The Blockchain Technology Used in Bitcoins | Know All About It
Bitcoin is a global phenomenon today that has kickstarted the cryptocurrency market and challenged the idea of centralized currency systems. The birth of bitcoin was tagged with the inception of blockchain technology, another innovation that is at the foot of revolutionizing every industry that we can name. Many individuals, who are new to the world of cryptocurrency, think that bitcoin and blockchain are mutually exclusive to each other. This is far from the truth, as blockchain has many applications that go beyond the realm of bitcoin. But, here we will only discuss how blockchain powers the biggest cryptocurrency in the world and how it all began.
What is blockchain and how does it make bitcoin work?
Blockchain is a distributed ledger that stores data in an electronic entity called ‘Blocks’. Each block has a definite storage capacity, a cryptographic signature, and a hash address that chains it to the previous block. Each transaction on these blocks has a timestamp that technically makes the ledger immutable. This ledger is distributed across a network of peer-to-peer nodes that verify changes on it through a consensus algorithm. These nodes are computer systems that have a locally stored copy of the database. This makes blockchain truly decentralized as no single authority or entity can make changes in the ledger without the consensus and verification by other participants on the network. Cryptography and time-stamps are the two essential features that power the security of blockchain networks. Bitcoin is the first-ever blockchain network that came into existence. In 2009, bitcoin began as the first digital currency proposed by Satoshi Nakamoto (pseudonym) which was not controlled by any government and promised lower transaction charges than any other transactional method. As we said, bitcoin was the first blockchain network in practical use and was also a public ledger. It means that bitcoin transactions can be viewed by anyone, in real-time. Just like any blockchain network, bitcoin was the first currency that offered utmost security and zero counterfeit possibilities. The latter claim is majorly backed by the timestamp feature, as every verified transaction is a record carved in stone. The peer-to-peer distribution also makes it impossible for any malicious actor to modify the ledger as no single entity owns the majority governing power on the network.
Functioning of Bitcoin
Bitcoin is a public ledger and to maintain the robust features of security in this ledger, there are some special measures applied to it. The nodes on the network that verify the transactions made on the blockchain are called ‘miners’. These miners make sure that no bitcoin is double spent and to accomplish that they go through a process that is called ‘mining’. Mining not only verifies a transaction but also introduces new blocks on the network and rewards the miners for their contributions in keeping the bitcoin network running. It may sound convenient in discussion but mining is a difficult job as it should be. The bitcoin software generates a mathematical problem where the miners have to come up with a 64 digit hash number, this whole process is known as ‘proof of work’ consensus. Miners compete amongst each other to come up with a solution that verifies the transaction in the network that further adds a new block to the chain and brings more bitcoins into circulation, the first miner to solve this puzzle gets rewarded in bitcoins. After bitcoin, many cryptocurrencies have used the proof of work consensus algorithm to run their blockchain networks.
Important Facts about Bitcoin circulation
But there is a catch here, the number of bitcoins that will ever come into circulation is capped at 21 million. As of July 2021, there are around 18.75 million bitcoins in circulation which leaves the total number of bitcoins to be mined at 2.25 million approx. At the current rate, the last bitcoin will be mined in the year 2140.
It takes around 10 minutes to add a new block to the chain. In a day 144 blocks are added to the bitcoin blockchain. At the current reward rate, 6.25 BTC are rewarded for every solved problem which brings a total of 900 BTC to the network every day (144*6.25=900).
Once all the bitcoins are mined, or when the rewards become extensively low due to halving, miners will be paid through a fixed fee. Halving is the process that cuts down the mining reward to half after 210,000 blocks are mined. Till now, 4 halvings have taken place and by the time the last BTC is mined, approximately 30 halvings will take place.
The small transaction fee involved in transferring BTC would become the source of rewarding the miners in the future. The system that constantly and quickly verifies changes on the ledger is the soul of the bitcoin network and rewarding is a necessary part to keep the bitcoin blockchain network alive.
Even though blockchain technology has traveled over to other industries, its most accomplished application till now is cryptocurrencies, and to a large extent Bitcoin. Now that there are tens of thousands of cryptocurrencies in circulation, BTC has become more valuable with every passing day because of its originality and robust software. With enhanced features and new updates in the original software, Bitcoin is slowly becoming the oil and gold equivalent of the digital currency world, and blockchain technology is one of the biggest factors contributing to it.
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