Bitcoin is the first and most famous cryptocurrency, even by those who consider digital currencies a mystery, some consider it questionable and complex, some consider it doubtful, and others see it as a fascinating and revolutionary development. In the financial or technical field, through this course, we will shed more light on it to know its origins, what it is, and how it works.
What was the main purpose of creating bitcoin?
The idea was set in motion in 2008 as a response to the major global financial crisis that severely affected economic systems across the world as the financial world relies on banks as intermediates for all monetary transactions.
Amidst the general dissatisfaction with banks and financial management systems, the idea of separating banks from financial transactions has grown, and the idea of decentralization means that transactions are done without need, whether by transfer or electronic payment. To obtain approval or certification from a third party. In this way, it can be said that we do not need the banks to be involved in every transaction.
The main purpose and motivation behind the creation of a digital currency, Bitcoin, was to gain or gain complete financial authority over the holder's funds rather than an intermediary bank that keeps, monitors, approves, or restricts the execution of its transactions. Far from a government with the power to seize it, there were two important factors without which this idea would not work, namely security and privacy.
Thus, Bitcoin was created - before it became a currency - as a way for people to participate in financial transactions without relying on banks or governments. It is based on the idea of peer-to-peer, the method derived from the mechanism of transmission of data over the Internet known as "torrenting", whereby files are shared over a decentralized peer-to-peer (P2P) sharing network. users.
For example, you want to download a file from the Internet and instead of downloading it from a private server or server that gives you access, blocks or monitors you, torrent programs break the files into pieces and transfer them to the server. When you download the file and your previous hardware devices and when you upload the file, they all become your provider.
Once you've downloaded the first episode to your device, you'll get in touch with those who will come after you, all of you the file and you know some supplied us with the parts, and they are. Who takes it without knowing exactly who it is, and the file eventually reaches its destination?
Because Bitcoin is created, no one is in control of your money, and transactions are created, secured, and verified thanks to cryptography that splits the data and information of each transaction into encrypted parts that are distributed to shareholder machines. A secure decentralized network without any restrictions.
A brief history of the beginning of Bitcoin?
Bitcoin is the first cryptocurrency, which states that it started writing its code in 2007 and was created in 2009 by an anonymous person/team under the name “Satoshi Nakamoto” who created a website called bitcoin.org.
Bitcoin continued to collaborate with other developers on programming, and many cryptos and blockchain experts estimate that one person or group, Nakamoto, mined about 1 million bitcoins at the time, a currency that is somewhat governance-centric, because all the keys to controlling and encryption were on the network, She was with Nakamoto before she disappeared in mid-2010.
Before Nakamoto's disappearance in mid-2010, he transferred control of the source code and network wake switch to another developer named "Gavin Andersen", a developer and designer of 3D graphics and virtual reality software in Amritsar, Hampshire, Massachusetts, USA.
This was the first step in the path of future development of Bitcoin as we know it today, and it contrasts somewhat with the control and power system that Nakamoto originally envisioned.
2017 was important in the history of Bitcoin because the number of companies accepting Bitcoin has continued to increase and it has gained immense popularity and legitimacy. Japan has passed a law accepting Bitcoin as a legal payment method, and Russia has announced that it will legalize the use of cryptocurrencies such as Bitcoin.
As of 2019, there are approximately 5,500 BTC ATMs worldwide. In 2020, the Frankfurt Stock Exchange acknowledged quoting the first paper to be traded on the Bitcoin exchange (ETN), and PayPal also announced that it would allow its users to buy and sell bitcoin on its platform.
What is Bitcoin?
First of all, we must make it clear that there is a difference between Bitcoin as a system or project and Bitcoin as a digital currency.
Bitcoin is a decentralized currency in which its system operates without the intervention or control of a central bank, administrator, or even an intermediary, and all its transactions are transferred from one user to another through a decentralized network of nodes that carry their information and data. Transactions that are distributed among all parties to network contributors through a peer-to-peer or peer-to-peer mechanism are cryptographically encrypted.
These transactions are verified by a huge distributed transaction history on the blockchain powered by blockchain technology.
Bitcoin is the most famous and popular cryptocurrency asset although there are thousands of other cryptocurrencies, they are generally known as altcoins.
The BITCOIN system is a set of mining computers, also called nodes or miners, all running the bitcoin code and storing the blockchain.
All computers/nodes running the blockchain have the same list of blocks and transactions in the encrypted fragments.
It can only be accessed through unique passwords called keys, which is the key used by the wallet owner or the owner of the digital currency to receive transfers of BTC in their post, and the private key is the key that one can obtain. It allows transferring Bitcoin from one wallet to another.
How does bitcoin work?
Every BTC transaction is recorded on the blockchain network, and the blockchain is the ledger or master record of the network, such as a giant table or database.
It is protected and viewed by many people around the world. Everyone is - legally - in front of a special computer called Node.js. Each node in the network checks for new blocks added to the chain.
The validity of the new blocks is provided by a mechanism called Proof of Work or POW, which is done by solving a difficult cryptographic puzzle.
The process of solving this puzzle is mining, and since ordinary personal computers are not suitable for such an operation, this coin requires high arithmetic power and large electrical power to work.
The concept of PoW is simply a decentralized consensus process that requires network contributors - the nodes - to make an effort to try and solve a complex cryptographic puzzle to prevent anyone from tampering with the system. New digital currency transactions and mining where any Bitcoin transaction can be processed securely and with the highest level of privacy without the need for a third party
Bitcoin As a currency, a prize is given to those who have been able to solve the puzzle and decipher, the simple concept of this science is the process of searching for information and drawing conclusions from a large data set without preconceived assumptions about what this data is. maybe you can be.
Exactly like a person trying to dig a rocky mountain without knowing if it contains some minerals known to extract the minerals in it, and we will learn more about his idea in the following lines.
Bitcoin mining
The process of mining bitcoin, in theory, is not the same as the idea of mining or mining gold or silver, for example.
The difference is that the Bitcoin mining process is done by hardware, computers, and giant processors rather than rock-digging equipment to search and search for solutions to puzzles, complex mathematical codes, and algorithms in cryptographic content rather than rocks.
Bitcoin mining is the process of keeping records of transactions using the computing power of computers, thus keeping the sequential recording blocks of miners within the Blockchain network consistent and complete, unchanged or altered while transactions are collected, verified and new transaction blocks are added. Block Blocks, where each block consists of a partial cryptographic code from the previous block using a hashing algorithm that links the blocks together and gives the blockchain its name.
For the rest of the network to accept the new block, the block must contain what's called a Proof of Work. This proof requires the miner to find an uncoded value which is a random value that is only used once, it is easy for the network to check this symbol number, but the miner has to try a large number of values from it.
To find out how hard it is to get to this value, in March 2014, the number of bitcoin miners trying to create the new block was expected to be about 14.6 quintillion - quintillion = 18 zeros on one side. The number increased within a year to 200.5 quintillions.
As of July 9, 2016, miners who manage to add a new block to the Blockchain will be rewarded with 12.5 newly created bitcoins. By mining, you enter the network through Coinbase, because initially, it was a reward for those who succeeded in the mining process.
It is worth noting that there is stiff competition among miners to solve the puzzle and not everyone who mines Bitcoin gets the prize because only one is the winner. This solution provides a puzzle or proof-of-work code. Nodes in the network verify that the solution is mathematically correct and add this block to the blockchain to verify transactions in it, and then get the reward.
The Bitcoin protocol states that the reward for adding a new block is halved for every 210,000 blocks created - roughly every four years - and records are kept until we reach the Bitcoin limit of 21 million Bitcoins, and the reward is only open. Registrations Transactions and transfers are rewarded by transaction only
Due to the difficult process of Bitcoin mining, which requires expensive computers and processors, many researchers turn to the idea of cloud mining offered by many companies that provide these devices and computers and rent you space in a private place. The server to perform the mining process without incurring other logistical burdens.
Bitcoin wallet types
Bitcoin wallet is the electronic interface of the user's bitcoins because it is software on a computer, mobile device, or even over the web.
The wallet holds the user's bitcoin balance but does not contain the digital currency itself. Instead, it stores the user's Bitcoin address and the private key to access the Bitcoin blockchain. When people pay, wallets use the key to digitally sign transactions that prove ownership of the digital currency on the network.
There are four types of bitcoin wallets you can use: mobile, web, desktop, and hardware bitcoin wallets.
cell phone wallets
Mobile wallets are the most convenient to access, but your wallet provider stores your key in the app installed on your phone, so if someone knows and accesses your phone password, they can easily send all your money to one of your Bitcoin addresses. However, this security issue is usually resolved simply by opening your mobile wallet app, which allows for the fingerprint authentication found in many smartphones today.
web wallets
Accessing web wallets is no less convenient and hassle-free than mobile wallets, making it easy to access your bitcoins from anywhere, from any browser, or even from a mobile device. But there are also similar risks, if someone finds out your login information, they can hack your account and steal all your money, so it is important to make your login as secure as possible.
Computer/desktop wallets
It is more secure than mobile and web wallets, but it still faces some risks as hackers can still exploit vulnerabilities in a desktop wallet, such as mining unencrypted account recovery phrases to steal your bitcoins, so consider using a wallet that only encrypts Your private key. and account recovery data with multiple authentication types enabled for login data.
physical wallets
Physical wallets are similar to the idea of external hard drives or flash memory, any tangible electronic device to hold your bitcoins. They are physical pieces of offline hardware that you can connect to your computer to make payments or receive BTC transfers and store them in a safe place when you're done. For intruders and hackers.
Advantages and disadvantages of Bitcoin
Bitcoin Features
1. Security: Private and secure transactions at any time with lower fees, and seamless execution, once you have your bitcoins, you can transfer them whenever and wherever you want, reducing time and cost of any transaction.
2. Privacy: Transactions do not contain personal information such as name or credit card number, which limits the risk of consumer information theft due to fraudulent purchases or identity theft.
3. High growth potential: Some investors who buy and hold the currency are betting that as time goes on and its popularity and popularity as a currency increases, more confidence, and wider use.
4. Decentralization: It is the primary and primary purpose of its establishment because it is a virtual currency that is an alternative to traditional cash with the ability to evade traditional banks or government control and authority. This is the primary and primary purpose of all transactions and approval. Start to approval takes place within the decentralized network without the need for third parties.
Important note: Keep in mind that to open a cryptocurrency account, exchange or exchange crypto assets, and if you want to buy cryptocurrency against traditional currencies such as the US dollar or the euro, you will most likely need a bank link.
Disadvantages of Bitcoin
1. Price volatility
The previous rise in the price of bitcoin in 2017 was driven by the demand from speculators who flocked to the cryptocurrency market, specifically bitcoin, which then fell to more than 80% of its value by the end of 2018. You doubled your balance at the end of the first day of December 2017 Even though you bought bitcoin at the end of December 2017, you had to wait until December 2020 to recoup your losses.
2. Hacking and piracy concerns
Although proponents of blockchain technology often argue that Bitcoin is more secure than traditional electronic money transfers, Bitcoin wallets have been an attractive target for hackers. There have been many hacking incidents, such as in May 2019, when more than $40 million worth of bitcoin was stolen from various accounts on Binance.
3. Limited (but increasing) use as payments
So far, we cannot say that the bitcoin token has spread globally making it a 100% effective alternative to traditional currencies, but over time bitcoin has managed to gain popularity and acceptance by both financial and financial institutions. By commercial companies or individuals as individual users.
4. Weak and financially insecure
Insurance companies and investor protection insure brokerage and money transfer transactions when they are vulnerable to failure or theft, but this type of insurance does not cover cryptocurrencies.
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