Key Concepts in Bitcoin
Welcome to Bitget - the world’s fastest growing crypto derivatives trading platform. As a crypto investor, we'd all agree that you may get to know the interesting concepts behind the most well-known crypto, Bitcoin, before investing any money in it. In the following article, we will deep dive into that for you.
Blockchain Vs. Bitcoin
What is the relationship between Blockchain and Bitcoin? Bitcoin is the first and most well-known cryptocurrency. And Blockchain is the technology underpinnings of Bitcoin.
The Bitcoin blockchain
How does blockchain technology work in Bitcoin? If A sends a Bitcoin to B, the transaction details including the sender, receiver and the amount of coins will be recorded in the Bitcoin Blockchain.
As new data comes in, it is entered into a fresh block. Once a block is filled with the transaction data, it is chained onto the previous block, which makes the data chained together in chronological order.
So, how to prevent the data in the chain from being changed? Each block has a “hash” like an identity card. It prevents the data from being changed by anyone so that blockchain helps secure safety. We will discuss ‘hash’ later.
There isn’t any centralized bank or institution to process transfers. So, who is managing the Bitcoin blockchain?
Bitcoin mining is the process by which new bitcoins are entered into circulation. It is important for the maintenance and development of the Bitcoin blockchain. When a new transaction is conducted, we need someone to confirm the new transactions and new blocks of transactions are recorded on the blockchain.
Those who record the transaction details and store them in the chain, will receive Bitcoin as a reward for completing the verification of transactions. Mining is carried out using sophisticated hardware that solves an extremely complex computational math problem. The first computer to find the solution to the problem receives the next block of bitcoins and the process begins again.
In 2009, Satoshi Nakamoto, who developed Bitcoin, mined the first block and received 50 Bitcoins as a block reward. After the first mining, the reward decreased to 25, and then 12.5, and then it became 6.25 bitcoins per block in 2020. It is called Bitcoin Halving - the rewards of mining Bitcoin are cut in half.
You may refer to this video : Bitget Bites | Bitcoin Halving #3.
The total maximum supply of Bitcoin is 21 million. When every 210,000 blocks are mined, or roughly every four years, the Bitcoin reward given to Bitcoin miners for processing verification of transactions is cut in half.
The new Bitcoins released into circulation are decreasing. When the limit of 21 million is reached, or around the year 2140, no additional bitcoins will be generated.
As of October 2021, there are about 18.85 million Bitcoins already in circulation. Only around 2.15 million Bitcoins are left as mining rewards.
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A hash is the backbone of the blockchain network. In order to prevent anyone from changing the data in the blockchain, each block contains the “hash” of the previous block.
The hash of a block is unique and unrepeatable like the fingerprint of human beings. If someone wants to change the data in a block, the hash of the block will be changed as well.
Since each block contains the “hash” of the previous block and the data chained together in chronological order, any small changes in any block will lead to the changes of the hash of the whole chain. The security of the transaction data is secured.
Keys and Wallets
In order to use or transact Bitcoin, you need a wallet to store your coins, like opening a bank account. As there isn’t any centralized bank or institution to process Bitcoin transactions, how do you protect your coins from being stolen?
The Bitcoin wallet seems like a randomly generated string of letters and numbers. Anyone can create a new wallet by generating a pair of public and private keys. The public key is for encrypting and a private key is for decrypting the data.
The public key acts as an address for the wallet that can be deposited in cryptocurrency. The private key acts as the password of the wallet that can prove your ownership of the wallet. You are free to share the public key with other people for deposit, while the private key should be kept secret.
If you don't back up the private key and lose it, you can no longer access your bitcoin wallet unless you figure out what your private key is.
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