What is bitcoin, why is it growing and how to make money on it?

What is bitcoin, why is it growing and how to make money on it?

» » What is bitcoin, why is it growing and how to make money on it?

What is bitcoin, why is it growing and how to make money on it?

List of content

1. What is bitcoin?
2. Why did millions of people start using bitcoin?
3. How did bitcoin appear?
4. Who creates bitcoins and how does the entire system work?
5. Why is the price of bitcoin constantly growing?
6. Why is bitcoin so safe?
7. How bitcoin differs from classical electronic money (Paypal etc.)
8. Why does it worth to invest in bitcoin today?

Bitcoin (BTC) price

1. What is bitcoin?

Bitcoin is the digital currency that unites millions of people around the world and serves as a means of exchange and payment. Bitcoin can be compared to digital cash which is transmitted almost instantly and without intermediaries.

From the technological viewpoint, bitcoin is a record in the distributed registry (blockchain), which is publicly available and belongs to all participants in the bitcoin community.

If the term “Blockchain” is a new concept for you, we recommend first to read our introductory article “What is blockchain technology in simple words and how it works“ then before studying this article.

2. Why did millions of people start using bitcoin?

2.1 It’s available for anyone.

Any person can open a wallet from a computer or phone and afterwards buy it in one of many different ways (see Section 2 of this article).

2.2 Transfer without intermediaries (peer to peer).

Transfers are made directly between participants bypassing banks and other agents, hence this removes numerous commissions and speeds up the process.

2.3 This is a decentralized system – it does not have a central link on which it depends.

This system doesn’t depend on banks/states so it cannot be closed. It works thanks to the millions of other participants who test the transactions (miners). Miners are rewarded for verifying transactions in the form of a commission which they are paid by other participants for these transactions.

2.4 Very fast transfer of any amounts without restrictions.

It enables to transfer any amount anywhere in the world almost instantly with a minimum commission (currently ~ 10 $ – this commission is automatically received by the miners for confirmation of transactions). Your account won’t be blocked by anyone and won’t impose restrictions on translations (as banks often do by setting limits).

You can transfer the share of bitcoin to up to 0.0000001 BTC (one-millionth of bitcoin is called satoshi – this is the minimum amount that can be transferred).

2.5 Nobody can’t stop or cancel the transaction.

Unlike bank transfers and accounts – your transactions and accounts in bitcoins cannot be frozen and closed

2.6 Anonymity

Even though the distributed registry (block) with all transactions is open, it doesn’t display the people’s names but shows the purse numbers. This allows you to be totally anonymous when transferring bitcoins.

3. How did bitcoin appear?

In November 2008, Satoshi Nakamoto published an article ‘Bitcoin: A Peer-to-Peer Electronic Cash System’ where he described how the system works and how new bitcoins appear. This document served as a basis for further development of the bitcoin network while Satoshi Nakamoto disappeared and did not show up anymore.

The first bitcoin transaction was made in 2009 by the network developer called Hal Finney.

4. Who creates bitcoins and how does the entire system work?

Bitcoin works thanks to the miners – people who at the beginning of the bitcoin path, using their computers, and nowadays through a special equipment (ASICs) check the transactions and get paid for it by the participants of the system in the form of a transfer commission.

The commission for the extraction of one block is reduced by 2 times every 4 years.

For instance, from 2009 to 2012, half of all bitcoins were extracted = 10.5 million coins (the reward to the miners was 50 BTC per block);

from 2013 to 2016, the rest of this half or 5.25 million coins was mined (the reward to the miners was 25 BTC per block).

From 2017 to 2020, 2,625 bitcoins will be mined and the compensation will drop to 12.5 BTC, etc. and by 2140 the production of bitcoins will cease.

Any person may become a miner by installing on a computer a special free program for mining. 

The main problem of earnings in mining now is caused by the increased competition: in order to earn decent money, you need very powerful equipment that is quite expensive, outdated very quickly every day, and also consumes a large amount of electricity which makes mining at home conditions simply not profitable.

5. Why is the price of bitcoin constantly growing?

Bitcoin can’t be printed as well as dollars in unlimited quantities. In total it is possible to produce 21 million bitcoins (of which about $ 16.5 million have been extracted by the end of July 2017). Every year due to the nature of the network, fewer and fewer bitcoins will be produced.

A new bitcoin appears when the miner calculates a new combination.

Time for extraction of each subsequent bitcoin increases, i.e. every year bitcoins will be mined less and less. Therefore, currently, 1 bitcoin appears on average in 10 minutes all over the world.

At such rates, the issue of bitcoins would end in 2140.

This is one of the main reasons why the price of bitcoin grows along with its demand

6. Why is bitcoin so safe?

The security of the bitcoin system is guaranteed by its architecture. Here are a few important reasons why bitcoin is so reliable:

  • Bitcoin is built on blocking technology whilst the essence of the blockchain lays in its decentralization which means that if a computer of the network member is hacked, the network itself won’t suffer from this since the register of all transactions is stored on millions of other computers (nodes);
  • Each next block contains the header of the previous block (hash) and this makes it unique, which means that it is impossible to change even one character in the block that has already taken so that it remains unnoticed by other members of the network;
  • Transactions falling into the block are instantly synchronized with the rest of the network;
  • Before entering the block, transactions fall into the so-called Memory Pool. A miner accidentally sorts out the right combination and gets the right to add transactions from the Memory pool to the block and afterwards get a reward for it. The randomness of the search makes the selection between the miners equal.
  • The more miners try to pick this combination at the moment, the more complex it is done by the system so that blocks would appear no more often than once in 10 minutes, and this happens automatically.

7. How bitcoin differs from classical electronic money (Paypal etc.)

There are 3 main differences:

  • In the case of classical services, the information about transactions is stored on the central server subsequently, it depends on one company and the decision of one person/small group of persons (shareholders), whereas Bitcoin is a decentralized network in which there is no owner and shareholders – the network belongs to all its participants.
  • You need to log in and confirm your identity for transfers above the minimum amount, in contrast, transactions in bitcoin can be anonymous and for the unlimited amount.
  • In classical electronic money, a fairly large commission is usually taken for the transaction, while in bitcoin’s transactions the commission is minimal.

8. Why does it worth to invest in bitcoin today?

  • From April 1, Japan recognized bitcoin as a means of payment.
  • The world’s largest banks are merging to create their own digital currencies: UBS, Deutsche Bank, Santander and Bank of New York Mellon.
  • South Korea is preparing to introduce the regulation of crypto-currency
  • In Russia, officials at the highest level are ready to consider the development of blockade technology
  • In the United States bitcoin was recognized as a commodity

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