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How Does Bitcoin Work?

Often times the world seems to be moving at a slow pace and bang! A ground shaking innovation spring up and takes the world by storm. That is the story of Bitcoin (BTC), and we shall learn all about it in this write-up. But first, let us familiarize ourselves with the basics.

Cryptocurrency: The All New Currency

What is cryptocurrency? Many people have given different definitions to cryptocurrency, and many turned out to be wrong. Cryptocurrency is the new type of currency that is innovating the traditional financial industry. With every chaos experienced in the world comes a better solution and that is not far from the truth regarding Bitcoin. Bitcoin came as a solution to prevent another financial crisis in the world after that of 2008.
At first, many did not want to be associated with cryptocurrency because it was being used for shady activities on the black market but today, Bitcoin can be seen for what it truly is, a solution to the world of finance.

The History of Cryptocurrency

An American cryptographer named David Chaum was the first to experience cryptocurrency in the year 1982 when he gave it the name: E-cash. The Mark Twain Bank was the first to make use of it as a micropayment system. This occurred from 1995-1998. Later on, when credit cards became popular, E-cash was abandoned.

Satoshi and Bitcoin

A developer with the fictitious name of Satoshi Nakamoto appeared in the year 2009 with a technology that would change the world as we knew it and the technology was called Bitcoin. Bitcoin instantly became very popular all over the world. Nakamoto was the first to mine a million bitcoins and then later handed over to Gavin Andresen, who has been overseeing the affairs of Bitcoin Foundation ever since.
Subsequently, Bitcoin was adopted by people who conduct illegal activities such as buying and selling of banned drugs on the black market and so many more illegal operations, thus establishing Bitcoin as a widely accepted digital currency.
The history of bitcoin is not all smooth as it has also had its share of low points as well as high points.
How Bitcoin Works

Bitcoin’s Operations Explained

Bitcoin has become so successful that many other cryptocurrencies have sprung up sharing similar characteristics with it, for example, Litecoin. Bitcoin is a network connecting peers together which operates on a decentralized ledger known as the blockchain. Below are some features of Bitcoin:

Decentralized

The power of control doesn’t belong to a single person or entity.

Distributed

Bitcoin operates with a large number of servers scattered all over the world making it very difficult to raid, seeing as no single server or address is controlling the network.

Bitcoin Mining

This is operated by a group of people called miners who give their time towards providing security for the network and in return are compensated with new Bitcoin or transaction fees and in some cases both. They achieve this by combining the strengths of their individual computers to form a powerful computational power to carry out mining activities.
bitcoin

Genuine Innovation

Bitcoin was the first to feed the world with an alternative currency at a point it needed it most. All other currencies in existence today are simply trying to measure up to the innovation of Bitcoin. New coins are being introduced into the market often, but none has been able to match the features of Bitcoin.

Network Effect

The network effect gives Bitcoin an advantage because it operates the most extensive network while other currencies are still trying to match its greatness. Bitcoin’s network effect grows as time goes by and that is as a result of having the most significant number of users. Bitcoin was designed to be easily obtained and kept and that gives it an edge over other coins.

Decentralization

Here is another feature that sets Bitcoin apart from the rest…. Decentralization. Bitcoin has not one weak spot that can be exploited. Other coins have founders and companies influencing their operations while Bitcoin has no single server controlling the entire network.

Can Another Coin Replace Bitcoin?

To displace Bitcoin from the position it holds isn’t as easy as it sounds. The said coin has to be as innovative as Bitcoin. The act of implementing minor changes to produce a new currency will not be enough neither will it introduce certain prominent features because the network effect is already on Bitcoin’s side.

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