumstances and turbulence in the global economy, the behavior of various states. Turkey’s decision a few days ago to ban cryptocurrency transactions caused the price to drop. It is said that even in the United States they are thinking of making the controls much more suffocating. In 2017, within a year, its price dropped from $19,000 to $4,000.
And how does one get it?
There are exchanges on the Internet as well as some in Greek cities, but you need to be very careful with whom you do business with. This week its price was around 46,105 euros.
But today 2% of bitcoin wallets own 95% of the cryptocurrency…
This is also the reason why experts now consider bitcoin something like an empty shirt. The so-called “whales” have swallowed and keep in their bellies a large portion, and the so-called “pigs” who have woken up late and want to profit (i.e. “save”) from the leftovers are believed to be easily slaughtered. Or else, it is now a dinosaur that barely moves in a space where from January 2021 it has to share it with about 4,000 other cryptocurrencies. But we owe him the original idea and the fact that he was a source of inspiration.
No need to buy an entire bitcoin anymore. The smallest unit of bitcoin is 0.00000001 BTC, called a satoshi.l If in July 2013 someone had bought 100 bitcoins, then priced at $65.52, on March 13, 2021, the highest price reached never, at $61,683, he would have $6,168,300 in his e-wallet.l In April 2021 the chain of blocks from the beginning of their creation had reached the number of 677,350 with 144 blocks being added to it every day.
See more on kryptohodlers YouTube channel.
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