Bitcoin is the first and most innovative payment network ever developed, which is completely decentralized and digital.
Some say that it is the future currency of the world. At the same time, others are very confident that this cryptocurrency bubble will burst one or the other day.
But, understanding bitcoins, their blockchain technology, and bitcoin mining are tough. Hence we thought of providing you a clean, simplified outlook of the actual meaning of bitcoin and mining in this article.
What is a Cryptocurrency?
Cryptocurrency is a digital currency that uses digital files as money. The digital files are created using cryptography algorithms.
The digital files store information of their transactions (ledgers) in an encoded or encrypted form with the help of cryptography algorithms.
Cryptocurrency is a form of decentralized money, where there is no central authority to control or authorize its transaction. Hence it is not under the control of any one person, yet is more secured and powerful than conventional digital currencies.
There are many cryptocurrencies available in the world. But very few gained popularity. One such coin is the Bitcoin.
Apart from bitcoin other coins are called ALT coins.
Here is a list of various types of cryptocurrencies to buy or invest in. They include Bitcoin and Alt coins.
What is bitcoin?
Bitcoin is a cryptocurrency invented in 2008 by Satoshi Nakamoto. It is a decentralized digital currency that has no single head to monitor.
On the other hand, it works on a complex block chain system, so that it is almost impossible to make fraud. Every transaction is made public and its ledger is available to everyone.
Bitcoin is a peer to peer technology. In simple words, i can transfer a bitcoin to another person without a central authority like bank.
For example, if I have to send money to my friend, I can send it only if I deposit money in my bank account.
After deposit, I can send money through net banking or any other digital method, where my bank, the central authority, authorizes the transaction.
On the other hand, if I want to send a bitcoin, I can send the bitcoin by knowing the receiver’s wallet number. There is no central authority to monitor my transaction.
Instead, anyone can register my transaction in the ledger and get rewards for doing the same.
I think you are confused, Right? To have sound knowledge of bitcoin let us understand other terminologies also.
What is blockchain technology and how does it work?
In banks, every transaction you make is registered in a ledger and is stored in the account. Only you or the bank official can see the details of the transaction.
Let us think that there is a fraudster in the bank who diverted your funds and has not registered them in the ledger.
The transaction is not reflected in your account as it is not entered in the ledger. But after a long time, you have realized a mismatch in the bank funds and have given a complaint; the bank officials will find it difficult to trace your transaction as it is not registered in the ledger.
Hence to avoid such fraudulent transactions, cryptocurrencies like Bitcoin use blockchain technology to store information on transactions.
For example, let us think that Mr. Sam sent 10 Bitcoins to Ms. Guru. The transaction details will be stored by an unrelated person in the ledger. The unknown person who makes a note of this transaction is called Miner.
The miner stores the transaction information in a ledger. This information is encrypted and is difficult to decode.
Multiple ledgers, similar to the above, are stored in a box called a block. Every bitcoin block can handle more than 500 transactions.
The average size of a block in the Bitcoin blockchain ranges from 1MB to 8MB. But, once the block Is filled, a new block will be created to continue storing the information.
For every 10 min, a new block is created in Bitcoin.
Moreover, the new block will also contain some information related to its previous block. Hence it forms a chain where every block is connected to its previous block. This is the reason why you call it a BLOCK CHAIN.
Block chain technology is the state of art technology to store information. The information is blockchain technology is more secure and at the same time is open to everyone.
Being transparent and more secure than conventional digital currency, Cryptocurrency stands ahead of all the currencies in the world.
Who is a Bitcoin miner?
Bitcoin miners are similar to bank clerks who store information of your transaction. For example, when you deposit money in your account, a cashier in the bank will sign the receipt of the deposition and will store the same in the Bank’s computer.
In the above example, the ledger statement for this transaction is authorized by a cahier. The information of this transaction is stored in the bank’s computer with the help of a cashier.
Similarly, in the Crypto world, every transaction should be authorized and stored in the block. This responsibility will be taken by miners.
A bitcoin miner is a person who creates a ledger of an online Bitcoin transaction and stores the same in the block. If the miner successfully completes the block, he gets some new Bitcoins as rewards.
For example, in the above case between Sam and Guru, the 3rd unknown person is a miner.
Bitcoin miners play a key role in the Crypto world. They are responsible for the inflow of new Bitcoins into the system. Every time when a miner successfully closes a block, he gets some Bitcoins as rewards. These Bitcoins are new coins which are not in circulation previously.
The new coins generated or the regular bitcoins in the circulation are stored in digital wallets online. They can be either stored in exchanges or with you in your hardware.
The online digital wallets system was developed by Peter smith and Nicolas Cary and is named as Blockchain wallet. The Blockchain wallet is an E-wallet to store cryptocurrencies like Bitcoin and Ether.
Every wallet will have a wallet ID that is similar to a bank account number. During every transaction, the Wallet generated a unique address, which will change from one transaction to another, making it difficult for hackers to hack.
So, considering all the above events, we can frame them in a step-by-step process as below. Mr. Sam wants to send Bitcoins to Ms. Guru. So, Guru will send a unique link or address to Sam.
Using the link, Sam will send his Bitcoins to Guru. In the mean time he waits for the confirmation that the transaction has been completed. But it takes time, as one of the miner has to ledger the transaction into a block.
So the unknown miner will register the transaction and update the ledger. The following information on the transaction will be updated in all the nodes world wide at the same time. With is update the transaction will be completed and Guru will see new Bitcoins in her Digital wallet.
With this, we hope that you understood Bitcoin and mining. In case of any doubt do comment below. For more information on money-related topics visit our site technotalks4u.in.