About Bitcoin
What It Is
Bitcoin is a digital cypto currency created a decade ago by Satoshi Nakamoto.
Ten years later, Bitcoin is one of the strongest performing asset of of 2020.
While there are many competing currencies, or “alt coins”, Bitcoin has been dominating the market.
So much so that its name has become synonymous with crypto itself.
The currency is a peer to peer (P2P) electronic cash system.
By not being controlled by a bank or government while still being able to transact securely, Bitcoin has become an extremely valuable asset.
This decentralization and security is achieved by having miners verify transactions and publish them to a blockchain.
How It works
The BlockChain
A blockchain is a distributed ledger in the form of a sequence of blocks. It is public, open for viewing to anyone on the bitcoin network. Inside each block of the chain is information such as transaction amounts, sender / receiver addresses, and two identifying hashes.
One hash is that of the current block, and the other is that of the previous block. In this way, the blocks are linked securely together.. like a chain!
Miners
Miners on the bitcoin network compete against one another to solve a complex problem in a race to confirm a new block to the blockchain. This computational cost is the proof of work, and once complete, the miner broadcasts the new block to the network that
All the other miners verify that the solution calculated in producing the block is correct. The miner who generated the block is rewarded with some amount of the crypto currency being mined. Mining bitcoin will be difficult for most people, but Bitcoin can still be obtained through exchanges.
Security
Decentralized
The distributed nature of cyrpto currencies means a central (potentially corrupt) entity is not required to manage it. Anyone is welcome to join the network, and get a full copy of the blockchain containing all past transactions. Each new block that gets created also gets sent to everyone on the network, where consensus over its validity is required for the block to be successfully added to the chain.
Proof of Work
Proof of work adds security by increasing the time it takes to generate new blocks. It is a mechanism by which data is created that is computationally difficult to produce, but easy to verify.
For Bitcoin it takes about 10 minutes to calculate the required proof of work for a block. The work done is that by miners in validating transactions and broadcasting new blocks to the blockchain. In this way Bitcoin and other crypto currencies use proof of work as a consensus algorithm, reaching agreement across the network even if there are “non-compliant” bad actors.
Hash
The hash is a unique identification code, or digital fingerprint. Any changes to the data of a block, would result in a change to the hash. The hash function used by bitcoin is the Secure Hash Algorithm (sha256). Determining a solution to the hash function requires a brute force technique of attempting different values one by one. This is the work done in the proof of work.