101: What is Bitcoin?

What is bitcoin?

Bitcoin is a cryptocurrency and not a physical possession; all the transactions made are recorded on a distributed ledger. Each transaction is recorded by a hash value of the public key and hence all the transactions can be seen in a public domain. Bitcoin keeps all our details hidden from the distributed ledger, keeping our identity anonymous but the transactions are pseudonymous as they can be tracked down by using the hash of the previous block and the public key.

History of Bitcoin

How does it work?

“The consensus in bitcoin is achieved by Proof of Work.”

Breaking down the statement — Consensus is how new blocks are added to any blockchain. The consensus algorithm ensures that each block added to the blockchain is the one and the only version of the truth that is agreed upon by all the nodes in the Blockchain. Proof of work is a consensus algorithm that can be seen as a race between nodes to solve a complex mathematical equation. Whosoever wins the race gets the right to add the next block in the blockchain and gets an incentive in form of bitcoin. The incentive can be seen as compensation for the electricity that was used to run the node.

Bitcoin is a model that is built on some very clever incentive engineering. The incentive may not always yield profit for the miner. This is due to the dynamic exchange prices of bitcoin and the electricity cost for a geographical area.

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Shortcomings of Bitcoin

Loads of electricity being used up for nothing

Too few transactions per second

Regulations requried

Soon after the success of Bitcoin, many crypto-based projects emerged claiming to be a good enough alternative to Bitcoin. These projects work on similar principles as Bitcoin. Altcoins aim to overcome the shortcomings of Bitcoin and can be termed as “better versions of Bitcoin”. Some of the major altcoins are Ethereum, Binance Coin, Tether, Cardano, Polkadot, XRP, Uniswap, THETA, and Litecoin.

How to buy bitcoin?

The exchange value of Bitcoin is pretty volatile and one may want to acknowledge the risks that are associated with BTC purchase/trading/mining/investing.

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