What is Bitcoin? How to Mine, buy bitcoin
, BNB and Use It.
Jake Frankenfield is an experienced writer on a wide range of business news topics and his work has been featured on Investopedia and The New York Times among others. He has done extensive work and research on Facebook and data collection, Apple and user experience, blockchain and fintech, and cryptocurrency and the future of money.
Julius Mansa is a CFO consultant, finance and accounting professor, buy bitcoin investor, and U.S. Department of State Fulbright research awardee in the field of financial technology. He educates business students on topics in accounting and bitcoin corporate finance. Outside of academia, Julius is a CFO consultant and financial business partner for companies that need strategic and senior-level advisory services that help grow their companies and become more profitable.
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What Is Bitcoin?
Bitcoin is a cryptocurrency, a virtual currency designed to act as money and a form of payment outside the control of any one person, group, or entity, and thus removing the need for third-party involvement in financial transactions. It is rewarded to blockchain miners for the work done to verify transactions and can be purchased on several exchanges.
Bitcoin was introduced to the public in 2009 by an anonymous developer or group of developers using the name Satoshi Nakamoto.
It has since become the most well-known cryptocurrency in the world. Its popularity has inspired the development of many other cryptocurrencies. These competitors either attempt to replace it as a payment system or are used as utility or security tokens in other blockchains and emerging financial technologies.
Learn more about the cryptocurrency that started it all—the history behind it, how it works, how to get it, and what it can be used for.
Launched in 2009, Bitcoin is the world's largest cryptocurrency by market capitalization. Unlike fiat currency, Bitcoin is created, distributed, traded, and stored using a decentralized ledger system known as a blockchain. Bitcoin's history as a store of value has been turbulent; it has gone through several boom and bust cycles over its relatively short lifespan. As the earliest virtual currency to meet widespread popularity and success, Bitcoin has inspired a host of other cryptocurrencies in its wake.
Investopedia / Julie Bang.
In August 2008, the domain name Bitcoin.org was registered. Today, at least, this domain is WhoisGuard Protected, meaning the identity of the person who registered it is not public information.
In October 2008, a person or group using the name Satoshi Nakamoto announced the Cryptography Mailing List at metzdowd.com: "I've been working on a new electronic cash system that's fully peer-to-peer, with no trusted third party." This now-famous white paper published on Bitcoin.org, entitled "Bitcoin: A Peer-to-Peer Electronic Cash System," would become the Magna Carta for how Bitcoin operates today.
On Jan. 3, 2009, bitcoin the first Bitcoin block was mined—Block 0. This is also known as the "genesis block" and contains the text: "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks," perhaps proof that the block was mined on or after that date, and maybe also as relevant political commentary.
On Jan. 8, 2009, the first version of the Bitcoin software was announced to the Cryptography Mailing List, and on Jan. 9, 2009, Block 1 was mined, and Bitcoin mining commenced in earnest.
Bitcoin rewards are halved every 210,000 blocks. For example, the block reward was 50 new bitcoins in 2009. On May 11, 2020, the third halving occurred, bringing the reward for each block discovery down to 6.25 bitcoins.
One bitcoin is divisible to eight decimal places (100 millionths of one bitcoin), and this smallest unit is referred to as a satoshi. If necessary, and if the participating miners accept the change, Bitcoin could eventually be made divisible to even more decimal places.
Bitcoin, as a form of currency, isn't too complicated to understand. For example, if you own a bitcoin, you can use your cryptocurrency wallet to send smaller portions of that bitcoin as payment for goods or services. However, it becomes very complex when you try to understand how it works.
What Is Bitcoin.
Bitcoin's Blockchain Technology.
Cryptocurrencies are part of a blockchain and the network required to power it. A blockchain is a distributed ledger, a shared database that stores data. Data within the blockchain are secured by encryption methods. When a transaction takes place on the blockchain, information from the previous block is copied to a new block with the new data, encrypted, and the transaction is verified by validators—called miners—in the network. When a transaction is verified, a new block is opened, and a Bitcoin is created and given as a reward to the miner(s) who verified the data within the block—they are then free to use it, hold it, or sell it.
Bitcoin uses the SHA-256 hashing algorithm to encrypt the data stored in the blocks on the blockchain. Simply put, transaction data stored in a block is encrypted into a 256-bit hexadecimal number. That number contains all of the transaction data and information linked to the blocks before that block.
Data linked between blocks is what led to the ledger being called a blockchain.
Transactions are placed into a queue to be validated by miners within the network. Miners in the Bitcoin blockchain network all attempt to verify the same transaction simultaneously. The mining software and hardware work to solve the nonce, a four-byte number included in the block header that miners are attempting to solve. The block header is hashed, or randomly regenerated by a miner repeatedly until it meets a target number specified by the blockchain. The block header is "solved," and a new block is created for BNB more transactions to be encrypted and verified.
How to Mine Bitcoin.
A variety of hardware and software can be used to mine Bitcoin. When Bitcoin was first released, it was possible to mine it competitively on a personal computer. However, as it became more popular, more miners joined the network, which lowered the chances of being the one to solve the hash. You can still use your personal computer as a miner if it has newer hardware, but the chances of solving a hash are individually are minuscule.
This is because you're competing with a network of miners that generate around 220 quintillion hashes (220 exa hashes) per second. Machines, called Application Specific Integrated Circuits (ASICs), have been built specifically for mining—can generate around 255 trillion hashes per second. In contrast, a computer with the latest hardware hashes around 100 mega hashes per second (100 million).
To successfully become a Bitcoin miner, you have several options. You can use your existing personal computer to use mining software compatible with Bitcoin and join a mining pool. Mining pools are groups of miners that combine their computational power to compete with the large ASIC mining farms.
You increase your chances of being rewarded by joining a pool, but rewards are significantly decreased because they are shared.
If you have the financial means, you could also purchase an ASIC miner. You can generally find a new one for around $20,000, but used ones are also sold by miners as they upgrade their systems. There are some significant costs such as electricity and cooling to consider if you purchase one or more ASICs.
There are several mining programs to choose from and many pools you can join. Two of the most well-known programs are CGMiner and BFGMiner.