In 2008, the idea of Bitcoin was revealed. Someone named Satoshi Nakamoto published the White Paper online. However, it was later revealed that Satoshi Nakamoto was not this person’s real name. Even today, no one knows the real name of the creator of Bitcoin!
At the time, nobody knew that Bitcoin would become what it is today. Nobody knew that it would be the start of a huge technological movement… but it was. It was the beginning of cryptocurrencies.
Several years passed in which the primary use of Bitcoin was to trade goods and services on the dark web.
In 2013-14, it grew a lot. Then, it slowed down a bit. But in 2017, the market for Bitcoin went up, up and further up. This time, it went a lot further.
In December 2017, it reached a price of $20,000 per Bitcoin. So, anyone holding 50 Bitcoins or more became a millionaire. In January 2015, 50 Bitcoins would have cost you just $10,000. That’s a profit of $990,000!
What is it?
It is a digital currency that you can send to other people. This may be as a gift, for services or for a product. It’s just like the money we use in our bank accounts (USD, EUR, etc.). But it’s digital; it isn’t 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
With Bitcoin, each transaction happens directly between users — it’s called a peer-to-peer network. This is all possible thanks to the blockchain. It introduced blockchain technology to allow users to send and receive it 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.
How does it Work?
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? Well, the people and companies that run the blockchain do it using computer power. They run special software on a computer that processes transactions on the blockchain.
Note: The computers used to run the software are called ‘nodes’.
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.