Bitcoin ignorance is getting silly, this guide from Learncoin breaks down the entire concept into bits anyone can understand.
In the last article we attempt to burst the ignorance on bitcoin and blockchain in Nigeria, in this article we continue that task by providing detailed information about the blockchain.
How Bitcoins really work
The first thing you need to understand is that bitcoin is money. Bitcoin is real money. In some countries right now companies have the option of paying their workers with bitcoin. Some shops are now accepting payment in bitcoins. In Australia, they have just launched a POS machine that accepts bitcoins from hardware wallets. So, get it, bitcoin is money!
In fact, bitcoin is worth more than regular currency. A bitcoin as of today sells for about $6,000. That’s one single bitcoin. That’s how valuable bitcoin is. There was a time it was worth $20,000. Now how does bitcoin really work?
How bitcoins are created
Bitcoins are created through a process called mining. Mining is a record-keeping service done through the use of a computer’s processing power. That is, a personal computer is connected to the bitcoin network and performs difficult mathematical tasks. Bitcoins are generated as rewards for the tasks done.
It’s not as easy as it sounds. When you hear about bitcoin “mining,” you picture coins being dug out of the ground. But bitcoin isn’t physical, so why do we call it mining?
What is mining?
We call it mining because it’s similar to gold mining in that the bitcoins exist in the protocol’s design (just as the gold exists underground), but they haven’t been brought out into the light yet (just as the gold hasn’t yet been dug up). The bitcoin protocol stipulates that 21 million bitcoins will exist at some point. What “miners” do is bring them out into the light, a few at a time.
They get to do this as a reward for creating blocks of validated transactions and including them in the blockchain. Bitcoin’s secret is the blockchain. It is the engine that runs the bitcoin machine. The creators of bitcoin first created the blockchain technology and built the bitcoin network on its principles.
So what then is this blockchain?
Blockchains are basically open records of transactions on the bitcoin peer to peer (p2p) network. So, if one person wants to do a transaction, a ledger (record) is opened like a block and subsequent transactions of others within that network are added to it, and that’s why it’s called a blockchain. Every transaction that has ever occurred on the bitcoin network is contained in the blockchain. It even gets better, everyone on the bitcoin network have a copy of the blockchain. Everyone!
Whenever you are connected to the network as a node (a powerful computer operating the bitcoin software to solve transactional problems) you receive updates from other peers (nodes, miners) about new blocks that will be added to the chain.
The blockchain is created to solve the problem of money transfer between two parties who could be in any different part of the world, continents apart. Normally if you want to send money from Nigeria to china, first you will send that money to a bank in Nigeria who will send it to another bank in china before it gets to your friend. This process is costly and time wasting, as it can take up to 3 days or more. But with blockchain, you can send the money directly to the person at no cost (other than internet sub) and immediately.
In the next article, we will discuss how bitcoin is mined through the blockchain technology and on the bitcoin network.