Bitcoin is a cryptocurrency or digital currency that is not governed by a centralized bank. It can also be known as a payment system because it works as an international digital currency system.
Users holding this digital currency can transfer money to each other and to other users through a peer-to-peer network using free software. Also, all transactions are verified by a network of nodes that record all account histories. These histories will be stored in a public database known as blockchain.
This transaction custody work is costly and requires extensive resources, as does the execution of complex mathematical calculations. However, the Bitcoin network protocol remunerates the computers that do the escrowing with new bitcoins. This process is called Bitcoin mining.
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Origin of Bitcoin
Bitcoin was created by Satoshi Nakamoto, who is an unknown entity, Gavin Andresen and other developers who programmed the network in C++ language. The project was conceived in 2008, but officially launched in 2009.
Initially it was called as an electronic money system, which would not be under the power of any government or bank and would allow transactions between users. The first open source software started working to run cryptocurrency nodes and thus began the creation of bitcoins and the mining process. The first bitcoin block was mined by Satoshi Nakamoto and this was called the genesis block.
To continue explaining what bitcoin is and how it works, we must establish some essential concepts:
To manage bitcoins, programs and software are needed that are used as clients and that allow running nodes and light wallets. Nodes participate in the network by taking custody of transactions, mining, validating blocks and relaying transactions.
Lightweight wallets perform transactions without storing the number of blocks and use a payment verification system to query the blockchain. These wallets can be installed on smartphones and computers and allow users to make transactions.
The hashes or also called addresses are the entities that send and receive payments with the cryptocurrency. These addresses do not reveal information about the account owner and it is not required to add contact information to obtain them.
The process of generating new bitcoins by building them into the blockchain. This allows the network to be kept secure and up to date. The computers used for mining solve difficult mathematical operations through expensive computing resources.
Privacy of the Bitcoin Network
All transactions on the Bitcoin network are public and any observer will be able to review them at any time, as well as obtain information about the content of the transaction, the destination and the origin of the transaction. However, all users can participate in the network anonymously by using a pseudonym.
Risks in the Use of Bitcoins
All users who own bitcoins may suffer losses and are subject to risks such as: loss of confidence in the digital currency on the part of the users, which would mean a decrease in its value, volatility of the currency, complete loss of assets due to a cyber attack.
For these reasons we advise users to be aware of the risks before investing in Bitcoin and to foresee the necessary security measures at the moment of making the investment.
Some sources claim that a single transaction in the Bitcoin network consumes the energy of at least 1,000,000 transactions with a Visa card. This means the electricity consumption of a house for 35 days. In other statistics, Bitcoin mining consumes the same electrical energy as Argentina.
Many companies will not accept payments in Bitcoins due to the large amount of carbon produced by the operations and this would bring serious problems to the environment. In addition, as of 2,019 the electricity consumption of the Bitcoin network increased by up to 400%.
Future of Bitcoin
The future of this cryptocurrency is encouraging, because with the passage of time mining operations will come to an end and no more blocks will be created. Clarifying that only 21 million Bitcoin can be created and the last one is expected to be created in 2,140. This would increase the value of the digital currency.
The Bitcoin has important benefits as a store of value currency, unit of account or exchange currency. Likewise, countries such as El Salvador have adopted Bitcoin as legal tender within the nation.