How does bitcoin work?

How does bitcoin work?

Bitcoin is the first encrypted digital currency, issued in 2008 with the aim of being an alternative to traditional money in transfers and payments while reducing transfer fees and expenses as much as possible. With great popularity and acceptance and adopted by many commercial institutions today as a payments currency and its success led to the spread of the idea of encryption in general and the emergence of many other digital currencies Cryptocurrency.

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Bitcoin History

Bitcoin is the first cryptocurrency that can be called a digital currency that can be encrypted and can be used as currencies. Many currencies were created before Bitcoin, but they were not fully developed, such as Bitcoin, which was released in 2009. “Satoshi Nakamoto” is the one who created and developed his Bitcoin, and he is still unknown and his identity is still not real.

The main goal of Bitcoin is to create a new electronic cash system that is completely decentralized and in this system, you do not need a central authority. The first bitcoin exchange was in 2009 when a person bought a pizza for 10,000 bitcoins. If that person had not bought pizza at that time, he would have had $480 million today.

In 2011, Nakamoto shared his source code and domains with the Bitcoin community as he disappeared and was never heard from again.

» Learn more: Read our explainer on what is blockchain and how does it work?

What is bitcoin?

Bitcoin is a digital virtual currency, and there are no coins or notes for it, nor even a government, financial institution, or any other authority that controls it, so it is decentralized. As everything that owns Bitcoin is anonymous and does not have accounts or identifying names for it. Bitcoin uses blockchain technology and cryptographic keys to connect buyers and sellers.

How to mine bitcoins

People with powerful and energy-intensive computers mine Bitcoin by mining the Bitcoin protocol code until the tokens are extracted from it. So far, about 18.7 million bitcoins have been mined, as there are 20 million bitcoins that can be mined, and so far about 2.3 million more can be mined. Bitcoin is divided into sections, and the hundred millionth part of Bitcoin is called “Satoshi” after its creator, Satoshi Nakamoto.

As the Bitcoin process takes place, the computer solves a very difficult mathematical problem, and this problem becomes more and more difficult with time, as every time one problem is solved, a block of Bitcoin is processed and a new Bitcoin is obtained. The user receives the mined bitcoin at an address that is generated, which is somewhat like a virtual mail with a string of 27 to 34 numbers and letters.

» Learn more: Read our explainer on What is the difference between Bitcoin and alternative digital currencies?

How are bitcoins used?

As bitcoins can be earned in a way other than mining, which is by accepting bitcoins as payment for goods or services.

Until you create your own Bitcoin wallet, through which you can receive and store money, this wallet is free and available through many different digital wallet providers. And when you get a bitcoin, there are many ways to profit from it, such as trading it, lending it, and earning interest from it.

Ordinary currencies can also be traded against Bitcoin on cryptocurrency exchanges, the largest of which is the Binance platform. Currently, there are more than 100,000 merchants who accept Bitcoin to pay for anything like pizza, and there are sites that accept it like Overstock com

» Learn more: Read our explainer on Top 7 Steps To Learn Successful Trading

What are the advantages and risks of Bitcoin?

There are great risks to Bitcoin

1. Attracts criminals, outlaws, and money laundering operations due to their anonymity and lack of organization.
2. Bitcoin is a tradable asset but not backed by anything but its mathematical algorithm.
3. Bitcoin is not a safe haven, nor a financial disaster relief.
4. Bitcoin is still in its early stage with incomplete features and is under development, to make the digital currency more secure and accessible, new features, tools, and services are being developed currently, and Bitcoin is showing some growth before it reaches its full potential And the final.

In 2014, the Mt Gox platform went offline, and more than 850,000 bitcoins disappeared, and herein lies the danger as cryptocurrencies are preferred to be stored in cold external hardware and wallets.

However, there are many benefits

1. Freedom of payment as you will be able to send and receive money anywhere in the world at any time.
2. Control and security help control their transactions and help keep Bitcoin safe for the network.
3. Information is transparent with the blockchain all final transactions are visible to all, but personal information is hidden.
4. Very Low Fees There are currently no or very low fees for Bitcoin payments.
5. Fewer Risks for Traders Due to the fact that Bitcoin transactions cannot be reversed, they do not carry personal information with them, are secure, and merchants are protected from potential losses that may occur as a result of fraud.