Jaeheon Shim
Hi! I'm Jaeheon Shim, a computer programmer and technology enthusiast. Here on Learn The Technology, I write about technology and the effect it is having on our modern world. I write about a broad range of topics, ranging from 3D Printing to Cybersecurity.

What is Bitcoin (For intermediate users)

HOW DOES BITCOIN WORK?

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You’ve probably heard about the virtual cryptocurrency named “Bitcoin”. It has been the cause of globalized excitement for the past few weeks, mostly because it exploded on November 29, and exceeded a USD worth of over $10,000. Since bitcoin’s value is impossible to predict, many theories have formed, some of them including that the current bitcoin value is a “bubble that could pop any moment”. While many people estimated the price would go down at first, it actually rose to about $16,000 (At the current time of writing.)

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A short history of bitcoin / Summary

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A definition of bitcoin
     Bitcoin is the first decentralized version of currency, as the system works without a central bank, and no one owns it. Bitcoin is not minted like US dollars, but instead, it is mined. (More on that later) Bitcoin’s integrity is verified because peer-to-peer transactions are verified by network nodes, and recorded in the blockchain. The creator of Bitcoin is anonymous, only being known as Satoshi Nakamoto. Bitcoin is open source.

So what is bitcoin?

     Money is only money because we make it so. In fact, a dollar bill is not too different from an ordinary piece of paper, except for the fact that we consider it as currency, which therefore gives it value. Bitcoin is the same, except there is no physical form of bitcoin, and it is only stored as hashes on the blockchain. 
     To understand bitcoin, we must first understand basic trading. Let’s say that Bob is currently in the possession of one apple. Should he decide to give that apple to Alice, Alice would have another apple and Bob would no longer be in possession of that apple. This method of trade is completely foolproof because the owner of the apple has transferred from Bob to Alice and Alice has received one apple. Now, it is the year 2042, where we can e-mail apples to our friends. This scenario is a bit more complicated. Once Bob sends an apple to Alice, how can Alice be sure she has received the actual apple, not just a copy of the apple? This is where the Blockchain comes in. The blockchain is a ledger, a database of all of the transactions that have been made by bitcoin. The blockchain is stored with every bitcoin user and is constantly updated. This eliminates the possibility of Bob being able to cheat Alice into thinking she has received a real apple, not just a fake copy, because every transaction is stored on the blockchain, and once Bob gives away the apple, he would broadcast it to the entire blockchain, there would be a history of him giving it away, and also a record that he does not own that specific apple anymore. Should he try to spend that apple again even though it is not his, the blockchain nodes would disagree, and the transaction would not be confirmed. It is highly unlikely that the blockchain will ever be cheated or destroyed because there are so many people using it. In a way, the community of bitcoin is the bank that controls bitcoin.

Mining

As I stated above, the blockchain is constantly being updated by people. These people use something called Mining, which uses processing power to process the blockchain. Miners keep the blockchain complete and unalterable by verifying and collecting newly broadcast transactions into a group called a block. Each block is linked to the previous block using a cryptographic hash, using the SHA-256 algorithm, thus giving the blockchain its name. By mining, the user receives bitcoins as a reward.

The Blockchain

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How the blockchain works
Once a transaction is broadcast from someone such as Bob, it must be accepted by the rest of the network. For this to happen, the block must contain a proof-of-work. This requires miners to find a number called a nonce so that when the block is hashed using the nonce, the result of the hash is numerically smaller than the network’s difficulty target. This proof is easy for anyone to verify but extremely time-consuming to generate. The only way to generate the nonce is for miners to keep trying a sequence of numbers, such as 0, 1, 2, 3, 4… until the difficulty target is reached. This system makes it extremely hard to modify the blockchain because an attacker must modify all of the previous blocks for the modification of one block to be accepted.

Buying bitcoin

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    Bitcoin is very popular towards an investor’s perspective since the price changes quickly in great amounts. But if you want to buy bitcoin in small amounts just for fun, first, you will need to obtain a bitcoin wallet. This is not difficult, as you can download apps as bitcoin wallets or even use a piece of paper. I would recommend, and I say this with no endorsement, BitPay as an app. 
    After you have obtained a wallet, you need to visit a trading website such as Coinbase to trade USD to BTC(Bitcoin). Then, you can transfer the funds to your newly created wallet, and spend them on goods and services.

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This is only the beginning of bitcoin, and bitcoin may even replace the currency we use today. No one knows for sure. I guess time will tell. If you want more information on bitcoin, I suggest you visit Bitcoin.org for more information. Thank you for staying tuned to my first blog post, and I hope many will follow! If you would like to receive regular updates whenever I make a new post, click the ‘subscribe’ button in the header!

Admin
Jaeheon Shim
Sources used:
en.wikipedia.org/wiki/Bitcoin
www.cnbc.com/2017/11/29/bitcoin-passes-10000-cryptocurrency-crash-considered-by-experts.html
bitcoin.org/en/
https://www.bitcoin.com/getting-started
https://commons.wikimedia.org/wiki/File:Bitcoin_logo.svg
https://www.entrepreneur.com/topic/bitcoin
https://blog.coingate.com/2017/01/bitcoin-wallet-guide/
Since the price of bitcoin fluctuates so frequently, this draws investors in to invest bitcoin. I cannot give any opinion on this action, nor can/will I be held responsible for any legal or financial damages occurring from following the advice from this article. For more information, contact a legal authority. Invest at your own risk.

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7 Responses

  1. I might have done better with a beginner's version than intermediate in regard to mining, but I am caught up now.😆 Are you a "miner?"

  2. Jenni says:

    The cost of a bitcoin varies every once in a while. Just to place things in context, back in the start of 2013, the normal cost of a bitcoin was roughly $400 per bitcoin, yet before the finish of 2013, the cost for bitcoin rose to over $1000. initial coin offering

  3. Like says:

    Like!! I blog frequently and I really thank you for your content. The article has truly peaked my interest.

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