Everyone talks about bitcoins. What they are and how they work (Topic)

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Everyone talks about bitcoins. What they are and how they work


What is at the heart of Bitcoin? This question is being asked by a large number of users interested in digital currencies.

The Internet is literally flooded with articles, the authors of which try to provide a comprehensive answer.

However, in fairness, I must say that basically they are either oversaturated with technical terms and subtleties, or do not quite correctly reflect the existing situation. The purpose of this article is to provide the most complete answers in a form accessible to most people.

What is Bitcoin?


Bitcoins are digital money that exists in electronic form. The digital payment system used to conduct transactions with this virtual currency has the same name.

Anyone can use it. There is no printing press for the release of Bitcoin, as they are produced by the system participants themselves, scattered around the world. They use the software available to all to solve the most difficult mathematical problems.

The history of the world cryptocurrency began with Bitcoin. The basis that guarantees their reliability is mathematical laws, or rather, cryptography.

That is, there is no dependence on such, for example, a structure as the Central Bank, which issues money. The Bitcoin system is controlled exclusively by a well-known set of rules that no one can make changes to.

How is Bitcoin different from other digital currencies?


The most important distinguishing feature of Bitcoin is its complete decentralization. Simply put, there is no intermediary between a member of the system and his savings.

To use electronic money, for example, systems such as PayPal and WebMoney, the client must give some percentage for the services provided by these systems.

Any transaction carried out through these intermediaries is controlled by them. They establish rules according to which there may be restrictions on the size of payments and the choice of addressees. In addition, customers are subject to commission fees for both transfers and service. And in some cases, the client's account may simply be frozen without any intelligible explanation.

With Bitcoin, things are completely different. This system is not under the control of any organization, company or individual owner. This virtual currency, unlike the one stored in a bank account, belongs only to its owner and no one else.

No one has the authority to impose a ban on the use of crypto-coins, block transfers or "freeze" an account. And also no one can cancel an already made transaction.

Who is the creator of Bitcoin?


It is generally accepted that the developer of Bitcoin is Satoshi Nakamoto. It was with this name that an article published in 2008 was signed. It contained a description of the electronic payment system, which accompanied the mathematical description of the principle of its functioning.

The author proposed the creation of a currency independent of any centralized government. Transfers in the system were to be made exclusively in electronic form almost instantly and free of charge.

The fact that the article was published under a pseudonym can be explained by the author's fear of arousing discontent among those in power with the appearance of an independent currency. Today, a sizable development team is developing completely open source.

Where do Bitcoins come from?


The answer is unequivocal - nowhere. Bitcoin production is carried out by members of the community, becoming a member that is available to anyone.

This association is a distributed computer network that summarizes individual computing power in order to check and carry out transfers of an alternative currency.

Each network participant who works according to the rules and provides it with their own computing resources is encouraged by a small reward allocated from the newly created crypto coins. There is a predetermined algorithm that regulates the rate at which new Bitcoins are produced, and therefore it is completely predictable.

Are there any restrictions on the amount of Bitcoins?


Yes, definitely. The process of issuing Bitcoins is controlled by a computer algorithm, which excludes the possibility of producing more than one hundred and fifty coins within one hour.

Every four years, this amount is halved. As a result, by 2140 the maximum possible number of crypto coins will be issued, which will be equal to 21 million pieces.

It may seem that this is very little, but here you need to take into account that, most often, users' earnings are calculated in satoshi, and this is one hundred millionth part of Bitcoin.

What is the foundation for Bitcoin?


There was a time when all the currencies used in the world were tied to real-life assets, which were most often silver and gold. That is, in theory, each person could go to the bank and exchange their fiat money for a precious metal. True, this could only be done theoretically.

But those times have long since sunk into Summer, and modern world currencies are not provided with reserves of the yellow metal. The only basis for today's euros, dollars and rubles is the credibility of the central banks.

And people can only hope for the prudence of these institutions, which will not allow them to run the money printing press too often, preventing currency depreciation.

However, the Central Bank often abuses people's trust and prints more and more money. The result will be an imminent rise in hyperinflation. People living in the post-Soviet space in the nineties have already had to face this phenomenon. All this led some people to think about the need to create alternatives to existing currencies.

Bitcoin has no precious metal backing and cannot rely on the confidence of the Central Banks. Its basis is mathematics. Cryptocurrency production is carried out according to mathematical formulas that are characterized by perfect clarity and intelligibility.

Neither the decisions of the governments of the states, nor the decisions of the Central Bank are able to influence them. In the world, more and more people use client programs based on these formulas. They simply reject any action that does not correspond to them.

All formulas, as well as the program code, have free access, this allows anyone who wants to check to make sure that everything happens exactly as it was originally described.

Moreover, each user has the opportunity to write his own client program. In order for it to work seamlessly in the system, it only needs to match the mathematical component of Bitcoin.

What features of Bitcoin do you need to know about?


This system has several significant features:

  1. The Bitcoin network is completely decentralized

The system does not have a superior structure or organization that controls its work. Each PC with a client program installed is an integral part of the general Bitcoin network through which all transactions carried out by users pass. Disabling one or even several machines will have no effect on the functionality of the rest of the network.

  1. Bitcoin is easy to use

Opening an account with a traditional bank sometimes takes a lot of time. And those who want to become a subscriber of a payment system in order to accept payments for services or goods will have to overcome many bureaucratic barriers and face technical problems.

Whereas to install a Bitcoin client, it takes a few minutes to get an address to which you can immediately receive payments in virtual currency. This does not require any approvals, filling out various forms and paid connections. From 5 to 10 minutes, to open a Bitcoin wallet, and you can make payments all over the planet and transfer money anywhere, if this place has the Internet.

  1. The Bitcoin network is almost completely anonymous

Or almost completely. The user can open any number of virtual addresses that are in no way tied to a name, address or any other information that allows the user to be identified. But there are nuances, which are discussed in the next section.

  1. Transactions on the Bitcoin network are public

Any user of the network can get information about the details of each transaction. This means that he has the opportunity to see which address is the sender of the payment, and which is the recipient. And to clarify the size of the amounts listed at the same time. A list of transactions made in Bitcoin is stored in each of the many nodes in the network.

This means that if someone finds out that a specific address belongs to a specific user, then he will have access to information about the number of cryptocoins in this wallet and all operations related to this address.

  1. Bitcoin transaction costs are negligible

To make international transfers through a bank, you will have to pay at least five hundred rubles. And the transaction of any amount of virtual money, regardless of where they are sent, can take place for free. If users give away some insignificant part of the money, it is only to make payments even faster. This is a kind of "tip" for the nodes through which the transaction passes.

  1. Payments made on the Bitcoin network are very fast

Payment can be made regardless of the time of day, location of the recipient and the amount sent within a few minutes.

  1. A Bitcoin transaction cannot be canceled or blocked

A conducted Bitcoin transaction cannot be canceled under any circumstances. That is, the virtual coins given away cannot be returned, which makes them look like real money.

The aim of this article was to answer as fully as possible the bulk of the questions asked by those who had to deal with Bitcoin for the first time.

The Topic of Article: Everyone talks about bitcoins. What they are and how they work.
Author: Jake Pinkman