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Bitcoin is the first cryptocurrency. It is a digital and global money currency system. With Bitcoin, money can be sent or received across the internet, even to someone they don't know or don't trust. Money can be exchanged without being linked to a real identity offering privacy to users.
A Bit of History
In 2008, someone using the pseudonym "Satoshi Nakamoto" published the now famous Bitcoin whitepaper online. This whitepaper outlined the process for how cryptocurrency would work. At the beginning of 2009, the first Bitcoin block was mined. At the time, nobody knew the potential Bitcoin had to become what it is today. Nobody knew that it would be the start of a huge technological movement, but it certainly was.
It's probably safe to bet that you know what happened next. In it's infancy, several years passed in which the primary use of Bitcoin was to trade goods and services on the dark web.
In 2013-14, Bitcoin grew up a lot. Then, it slowed down a little bit. In 2017, the market for Bitcoin went up, then up some more, then even further up. This time, it went a lot further.
In December 2017, Bitcoin reached a price of about $20,000 USD per Bitcoin. So, anyone holding 50 Bitcoins or more became a millionaire.Initially, it was only worth fractions of a cent. In January 2015, 50 Bitcoins would have cost you just $10,000.
What is Bitcoin?
Bitcoin is a digital currency that you can send to other people. This may be as a gift, for services or for a product. Basically, it’s just like the money we use in our bank accounts (CAD, USD, EUR etc.). But it’s only digital, not physical.
However, that isn’t all that makes it different. It’s also decentralized, meaning it doesn’t rely on a bank or third party to handle it — which is explained in this article [LINK] about cryptocurrency.
With Bitcoin, each transaction happens directly between users — it’s called a peer-to-peer network. This is all possible thanks to the blockchain. Bitcoin introduced blockchain technology to allow users to send and receive Bitcoin without using a third party.
Because you don’t need a third party, you don’t need to identify yourself. You can make payments without revealing who you are etc.
The Bitcoin Network.
Bitcoin's payment network (also called the bitcoin blockchain) is what makes it possible for us to transact with one another. The network uses distributed consensus to verify and confirm transactions, and consensus is reached via a large global network of high-performance computers (called miners) running the bitcoin software.
Whenever someone sends a transaction it is broadcast instantly to the network and verified by the miners. Miners are constantly working to confirm individual transactions and include them in the next block of transactions in the chain. Once a new block is verified, all the transactions within it are permanently recorded on the blockchain. Rewards are paid out in bitcoin to miners who confirm transactions and verify the next block as a way to incentivize productivity on the network.
Each party who participates in the mining process has an identical up-to-date copy of the blockchain or public ledger, which is a record of all the transactions in bitcoin history. Each party's copy of the ledger is updated every time a new block is found.
The unit of value that we send and receive on the Bitcoin network is also referred to as bitcoin, or bitcoins. Bitcoin is completely digital, meaning we can't physically hold it in our hand. It's also portable, divisible, fungible, and irreversible.
How It Works
When someone sends Bitcoin, the transaction is verified and then stored on the blockchain (the shared database). The information on the blockchain is encrypted — everyone can see it but only the owner of each Bitcoin can decrypt it. Each owner of Bitcoin is given a ‘private key’, and this private key is how they decrypt their Bitcoin.
But, if the banks don’t verify/process the transactions, then who does?
Since blockchains are run by lots of different people and companies instead of one single company/person, the people and companies that run the blockchain process the transactions using computer power. They run special software called "nodes" on a computer that process transactions on the blockchain.
Running this software uses a lot of electricity, though. So, how do the people and companies running the nodes pay for their electricity bills? Welcome to mining…
The nodes are rewarded for verifying transactions — they’re rewarded with new Bitcoin. This is how new Bitcoins are created. You can compare it to gold mining, in which the miners are rewarded with Gold. In Bitcoin mining, the nodes are the miners — they mine for new Bitcoin.
When a new block of transactions is sent to the blockchain, the miners/nodes will verify the block using an algorithm called PoW (Proof of Work). In PoW, the first miner to verify the block is rewarded with new coins. There are other algorithms used in other blockchains, but that's a story for another day.
Bitcoin Explainer Video
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