What is Bitcoin
Bitcoin is a digital asset that was designed to be used as a medium of exchange with a peer to pee Network.
It was originally introduced in late 2008 by a person or a group using the pseudonym Satoshi Nakamoto.
Bitcoin was the first cryptocurrency to ever be created and it makes use of cryptographic techniques to verify and secure transactions and to regulate the issuance of additional coins.
Bitcoin transactions are verified by decentralized network of nodes and if confirmed to be valid they are recorded into a public distributed ledger called blockchain.
The Bitcoin network is operated by an underlying set of rules known as the Bitcoin protocol. This protocol defines among other things the issuance of new coins.
The maximum supply of Bitcoin is 21 million and according to estimates the last Bitcoin will be mined around the year 2140.
The Bitcoin network relies on a process known as mining which can be broken down into five basic steps. New transactions are broadcasted to the distributed network of nodes. The mining nodes gather new transactions into a candidate block. Each miner works on finding a valid solution to his own block in order to produce a block hash. The block hash proves that the miner did the required work hence proof of work. The first mining node to find the valid solution broadcast C’s block to the other nodes on the network if the nodes reach consensus and the block is confirmed as valid, it is added into the blockchain. The process starts over as mining nodes begin to work on the next block. Every new block uses the block hash of the previously validated block blocks are linked and secured by cryptographic proofs and this creates a chain of blocks – block chain.
Let’s take a closer look at some of the features on the Bitcoin protocol. A transaction is a transfer of Bitcoin value between its users when making a transaction you are essentially referencing the previous transaction receive to your account proving that you’re allowed to spend the value you are sending. This means that transactions can have several different inputs to make up the value to be transferred in a case where the total coin value of the output is higher than the payment a user wants to make, the Bitcoin protocol will send the difference the change back to you.
The proof-of-work consensus algorithm is what allows the Bitcoin network to be both decentralized and fault-tolerant the network is maintained by the collective work of distributed nodes which have to regularly reach consensus in regards to the real state of the blockchain. Proof of work was implemented as a core component of the Bitcoin protocol and it is essentially in the process of mining which is responsible for generating new blocks and maintaining the network secure. Mining nodes needs to try and guess a pseudo-random number norms that when combined with the data provided in the block and passed through a hash function will produce a result that matches given conditions, for example a hash starting with four zeros the first miner to discover of valid nodes receives the block reward with a certain amount of BTC.
Privacy and security
Bitcoin is considered a Byzantine fault-tolerant system bft and its protocol includes several features that makes the network highly resistant to attacks. The mining process ensures the security of the network and by implementing the proof-of-work consensus algorithm Satoshi managed to solve the double spending problem. Modifying the Bitcoin blockchain requires the entire structure to be unraveled block by block this is almost impossible even for the most powerful computers. All transactions in the Bitcoin network are irreversible unless a 51% attack is successfully deployed, such an attack would require a person or entity to control more than half of the total network power in order to reverse the confirmed blocks.
Therefore the potential rewards of a 51% attack are much smaller than the costs as it would require a lot of computational power and a lot time to perform the calculations.
To learn more about cryptocurrencies and the technologies behind them check out our other videos on bonus Academy