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What is bitcoin and how it works? We explain in simple words


Jan 19, 2023

What is bitcoin and how it works? We explain in simple words

Bitcoin was created as a digital payment system with open source. The main breakthrough and at the same time the value of this project is that for the first time it managed to create a self -sufficient, reliable and decentralized system for translations.

Any bank or other financial organization is a centralized structure. The work of its operator, as a rule, is fully or partially closed from users (customers). This leads to the need to trust your money. The centralized structure is vulnerable to errors, abuse and fraud.

In Bitcoin, all these problems are absent, because it is a decentralized structure, which is built and supported by its participants without the participation of the central operator. The balance of all users are published (although specific individuals are hidden), and the network protocol has mechanisms that regularly check the correctness of all data.

The bitcoin network consists of nodes (GCD) – related to a single network of computers with a special software installed on them. Each node stores and updates a copy of the Bitcoin blockchain. The process of confirmation of transactions, the creation of new blocks and validation of a single blockchain version occurs using a consensus algorithm called Proof-OF-WORK.

That such bitcoin and how it works

The second large -scale bitcoin rally occurred in 2017. If at the beginning of the year 1 BTC was traded at $ 1000, then starting in April, his rate began to grow sharply: first to $ 2500 by early June, then above $ 4000 in August and $ 7,000 in October. At the end of 2017 and early 2018, the cost of the first cryptocurrency on some exchanges practically reached $ 20,000. However, quickly enough bitcoin rolled out first to $ 10,000 and continued to decline during 2018. By December, the bitcoin exchange rate reached the bottom at the mark just above $ 3200. After that, the recovery began on the cryptocurrency market.

By the end of June 2019, almost $ 12,000 had already been given for 1 BTC. After a few more local falls that replaced the upward trend, Bitcoin again “grew up” to $ 12,000 by October 2020.

After that, a new bull rally began, which led the first cryptocurrency to a new peak – $ 63000 – by April 2021. Three months later, Bitcoin lost almost 50% of the cost, but then its price began to grow again. As a result, on November 9, 2021, Bitcoin reached a new peak at $ 69,000. Then the correction began with short recovery periods at the end of March 2022.

Global instability in the economy and politics hit the financial market and negatively affected the price of the first cryptocurrency, rolling up to about $ 20,000 by the fall of 2022.

How many bitcoins are and where new coins come from

New bitcoins are generated every time a new block is successfully mined in its network. The frequency of creating such blocks is constant: 6 units per hour. The number of awards for the block, therefore, the speed of the emissions of new bitcoins, periodically decreases as a result of the so -called halving, which occurs every four years.

Thus, there is an accurate schedule of the Bitcoin emission, the total amount of coins that will ever be released is also known: 21 million. The last issue should take place around 2140.

The appearance of new bitcoins can be compared with the issue of money, only instead of government structures printing new banknotes, users themselves produce cryptocurrency. This process is called “mining”. It is built on computers solving complex mathematical problems. Computers are located https://gagarin.news/news/accredited-singaporean-investors-may-qualify-for-recognition-of-cryptocurrencies-when-evaluating-assets/ at various points of the planet, and miners are combined into pools for greater efficiency of work. For their work, they receive a certain award.

It is the presence of economic incentives in the form of cryptocurrency, automatically distributed between participants, Bitcoin owes the fact that its network has been working uninterruptedly since the launch in January 2009.

Is it true that bitcoin is a financial pyramid

This is not true. The classic pyramid, in which they promise unrealistically high profit, suggests that the income of participants in the structure is ensured by constant raising funds. Profit is paid at the expense of the deposits of subsequent participants. As soon as the influx of funds significantly weakens or stops, the whole scheme falls apart, leaving a small number of “elected” ones “in Navar”.

Bitcoin does not promise any benefits to investors. His only promise is full control over his own finances. And even if you agree with the assumption that the demand for cryptocurrency by newcomers or professional investors can lead to an increase in the course, the early participants do not receive any dividends from new.

Finally, the very distributed nature of bitcoin implies the absence of any unified central structure that could benefit from financial benefits.

What is the value of bitcoin

There is an opinion that the price of bitcoin is not supported by anything. According to James Ricards, the author of the bestseller “currency wars”, any currency in the history of money is supported by trust, the same applies to cryptocurrencies. In the bitcoin community, this trust is called consensus.

The value of bitcoin also follows from its network effect: the more participants, the higher the price. Remaining experimental technology, Bitcoin is subject to significant price fluctuations, which is used by traders and ordinary holders.

The value of bitcoin can also be called its limited issue. In addition, the first cryptocurrency opened the world blockchain – a distributed registry technology rapidly gaining popularity.

They say that bitcoin is anonymous. This is true?

This is another widespread misconception. Rather, we can talk about pseudo -enony. In other words, any person can see the movement of funds and the current balance of the address, but to tell who exactly they belong is quite difficult.

However, with a sufficient desire, you can track the IP address of the sender, even if it is not stored in the blockchain. For example, such information are owned by the owners of servers of some purse providers.

To date, quite effective tools for analyzing transactions have already been developed. Their functionality allows cryptocurrency companies to instantly find out how reliable their counterparty is and whether it operates with means that were previously used in illegal financial transactions.

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