May 18, 2022 2 min read Articles

What is Bitcoin?

Nowadays, we have a lot of interesting crypto coming up. Thanks to developers all over the world who are getting super creative. Currently, some of the most famous cryptos are; Bitcoin (BTC), Ethereum (ETH), Solana (SOL), USD Coin (USDC), etc.

Bitcoin is one of the oldest and most loved cryptocurrencies. It was launched by an author known as Satoshi Nakamoto in 2009 in an academic white paper titled Bitcoin: A peer-to-peer Electronic cash system.

So what is Bitcoin? It is a form of digital money that functions without a formal regulation body. It relies on peer-to-peer software executions and cryptography.

How Does Bitcoin Work?

Bitcoin utilizes blockchain technology to function, a decentralized ledger system that utilizes components known as nodes to transact data. It was the first crypto to utilize this technology, and other crypto firms followed suit.

Blockchain tech is all about blocks and nodes. When developers add new transactions, they are in the form of blocks. A new one connected to the old block exists when a block fills up.

It ensures no data is lost, making it possible to reserve the entire blockchain’s history. There are different nodes to ensure the continuation and storage of data. Some of them include;

Full nodes

Full nodes contain the blockchain’s entire history and allow users to download it.

Light nodes

Light nodes are pretty similar to full nodes. However, they only contain information related to a particular block. They are mostly used to validate and verify added transactions.

Miner’s nodes

As the name implies, miners’ nodes assist in the mining of crypto. For those who are not aware, mining is the process of generating new crypto.

It is also the process of adding new transactions to a blockchain. Blockchain developers are mainly the ones who conduct mining as they have the necessary skills and knowledge.

Types of Blockchains

There are mainly three blockchains, public, private, and federated.

1) Public Blockchains

Public blockchains are fully accessible to the public simply; no one is restricted from adding transactions.

2) Private Blockchains

Private blockchains have restricted access. Only particular people can add transactions to the blockchain. Firms mostly use them in their day-to-day transactions where only employees are allowed access.

3) Federated or Consortium Blockchains

Federated is blockchains that allow only a selected number of stakeholders to mine. Not everyone who can access the blockchain can perform the mining functions.

Advantages of Bitcoin

1) Decentralization

Bitcoin is decentralized, thus eliminating the need for intermediaries and third parties. Meaning transactions are faster and less complicated.

2) Easily Convertible to Cash

Bitcoin's main purpose was to provide a way to send money over the internet as it is easily convertible to fiat money; the price depends on the current market value.

Disadvantages of Bitcoin

1) Prone to Hacking

Hacking is a major problem faced by most crypto, Bitcoin included. In May 2019, Bitcoin lost over $ 40 million in accounts due to hacking. However, there are tight security measures to mitigate this risk.