How does bitcoin work? What is blockchain?


Как работает биткоин? Что такое блокчейн?

In 2017 the whole world learned about crypto-currencies and, in particular, about the most popular of them – bitcoin. Because of the rapid, unprecedented increase in the value of this virtual currency, everyone frantically began to invest in it, buy, try to earn. Even people who are far from financial investments and earnings in the network have heard about this phenomenon. But very few people know how bitcoin works, and what is blockchain . From this article you will learn the answers to questions that interest you.

Bitcoin – what is this?

Despite the fact that almost everyone has heard about this crypto currency, few know what it is and how it works. Bitcoin is a decentralized virtual currency that operates on a block system.

The advantages and characteristics of bitcoin are:

  1. The absence of a central management organization, like classical currencies.
  2. Anonymity of payments (it is impossible to track the sender or recipient).
  3. The bitcoin transaction is encrypted, so you can only see the alphanumeric code. No names, requisites, etc.

A kind of minus can be called the fact that only a certain amount of this currency can be issued into circulation.

Blockchain: concept and principle of work

Blockchain is a certain sequence of blocks aligned in a chain. This open database contains information about all transfer operations or transfer of bitcoins from one user to another. Each block included in the system contains information about previous and new transactions.

To create a complex cipher that allows the bitcoin to be anonymous, cryptographic keys are used. This is classified information, due to which when using one algorithm, different coding results are obtained. Most of the information in the keys is stored in bits.

Prospects for blockchain technology

This technology works according to the following algorithm:

  1. Miners (powerful computers that detect and decode blocks, for which they receive a reward in the form of a certain number of coins) new block.
  2. The new transactions are rechecked by full nodes (synchronized with the wallets purse).
  3. If the check is successful (at least 3-5 confirmations), the operation is included in the found block.
  4. If the block is full of transactions, the miners begin to look for a new one.
  5. The bitcoins found in the new block are awarded to the miner who found it first. Gradually, the extraction of coins becomes more complicated.
  6. In connection with the increasing complexity of the search for biktoins, the miners pool into pools to combine their computing power to speed up the discovery of blocks. Then the profit is divided between them correlatively. An example is farm mining or cloud mining.
  7. Since the network is not centralized, it can not be hacked.
  8. Any user sees where and where funds are directed, but purse owners remain anonymous.

In connection with the incredible increase in popularity, Crypto-Currency , especially bitcoin, the whole world was alarmed. Mining farms and cloud services began to develop actively. Many people started to earn and invest in crypto currency. It would seem that the prospects for such a system are extensive, and the potential is inexhaustible, but there are a number of nuances that can affect development. To them it is possible to carry:

  1. The popularity of the blockchain and crypto-currency among representatives of illegal professions (drug dealers, terrorists, pimps, etc.). This is due to the anonymity of the system, thanks to which the police can not prove the fact of buying and selling illegal goods or services.
  2. The limited number of bitcoins, which is why not everyone can receive the desired amount of this currency. However, it is possible to use alternative crypto-currencies, which are now very many.
  3. Complication of the cryptonomete extraction algorithm. This is partly why the cost of bitcoin is growing at an incredible rate.
  4. Attempts by governments of most countries to settle crypto-currencies at the state level, create a centralized system or ban them.
It can be interesting:  The most common myths about the blockchain

These factors may negatively affect the crypto business. This is particularly true of bitcoin, since it attracts the most attention, and there are more promising coins with an improved encryption algorithm and a simplified system of work.

Blockchain is a relatively new phenomenon that has already acquired a mass character, numerous advantages of this system led to a real “boom” of popularity. In the near future, it will only develop and expand, the prospects are very good.

Bitcoin History

The appearance of the world’s first crypto currency and a new financial system of detachments took place in 2008. August 18 this year, the domain bitcoin.org was registered. In the autumn of the same year (October 31), an unknown person, who was called by the name of Satoshi Nakamoto, introduced the world a new currency. He sent an e-mail to the subscribers of gmane.comp.encryption.general with a description of the essence and characteristics of bitcoin.

However, the prerequisites for the development of a decentralized payment system appeared earlier. Back in 1999, science fiction writer Neil Town Stevenson described the advantages and disadvantages of the world with a non-centralized payment system in his work “Kryptonomicon”.

The scientist and researcher Nick Szabo, at the beginning of the zero, worked on the creation of virtual money Bitgold, which, he said, should not have been exposed to inflation. However, the world did not see its creation.

In January 2009, Satoshi Nakamoto himself generated the first financial block in the blockchain system. Then the application Bitcoin appeared. That this, and how it works, no one knew yet, but after a few days, the first transaction was made.

Originally all the bitcoins were created by users on ordinary PCs. The calculation was then very simple: taking the average power of the computer processor multiplied by the cost of electricity and divided by the number of produced bitcoins.

The first serious transactions involving this crypto currency started only in 2010. Since then, it has grown quite rapidly and developed. In 2011, the MtGox exchange appeared, which became the first exchange service for bitcoins for electronic and real money.

 

How much does bitcoin cost?

In the nearly ten-year history of its existence, this monetary unit has experienced a number of significant course changes.

ГодAverage PriceCharacteristic of the period
2008The appearance of bitcoin and the blockchain
2009Throughout almost the whole year for 1 USD it was possible to get almost one million bitcoins. Only by the end of the year in the crypto currency began to contain about $ 0.001.The rate was calculated based on their processor power and electricity costs.

 

20101 BTC » 0,5 USDIn May this year, the first transaction was made, after which they began to be carried out regularly.
20111 BTC » 10$The theft of funds from users’ wallets was committed, so the credibility of the new currency was undermined.
20121 BTC » 10$The first attempts to give the virtual currency a real feature. The appearance of the bank BitcoinCentral.
2013The cost of bitcoin comes to 600$Sharp changes in the value of the crypto currency, instant falls and ups.
20141 BTC » 300$The stabilization rate is approximately the same level. The emergence of secure storage of funds.
20151 BTC » 350$Again sharp jumps of the course. This time they are explained by the activity of the financial pyramid launched by S. Mavrodi in the PRC
2016The rate of crypto currency for the first time in history reached a mark of 1,000 dollars.Instability is associated with a complex situation in the world political arena.
2017By the end of the year, the bitcoin rate had reached 20 000$This year is rightfully called the “year of Bitcoin”. An unprecedented interest in it and crypto-currencies in general is connected with the increase of people’s interest in this financial product, many began to invest in its purchase.
2018 (March)The cost of bitcoin ranges from $ 11,000 to $ 11,500.The currency exchange rate has stabilized slightly since the beginning of the year, although it decreased compared to the end of 2017. The agiotage was slightly asleep.

 

How to start making bitcoins?

Interest directly to bitcoin gradually decreased and established at a certain level, however the final price not yet sf Thus, the sharp downturns and ups and downs continue. The decrease in demand is due to the development of alternative crypto-currencies (Ripple, Dogecoin, Litecoin, etc.).

There are a lot of ways to obtain this crypto currency. Some of them mean investing their own funds, others – no. The most common options for obtaining on their purses bitcoins are:

  1. Bitcoin cranes . This is one of the simplest options, it does not imply the use of its own means for making a profit. After registering for a similar service, which is now very much, the user needs to solve the CAPTCHA with a certain periodicity (5, 10, 30 minutes, 1 hour, etc.), for which you can get a small reward in the crypto currency. If you translate earnings into rubles, then for each such action you will pay about 10 cents. Therefore, many bitcoin cranes do not earn, if not attract referrals.
  2. Mining bitcoins . Initially, this was the extraction of coins with the help of a video card of your PC, but due to the constant complication of decoding the blocks, this now brings very little money. The output can be a mining farm, consisting of a large number of video cards, the power of which is integrated into one network. Read about how to start the mining of crypto currency.
  3. Cloud mining. This way of earning has a principle similar to the classical production of crypto currency, but the point is that users do not need to use their own capacities. They just buy them from services that have their data centers.
  4. Buying is one of the simplest and most profitable options for earning money on a crypto currency. Through various exchanges or exchangers. The principle is the same as when trading with any other financial assets: if the price increases, then you need to buy, if it falls – sell.
  5. Bounty system. The bottom line is simple: for performing certain actions (reposting, commenting, attracting new users, etc.), customers receive some reward in the project tokens. In the future, the resulting tokens can be converted to any other crypto currency.

There are other ways (financial pyramids, hip-ups, etc.) that can allow you to earn crypto-coins, but they involve high risks.

Purses for storage means

Now there is a huge variety of wallets (Cryptor, Haro, etc.). In order not to get confused and find the most suitable, you need to take into account several important criteria when choosing:

  1. Security. This is paramount, since scammers do not slumber and regularly come up with new ways of hacking and stealing funds.
  2. Convenience. The simpler and more convenient the interface, the easier it will be to manage your money.
  3. Russian-language website and support. Of course, this is an optional item if you are proficient in English. But people who do not know foreign, it is better to use Russian counterparts.
  4. Possibility of withdrawal of funds. Even now, not all payment systems allow you to exchange or withdraw money into cash. If such a function does not have a wallet, then you can use your bitcoins only to pay for purchases on the Internet, and this is not the most convenient option.
  5. Reliability and duration of work. If the company has been working for several years and has a positive authority, you can work with it.

There are other criteria that should be considered when choosing a purse for storage (maximum amount of storage, output speed, multi-valuation, etc.). , but they are more subjective.

Read more in the article Choosing a Wallet for Storage Crypto currency.

 

Risks when investing in crypto-currencies 

Although the demand for these financial assets is huge, many do not dare to contact him, because very high risks go into minus or do nothing at all. The main danger is fraudsters, who enjoy the increased interest of people to a new product and are in every way trying to steal funds. Numerous financial pyramids, fraudulent schemes, pseudo-purses, etc. Because of this, many users suffer.

Another problem of investing in the crypto currency is the instability of the rate, which constantly jumps. This applies to virtually all types of coins. Therefore, it is necessary to conduct a thorough analysis of all the pros and cons before investing large sums.

Additional risks are the illegal status of crypto-currencies in most countries of the world and attempts by governments to resolve this issue. The question of formalizing the status of bitcoin is one of the most heated discussions. If it becomes illegal, serious problems may arise with its implementation.

What to buy for Bitcoin?

The first purchase paid for by this crypto currency was in May 2010. Then one of the users wrote that he was ready to pay 10,000 BTC for pizza. Since then, much has changed and now you can pay for almost anything with bitcoins.

Many large online stores accept BTC, that is, you can make purchases online. You can also pay for air tickets, order food at home, pay utility bills, state duties, etc. In addition, now some wallets and payment systems specializing in crypto-currencies issue their own plastic cards. Thanks to them, you can pay for purchases and services in any place where there is a terminal for cashless payment.

How to send bitcoin?

Send BTC easy. You just need to enter your wallet, which stores the coins, and choose the function of transferring funds. Then enter the purse code of the user to whom you will send funds. This option is available in almost all payment systems that work with Bitcoin.

Frequently Asked Questions

Most people who are new to bitcoins are interested in some issues. Here are the answers to the most common of them.

How many bitcoins in the world?

According to experts, the maximum number of BTC will be approximately 21 million coins. At the beginning of the spring of 2018, about 13 million bitcoins were already mined. Every day, about three and a half thousand Bitcoin are added to the system, so the limiting amount at current rates will be achieved approximately in the middle of the 21st century.

What is bitcoin provided?

Unlike real currencies, BTC does not have guarantees in the person of the state or large company , therefore the prime cost is calculated based on the costs of its extraction. Поскольку делать это все сложнее, то и цена будет расти. К тому же максимальное количество монет ограничено, что тоже будет способствовать росту его стоимости.

 

What is bitcoin cranes?

This term refers to sites that give registered users a certain number of coins after a certain time. As a rule, these are quite small sums.

Bitcoin transaction

This is a confirmed transaction (transfer, purchase, input, withdrawal, etc.). They gather in blocks. If the action has not been confirmed, the transaction will not be completed.

Segregated Witness Protocol

SegWit – This is a protocol update, the key goal of which is to make the bit-system bitcoin more flexible and plastic. This is done to simplify the use of increasingly complex transactions.

Fork Bitcoin

Fork is the use of a basic coding system and a crypto currency algorithm to create a new one. There are quite a few bitcoins of forks: Litecoin, Bitcoin CASH, etc. New currencies are often more sophisticated than their prototype.

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