What is Bitcoin?

Bitcoins
In 2008, Bitcoin was born into the digital space. It was the first decentralised money. It was created by anonymous Satoshi Nakamoto. And it became the most talked about because it was the first of its kind. The Bitcoin project was believed to be a failed one when it first started out. Later, financial investors began to see the true meaning and the usefulness of decentralised money because it eliminates third-party influence. It allows you to have control over your money and you don’t have to take orders from the financial institutions that have the legal right to decide how your money is spent.

Bitcoin employs the use of cryptography in its protocol and that makes it tamper-proof. Bitcoin uses a transparent ledger, unlike the banks. All transactions done on Bitcoin are hosted on blockchain where everyone on the network could has access to it. Blockchain makes Bitcoin ledger a transparent one and it becomes very open for everyone to see. All the people on the network have a copy of the ledger. This makes it very difficult to be tampered with. You can only add to the existing record, but you cannot change what has already been recorded. This makes Bitcoin a safe haven for financial investors.

Bitcoin is an alternative to a fiat currency because it is now used for almost all transactions done with fiat currency. The Bitcoin network is maintained when a new block is formed. The new block is formed when a node (computer) on the network solves complex mathematical equations correctly. The process of the new block formation is called the Proof-of-Work. The reward for the new block formed is Bitcoin. In technical terms, Bitcoin uses the Proof-of-Work as a consensus algorithm (rules for the creation of Bitcoin). The bank updates its ledger balance by adding and removing certain amount based on the transactions carried out by the account holders, but the Bitcoin transaction ledger is updated by block formation. If a block is formed by a computer, it must be validated by the whole network of computers (chains of computers). This will enable all the participating computers to add the new block (transaction) to their ledgers.

Benefits of using Bitcoin
Bitcoin eliminates third-party interference. The banks and other financial institutions use a centralised system, but Bitcoin is decentralised. The benefit is that you will no longer pay for third-party charges because it doesn’t exist in a decentralised transaction. The humongous fees charged by the banks could be boycotted with Bitcoin.

The transaction done in Bitcoin is safer because it is tamper-proof. It cannot be easily hijacked by hackers; thanks to blockchain technology. If a particular transaction or ledger is altered, it must also be altered on all the ledgers held by millions of people on the network for it to be valid. You can see that this is practically impossible. The existing ledger cannot be altered, you can only add to it and it must be validated by all nodes (computers) in the network.

What is Bitcoin mining?
Bitcoin mining is the process of creating a new Bitcoin. It is also the process of maintaining the Bitcoin network. Blockchain could only be maintained by a rebirth of Bitcoin through mining. The more miners on the network, the more difficult it becomes to create a new block because there is a specified amount of Bitcoin to be created over a period of time. This will bring about very tough competition amongst the miners. This is why Bitcoin has kept inflation in check. It is one of the best instruments that could be used to combat inflation. In 2009, the number of miners was very limited and it made block formation easier. Then, you could mine with the CPU (Central Processing Unit). Later, mining became a little difficult because the number of active miners on the network increased and the CPU could no longer handle it. The GPU (Graphic Processing Unit) replaced the CPU because it is faster. The GPU is a component added to the computer to make it perform more complex functions. This was used for Bitcoin mining in 2011. The mining capacity of one GPU is equal to that of 30 CPUs. FPGA (Field-Programmable Gate Array) was later used for Bitcoin mining. It is hardware designed to perform 100 times faster than the GPU. In 2014, ASIC (Application Specific Integrated Circuit) Miner came into the limelight and it was created basically for Bitcoin mining. It is more powerful than the FPGA. Unlike others, it cannot perform any other function other than Bitcoin mining. Since its creation, it has been improved upon over time.