How Bitcoin works and why we should know about it.
Bitcoin is a digital currency that can be used globally without the need for any government or central bank. It is the first and most famous type of cryptocurrency.
Bitcoin was introduced in 2008 by an unknown person or group using the pseudonym Satoshi Nakamoto.
No one knows who that person really was, but they were challenging the financial systems of the world's powerful governments.
Satoshi published a paper titled:
(Bitcoin: A Peer-to-Peer Electronic Cash System)
This paper presented the idea of a digital currency that could be transferred directly from one person to another without interference from banks or governmental institutions.
On January 3, 2009, the first Bitcoin block, known as the Genesis Block, was mined.
Bitcoin was introduced in 2008 by an unknown person or group using the pseudonym Satoshi Nakamoto.
No one knows who that person really was, but they were challenging the financial systems of the world's powerful governments.
Satoshi published a paper titled:
(Bitcoin: A Peer-to-Peer Electronic Cash System)
This paper presented the idea of a digital currency that could be transferred directly from one person to another without interference from banks or governmental institutions.
On January 3, 2009, the first Bitcoin block, known as the Genesis Block, was mined.
The first famous transaction using Bitcoin happened on May 22, 2010, when a person bought 2 pizzas for 10,000 Bitcoins this day is still celebrated as (Bitcoin Pizza Day)
Today the price of Bitcoin is around $66,000 to $70,000, although its price keeps fluctuating.Satoshi Nakamoto’s Mystery:
A surprising fact about Bitcoin’s creator is that Satoshi Nakamoto never revealed their identity. He disappeared from the network after 2010. His wallet remains inactive to this day.If he starts selling his Bitcoins, it could cause massive waves in the market.
Bitcoin is Based on Game Theory:
Miners have no benefit in lying or trying to forge the blockchain because: It’s expensive. It wastes time And it’s likely to fail.But if a miner mines a valid block, they receive a Bitcoin reward and transaction fees. In other words truth tellers are rewarded, liars suffer losses. That’s why Bitcoin is considered one of the most respected crypto networks.
Let’s Understand How Bitcoin Works...
1. Blockchain:
A public ledger where every transaction is recorded. This ledger is spread across thousands of computers worldwide.
A public ledger where every transaction is recorded. This ledger is spread across thousands of computers worldwide.
New Bitcoins are created when computers solve complex mathematical problems. This process is called mining, and miners are rewarded with Bitcoins.
3. Limitations:
Only 21 million Bitcoins will ever exist. This limited supply contributes to its increasing value over time.
Bitcoin's Legal Status Varies by Country:
In some places Bitcoin is banned.Some online shops, companies, and services accept Bitcoin.
Some people hold Bitcoin like gold or stocks, hoping to sell when the price rises.
Others use it to send money abroad because Fees are low
It bypasses banks and government systems.
Bitcoin Security & Privacy:
1. Public and Private Keys:
Each user has a Public Key (like your email address) and a Private Key (a secret code used to spend Bitcoins).
Each user has a Public Key (like your email address) and a Private Key (a secret code used to spend Bitcoins).
2. Cryptographic Signature:
When you send Bitcoin, you sign the transaction with your private key.
Other computers on the network verify it using your public key.
2009: 50 BTC
2012: 25 BTC
2016: 12.5 BTC
2020: 6.25 BTC
2024: 3.125 BTC
This deflationary mechanism helps increase Bitcoin’s value.
Satoshi’s wallet still holds over 1 million Bitcoins, untouched till today.
When the network is busy, fees increase.
In the future, when all 21 million Bitcoins are mined, miners will earn only from fees.
They want to check if the money is being used illegally for example:
Terrorism.
Money laundering.
However, Bitcoin’s nature is decentralized and pseudonymous, making full control nearly impossible.
El Salvador
Central African Republic
USA
Canada
Japan
Australia
Singapore
Switzerland
Austria
Spain
Slovenia
Slovakia
Estonia
Ireland
Italy
Bulgaria
Belgium
Portugal
Poland
Czech Republic
Denmark
Sweden
Finland
France
Cyprus
Croatia
Latvia
Lithuania
Luxembourg
Malta
Netherlands
Hungary
Germany
Romania
Greece
These countries recognize Bitcoin, but regulate it with laws, licensing, and taxes to prevent illegal use.
For example, the EU has a law called "MiCA" to control crypto.
These countries aim to integrate Bitcoin into the financial system, not replace it.
They want to benefit from crypto via taxation, investment, and blockchain adoption.
China
Afghanistan
Bangladesh
Algeria
Morocco
Egypt
These countries argue that Bitcoin and other digital currencies:
Threaten national security and financial independence
Can enable illegal activities (like drugs, weapons, terrorism)
Cause high volatility, which can harm the public
Are unregulated and outside of legal frameworks
Some countries (like China) are developing their own digital currencies like the Digital Yuan.
Their main goal is to protect their financial system and the public from potential harm.
Some governments see Bitcoin as a tool of freedom.
Others see it as a threat (like China, which has banned mining).
But the reality is:
Bitcoin can’t be shut down, only regulated.
A Common Misunderstanding About Bitcoin
Unspent Transaction Outputs (UTXOs)
Bitcoin doesn’t have a traditional account balance like a bank.
Each Bitcoin is an unspent output of a previous transaction.
When you send Bitcoin, a UTXO leaves your wallet.
When you receive Bitcoin, a new UTXO enters your wallet.
This model improves privacy, security and scalability.
Bitcoin is not fully anonymous it is pseudonymous.
Many people think Bitcoin is 100% private, but this is incorrect.
Your identity isn’t shown, but your Bitcoin address is public.
Every transaction is permanently recorded on the blockchain.
Governments and experts can use chain analysis to trace users.
Other computers on the network verify it using your public key.
3. Bitcoin Halving:
Every 4 years, the mining reward is halved to limit supply:2009: 50 BTC
2012: 25 BTC
2016: 12.5 BTC
2020: 6.25 BTC
2024: 3.125 BTC
This deflationary mechanism helps increase Bitcoin’s value.
Interesting Fact:
About 4 million Bitcoins are lost forever because users lost their private keys.Satoshi’s wallet still holds over 1 million Bitcoins, untouched till today.
Bitcoin Transaction Fees:
Every transaction includes a small fee given to miners.When the network is busy, fees increase.
In the future, when all 21 million Bitcoins are mined, miners will earn only from fees.
Bitcoin & the Law:
Governments worldwide are using Regulatory Technology (RegTech) to control Bitcoin.They want to check if the money is being used illegally for example:
Terrorism.
Money laundering.
However, Bitcoin’s nature is decentralized and pseudonymous, making full control nearly impossible.
Countries That Have Accepted Bitcoin:
List:
Central African Republic
USA
Canada
Japan
Australia
Singapore
Switzerland
Austria
Spain
Slovenia
Slovakia
Estonia
Ireland
Italy
Bulgaria
Belgium
Portugal
Poland
Czech Republic
Denmark
Sweden
Finland
France
Cyprus
Croatia
Latvia
Lithuania
Luxembourg
Malta
Netherlands
Hungary
Germany
Romania
Greece
These countries recognize Bitcoin, but regulate it with laws, licensing, and taxes to prevent illegal use.
For example, the EU has a law called "MiCA" to control crypto.
These countries aim to integrate Bitcoin into the financial system, not replace it.
They want to benefit from crypto via taxation, investment, and blockchain adoption.
Countries That Have Not Accepted Bitcoin:
List:
China
Afghanistan
Bangladesh
Algeria
Morocco
Egypt
These countries argue that Bitcoin and other digital currencies:
Threaten national security and financial independence
Can enable illegal activities (like drugs, weapons, terrorism)
Cause high volatility, which can harm the public
Are unregulated and outside of legal frameworks
Some countries (like China) are developing their own digital currencies like the Digital Yuan.
Their main goal is to protect their financial system and the public from potential harm.
Politics and Bitcoin:
Some governments see Bitcoin as a tool of freedom.
Others see it as a threat (like China, which has banned mining).
But the reality is:
Bitcoin can’t be shut down, only regulated.
A Common Misunderstanding About Bitcoin
Unspent Transaction Outputs (UTXOs)
What is this (UTXOs)?
Bitcoin doesn’t have a traditional account balance like a bank.
Each Bitcoin is an unspent output of a previous transaction.
For example:
When you send Bitcoin, a UTXO leaves your wallet.
When you receive Bitcoin, a new UTXO enters your wallet.
This model improves privacy, security and scalability.
Bitcoin is not fully anonymous it is pseudonymous.
Many people think Bitcoin is 100% private, but this is incorrect.
Your identity isn’t shown, but your Bitcoin address is public.
Every transaction is permanently recorded on the blockchain.
Governments and experts can use chain analysis to trace users.
0 Comments