What Is Bitcoin And How Does It Work?

What is bitcoin and how does it work?

Bitcoin was the first cryptocurrency, and it is still the most popular one.

Bitcoin is a cryptocurrency, a type of digital currency, which was created in 2009 by an unknown person using the alias Satoshi Nakamoto.
Bitcoin has been growing in popularity ever since, and there are now millions of people worldwide who use it as a method of payment.

Bitcoin is a form of digital currency that uses a distributed peer-to-peer network to verify payments.

Why Do People Use Bitcoin?

There are a few reasons why people use Bitcoin. One of them is because they like the fact that it is decentralized and doesn’t require any central authority. Another reason is that you can buy things online without paying fees to banks.

One key advantage of Bitcoin over other forms of payment is that it requires no middleman.
This means you don’t need to use a bank, Paypal, Western Union or any other payment service. You can send payments directly to another person.

Bitcoin is a peer-to-peer digital currency that can be used to pay for things online.

It works like this: You create a Bitcoin wallet that is unique to you, then buy Bitcoin using cash or another crypto currency and you can transfer your Bitcoin to other people or companies and pay for goods or services.

The idea behind this type of money is to make transactions more secure, faster, and easier. This system uses peer-to-peer networking, so all users of the network are connected.

The value of bitcoin has risen dramatically over the last few years from under $0.01 to over $65,000 per coin (That is not the current price, it is what is called the ATH, All Time High). This has led to a surge in interest and awareness of this currency.

Bitcoin is not easy to explain in words. For some people it is best explained in video and diagrams.
Please take the time to go over the information in this module until you fully understand it.
That might mean you have to watch the videos or read the text a couple of times.

What Is A Blockchain And How Does It Work?

The technology behind Bitcoin, named ‘Blockchain’ is very interesting and can potentially revolutionize the way we pay for goods and services and also how we record information that should remain permanently and unchanged.

Examples of information that should remain permanently and unchanged:

• Records of births, marriages and deaths
• Achievement awards such as university or college degrees
• House purchases
• Land ownership
• Purchases of specialty items such as diamonds
• Anything that needs to be publicly (or privately) available and the information should never be changed

The Blockchain is a secure, distributed, digital ledger that records transactions between two parties efficiently and in a verifiable and permanent way. Each transaction is recorded in a block.

The blocks contain the details for many transactions.

Each block also contains information about the previous blocks. Once the transaction occurs, the new block gets added to the chain. So, when you want to send someone Bitcoin, your transaction is added to a block (which is in then added to the chain of other blocks) until it is processed and the recipient receives the Bitcoin from you. We will come back to this later as it is a key concept that must be understood.

It can be used for a variety of different applications, including tracking ownership of assets, storing information and making online payments.

The Bitcoin Blockchain

The Bitcoin blockchain keeps track of every transaction that takes place.
Every time someone sends a digital coin to somebody else, it’s recorded on the blockchain.

This information is then used to verify the authenticity of the transaction. If the sender tries to re-send the exact same Bitcoin to multiple recipients (Double Spend), the Blockchain will detect this and will not allow the transaction to take place. The Bitcoin Blockchain eliminates the ‘Double Spend” problem.

The process of verifying transactions is known as mining. It involves solving complex mathematical problems using powerful computers. When miners solve those problems, they earn Bitcoins.

Bitcoin isn’t the only crypto currency that has a blockchain. There are 10,000s of other cryptocurrencies such as HEX, Ethereum and Litecoin, and they all either have their own blockchain designed specifically for them or they use / reside on the blockchain of another crypto currency.

The previous video gave a simplified explanation of how blockchains work.
The next videos goes further and gives examples of how blockchains can be used in ways other than with crypto currencies.

What Is Bitcoin Mining?

Mining is essentially the process of verifying transactions on the Blockchain. It is done using computers that solve complex mathematical problems. When you mine, you get rewarded with some of the newly minted coins.

The Role of Bitcoin Miners

Bitcoin miners use their computers to solve complex mathematical problems in order to confirm new blocks of data in the blockchain. This process is known as “proof-of-work.” This process is known as “mining”.

Miners are rewarded with newly minted Bitcoins for doing so.

As more and more users adopt Bitcoin, the demand for computing power increases. As a result, there is a race between miners to create the next block of data first.

This is where the role of the other Bitcoin miners comes in. Mining nodes work together to verify whether or not each miner has correctly solved the problem. If it has, then they add the transaction to the blockchain and receive the reward.

If the miner fails to solve the problem, however, the node will reject his solution and send him back to the pool of other miners.

What is the difference between a miner and a mining node?

A key difference between full nodes and miners is that miners can propose new blocks to the Bitcoin network and full nodes cannot.

SOURCE

Mining is an important part of the Bitcoin protocol. Without it, no one would be able to spend or earn Bitcoins. In fact, the entire system relies on this method of proof-of-work.

In these next videos, we’ll go over the basics of what Bitcoin mining is all about. The videos also discuss the concept of mining nodes and how they contribute to securing the Bitcoin network.

Benefits And Opportunities Of Bitcoin

Overview

The blockchain is an online ledger that keeps track of every transaction made using bitcoin as well as how many bitcoins have been created. There are only 21 million Bitcoins available in existence and, once they’ve been created or mined, no more will ever be created.

Because there is a finite supply, this means that there is a great demand in obtaining Bitcoin. This causes the value of Bitcoin to fluctuate constantly. The lowest price Bitcoin had was when it was created. The price then was $0.0008.

The highest price Bitcoin has had is $65,000 !

Think about that.
Here’s what you would have earned if you’d mined or bought at the lowest price ($0.0008) and sold at the highest price ($65,000).

• If you’d mined or bought $0.01 (1 cent) of Bitcoin at $0.0008 you would have 12.5 Bitcoins = $812,500
• If you’d mined or bought $0.10 (10 cents) of Bitcoin at $0.0008 you would have 125 Bitcoins = $8,125,000
• If you’d mined or bought $1 (1 Dollar) of Bitcoin at $0.0008 you would have 1250 Bitcoins = $81,250,000
• If you’d mined or bought $10 (10 Dollars) of Bitcoin at $0.0008 you would have 12,500 Bitcoins = $812,500,000
• If you’d mined or bought $100 of Bitcoin at $0.0008 you would have 125,000 Bitcoins = $8,125,000,000
• If you’d mined or bought $1000 of Bitcoin at $0.0008 you would have 1,250,000 Bitcoins = $81,250,000,000

In the early days of Bitcoin mining in 2009, a miner could mine up to 200 Bitcoin (BTC) per day!

As you can see, anyone who saw the opportunity and bought Bitcoin early, benefitted HUGELY a few years later.

Specific Benefits And Oppotunities Associated With Bitcoin

Ease of accessibility 

It can be used to buy almost anything online, from electronics to clothing, and even in physical stores like Amazon.com. Bitcoin is also a liquid currency since it has no central bank and can be sent to anyone, anywhere in the world.

Anonymity and Transparency of All Transactions

Bitcoin is an open source protocol for a digital currency. This means that anyone can download and use the software, and it is not controlled by any one entity. It is also transparent and offers complete anonymity to users. In addition, it is a decentralized system which means it has no single point of failure. Transactions cannot be reversed, and it is impossible to change previous transactions.

Freedom From Central Authorities

Bitcoin is not regulated by any government or central bank. Therefore, there is no authority that can seize your coins, nor can they be taxed (unless you make the authorities aware that you have them).

The only way to have them seized or taxed is if you were to work with an exchange that has your KYC and AML (your personal identification details and documents).

The governments are now trying to create ways to tax Bitcoin and crypto currency earnings.

Now there are organizations who can track and trace the owners of Bitcoin wallets.

Potentially Extremely High ROI (Return On Investment)

The potential return on investment is phenomenal, but only if you have the right knowledge.

Here is a quick reminder of the potential returns:

Here’s what you would have earned if you’d mined or bought at the lowest price ($0.0008) and sold at the highest price ($65,000).

• If you’d mined or bought $0.01 (1 cent) of Bitcoin at $0.0008 you would have 12.5 Bitcoins = $812,500
• If you’d mined or bought $0.10 (10 cents) of Bitcoin at $0.0008 you would have 125 Bitcoins = $8,125,000
• If you’d mined or bought $1 (1 Dollar) of Bitcoin at $0.0008 you would have 1250 Bitcoins = $81,250,000
• If you’d mined or bought $10 (10 Dollars) of Bitcoin at $0.0008 you would have 12,500 Bitcoins = $812,500,000
• If you’d mined or bought $100 of Bitcoin at $0.0008 you would have 125,000 Bitcoins = $8,125,000,000
• If you’d mined or bought $1000 of Bitcoin at $0.0008 you would have 1,250,000 Bitcoins = $81,250,000,000

In the early days of Bitcoin mining in 2009, a miner could mine up to 200 Bitcoin (BTC) per day!

There are many ways to invest in Bitcoin, such as through a CeFi exchange or more preferably a DEX.

But there are also ways to invest in Bitcoin without actually owning any of it. We will expand on this later.

Disadvantages and Dangers Of Bitcoin

Hacking And Scamming

There is no doubt about it, cryptocurrencies are becoming an increasingly popular payment and investment option. But what do you get when you combine a decentralized currency with the Internet? Well, you get the rise of a new kind of security threat.

While its popularity and use have skyrocketed in recent years, this form of payment can be risky for both users and businesses.

A cybercriminal can purchase a domain name, set up a fake website, and then infect the site with malware (software that will intentionally cause harm or loss to another person).

When a user enters their payment information and clicks on a “Pay Now” button, the malware can encrypt the files on the user’s computer (blocking the user from using the full functionality of their computer or denying them access to their files) and display a ransom message. The cybercriminal can also take over the users computer, change the password, and demand payment in crypto currency as it is usually untraceable.

You may have received messages such as email or text messages,  appearing to come from your or an unrecognised crypto currency services provider, asking you to login to update your account details.

These type of messages must ALWAYS BE CAREFULLY EXAMINED.

A common practice by scammers is to send out these types of messages in the hope that you will not closely examine the message or the destination website.

When you visit the fake but realistic looking website, you enter your username and password.

Your login details are forwarded and now the scammer has access to your account and THEY WILL DRAIN THE FUNDS FROM YOUR ACCOUNT!

Although this video is not directly related to crypto currencies or Bitcoin, please watch it to see the various methods that hackers use to access other people sensitive, including financial information.

Crypto currency debit cards are now very popular.

This video shows how easily card holders can lose their funds without knowing.

Crypto currencies are mostly unregulated globally.
This means that if you experience loss due to fraud or a mistake you have made, there is usually no way to recover your funds.

Bitcoin Regulation

• The US Securities and Exchange Commission (SEC) and the Commodities and Futures Trading Commission (CFTC) are working on ways to regulate cryptocurrencies like Bitcoin. The CFTC has announced that it would be forming a new task force to study the crypto currency industry. The SEC has also been very vocal about their concerns, and are working on a set of rules that could potentially impact the crypto market.
• In 2021, China banned its citizens from mining cryptocurrencies. It became illegal to do so, and if you did, you could face punishment.
• The Indian government has been fighting a war against cryptocurrencies. The Indian finance ministry announced a new rule that would impose a 30 percent tax on cryptocurrency transactions. The decision followed a statement from the central bank that said that virtual currencies were not legal tender and were not backed by any government.

High Volatility

Volatility is not necessarily a bad thing.
For traders who consistently make profits from the volatility (price fluctuations) of Bitcoin, it’s great.

But for those people who have bought Bitcoin in the hope that one day it will make them rich, they may be disappointed.

The example information provided earlier about some countries’ attitude towards crypto currencies, can affect the price. In some situations it can make the price go up. Sometimes it can make the price fall dramatically. This can be a problem for those hoping that their savings they have converted into Bitcoin, will increase.

Conclusion

There are a number of countries adopting Bitcoin as a legal tender.

Two of those countries are Central African Republic and El Salvador.

This may be the start of a global trend.

Bitcoin and many of the other crypto currencies aim to give financial power back to the people, and this force may overcome any single country’s attempts to ban it. We all know that money is a powerful force in the world today, and as the world becomes more globalized, the need for a global currency becomes more important.

It is possible that Bitcoin may become the first truly global currency, and with that, comes the potential for greater freedom in the world.