Bitcoin is a cryptocurrency that was launched in 2009 as an open source software by an individual or group of developers called Satoshi Nakamoto. Also, it is the first decentralized cryptocurrency. Bitcoin’s digital payment system does not rely on a centralized repository. Bitcoin provides a P2P payment system and therefore, the transactions involve only two parties. Any transaction done using bitcoins is verified by a network node and recorded in a block of a public ledger called blockchain.
How Are New Bitcoins Created?
Bitcoins are created/minted upon mining as rewards. Usually, Bitcoins are exchanged for products, services, and even for other currencies. Today, a number of merchants accept payments in Bitcoin. Some people see it as an investment. The Bitcoin balances are saved using private and public keys which are encrypted. The public key is like a bank number and can be distributed as the address to which a person might receive Bitcoin. On the other hand, a private key is like an ATM pin or password which can only be used by the owner to authorize transactions.
Individuals and companies participating in the Bitcoin network for verifying transactions are called miners. Bitcoins are released during the mining process, but this rate is declining due to halving events. One bitcoin can be divided up to eight decimal places. Each of these smallest units of a bitcoin is called a “Satoshi”.
The mining process maintains the circulation of the Bitcoins. A computationally difficult puzzle must be solved in order to add a new block on the blockchain. The reward of solving these puzzles is nothing but Bitcoins. The difficulty level of the puzzles is proportional to the amount of Bitcoins being released. Thus, more Bitcoins means a higher level of difficulty. Initially, Graphic Processing Units (GPU) are used for Bitcoin mining. However, due to difficulty, more computational power is required and therefore now participants need to have special hardware such as Application Specific Integrated Circuits (ASIC) to perform mining.
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