Bitcoin has been one of the most talked about topics in current news and really it should be. The idea of bitcoin and underlying technologies such as the blockchain has potential to change the digital world as we know it. I’m going to discuss the basics of what a bitcoin is, where it came from, and who made it. I’m also going to speak how to acquire some if you’re interested. Later in this series, I will be discussing how the blockchain works on a more technical level and how it just might replace the internet itself.
What is bitcoin?
Bitcoin is a decentralized digital currency. It’s transferred peer-to-peer meaning that there’s no central authority and no prerequisites needed to participate in the bitcoin network. Bitcoin has a cap of 21 million bitcoins and there’s a set amount of bitcoins released every 10 mins. That process will continue until the year 2140. Also, just like similar to USD monetary increments, such as cents to dollars, bitcoin is divisible down to the 8th decimal place and potentially even smaller units, if that is ever required in the future.
Where did bitcoin come from?
It might come to some as a surprise but bitcoin was not the first cryptocurrency. In fact, the idea of cryptocurrency has been out for since the 1980’s. Just like many other successful ideas, the concept of bitcoin was actually a unification of the best attributes of its successors. Early cryptocurrencies had a problem where people could spend the same coin twice because it was very difficult to verify transactions. Since these coins are digital, they can be reproduced much easier than physical data. Bitcoin has been able to solve that “double spend” problem through its distributed peer-to-peer network called the blockchain and it’s one of the largest reasons why it gained popularity over the other currencies.
How can it be acquired?
- Buy from a person: Peers could exchange bitcoin for its value in US dollars
- Exchanges: Exchanges like Coinbase, is a cryptocurrency marketplace where Coinbase users can buy and sell bitcoin from other users.
- Accept bitcoin as payment: Store owners and service providers can opt to accept bitcoin as payment
- Mining: Bitcoins are released approximately every 10 minutes, which leads to miners competing for free bitcoins. To mine for bitcoin, a very powerful computer is needed to process very difficult calculations. Currently, most mining is now done by huge companies with specialized equipment.
The Blockchain (Simplified)
People are constantly sending bitcoins over the bitcoin network, but unless there’s a record of all of these transactions, no one would be able to keep track of who paid for what. The bitcoin network deals with this by compiling every transaction within a certain block of time into a list. Essentially what a miner is doing, is competing with other miners to record and verify those transactions and write them onto the general ledger. When that happens, a miner is awarded bitcoins, but it’s not that simple. So the blockchain is that general ledger; a long list of blocks. It can be used to discover any and every transaction made between two bitcoin addresses at any point on the network. The question is, how can this be trusted? How can it be verified that the blockchain hasn’t been tampered with? This is also part of the miners’ role.
Every miner has a real-time copy of the blockchain, when a block of transactions is received, miners have to put it through a process. They have to take the information in that specific block, and put that through a hashing process.This process takes the hash of the previous block in the blockchain as input and because of this, security is maintained. If someone tampered with a block, that would consequently make the next block illegitimate thus causing a cascade of corrupt blocks in subsequent chains.
There are a multitude use cases for blockchain technology in other systems other than bitcoin. Healthcare is one of the most popular successful application of these principles. It’s well-known that there’s an issue with sharing medical records between facilities while also keeping information confidential and in line with regulations. There’s been a lot of unfortunate cases where doctors made mistakes resulting in losses of life, simply because the medical institution could get a hold of crucial medical records in time.
Hopefully, expanding the concepts for cryptocurrency will be able to provide many additional real world problems.