Bitcoin is the worldwide cryptocurrency and digital payment system. This unit is the first decentralized digital currency. This system works without a central repository or a single administrator. Where did the bitcoin cryptocurrency come from? It was invented by an unknown person or group of people named Satoshi Nakamoto and released as open source software in 2009.
The system is peer-to-peer, and transactions are carried out between users directly, without an intermediary. All transactions are verified by network nodes and recorded in a public distributed ledger called a blockchain.
Where do bitcoins come from? They are created as a reward for a process known as mining. They can be exchanged for other currencies, products and services. As of February 2015, over 100,000 companies around the world were accepting bitcoin as payment. This cryptocurrency can also be considered as an investment. According to research conducted by the University of Cambridge in 2017, there are 2.9-5.8 million unique users using code encryption, most of which use bitcoin.
Terminology
The word "bitcoin" was first mentioned in a white paper published on October 31, 2008. The name of the term comes from the English words "bit" (bit) and coin (coin). There is no single agreement on the correct spelling of this name. In some sources, it is written with a capital letter, according to others - with a lowercase letter.
Units
Bitcoin is the accounting unit of this cryptocurrency system. As of 2014, the tickers used to represent this unit are defined as BTC and XBT. At the same time, the components of bitcoin used as alternative units are millibits (mBTC) and satoshi. Named after the creator of the cryptocurrency, satoshi is the smallest amount in bitcoin, representing 0.00000001, or one hundred millionth of a BTC. A millibit is equal to 0.001, or a thousandth of Bitcoin.
How did bitcoin come about?
The history of some events will help you figure out what kind of currency bitcoin is and where each satoshi comes from.
On August 18, 2008, the domain name bitcoin.org was registered. In November of the same year, a link to a document signed by Satoshi Nakamoto en titled "Bitcoin: A Peer-to-Peer Electronic Monetary System" was sent to the cryptography mailing list. Nakamoto implemented the Bitcoin software as open source and released it in January 2009. The reality of the inventor remains unknown, although many claim to know the man personally. Where is bitcoin coming from now?
In January 2009, the networkBitcoin was born after Satoshi Nakamoto mined the first block on the chain, known as the genesis block, for a reward of 50 bitcoins. One of the first supporters and miners of this cryptocurrency was the programmer Hal Finney. He downloaded the software the same day it was released and received 10 bitcoins from the world's first transaction.
In the early days, Nakamoto, according to experts, mined 1 million bitcoins. Before leaving cryptocurrency mining, the creator of the system handed over control to Gavin Andresen, who later became the lead developer at the Bitcoin Foundation.
First difficulties
From that moment on, it became generally known how bitcoin is mined, which was used by the attackers. On August 6, 2010, a serious vulnerability was discovered in the cryptocurrency protocol. Transactions were not properly verified before they were included on the blockchain, allowing users to bypass economic restrictions and create an indefinite amount of bitcoin. On August 15, this vulnerability was exploited: in a single transaction, more than 184 billion BTC were created and sent to two addresses on the network. Within a few hours, this operation was detected and erased from the log after the bug was fixed, and the network forked to an updated version of the cryptocurrency protocol.
On August 1, 2017, Bitcoin split into two derivative digital currencies - classical (BTC) and cash (BCH). This solved the problem of how to bring bitcoins into physical form.
How does it work now?
The blockchain is a public ledger that records transactions. The new system solution does this without any trusted central authority: blockchain maintenance is performed by a network of communication nodes running software. Where does bitcoin come from?
In simple terms, this can be explained as follows. Payer transactions of form X send Y bitcoins to recipient Z, which are broadcast to this network using available software applications. Network nodes can check the transactions, add them to their copy of the ledger, and then broadcast these entries to other nodes. The blockchain is a distributed database - each network node keeps its own copy of the blockchain.
Approximately six times an hour, a new group of accepted transactions is created - a block that is added to the chain and quickly published to all nodes. This allows the cryptocurrency software to determine when a certain portion of bitcoin has been spent and what is needed to prevent double spending in an environment without centralized control. Considering that a normal ledger records transfers of actual resources that exist apart from it, the blockchain is the only place that Bitcoin seems to have in the form of unspent transaction outputs. This is what bitcoin mining is based on. Where does the money come from? They are recreated in the blockchain as a result of the above operations.
Operations
Transactionsconsist of one or more inputs and outputs. When a user sends bitcoins, he assigns each address and the number of units of currency sent to that address as an output. To prevent double spending, each input must refer to a previous unspent output in the block chain. The use of multiple inputs corresponds to the use of multiple "coins" in a cash transaction. Because transactions can have multiple outputs, users can send bitcoin to multiple recipients in a single command. As with cash transactions, the amount of deposits (units of cryptocurrency used to pay) may exceed the expected amount of payments. In this case, an additional output is used that returns the change back to the payer. Any input that is not counted towards the output of the transaction becomes a transaction fee.
Operating costs
Transaction fees are optional. Miners can choose which transactions to process and prioritize those who pay the highest amount. Fees are based on the storage size of the generated transaction, which in turn depends on the number of inputs used to create it. In addition, priority is given to old unspent inputs.
Possession
In the blockchain, bitcoins are registered to addresses. Generating a BTC address is nothing more than picking a random valid private key and calculating the corresponding address. This calculation can be completed within a second. Butthe reverse action (calculating the private key of a given bitcoin address) is not mathematically feasible, and thus users can communicate and publish the address to others without damaging its corresponding private code. Moreover, the number of the above keys is so large that it is extremely unlikely that someone will calculate their pair, which is already in use and has funds.
To be able to spend bitcoins, the owner must know the corresponding closed code and digitally sign the transaction. The network verifies the signature using the public key.
If the private key is lost, the bitcoin network will not accept any other proof of ownership. Then the money becomes unusable and simply lost. For example, in 2013, one user claimed to have lost 7,500 BTC ($7.5 million at the time) when he accidentally threw away the hard drive containing his private key. Perhaps backing up his data could prevent this.
Where does the money come from?
Bitcoin mining is an accounting service that uses computing power. Miners keep the blockchain consistent, complete, and immutable by repeatedly verifying and collecting newly broadcast transactions into a new group called a block. Each block contains a cryptographic hash of the previous block using the SHA-256 hashing algorithm that links them together. This allows dummies to answer the question of where bitcoins come from.
To be accepted by the restpart of the network, the new block must contain the so-called proof of work. It requires miners to find a number called a nonce, and when the content of the block is hashed along with it, the result is numerically less than the network difficulty target. This proof is easily accessible for verification from any network node, but at the same time it is extremely laborious to generate.
Proof of Work, along with the block chain, makes it extremely difficult to modify the block chain, as an attacker must change all subsequent blocks in order for changes to one of them to be accepted. Even with a full understanding of where bitcoins come from, it is impossible to fake them.
Because miners are constantly working and growing in number, the complexity of block modification increases over time.
Bitcoins in circulation
How to mine bitcoins? A successful miner who is in a new block is rewarded with newly created Bitcoin and transaction fees. As of July 9, 2016, mining was 12.5 newly created BTC for every block added to the chain. To receive a reward, a special transaction must be included in processed payments. Where do bitcoins come from? All existing BTC was created in such transactions.
The protocol specifies that the block reward will be halved every 210,000 blocks (approximately every four years). In the end, it will decrease to zero, and the limit is 21 million bitcoins.will be reached. From now on, each miner will be rewarded only for transaction fees. This will significantly complicate the task of how to earn bitcoins.
In other words, the inventor of bitcoin, Nakamoto, set a monetary policy based on artificial scarcity at the very beginning, limiting the possible number of cryptocurrency units to 21 million. A certain number of them are released approximately every ten minutes, and the rate at which they are generated will halve every four years until all are in circulation. After that, the most relevant question will be how to withdraw bitcoins and how to use them as a means of payment.
Online Storage
Cryptocurrency wallet stores the information required for bitcoin transactions. They can be thought of as a place to store BTC, but due to the specific nature of the system, they are inseparable from the transaction block chain. Therefore, a cryptocurrency wallet can be thought of as a functionality that stores digital credentials for mined bitcoins and allows the user to receive and spend them. BTC uses public key cryptography, in which two cryptographic codes are generated - public and private. At its core, such a wallet is a set of these keys.
There are several types of cryptocurrency wallets. The software connects to the network and allows you to spend bitcoins in addition to credentials that confirm ownership. Such wallets can be divided into two categories: full and light clients.
The first to verify transactionsdirectly on a local copy of the blockchain (over 136 GB as of October 2017) or a subset of it (about 2 GB). Due to its size and complexity, it is not suitable for all computing devices. If you are interested in the task of mining bitcoins, this is the wallet you need.
Light clients, on the other hand, consult with full clients to send and receive transactions without requiring a local copy of the entire chain. This simplifies operation and allows them to be used on low-power, low-bandwidth devices (such as smartphones). However, when using a light wallet, the user must trust the server to a certain extent. When using such a client, the server cannot steal bitcoins, but it can report bad values. With both types of software wallets, users are responsible for keeping private keys safe.
Online Services
Besides software, there are online services called online wallets that offer similar functionality but may be easier to use. In this case, the credentials for accessing the funds are stored by the online client provider and not on the user's hardware. In this case, a breach of the server's security could lead to the theft of BTC.
Privacy
Bitcoin is a pseudonym, which means that the funds are not tied to real world objects, but rather to cryptocurrency addresses. Their owners are not identified, but all transactions on the blockchain are public. In addition, transactions can be linked to individuals and companies through "use idioms" (BTC from multiple sources indicating that inputs can have a common owner).
To increase financial privacy, a new bitcoin address can be generated for each transaction. For example, hierarchical deterministic wallets generate pseudo-random "rolling addresses" for each operation from a single cycle, while only one passphrase is required to recover all relevant private keys. This is especially true in cases where cryptocurrencies are illegal. So, the news constantly says that bitcoin in Russia will be banned in the future. Currently, BTC sites are regularly blocked.
Financial research has also shown that through the exchange of BTC, various entities can prove their assets, liabilities and solvency without disclosing the address. According to experts, this cryptocurrency resembles money held on credit cards.
However, electronic exchanges where BTC can be exchanged for other traditional currencies may require some personal user data.
Interchangeability
Wallets and similar software technically treat all bitcoins as equivalent, establishing a base level of fungibility. The researchers noted that the history of each BTC is registered and publicly available in the block ledger, and some users may refuse to accept.cryptocurrencies originating from unreliable transactions that could damage compatibility.
Blocks in the blockchain are limited to a size of one megabyte, which creates problems for processing transactions such as increased fees and deferred processing that cannot be placed on it. On August 24, 2017, the maximum block throughput was increased, while transaction IDs remained unchanged. This became possible with the introduction of the SegWit service, which also allows the implementation of the Lightning network, designed for scalability with instant transactions.
Classification to date
Bitcoin is a digital asset designed to be used as a currency. Whether it is a currency or not is still disputed. Where does the bitcoin rate come from? As with classic common denominations, it is associated with supply and demand, as well as availability. As more people see cryptocurrencies as viable, and even see them as a replacement for physical money, their value will rise. And in the conditions of an artificially created shortage, the price increase will be observed as all BTC are mined.
According to The Economist, bitcoins have three main qualities that real money has: they are hard to earn, they are limited in supply, and they are easy to verify. Economists define money as a value, a medium of exchange, and a unit of account, while agreeing that bitcoin meets all of these criteria. However, it is best used as a meansexchange.
According to research conducted by the University of Cambridge, 2.9 million BTC have been spent and exchanged since 2017, and 5.8 million unique users have been registered using a cryptocurrency wallet.
If mining is not efficient, can something be done?
How to earn bitcoins without resorting to mining? The most obvious way is trading on exchanges, which is similar to the well-known currency trading. Since the BTC exchange rate is constantly fluctuating, significant profits can be made due to the difference in rates. You can buy and sell bitcoin in Russia on various international exchanges, both independently and through financial brokers.
You can withdraw bitcoins through the same exchangers, purchasing any currency or electronic money for them.
