What You Need to know about Bitcoin
Bitcoin (BTC) is a cryptocurrency token as well as a blockchain network that was initially developed by Satoshi Nakamoto, a name that is a pseudonym taken by a group of people or a single developer.
Bitcoin is categorized as a peer-to-peer electronic cash system, and in order for digital cash to exist, there has to be a payment network that has accounts, balances, and can record transactions.
Why Was Bitcoin Created?
Bitcoin exists as a solution to the “double spending” issue, which prevents one person from spending the same amount of money twice. In traditional finance, this is done by a central server that’s controlled by a bank, for example, that keeps a record of all the balances.
In a decentralized network, the server previously discussed does not exist, and every single entity that makes up the network completes this task instead. This means that every single user within this network needs to have a full list of all of the transactions, so they can check if the future transactions are valid.
How Does Bitcoin Work?
If someone wants to send or receive Bitcoin (BTC) tokens, they are required to have what is known as a cryptocurrency wallet address. They need to digitally sign the transaction, and once it has been signed, the transaction is broadcasted to the network of miners, which is sent from one peer to every other peer.
Once the miners validate the transactions through contributing computing power as a means of solving cryptographic puzzles, which typically occurs once, within 10 minutes on the Bitcoin network, the transaction is ultimately confirmed.
Miners are the only ones able to confirm transactions within the network, and what they essentially do is take the transaction, confirm that it is legitimate, and then spread it across the entire network.
Once a miner confirms a transaction, every node adds it to the database. This transaction is then bundled with other transactions within a block, and this block gets added to the previous block in the form of a chain. This is why it is called the blockchain.
What Consensus Mechanism Does Bitcoin Use?
To achieve this, Bitcoin utilizes a consensus mechanism known as Proof-of-Work (PoW). Through it, miners solve cryptographic puzzles and validate transactions, where they earn BTC cryptocurrency tokens as a reward for doing so.
Anyone within this network is given the opportunity to either be an individual miner or join a network of miners, which is known as a mining pool. Through the BTC token rewards, each miner is economically incentivized to maintain the legitimacy of the transaction history, and this is what makes up the Bitcoin network and how it retains its level of security and transparency.
Bitcoin is a cryptocurrency token developed as a means of solving the complex digital cash issue, which was not possible through peer-to-peer networks prior to Satoshi Nakamoto’s introduction of it. Bitcoin tokens are a monetary incentive to keep the overall network security.