What is Bitcoin?
Bitcoin is a cryptocurrency that was created by Satoshi Nakamoto in 2009. The person or group that established this digital currency used a pseudonym and their true identity is still a mystery.
Bitcoin is not operated by a centralized authority, unlike fiat currencies. Online transactions that are facilitated via Bitcoin usually have lower transaction fees associated with them.
There are not actual physical Bitcoins, since this is purely a digital currency, and balances are recorded on a public ledger that everyone can access. While this increases transparency, it requires a lot of computing power to keep the ledger up to date.
Bitcoin or BTC has become very popular, rising in value over time. It has spurred the creation of other digital currencies or altcoins, such as Ethereum and Binance Coin.
Peer-To-Peer and Bitcoin Technology
Bitcoins can be transferred from one user to another by using a peer-to-peer or P2P network and it was one of the first cryptocurrencies to make instant payments possible. The BTC network is completely decentralized, with various individuals, groups and companies investing in computing power.
What is meant by Bitcoin mining?
In Bitcoin mining, different computational puzzles are solved in order to find a new block and add it to the blockchain. Bitcoin miners process these transactions.
Mining requires a lot of computing power but it’s the only process that allows new Bitcoins to enter circulation. Miners invest in the process because they want to earn a few BTC.
Every time a block is mined, transaction records are added and checked across the entire network. The rewards earned by miners decrease by half for every 200,000 or so blocks mined.
In 2009, miners earned 50 BTC for every block. By May 2020, when the third halving took place, miners were only able to earn 6.25 BTC every time they mined a block.
Benefits and Disadvantages of Bitcoin
Bitcoin controls the largest share of the cryptocurrency market, so it’s easy to trade it or use it in online transactions. Since it’s stored and recorded on a decentralized ledger, it’s less subject to external manipulation or political interference.
Although Bitcoin can be used to store value, it’s unpredictable, as the price constantly fluctuates. In 2017 you could get $20,000 per BTC but just four years later you were only able to sell a Bitcoin for half that.
It’s expensive to invest in mining BTC. In addition, the periodic halving negatively impacts rewards.