Bitcoin: A P2P Digital Cash System

A Comprehensive Guide On Bitcoin

Blockchain is the tech. Bitcoin is merely the first mainstream manifestation of its potential.
Marc Kenigsberg, founder of Bitcoin Chaser

Once upon a time, there was an anonymous person or a group of persons named Satoshi Nakamoto, who, in 2008, published a paper on the cryptography discussing the bitcoin digital currency. The paper was titled ‘Bitcoin: A Peer-to-Peer Electronic Cash System’. His objective was to produce a means of exchange, which is free of any central authority and could be transferred digitally in a secure, provable and unchangeable.

Satoshi released the first bitcoin software in January 2009 with the launch of the first units of the bitcoin cryptocurrency, called bitcoins. It is an open-source project. Soon, people started to take an interest in it and how it can help them make a fortune with minimal investment.

And one day, the person or group of persons disappeared into the thin air. It has been a crazy 11 years since the release of Bitcoin and the mystery of Satoshi Nakamoto remains unsolved. Today, he is regarded as a philosophical godfather of all other cryptocurrencies other than Bitcoin.

Bitcoin in detail

A decentralized form of digital cash, Bitcoin eliminates the need for mediators like banks and governments to make transactions. Besides, Bitcoin is powered through a combination of peer-to-peer (P2P) technology. The system is simple and organized.

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As stated by Peter Diamandis (Founder and chairman of the X prize foundation), “At its core, bitcoin is a smart currency, designed by very forward-thinking engineers. It eliminates the need for banks, gets rid of credit card fees, currency exchange fees, money transfer fees, and reduces the need for lawyers in transition 1… all good things.”

How does bitcoin work?

Imagine bitcoin as a computer file that is stored in a digital wallet on a computer or smartphone via mobile application. To know how bitcoin works, you need to understand a few of the important terms:

Blockchain: Blockchain is a decentralized and distributed ledger that records the source of a digital asset. Bitcoin is powered by the blockchain. Each of the transaction is a ‘block’ connected to the code and hence, a permanent record of each transaction is created.

Private & Public Keys: Bitcoins, as well as Altcoins, are built upon public-key cryptography that uses two keys: Public keys (publicly known and essential for identification) and Private keys (these are kept secret and used for verification and encryption).

Bitcoin Miners: Chances are that with the term ‘mining’, your mind must be wandering to the deserted lands and pickaxes, dirt and toiling. But the analogy is too far. The miners support new transactions and record them on the global ledger. Its different functions are issuing of new bitcoins, confirming transactions and securing them.

How does bitcoin mining work?

Bitcoin has no central government. With Bitcoin, miners use special software to solve math equations and in turn, they are issued a certain number of bitcoins in exchange. This offers a smart way of issuing the currency. It even creates an incentive for more people to mine. Some of the top Bitcoin mining hardware are AntMiner S7, AntMiner S9, and Avalon6.

What are the benefits of Bitcoin?

Some of the awesome benefits of Bitcoin are:-

Private and secured transactions anytime
You can transfer Bitcoin anytime, anywhere. BTC transactions do not hold any personal information like a name or credit card number. This reduces the risk of stealing consumer information for fraudulent purchases or identity theft.

Low transactional fees
Presently, there are either no or very low fees within Bitcoin payments. In order to process the transactions faster, users might include the fee accordingly. The higher the fee, the more are the chances to get the transaction processed quickly.

Quick and cheap transactions
The transfer fee of a Bitcoin is quite low as compared to conventional methods of moving money. A general fee of Bitcoin is 0.0005 BTC/transfer. For a typical international wire transfer, you could be asked to pay 700THB-1300THB/transaction. Paying with credit cards will cost about 3-5% of the transfer amount.

Please note that the international wire transfers can take at most a week. On the other hand, Bitcoin transactions are usually confirmed with an hour.

Fewer risks for merchants

Given that bitcoin transactions cannot be reversed, do not hold your personal information and are secure, merchants are secured from potential losses. Even in the case of high crime and fraud rates, the merchants can do business with Bitcoin (works on a public ledger known as the blockchain).

What is the blockchain? A look at the basics.

The blockchain is a type of database used for recording transactions. Once a transaction occurs, it is copied to all of the systems in a participating network. This is commonly known as a ‘distributed ledger’. In blockchain, the data is stored in ‘blocks’.

The two main features of these ‘blocks’ are:

Content: Content is basically a list of instructions, digital assets (transactions made), the amounts and addresses of the users to those transactions.
Header: It is the reference number of a unique block (the time the block was created, and a link to the previous block).

On the other hand, Blockchain mining is a process that validates new transactions. Why would anyone mine blockchain? Mone! It’s true that you can build a fortune by mining Blockchain. Moreover, it depends on your mining capacity. To mine, you need some resources such as Computational Hardware, Cooling System, Electricity, and Maintenance. Always remember that the more powerful your mining capacity will be, the more money you will make.

What is the miner fee and does Coinbase pay it?

The outgoing transactions bring about a ‘mining’ or ‘network’ charges to make sure that the transactions are processed on digital currency networks. The fee is directly paid to the cryptocurrency miners.
Coinbase collects and pays these fees directly. Coinbase will charge you a fee based on its valuation of the network transaction fees. The fee may differ in some circumstances and the fees charged will be shown at the time of your transaction.

P.S: Coinbase does not charge network fees for digital currency transfers from one Coinbase wallet to another.

Concluding Up

Though it has some disadvantages as well, Bitcoin is still the most preferred cryptocurrency. Before you commence, understand what it is, and what are your requirements.

Do note that Satoshi Nakamoto’s original paper is still recommended for reading for anyone to know what is Bitcoin and how it works.