What is Bitcoin?
Bitcoin is a digital currency, also known as a cryptocurrency, that uses decentralized technology for secure payments and storing money. It operates independently of a central bank or government. Transactions are recorded on a public digital ledger called a blockchain. Bitcoins can be bought, sold and exchanged for other currencies or goods and services. Bitcoin was created in 2009 by an unknown individual or group of people using the pseudonym Satoshi Nakamoto.
How does Bitcoin work?
Bitcoin works by using a technology called blockchain, which is a decentralized digital ledger that records all transactions across a network of computers.
When a new transaction is made, it is grouped together with other transactions in a block. Miners, who are individuals or groups of people that use specialized computer hardware to solve complex mathematical problems, then compete to validate the block by solving a proof-of-work algorithm. The first miner to validate the block is rewarded with a certain number of newly-created bitcoins, currently 6.25 bitcoin as of May 2022.
Once a block is validated, it is added to the blockchain, which is a public record of all past transactions. This blockchain is maintained by a decentralized network of computers, rather than a central authority, which makes it difficult for any one person or group to manipulate or corrupt the system.
Once the transaction is added, it is irreversible and it cannot be deleted. It can be verified using the public key and private key of the user. Bitcoins can be stored in digital wallets, which are protected by a private key.
The supply of bitcoins is limited to 21 million, which is expected to be reached by 2140. This scarcity, combined with the decentralized nature of the system, is what gives bitcoins value.
What is Bitcoin halving?
Bitcoin halving is a process that occurs every 210,000 blocks (approximately every four years) in which the reward for mining new blocks on the Bitcoin blockchain is cut in half. This reduction in the mining reward helps to control the rate at which new bitcoins are created and released into circulation, as it decreases the incentive for miners to participate in the network. The next halving is expected to occur around May 2024.
How does Bitcoin mining work?
Bitcoin mining is the process by which new bitcoins are added to circulation and the transaction information on the blockchain is verified. Miners use special software to solve complex mathematical problems, and when they solve a problem, they are rewarded with a certain number of bitcoins. This process is known as proof-of-work, as the miner must prove that they have done the work to earn the bitcoins. The difficulty of the problems adjusts over time to ensure that the rate of bitcoin production remains steady. As more miners join the network, the difficulty of the problems increases, making it more difficult to earn new bitcoins.