What is Bitcoin? How it Works and Applications.
Bitcoin History
Bitcoin history begins on 18 August 2008, when the domain name bitcoin.org was registered. Later that year on 31 October, a link to a paper authored by mysterious Satoshi
Nakamoto titled “Bitcoin: A Peer-to-Peer Electronic Cash System” was posted to a cryptography mailing list. On 3 January 2009, the Bitcoin network came into existence with Satoshi Nakamoto mining the genesis block (block number 0).
The first open source Bitcoin client was released on 9 January 2009. The open source code, showcasing all the characteristic of Bitcoin, made it possible for other cryptocurrencies to emerge. The first Bitcoin transaction took place on 12 January 2009, when Satoshi Nakamoto sent 10 Bitcoins to Hal Finney, one of Bitcoin’s earliest supporters. Another notable transaction was the indirect purchase of two pizzas with 10,000 Bitcoins.
The first and only major Bitcoin security flaw was found on 6 August 2010, and exploited on 15 August. Within hours, the transaction was spotted and erased from the transaction log after the bug was fixed and the network forked to an updated version of the Bitcoin protocol.
What gives Bitcoin value?
Bitcoin has value for two key reasons:
Thanks to its features, some people find it useful as a way to store and exchange value.Because a group of people agree it has value.
Historically, people have used everything from seashells to bottle caps as money, but arguably the most enduring form of money is gold. Why?
People settled on gold thanks to its rarity, its durability, and its divisibility. These features made gold useful as a method for storing and exchanging value.
Bitcoin is often compared to gold because it has similar characteristics. Namely:
It has a limited supply. There will only ever be 21 million bitcoins.
It’s easily divisible. You can divide one bitcoin into 100 million pieces.
It’s durable. A huge globally distributed network of independently operated computers tracks Bitcoin ownership. This ensures that no bitcoin is lost.
Beyond this, Bitcoin has a few other important features which allow it to bring gold’s monetary properties to the modern digital era. These are:
It’s easy to send bitcoin. Sending any amount of bitcoin to anyone in the world can be done in minutes and with a 100% guarantee of security. It’s almost like sending an encrypted email.
It’s easy to verify the authenticity of bitcoin. Actually, it’s effectively impossible to transact with fake bitcoin.
Thanks to the utility of gold, the gold ‘network’ – to use a modern term – grew over time until gold became almost universally accepted as having value. Although Bitcoin, which started in 2009, is much newer than gold, Bitcoin’s network efforts benefit from the scale and speed of the modern Internet. The number of people who place value in Bitcoin has grown at an exponential pace since inception to the point that Bitcoin’s value is now closing in on gold’s – and that may be just the beginning.
How do I create a Bitcoin wallet?
A Bitcoin wallet is a tool for interacting with the Bitcoin network. Use it to buy, sell, send, receive, and trade bitcoin. Making a Bitcoin wallet is as easy as downloading an app.
How to buy and sell bitcoin?
Apps like the Bitcoin.com Wallet.
Websites like the buy/sell section at Bitcoin.com.
Peer-to-peer services like Bitcoin.com Local.
Centralized crypto exchanges. Caution: this option is custodial.
How to send bitcoin?
Sending bitcoin is as easy as choosing the amount and deciding where it goes
How to receive bitcoin?
Receiving bitcoin is a simple matter of providing the sender with your Bitcoin address.
How does a bitcoin exchange work?
Bitcoin exchange is the process of trading bitcoin for local currencies, goods or services, or other cryptocurrencies. Your options range from peer-to-peer exchange to giant centralized exchange services that resemble a stock trading account.
Bitcoin debit cards
Bitcoin debit cards are a convenient way to spend your bitcoin.
What are the tax implications of using Bitcoin?
Whether you’re investing in Bitcoin, getting paid in bitcoin, or just using bitcoin to pay for goods and services, you need to be aware of the relevant tax laws in your country. In some regions, you may be exempt from taxation altogether. In others, onerous tax laws require you to track every transaction.
Luckily there’s a growing variety of tools that help you comply with the tax laws in your country. We recommend Token Tax, which is a crypto tax software platform and crypto tax calculator that vastly simplifies the process. It helps you connect to exchanges, track your trades, and automatically generate crypto tax reports regardless of your country of residence.
What is Bitcoin mining?
Bitcoin mining is a process of confirming Bitcoin transactions and recording them on a distributed ledger. It is the most important procedure of the entire Bitcoin network, as it secures the system, ensures that everyone is acting justly, and introduces new Bitcoins into the circulation.
Of course, no mining would take place without miners. Miners all over the world keep the network decentralized by deploying their hardware and electricity in order to participate in the system. In turn, they are rewarded with transaction fees and freshly minted Bitcoins. These rewards incentivize the miners to do the work and cover their expenses.
Although this is a gross simplification, such a system of incentives makes up the Bitcoin network.
How does Bitcoin mining work?
Put very simply, it works like this:
– Miners set up their hardware to verify Bitcoin network transactions.
– Verified transactions are bundled into a single 1 MB size block every 10 minutes.
– All network computers must solve a complicated cryptographic puzzle to add a new block to the Bitcoin blockchain.
– The first computer that solves the puzzle adds the block and is rewarded with Bitcoins.
Currently, once a puzzle is solved, and a new block added to the blockchain, the miner gets a bounty of 12.5 Bitcoins. The prize is decreasing over time – it shrinks by half every 210,000 blocks. The first miners had earned 50 Bitcoins per block, while in 2020 the rate will drop to 6.25 Bitcoins. You can use sites like Bitcoin Clock to keep track of the Bitcoin halving events.
What’s a self-custodial Bitcoin wallet?
Bitcoin wallets can be divided into two categories:
Custodial. This means the wallet provider has access to your bitcoin.
Self-custodial. This means the wallet provider doesn’t have access to your bitcoin.
Whether the wallet provider has access to your bitcoin or not has a number of important implications. We recommend you always keep your digital assets in a self-custodial wallet like the Bitcoin.com Wallet.
How does Bitcoin governance work?
Bitcoin is not a static protocol; it can and does evolve over time as needed and in response to its environment. The process for making improvements to Bitcoin, which is known as ‘Bitcoin governance,’ includes both formalized procedures and a form of decision making, known as ‘rough consensus,’ that derives from open-source software development cultures.
However, it’s important to keep in mind that Bitcoin is a headless organization. It is ‘owned’ – if we can use the term – by the sum total of all its users. What Bitcoin is and how it evolves, then, is an open question, the answer to which is ultimately determined by a wide array of voices, from miners and nodes, to exchanges, wallet providers, and – most importantly – the people who hold and use bitcoin.
Bitcoin mining is a process of confirming Bitcoin transactions and recording them on a distributed ledger. It is the most important procedure of the entire Bitcoin network, as it secures the system, ensures that everyone is acting justly, and introduces new Bitcoins into the circulation.
Of course, no mining would take place without miners. Miners all over the world keep the network decentralized by deploying their hardware and electricity in order to participate in the system. In turn, they are rewarded with transaction fees and freshly minted Bitcoins. These rewards incentivize the miners to do the work and cover their expenses.