By now you have probably heard about Bitcoin, and if you don’t know if it is an opportunity you should get in on then you are at the right place, first of all, you need to learn what Bitcoin is. So we will take on the basics of what cryptocurrencies such as bitcoin is. If these steps are to basics for you we will upload more and more advanced articles in this series so click the red bell icon I the bottom left corner and allow us to notify you. You will then be informed once a new article is online.
First of all, we need to learn what the underlying technology of Bitcoin is based on and what makes it secure. There are several ways to determine how the technology works we will go over it in a simple way but if you are more technically adept, you can read Satoshi Nakamoto’s white paper right here.
To explain blockchain straightforwardly, we first need a definition of blockchain technology, and a simple definition is that
A blockchain is a digitised, decentralised, public ledger
But this is a little vague so let try to explain it in simple terms. Imagine you and three friends are having a poker game, and you have no chips so instead you write it all down on a ledger and to make sure no one gets cheated you all wright down bet for bet that way we have decentralised it. At the end of each hand, you will compare the ledgers. And to put it into blockchain analogies, every bet is a transaction broadcasted to the network, and every hand played is a block. Off cause blockchain technology all happens digitally. Making it a digital, decentralised public ledger and can be used for other things than currencies.
Industries that can benefit from blockchain technology
When we look at blockchain technology for other things than currency, we begin to see that it has practical applications in industries like shipping where Maersk and IBM have entered a joint venture which you can read more about here. Another industry to benefit from this technology is in healthcare where it will give a higher control over patients own records which you can learn more about here.
To understand how bitcoin work we will build on the analogy from our explanations of blockchain technology. We will just split it up a little bit because now we put the keeping of the ledger out to others so we will start with you. Just as in the poker game every time you want to transfer some bitcoin you put it out in a pool (called the mempool) this pool of transactions is then verified by the ones that keep the records (called miners) they verify you transactions by looking back at your transaction history to see if there is coverage for the amount you are transferring. If there is no coverage, the transaction will be rejected. And on the other hand, if you have coverage, the transaction is put into the next block. A block in the blockchain has a maximum amount of data that can be put into a block, and if the mempool holds more transaction than there is room for in a block, then the miners will approve them with the highest fees first we will return to why later on.
The easy definition of bitcoin mining is as following.
Mining is the way that the bitcoin ledger is maintained.
But to get a higher understanding let me try to explain how and why people mine bitcoin. To mine bitcoin with a profit, you would need a powerful specially build mining rig and have cheap electricity. This is because mining has developed into a significant business since the first block was created in 2009. Tu understands why a powerful machine is needed we need to understand what they do. So we will go back to the block creation which is a mathematical puzzle and miners is trying to be the first one to guess the puzzle. The more miners are mining, the harder the puzzle will be and if miners stop mining the puzzle will get easier to guess. The reason they are mining if for block reward + transaction fees. The mining process is also a part of its security since you can not edit the ledger unless you have 51% of the mining power so the more people mining the less of a change anyone having that much power.
Block rewards started back in 2009 at 50 bitcoins per block, and it is every 210.000 blocks which are approximately every four years. So today we are at a reward of 12,5 bitcoin per block and with every new block being created roughly every ten minuts. then there are generated 75 new bitcoins every hour and 1.800 every day this cycle will continue until 21.000.000 bitcoins are created. And if you want to see when the next halving of the block reward is happening then click here.
Learning by doing.
By now you might want to learn how to deal in bitcoins so I will give you a FREE solution to get started it is not going to make you rich, but it is an excellent tool to learn how cryptocurrencies functions. But before you are ready to claim your free bitcoins you need a wallet, and you can either download directly from bitcoin.org or as I would recommend for new users is to navigate to JAXX.IO and use their wallet this is because it is easy to use and support multiple cryptocurrencies. In the next article which will focus on security, I will explain why I don’t give you direct download links. Once you have followed the setup guide, you are ready an account at FREEBITCO.IN and we have a guide here on how to make a profit on this.
If you are looking for some more reading on blockchain I can recommend this book which describes how and why blockchain is changing the world.