Using peer to peer technology eliminating the need for any central authority or bank. No government or entity owns bitcoin, nor can they ever control its output.
The Bitcoin virtual network is transparent and made public over the internet, yet still, it is considered the most secure financial operations system in the world. It uses an advanced encryption and verification system to protect the privacy of every account and transaction.
There are no physical bitcoin notes or coins. Bitcoin is comparable to the original Gold Standard in America. The difference is instead of rocks and minerals, it takes time and energy resources to generate new Bitcoin.
The founder and creator of Bitcoin has yet to identify himself and remains a mystery. We know that he used the alias of Satoshi Nakamoto when he published the groundbreaking “white paper” in 2009. This report describes Bitcoins architecture, algorithm, and process. The Bitcoin “White Paper” was the first to solve the double-spending problem for digital currencies. The paper was titled “Bitcoin: A Peer-to-Peer Electronic Cash System.” Satoshi’s letter explained a money system that no longer required the assistance of banks or any third party involvement; a decentralized currency. Now, our trust can be placed in this online digital currency that uses cryptography. It is a system for the people, ran by the people.
“A purely peer-to-peer version of
electronic cash that would allow
online payments to be sent directly
from one party to another without
going through a financial institution.“
Mining for Bitcoin
Incredibly, this new online financial system involves looking through and solving increasingly complex mathematical algorithms with computer software in order to earn Bitcoin. This action is referred to as mining. Unlike fiat currency which is printed out of thin air and is subject to inflation, Bitcoin mining takes time and effort to discover just like looking for real gold. This is why it’s called mining. Because of the work involved and the fact that there are only 21 million of these digital coins, it makes Bitcoin inflation proof! Bitcoin may lose or gain value but it won’t be because of inflation.
Bitcoin Miners assign designated Central/Graphics Processing Units (CPU/GPU) to record transactions(TX) to the Bitcoin Blockchain — A public ledger of every bitcoin transaction. The blockchain is ordered and timestamped, every individual miner and mining pool must download a complete copy of the blockchain in order to properly validate each transaction through the Proof of Work (PoW) system. It is public and viewable from your browser.
As a result, every transaction creates multiple hash outputs, which are assigned a Transaction Identifier (TXID). Miners compare the new TXID with the rest of the blockchain to ensure that the funds being sent do not exceed the amount contained in the sender’s Bitcoin wallet. By tracking every transaction ever made and using an advanced encryption algorithm to validate and secure every transaction, the PoW system makes it impossible to hack Bitcoin.
A transaction fee is paid to miners for verifying each TX. Also, when a new block is discovered it’s added to the blockchain and miners are rewarded newly created bitcoins.
Some choose to solo mine bitcoin, which means you get to keep the full rewards of your efforts, but reduced odds comparable to the odds of winning the lottery. However, most miners opt to join a mining pool such as Slush Pool – The very first Bitcoin mining pool in the world. In a pool, miners combine hash power to have a much larger chance to solve a block, but the reward is split between all pool members, based on the miners Hashing Rate (H/s) and the number of ‘shares’ earned.
If you decide that mining is not the life for you, purchasing Bitcoin can be done on several exchange websites or from peers directly. But, before you make a purchase you will need to find out which way your Bitcoin will be stored. You will need a proper wallet made for holding your crypto coins.
While this is a VERY simplistic overview of what Bitcoin is, the subject can get VERY complex when getting into the fine details.