While many have heard of Bitcoin, few actually know what is Bitcoin. The cryptocurrency can sound overwhelming to understand, but in actuality it is quite simple. Bitcoin was invented in 2008 by an anonymous entity by the name of Satoshi Nakamoto and changed the financial market as we know it. Since its inception, there are now over 7,000 cryptocurrencies and over $370 billion of market value. Whether you want to call it BTC or Bitcoin, this pioneering cryptocurrency is here to stay.
A common follow up question to ‘what is Bitcoin’ is ‘but where do they come from’? The process of generating new Bitcoin is done through Bitcoin mining. This process is done through computers as opposed to actual mines and is a significant function of blockchain technology. Each time a transaction is made, the transaction is verified by a miner, added to a block, and added to the blockchain. As a reward for the miners verifying the transactions, they are paid in transaction fees (more on this later) and newly minted Bitcoin. This is how new Bitcoins are released into the system.
When sending Bitcoin from one wallet to another, the sender will enter the amount that they would like to send and the receiver’s wallet address. This transaction will move into a pool of other transactions waiting to be verified, and wait for a miner to start working on it.
Once the miner has confirmed that the sender owns enough funds to complete the transaction, they will verify the transaction, which essentially means solving a complicated math problem. Once the transaction is verified, the sender’s wallet address, amount of BTC, and receiver's wallet address will be added to a block on the blockchain and the receiver will be notified.
For each block on the blockchain that is added following the transaction, the funds will undergo a confirmation round. Often funds need to be confirmed three times in order to access the BTC. Miners’ time and electricity costs are compensated by a small miner’s fee that the users pay to send and receive the funds.
Cold Wallets store your crypto offline and can either be via USB or paper wallets. The codes are stored offline and are out of reach for hackers. Hot Wallets on the other hand are online and connected to the internet. These wallets can be in the form of desktop programs or apps, and allow for fast access and quick usage.
Bitcoin transaction fees are small fees charged whenever sending or receiving BTC, and are paid directly to the miner to compensate them for their time and resources. So, how do Bitcoin transaction fees work exactly? They differ depending on how busy the network is at that time, the busier the network, the higher the fees. These can also be increased if users want to fast track the transaction. Users can prioritise the verification of their transaction by paying a higher Bitcoin transaction fee. 100% of the transaction fee is paid directly to the miner.
You may have heard about Bitcoin Cash, Bitcoin Gold, Bitcoin Private, and many others. These are different cryptocurrencies that are either forks of the original cryptocurrency, or simply piggy-backing off the name of the more mainstream pioneer cryptocurrency.
There will only ever be one Bitcoin, so don’t fall prey to misleading advertising campaigns that hint otherwise. That’s not to say that the other cryptocurrencies don’t hold value, Bitcoin Cash for example offers a faster and cheaper alternative to Bitcoin and is a top 5 cryptocurrency based on market cap.
The process of verifying transactions, and creating new Bitcoin, is called Mining. Bitcoin mining involves solving a complicated computer puzzle and the first miner to do so verifies the transactions and receives the mining reward. Some cryptocurrencies use other methods of verifying transactions, however they are (mostly) all decentralized and use the same network of nodes.
If someone were to try to add false information to the blockchain, the other nodes would pick this up and reject the block. Should someone try to spend the same Bitcoin or crypto twice, the network picks this up and rejects the second transaction. Should a bad actor get hold of your cryptocurrency, there is nothing stopping them from spending the funds should you not use them first. As there is no central authority in control that can refund your crypto, the funds are gone forever.
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