What is Bitcoin: All You Need to Know About Cryptocurrency

7 Min Read

Bitcoin digital currency is stored and created in different blockchains. Unlike euros or dollars, bitcoins are not physically printed and therefore are not issued by a central authority. Rather, various computers around the world ensure the availability of new coins. But not all computers are capable of mining, so bitcoin hosting services, so-called cloud mining, were invented.

Cryptocurrencies are virtual currencies, a term referring to digital currencies that exist only within a network and that have disrupted the modern economic world. Not only can they be used in trade today, but their introduction is closely linked to a number of technological innovations. In this case, cryptocurrencies are closely tied to the operational logic of the blockchains that generate and support them.

What is Bitcoin Based on?

The technology behind it is known as the blockchain. Decisions in the Bitcoin network are made through a consensus mechanism defined in the software code, not by a centralized body. This is what is known as open-source software, which means that anyone can understand what the software is doing and whether it is doing its job. In addition, anyone can see how many coins there are, which address owns how many BTCs, and how the recipients of the transactions change.

The decentralized structure means that all transactions are transparent. For the private network, you need a Bitcoin wallet. Such wallets are allocated to different crypto keys, private and public. Anyone with Internet access can use the wallet. The private key acts as a sort of password to control the coins on the blockchain and must therefore be stored securely, preferably offline. A public blockchain has, an email address, an address where the crypto is stored and can be sent. The public key also allows you to see what transactions have been made from the wallet. On the address, you can see how many cryptocurrencies you have. However, the person who owns the address cannot be identified.

What is Cryptocurrency Mining?

To explain what mining is and how it works in blockchain, the first thing to say is that it is an operation that underlies the blockchain’s ability to guarantee unattainable security. And it is a security that does not depend on a central authority, but on all participants or nodes in the blockchain.

The mining process is used to verify new transactions and register them in the blockchain registry. This process (in the case of the Bitcoin blockchain) is called Proof of Work and aims to create a new block in the sense of a structure containing all transactions. This operation in the Bitcoin blockchain occurs every 10 minutes. In other blockchains with a different type of process, but with the same purpose, it happens in less time.

How does this happen in mining? “Miners compete against each other to solve a complex mathematical problem based on a cryptographic hashing algorithm. With the solution comes proof-of-work, and with proof-of-work, which takes miners time and many resources in terms of processing power and energy, we come to confirmation of the transactions contained in the block. Transaction validation creates a block and a reward, which in the bitcoin world is expressed in bitcoins. The miner who achieves the goal gets the cryptocurrency in his wallet when he solves the mathematical problem.

But the reward for this proof-of-work is not only in cryptocurrency, it can also be in the form of a percentage of confirmed transactions. Mining means facing a number of financial problems (related to energy costs and not only) and environmental ones.

What are Bitcoin Hosting Services

To get more processing power and to solve the hardware cost problem, some of the servers and processors are rented out to mine bitcoins or to control the course of mining via the Internet or an app.

With this technology, you directly become part of a pool of miners who have the ability to earn a percentage of profit based on the hash power rented.

How Mining Works

But how does the creation of cryptocurrencies take place? It is important to keep in mind that as far as digital currencies are concerned, this system is based on a special technology called blockchain. When a transaction using cryptocurrencies is made, the network stores this activity in a series of blocks that are created by a chain of computers. In order to verify the procedure, this chain must be closed.

The key required to complete the transaction consists of a random numeric value called “Nonce” and an alphanumeric code called a hash that closes the block by sealing it. This system allows the chain to be completed, making each transaction unique and secure. In fact, to change a single transaction, you have to go into each block and simultaneously change the individual computers that are part of it.

Thus, the process of mining cryptocurrency is based on real research, as the miner, using a computer and very high computing power will try to find a resolution algorithm, understood as a procedure that involves creating any solutions that will result in the correct hash string. The difficulty is that in creating a hash, not only a series of numbers are added, but also the hash value of the previous blockchain.

Technically, the computer receives numerical information from another system or from the network and, through millions of calculations performed in one second, produces a probable solution, which leads to a hash that confirms the operation.

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