Digital Currency – Bitcoin

The idea of a digital currency first appeared in the 90s, there were some promising projects that eventually failed. One of the problems with the early systems that wanted to create a digital currency was the use of trusted third party that were in charge of validating the transaction. Since the 90s the technology had an incredible progress and with that the people are spending more time every year in the digital world.

It was just a matter of time since someone had to find a solution to the problems of the digital currency systems developed in the 90s. On 2008 a programmer active on internet under the name of Satoshi Nakamoto published a whitepaper about a “peer-to-peer” electronic cash system and later on 9 January 2009 the open-sourced system described in his was paper was released on the internet. You can ask what he did different from the ideas proposed in the 90s and how can an electronic financial system be used and secured without a big entity (like banks) by the ordinary people.

Bitcoin on hundred dollars bills
Photo by Bermix Studio on Unsplash

Decentralized networks and blockchain

First of all, bitcoin doesn’t have a central server that is doing all the work when it comes to transactions. Because this project was introducing as a decentralized network, every participant will have a copy of all the transactions and with the help of the cryptography the nodes (participants of the network) can check and validate the transactions.

The blockchain (the tech behind bitcoin) is a digital public ledger where all the transactions are permanently recorded into blocks and can be checked by anyone. The records of the transactions are simple, you can see the public key of the wallets and the number of bitcoins that were transferred. Every wallet is public and can be checked to see what amount of bitcoin they have and what transactions were made with the wallet from the creation to the present date.

Miners

On the bitcoin network the miners are in charge of confirming the transactions and write them into the block, in the process the miners are soling cryptographic puzzles with the help of a PC. When the miner finished the puzzle and sign the transactions, they send the copy to the network and every node will update their own copy of the database with the new block that was mined. Every transaction registered in the blockchain is irreversible. Miners are getting rewards for every block mined (the reward at this time is: 6.25BTC) and also, they get the transaction fees paid by the users when they place one.

A decentralized network is working on the consensus between all the participants no matter how much bitcoins they own. All the consensus is kept from failing by some strong cryptographic algorithms.

The blockchain and the decentralized networks can lead to escape from the centralized banks system that is taking care of our finances. For example, this system can be so useful for smaller merchants because of the peer-to-peer transactions they can be paid by the customer without a third party, the transactions will be directly from customer to business. Since 2009 many projects came into the open and more ideas were developed to help with some limitations of scalability that bitcoin is facing right now with the spike in popularity among people.

There are options for bitcoin wallets, you can have desktop/mobile, online, hardware and paper wallets. The wallet on the bitcoin network is made from a public key(used for receiving funds) and the private key(used to sign transactions from the wallet), the most secured way to store a private key is to simply write it on a paper and to store it in a place where you are the only one that have access.

Because of the increase in popularity in the last years some exchanges were developed to make the way of cryptocurrencies faster to every person out there. The exchanges are third parties in the world of cryptocurrency, they are centralized but decentralized exchanges are getting more popular among users.

Future Economy

Bitcoin is seen right now as digital gold and a gateway from the centralized bank system. The supply of bitcoin is limited to 21.000.000 bitcoins and last bitcoin will be mined in the year 2140 if the protocol will remain unchanged as Satoshi Nakamoto introduced it, currently there are 18.530.000 circulating.

The blockchain and the cryptocurrency world is still under development but since the introduction of the system by Satoshi Nakamoto in 2009 a lot of projects were born and every day, they are updating their networks and they are able to prove that a system like this can be used in day to day life without problems in the next years. We can say that the blockchain in this moment like the internet is his early years of development.

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