What is Bitcoin & How does it works (Full Beginner Guide)

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what is bitcoin

If you come to know What is bitcoin, How bitcoin works and all other things about bitcoin then you have come to the correct place. Since the great financial crisis that affected the world between 2008 and 2009, was born an incredible or even miraculous monetary system called crypto-currency thanks to the introduction of the first accepted cryptocurrency

What is BitCoin? 

Bitcoin composed of the words Bit (Binary Information Unit) and Coin (Coin) is a cryptographic currency and a Peer-to-Peer system.

It was developed between 2007 and 2008 and the open-source software is published on January 3, 2009, by a certain Satoshi Nakamoto whose real identity remains a mystery until now. For the record, Bitcoin is an improvement of the concept of B-money, devised by Wei Dai in 1999, and Bitgold, described in 2005 by Nick Szabo.

Bitcoin solves, in particular, the crucial problem of the trust model: servers considered as serious vote with their computing power to determine the legitimate transaction chain. In b-money, the servers were supposed to pay a security deposit according to an unclear mechanism. The idea of using a chain of proofs of calculation was advanced in the bit gold project although Nick Szabo proposed to use only a majority of addresses to establish the legitimacy of a chain of transactions, leaving the entire problem of controlling the number of addresses.

How does Bitcoin work?

The Bitcoin system is located on the Internet. Anyone can become a Bitcoin user by downloading and installing appropriate software on the hardware of their choice, which can range from a simple smartphone to a complex computer system. Once connected to the system, each user can create any number of accounts and conduct transactions by transferring bitcoins from their own accounts to other accounts.

The necessary functions are included in software called wallets. 

The main function of the Bitcoin system is to check the validity of the transactions and to indelibly mark them in a public file called the block or blockchain, where they can be consulted by all but are protected against any modification. This operation is carried out in two stages:

  • At first, some nodes of the network (the “minors”) constitute a new block by regrouping transactions recently carried out and by adding to them a header containing, in particular, the date and the hour, a sum of control (“hash” ) which will also serve as the unique identifier of the block, and the identifier of the previous block.
  • In a second step, each node adds this new block to its local version of the blockchain, after checking the validity of all the transactions it contains and their consistency with the transactions already recorded.

The complete history of all transactions can then be read on all the nodes of the network that manages a copy of the blockchain. Any differences between these copies must be resolved by the access software. These functions are implemented by software available as free software. The user of each node can freely choose the functions he will provide in the system and the software he will use for this purpose. The design of the system does not involve a trusted central authority, as the building and maintenance of the blockchain is performed by the computers at the nodes of a network. The only way to use bitcoins is to store transactions that refer to previous transactions in the Bitcoin system blockchain. Bitcoin does not exist independently of the Bitcoin payment system.

In summary, each new user becomes a node of the network through his wallet each user can create several bitcoin accounts which are associated with each a public key – Private Key Pair. In addition to keeping the personal data of the users, the wallet provides at least the functions of account creation, account consultation, construction and sending of transactions; which transactions are confirmed by a distributed consensus system called mining.

What are the benefits of Bitcoin?

  • Freedom of payment: indeed with bitcoin, it is possible to be able to send and receive money anywhere in the world at any time regardless of holidays, almost instantaneous transactions are very fast from a few seconds to a few hours and without limitation.
  • Low transaction costs: these are almost zero and represent a few cents, they are lower than those of a conventional bank transfer or a credit card payment cost or even money transfer services such as Paypal or the Western Union.
  • Security: users are the only ones who can order the completion of a transaction, the transaction is irreversible which is a protection for the seller who cannot be repudiated by the buyer after shipping the good or service; impossibility for a merchant to charge additional fees without first informing the buyer; it is elusive if it is sufficiently protected; indeed the protocol cannot be manipulated by an individual, an organization or a government.
  • Transactional transparency: all finalized transactions are available and available to everyone on the public blockchain registry; any person can at any time check the transactions; transactional transfers can be traced only from address to address. Preservation of their value against currencies subject to high inflation.
  • Democratization: the payment protocol has gradually become established among merchants, and it continues to grow rapidly; despite several crises (explosion of the price bubble in 2010, the bankruptcy of stock exchanges), cryptocurrency has proved resilient; technology is of increasing interest to banks and official monetary authorities.

Risks of Bitcoin:

Some critics have been for some time already opposed to cryptocurrencies and bitcoin especially:

  • High volatility: Bitcoin is a volatile currency because the number of coins is limited in the face of growing demand, the price evolves according to the news on crypto-currencies more crypto-currency is floating as any which currency and fluctuates differently in different currencies.
  • Irreversibility of transactions: a validated transaction cannot be canceled.
  • Low user awareness: The use of bitcoin requires some understanding of how the related protocols work.

Security defects inherent in the technology or the way users are used.
Bitcoin is increasingly used by criminal organizations to evade surveillance.
Some central banks such as the ECB, the Bank of France, the Bank of China and banks and investment companies like Deutsche Bank and JP Morgan warn against the use of bitcoin insisting on its highly speculative nature, the legal risks related to its non-regulation but also and above all the risks of its possible use for criminal purposes.

Bitcoin in the world:

Bitcoin has experienced an exponential rise since 2009 the year of its launch until today, starting from 0.000764 $ for 1 BTC in October 2009 for approximately 11520 $ for 1 BTC at the time of writing (04/12 / 2017) with a jump of over $ 3,000 between the months of September 2017 to November 2017.

Bitcoin has so far been accepted by several countries (Russia, Brazil, the USA, Japan, Belgium, the United Kingdom, Singapore, the Philippines, South Korea, Australia, New Zealand) whose the most prominent are the Netherlands and Luxembourg, which have defined a legal framework to encourage the development of cryptocurrency. Nevertheless, many countries remain skeptical about the approval of this currency are the case of France, Thailand or China; some countries like Bolivia, Ecuador and Morocco have banned it. As for the African continent, only South Africa has officially authorized the use of this currency.

Little story about Bitcoin

A 16-year-old becomes a millionaire thanks to bitcoin. Yes, while in 2011 the BTC was still worth $ 12, the course of bitcoin explodes, which earned more than $ 100,000 to the name of Erik Finman, which allowed him to launch his Start-Up and make a fortune. He is today CEO of Botangle.

How Bitcoin work

Since August 1st a new variant of Bitcoin is born is the Bitcoin cash. The reason for his birth: a disagreement within the bitcoin community. Part of the community wanted, as provided by the rules of the currency, to create a fork – in French a “fork” – a second currency derived from bitcoin, able to handle many more transactions per second and not to be limited to 21 million bitcoins. The bitcoin protocol makes it possible to carry out 11 transactions per second. With cash bitcoin, it will now be possible to make 56 per second. But the latter is strongly criticized in particular by ardent supporters of Bitcoin as Mr. Kieser financial analyst and CEO of investment fund Karmabanque who said this talking about Bitcoin cash: “Bitcoin Cash is an alternative coin that has its fans like a lot of spare parts. I do not think anyone who uses Bitcoin’s name and applies it to an alternative coin like Bitcoin Cash adheres to acceptable business practices. In other words, the Bitcoin brand is stolen by a competitor called Bitcoin Cash, and it’s pure fraud in my opinion, just as it’s fraudulent to use Coca-Cola or Nike’s name for sell soft drinks or shoes

For more information on bitcoin visit www.bitcoin.org

Conclusion:

I hope you have successfully learned the what is bitcoin and how bitcoin works. Feel free to share our experience about this bitcoin full beginner guide. Want to invest in Bitcoin then do join our facebook group to get guidance from experts.

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