WHAT IS BITCOIN
What Is Bitcoin?
Bitcoin is a cryptocurrency, a virtual currency designed to act as money and a form of payment outside the control of any one person, group, or entity, and thus removing the need for third-party involvement in financial transactions. It is rewarded to blockchain miners for the work done to verify transactions and can be purchased on several exchanges.
Bitcoin was introduced to the public in 2009 by an anonymous developer or group of developers using the name Satoshi Nakamoto.
It has since become the most well-known cryptocurrency in the world. Its popularity has inspired the development of many other cryptocurrencies. These competitors either attempt to replace it as a payment system or are used as utility or security tokens in other blockchains and emerging financial technologies.
Understanding Bitcoin
In August 2008, the domain name Bitcoin.org was registered.1 Today, at least, this domain is WhoisGuard Protected, meaning the identity of the person who registered it is not public information.
In October 2008, a person or group using the name Satoshi Nakamoto announced the Cryptography Mailing List at metzdowd.com: "I've been working on a new electronic cash system that's fully peer-to-peer, with no trusted third party." This now-famous white paper published on Bitcoin.org, entitled "Bitcoin: A Peer-to-Peer Electronic Cash System," would become the Magna Carta for how Bitcoin operates today.2
On Jan.3, 2009, the first Bitcoin block was mined—Block 0. This is also known as the "genesis block" and contains the text: "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks," perhaps proof that the block was mined on or after that date, and maybe also as relevant political commentary.
Bitcoin's Blockchain Technology
Cryptocurrencies are part of a blockchain and the network required to power it. A blockchain is a distributed ledger, a shared database that stores data. Data within the blockchain are secured by encryption methods. When a transaction takes place on the blockchain, information from the previous block is copied to a new block with the new data, encrypted, and the transaction is verified by validators—called miners—in the network. When a transaction is verified, a new block is opened, and a Bitcoin is created and given as a reward to the miner(s) who verified the data within the block—they are then free to use it, hold it, or sell it.
Bitcoin uses the SHA-256 hashing algorithm to encrypt the data stored in the blocks on the blockchain. Simply put, transaction data stored in a block is encrypted into a 256-bit hexadecimal number. That number contains all of the transaction data and information linked to the blocks before that block.
How to Mine Bitcoin
A variety of hardware and software can be used to mine Bitcoin. When Bitcoin was first released, it was possible to mine it competitively on a personal computer. However, as it became more popular, more miners joined the network, which lowered the chances of being the one to solve the hash. You can still use your personal computer as a miner if it has newer hardware, but the chances of solving a hash are individually are minuscule.
This is because you're competing with a network of miners that generate around 220 quintillion hashes (220 exa hashes) per second.6
Machines, called Application Specific Integrated Circuits (ASICs), have been built specifically for mining—can generate around 255 trillion hashes per second. In contrast, a computer with the latest hardware hashes around 100 mega hashes per second (100 million).7
To successfully become a Bitcoin miner, you have several options. You can use your existing personal computer to use mining software compatible with Bitcoin and join a mining pool. Mining pools are groups of miners that combine their computational power to compete with the large ASIC mining farms.
