Bitcoin: from mining to selling on crypto exchange
Bitcoin can be bought, sold, mined. The Wall Street traders believe that it is an asset, miners consider it to be the new economy generation. We suggest to understand what bitcoin is and why everyone is talking about it.
What is bitcoin?
Bitcoin is a cryptocurrency. Its main difference from fiat money, which we use to buy goods and services, is decentralization. In other words, there is no central bank that would be engaged in their issue.
How did bitcoin appear? The BTC emission occurred with the help of software code written by Satoshi Nakamoto. In total, 21 million coins (tokens) were released, and more than 17 million were mined. But the mining aspect we’ll discuss a little bit later.
Bitcoin, as well as many other cryptocurrencies, is developed on blockchain. This is the technology of decentralized databases, where information is written in blocks that contain data about all previous ledger entries.
In other words, the bitcoin blockchain is a kind of payment system, in the network of which there are transfers using tokens instead of dollars or euros. Unlike Visa or MasterCard, such transactions do not require the confirmation of the central bank and are performed simultaneously on all the computing capacities that support such a network.
How does such a transaction look from the inside? Imagine that someone decided to buy coffee for cryptocurrency.
We have: John with bitcoins, coffee and e-wallet address of a coffee house.
- To pay for coffee, John needs two kinds of data: his private key, using which he will confirm the amount being debited from his bitcoin wallet, and the public key of the coffee house, meaning the address of the crypto wallet to which the payment is to be transferred.
- John uses the application to enter the public key of the coffee house. After that, miners receive a request for a new transaction, for which they confirm that John has enough bitcoins in the crypto wallet.
- After verification of this data, miners begin to make a transfer using the processing power of their processors and video cards. At this moment, they are engaged in solving a complex mathematical problem.
- When a solution is found, a new block is mined: it is a record in the distributed ledger saying that the transfer was made from one wallet to another. It is data hashing, a kind of ‘mold’, generated on the basis of John's private key and the public key of the coffee house.
- At the end, John receives a message that the coffee house using its private key has confirmed that the transaction and transfer were carried out, as evidenced by a new record in blockchain.
This is how John got coffee, and the coffee house – bitcoins. And tip went to miners, who managed to solve a complex mathematical problem, it is a reward for making a transaction in the form of a token.
How to mine bitcoin?
Obviously, without miners supporting the translation network, blockchain is impossible. But how do they mine bitcoins?
To do this, they need powerful processors, since a lot of computing power is required to solve a single mathematical problem. Due to the fact that the number of miners is growing, the time of hash provision is constantly increasing. Therefore, they use ASICs – special integrated units that solve the problem by a certain algorithm. The processor's power of a traditional graphics card is not enough.
Thus, mining means transactions in the chain of blocks, which technically look like a solution of complex mathematical problems, for which miners receive tokens. These tokens can later be exchanged or sold at crypto exchanges.
How to buy bitcoin?
Miners sell bitcoins, and crypto investors buy them. Because of the rate fluctuations and high price, some countries consider cryptocurrencies as an asset. The Chicago Stock Exchange even created a special financial instrument: bitcoin futures.
John, who pays for coffee with cryptocurrency, buys tokens on the Coinbase crypto exchange. It looks like this: after registering on the platform, he exchanges fiat for bitcoins. To make a transaction, he needs a crypto wallet. John's crypto wallet address looks like a set of 34 random characters. After he entered his public key, bitcoins are credited on his crypto wallet.
To provide security, John came up with a good password so that hackers could not steal his crypto saving. From time to time, he also makes a backup of the wallet. But the most effective way to protect wallet is two-factor identification.
So what is bitcoin? It is a multifunctional system that includes the development of a code, miners, investors and whole crypto economies, which accept cryptocurrency as a mean of payment.
Another reason why many people are discussing the digital currency is the blockchain technology. Decentralized databases can be applied in many areas: in the banking sector, logistics, the state and the Internet of things – wherever transparency, openness, security and absence of a human factor are required.