The Complete Guide to Bitcoin

Bitcoin is a digital currency built on the top of Blockchain technology. It was invented by a mysterious person named Satoshi Nakamoto. The main idea of Bitcoin is to enable Peer-to-Peer (Person to Person) transactions without the involvement of any Financial institutions thereby reducing the transaction cost. There would be a transaction fee even in peer-to-peer transactions which would be paid to miners.

The entire Bitcoin network is powered by the users who run the nodes, hence there is no concept of any middleman in processing transactions. The process of providing computing power for the processing of transactions is called Mining. Persons/entities who provide computing power to the network are called Miners. Miners processes the transactions using the hashing algorithms i.e., solving complex mathematical problems for achieving the hash of the transaction, this process is called Bitcoin mining. For the number of hashes supplied towards solving a block, every miner would be rewarded with rewards (New Bitcoins are minted for every block solved).

Bitcoin mining — Picture illustrating bitcoin mining

At present, a total of 6.25 Bitcoins are being created for every block Mined and these coins would be distributed across the miners as per the computing power supplied. Bitcoin mining used to happen via normal CPU in the initial days, however, over a while with extensive usage of Bitcoin for transactions, Mining of the Bitcoin has become very complex nowadays i.e., computing power moving from Hashes/Second to TeraHashes/Second. To achieve this kind of processing power in new GPUs, ASIC miners are being flooded into the market for miners to upgrade their processing power and contribute to the network.

This specific hardware costs few thousands of dollars to mine bitcoin and with the current rate, it may simply take years to mine 1 bitcoin, which is not a feasible mining option for beginners, as buying Bitcoin from Exchanges is much cheaper than minting one. However, if anyone is interested in bitcoin mining, could mining would be a viable option to explore, where individuals might not be required to procure the hardware, instead buy a plan from some entity who has brought the Hardware and has the computing power. It is like renting a portion of their hardware processing power to mine bitcoin at an agreed rate for an agreed time.

For every 210,000 blocks mined(nearly about 4 Years), the rewards that are being paid to users would be halved. For example, at the current rate, if 2 miners are mining the blockchain with equal processing power, 6.25 Bitcoins would be rewarded to both of the miners equally. However, once 210,000 blocks get processed, the reward that the miners would be getting 3.125 (6.25/2=3.125 BTC). The last Bitcoin is expected to be mined by 2140. Higher the number of miners participating in the Proof-of-Work mechanism lower would be reward distributed across, making the availability of Bitcoin rarer than ever, thereby increasing this price in the market. With current rates, the transaction fee should be anywhere above 15+ US Dollars for transactions to get processed within a matter of hours.

Since Bitcoin is being used as store of value and no other practical use cases are available. Other Cryptocurrencies like Ethereum, Binance Smart chain, Cardano, etc., have come into existence bringing a wide variety of use cases using Blockchain as a service.