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What is Bitcoin?
Introduction to Bitcoin
Bitcoin is the most used and known cryptocurrency since its creation in 2009. In 2021, its value rose to $38,000. It utilizes public-key cryptography to verify digital signatures for its digital currency exchange and algorithms for tracking ownership of coins in the network, referred to as “proof of work.”
The purpose of this is for the user to possess the private keys necessary to sign a transaction to send bitcoins to another user. Users can create an online wallet on hardware that possesses private keys.
Bitcoin uses Elliptic Curve Digital Signature Algorithm (ECDSA) which is a variation to Digital Signature Algorithm (DSA). The structure of Bitcoin cannot occur separately from the signatures in this algorithm because, with them, the transactions can be measured for their validity.
Thus, allowing only the owner of the bitcoins in this particular transaction to be able to send coins to another address.
Bitcoin value compared to USD
In the algorithms, the majority of the network messages are hashed with a hash-functionality.
The message can be of whichever length, but the input requires 256 bits, and the message can be signed. The hash function used is SHA-256, and when a shorter hash is needed, RIPEMD-160 will be used. In Bitcoin, almost the entirety is hashed twice, double SHA-256 or SHA-256, and then RIPEMD-160 for short hash.
Transactions
Transparency of Bitcoin blockchain enables users to verify transaction timing, size, and destination. It’s described as a coin of digital signatures.
The user sends coins to another by signing a hash of the exchange and the public key of the new owner and adding it to the end of the coin.
Transactions, in general, contain elements that are required to ensure validity. Inputs: amount bitcoin that will be sent, Outputs: the value of several bitcoins that are sent and address, Unique Identifier: maintains all transactions, and Signatures: without these transactions will not be valid. To have a valid transaction, the user that sends the input must sign the transaction.
Transactions are put together in blocks; this allows for the number of transactions added to the blockchain at one time to increase. They are collected by a node to put in the block, which is made up of a block header and two hash pointers. The block header contains a timestamp and the hash pointer to the exchange of coins is a hash root of the Merkle tree that acts as the directory of all transactions placed in that particular block.
Transactions occur when a user sends his key to another user’s wallet, writes a payment order for 1 BTC, and signs it with their private key. The transaction is then proposed to the network, confirming and verifying the exchange to make it valid. Therefore, Bitcoin transactions are not entirely private. It’s added to the blockchain and is available online. It is readily available to point out the wallets present in the transaction. It is difficult, on the contrary, to identify individual users solely on the wallet used, which provides some anonymity.
Mining
Miners solve a mathematical equation with a challenging solution, and the proposed solution is sent out into the network for other miners to verify. Suppose the solution is supported by a majority, based on calculation capacity and computer power. In that case, the transactions are then added to the blockchain, elongating the blockchain by one block.
Compensation for miners is to create new Bitcoins. Miners that find the solution to the hash function the fastest, as compensation, add their transaction to the block. It credits the miner’s wallet with a certain amount of BTC without another entity's wallet being debited. With the increase of computing power in the network, the more difficult it will be to mine BTC successfully. Unlike physical currencies issued by a central bank, the creation of BTC relies solely on its engagement.
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