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Bitcoin is the very first fully decentralized digital cryptocurrency. The main difference between Bitcoin and cryptocurrencies overall and regular money (Euro or US Dollar) is that there is no single supervisory authority or central bank to regulate it.
The distinctive feature of Bitcoin is that it operates in a peer-to-peer network and allows users to receive and send Bitcoin directly from each other without the participation of banks, payment systems, etc.
Nowadays, thousands of different cryptocurrencies and tokens exist and represent an entire industry, but Bitcoin was the first ever. Bitcoin White Paper was published for the first time on October 31, 2008, and signed by Satoshi Nakamoto. No one knows who is behind this pseudonym, whether it is one person or a group of people.
The first line of the text states: "A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution."
The Bitcoin network was launched on January 3, 2009, and marked the beginning of a revolutionary new industry.
How Does Bitcoin Work?
Bitcoin is a fully decentralized digital currency and had no analog at the time of its launch.
In the pre-digital era, the only means of payment and exchange were physical means and resources. We started with the barter system by exchanging some products for others, then precious metals appeared, which eventually served as the reason for the banknote introduction. Concerning the whole span of human existence, digital money appeared relatively recently. Banks became able to open online accounts, and electronic payment systems (PayPal, Payeer, and so forth) gained popularity.
A bank or payment system customer can make a successful online purchase or transfer only with the assistance of a central authority that debits and credits users' accounts while controlling every transaction. Such a system is known as centralized and coexists with cryptocurrencies.
The Bitcoin emergence was revolutionary because, from that moment on, any payment system could do without a central authority. Data about each user's transactions within the Bitcoin network is distributed in an encrypted form, meaning anyone can join the Bitcoin network and exchange funds securely with other users worldwide.
The sender only needs to know the recipient's Bitcoin wallet address to make the transaction. This address uniquely combines letters and numbers that allow the sender to transfer money and remain anonymous to the recipient. There is no longer any need for personal information to send funds using the Bitcoin network.
When you send your BTCs to someone, you stream your transaction to the entire network using a blockchain system. The Bitcoin network registry displays the latest version of the sender's wallet balance. The system checks the entry against the fund amount in the balance. It "sees" that the original balance has decreased by the last transaction amount.
For example, you have 2 BTC and want to transfer 1 BTC to another person. The system compares your balance and the last record of 1 BTC transfer in the registry and "sees" 2 BTC - 1 BTC = 1 BTC and completes the transaction.
The Bitcoin network operation is reliable and excludes fraud by users or a central authority (since there is no such thing at all). It relies on calculating a user balance before and after any accomplished transaction. The fundamental principle of such a system is that user balances must always converge. All registry entries are added and remain in the network forever. That is how Blockchain takes shape.
What Is Bitcoin Mining?
Mining refers to adding new blocks to the blockchain. Bitcoin miners use computing power to solve cryptographic problems. These are complex mathematical problems that computers essentially solve. A successful miner, who solves the problem before the others, receives a reward as a "block reward." This reward is a predetermined Bitcoin amount, which is valuable, as it can be exchanged for fiat money.
Miners frequently join forces and create mining pools to solve problems and earn a reward for mining before others. In such cases, the pool members distribute it among each other.
Once the math problem is solved, the block is "confirmed" and added to the blockchain. This new information is then passed to all members of the Bitcoin protocol, and the overall registry updates again.
As the price per Bitcoin increases, the reward for each new block increases. As a result, more and more miners want to join the "competition" to calculate and join blocks.
The more miners in the system, the more decentralized and safer the network becomes. The increasing level of competition forces miners to buy more powerful equipment to solve problems faster than others and to be rewarded for new blocks.
What Is Bitcoin Halving?
Halving is a specially provided measure of cutting the total number of Bitcoins to half while maintaining the real coins' value. To ensure that Bitcoin does not depreciate because of a never-ending supply, Satoshi Nakamoto introduced halving, which occurs every 210,000 blocks.
At the start of the Bitcoin network, the reward for each new block was 50 BTC. In 2012, this amount halved in block #210,000, where the reward per block was 25 BTC. The second halving occurred in 2016 in block #420,000, and the reward per block became 12.5 BTC.
This process will repeat every 210,000 blocks until the final number of BTC reaches 21 million BTC. Presumably, the last block reward will be paid in 2140!
Theoretically, halving does not affect the coin price. However, some believe that the Bitcoin value changes at the time of halving. Though, there needs to be precise data on the fall or rise of BTC after it.
How to Store Bitcoin?
There are two main types of wallets for cryptocurrency storage: hot and cold.
Hot wallets include all those that require access to the Internet: web, multi-signature, mobile, and desktop. They store user funds online, so you must have access to the network to make transfers and check balances.
Cold wallets include all offline methods of BTC storage, such as:
- The hardware wallet is a specialized device kept by the owner. To access the coins, you need to connect it to your computer and enter a PIN code. It is a reliable but relatively expensive and technically complex method.
- The paper wallet is a piece of paper with a QR code. The owner scans it and gets access to the funds.
Cold storage is safe but not practical at the same time. The necessity to pay something in Bitcoins, to receive or send them to another person, can appear at any moment. Carrying a wallet on hand may be dangerous, easily lost, or stolen, while restoring access to a cold wallet is usually a long and complicated process.
The most secure way to store Bitcoin is to use a PassimPay wallet. With PassimPay, users can access their funds at any time. It takes a few clicks. PassimPay ensures the security of user funds and information through robust data protection systems, constant user IP monitoring, and login controls. Learn more about PassimPay's reliability on our "Security" page.
How to Send Bitcoin?
The Bitcoin (BTC) network transfers funds through a peer-to-peer system. As we revealed earlier, the basic principle of blockchain is the intermediary absence. Users can transfer BTCs to each other directly and worldwide, bypassing intermediaries.
You can easily send BTC or any cryptocurrency to another person using PassimPay. To do so, you need to:
- Specify the address of the user's Bitcoin wallet.
- Enter the transfer amount.
- Confirm the operation using the 2FA application or email.
You can find detailed instructions on how to deposit or withdraw money using PassimPay on the Instructions page.
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