Bitcoin is a worldwide cryptocurrency and digital payment system. This unit is the first decentralized digital currency. This system works without a central repository or a single administrator. Where did cryptocurrency Bitcoin come from ? It was invented by an unknown person or group of people under the name Satoshi Nakamoto and released as open source software in 2009.
The system is peer-to-peer, and transactions are carried out between users directly, without an intermediary. All operations are verified by network nodes and written to a public distributed register called a blockchain.
Where do bitcoins come from? They are created as a reward for a process known as mining. They can be exchanged for other currencies, products and services. As of February 2015, more than 100,000 companies around the world accepted bitcoins as payment. This cryptocurrency can also be considered as an investment. According to studies conducted by the University of Cambridge in 2017, there are 2.9-5.8 million unique users using code encryption, most of which use bitcoin.
Terminology
The word bitcoin was first mentioned in an official document published October 31, 2008. The name of the term comes from the English words "bit" (bit) and coin (coin). There is no single agreement on the correct spelling of this name. In some sources, it is written with a capital letter, according to other sources - with a lowercase.
Units
The unit of accounting for this cryptocurrency system is Bitcoin. Starting in 2014, the tickers used to indicate this unit are identified as BTC and XBT. At the same time, the components of bitcoin used as alternative units are millibits (mBTC) and Satoshi. Named after the creator of the Satoshi cryptocurrency, this is the smallest amount in bitcoin representing 0.00000001 or one hundred millionth BTC. Millibit is equal to 0.001, or a thousandth of Bitcoin.
How did bitcoin come about?
The history of some events will help to figure out what kind of currency Bitcoin is and where each satoshi comes from.
On August 18, 2008, the domain name bitcoin.org was registered. In November of that year, a link to a document signed by Satoshi Nakamoto, titled “Bitcoin: Peer-to-Peer Electronic Money System”, was sent to the cryptography mailing list. Nakamoto implemented bitcoin software as open source and released it in January 2009. The reality of the inventor remains unknown, although many claim to know this person personally. Where do bitcoins come from now?
In January 2009, the Bitcoin network appeared after Satoshi Nakamoto mined the first block in the chain, known as the genesis block, for a fee of 50 bitcoins. One of the first supporters and miners of this cryptocurrency was the programmer Hal Finney. He downloaded the software the same day it was released, and received 10 bitcoins from the first transaction in the world.
In the early days, Nakamoto, according to experts, extracted 1 million bitcoins. Before leaving cryptocurrency mining, the creator of the system transferred control to Gavin Andresen, who later became a leading developer at the Bitcoin Fund.
First difficulties
From this moment it became well known how bitcoin is mined, which is what the attackers took advantage of. On August 6, 2010, a serious vulnerability was discovered in the cryptocurrency protocol. Transactions were not properly verified before they were included in the blockchain, which allowed users to circumvent economic restrictions and create an indefinite number of bitcoins. On August 15, this vulnerability was exploited: in one transaction, more than 184 billion BTC were created and sent to two addresses on the network. Within a few hours, this operation was discovered and deleted from the log after fixing the error, and the network was branched into an updated version of the cryptocurrency protocol.
On August 1, 2017, bitcoin was divided into two derivative digital currencies - classic (BTC) and cash (BCH). This allowed us to solve the problem of how to bring bitcoins into physical form.
How does it work now?
A blockchain is a public ledger that records transactions. The new system solution does this without any trusted central authority: blockchain maintenance is performed by a network of communication nodes working with software. Where does bitcoin come from?
In simple words, this can be explained as follows. Payer transactions of the form X send Y bitcoins to the recipient Z, which are transmitted to this network using available software applications. Network nodes can verify operations, add them to their copy of the book, and then translate these records to other nodes. A blockchain is a distributed database — each network node stores its own copy of the blockchain.
About six times per hour, a new group of accepted transactions is created - a block that is added to the chain and published quickly to all nodes. This allows cryptocurrency software to determine when a certain portion of bitcoin was spent, and what is needed to prevent double spending in an environment without centralized control. Taking into account that in a regular book translations of actual resources that exist separately from it are recorded, the block chain is the only place that, apparently, can have bitcoins in the form of unspent transaction outputs. Bitcoin mining is based on this. Where does the money come from? They are recreated in the blockchain as a result of the above operations.
Operations
Transactions consist of one or more inputs and outputs. When a user sends bitcoins, he assigns each address and the number of units of currency sent to this address at the output. To prevent double costs, each input must reference the previous unspent output in the block chain. The use of multiple inputs corresponds to the use of several "coins" in a cash transaction. Since operations can have multiple outputs, users can send bitcoins to multiple recipients in one command. As in cash transactions, the amount of deposits (units of the cryptocurrency used for payment) may exceed the estimated amount of payments. In this case, an additional output is used that returns the change back to the payer. Any input that is not taken into account in the transaction output becomes a commission for it.
Transaction costs
Transaction fee is optional. Miners can choose which operations to process and set priorities for those who pay a higher amount. Tariffs are based on the storage size of the generated transaction, which, in turn, depends on the number of inputs used to create it. In addition, priority is given to old unspent inputs.
Possession
In a blockchain, bitcoins are registered to addresses. Creating a BTC address is nothing more than choosing a random valid private key and calculating the corresponding address. This calculation can be completed within a second. But the reverse action (calculating the private key of a given bitcoin address) is mathematically impossible, and therefore users can inform others and publish the address without prejudice to its corresponding closed code. Moreover, the number of the above keys is so large that it is extremely unlikely that someone will figure out their pair, which is already in use and has the means.
In order to be able to spend bitcoins, the owner must know the corresponding closed code and sign the transaction in digital form. The network verifies the signature using the public key.
If the private key is lost, the Bitcoin network does not recognize any other evidence of ownership of them. Then the money becomes unusable and simply lost. For example, in 2013, one user claimed to have lost 7,500 BTC (at that time $ 7.5 million) when he accidentally threw out a hard drive containing his private key. Perhaps backing up his data might prevent this.
Where does the money come from?
Bitcoin mining is an accounting service performed using computing power. Miners keep the blockchain consistent, complete and unchanged, repeatedly checking and collecting newly transmitted transactions in a new group called a block. Each block contains the cryptographic hash of the previous one using the SHA-256 hash algorithm, which links them together. This allows you to answer the question of where bitcoins come from for “dummies”.
To be accepted by the rest of the network, the new unit must contain what is known as proof of work. It requires miners to find a number called nonce, and when the contents of the block are hashed with it, the result is numerically less than the target level of network complexity. This proof is easily accessible for verification from any network node, but at the same time it is extremely difficult to generate.
The proof of health system, along with the block chain, makes it extremely difficult to modify the block chain, since the attacker must modify all subsequent blocks in order for the changes to be accepted. Even with a complete understanding of where bitcoins come from, it's impossible to fake them.
As miners work continuously and their numbers grow, the complexity of modifying a block increases over time.
Bitcoins in circulation
How to mine bitcoins? A successful miner located in the new block receives a reward for recently created Bitcoin and transaction fees. As of July 9, 2016, production was 12.5 newly created BTCs for each block added to the chain. To receive a reward, a special transaction must be included in the processed payments. Where do bitcoins come from? All existing BTCs were created precisely in such operations.
The protocol indicates that the reward for adding a block will be halved every 210,000 blocks (approximately every four years). In the end, it will decrease to zero, and the limit of 21 million bitcoins will be reached. From now on, each miner will be rewarded only for transaction fees. This will greatly complicate the task of how to earn bitcoins.
In other words, the inventor of bitcoins Nakamoto established a monetary policy based on an artificial deficit at the very beginning, limiting the possible number of cryptocurrency units to 21 million. A certain number of them are released approximately every ten minutes, and the speed with which they are generated will be halved every four years until everyone is in circulation. After that, the most relevant question will be how to withdraw bitcoins and how to use them as a means of payment.
Online Storage
A cryptocurrency wallet stores information necessary for a bitcoin transaction. They can be thought of as a place to store BTC, but due to the specific nature of the system, they are inseparable from the chain of a transaction block. Therefore, a cryptocurrency wallet can be represented as a functional that stores digital credentials for mined bitcoins and allows the user to receive and spend them. BTC uses public key cryptography, in which two cryptographic codes are generated - public and private. At its core, such a wallet is a collection of these keys.
There are several types of cryptocurrency wallets. Software connects to the network and allows you to spend bitcoins in addition to credentials confirming ownership. Such wallets can be divided into two categories: high-grade and lightweight clients.
The former verify transactions directly on a local copy of the blockchain (more than 136 GB as of October 2017) or a subset of it (about 2 GB). Due to its size and complexity, it is not suitable for all computing devices. If you are interested in such a task as mining bitcoins, you will need just such a wallet.
Lightweight clients, on the other hand, consult full-fledged ones to send and receive transactions without requiring a local copy of the entire chain. This simplifies the work and allows you to use them on low-power devices with low bandwidth (for example, smartphones). However, when using a light wallet, the user must trust the server to a certain extent. When using such a client, the server cannot steal bitcoins, but can report faulty values. When using both types of software wallets, users are responsible for keeping the private keys in a safe place.
Online Services
In addition to software, there are Internet services called online wallets that offer similar functionality, but may be easier to use. In this case, the credentials for accessing the funds are stored with the online client provider, and not on the user's hardware. In this case, a server security violation could lead to the theft of BTC.
Confidentiality
Bitcoin is a pseudonym, and this means that the funds are not tied to real-world objects, but rather to cryptocurrency addresses. Their owners are not identified, but all transactions on the blockchain are publicly available. In addition, transactions can be associated with individuals and companies through “idioms of use” (BTC from several sources indicating that the inputs may have a common owner).
To increase financial confidentiality, a new bitcoin address can be generated for each transaction. For example, hierarchical deterministic wallets generate pseudo-random “moving addresses” for each operation from a single cycle, while only one passphrase is required to recover all the corresponding private keys. This is especially true in cases where cryptocurrencies are illegal. So, the news constantly says that Bitcoin in Russia will be banned in the future. BTC sites are currently blocked regularly.
Financial studies have also shown that through the exchange of BTC various entities can prove their assets, liabilities and solvency without revealing the address. According to experts, this cryptocurrency resembles the money on credit cards.
However, electronic exchangers, where BTC can be exchanged for other traditional currencies, may require some personal user data.
Interchangeability
Wallets and similar software technically process all bitcoins as equivalent, setting a basic level of interchangeability. The researchers noted that the history of each BTC is recorded and publicly available in the block book, and some users may refuse to accept cryptocurrency units coming from unreliable operations that could damage compatibility.
Blocks in the blockchain are limited to one megabyte in size, which creates problems for processing transactions such as increased fees and delayed processing that cannot be placed in it. On August 24, 2017, the maximum throughput of the block was increased, and the operation identifiers remained unchanged. It became available with the introduction of the SegWit service, which also allows the implementation of the Lightning network, designed for scalability with instant transactions.
Classification to date
Bitcoin is a digital asset designed to be used as a currency. The question of whether it is a currency or not is still disputed. Where does the bitcoin course come from ? As in the case of classic conventional denominations, it is associated with supply and demand, as well as with accessibility. As more and more people find cryptocurrencies viable, and even see them as a substitute for physical money, their value will rise. And in conditions of an artificially created deficit, price growth will be observed as all BTCs are mined.
According to The Economist magazine, bitcoins have three main qualities that real money units have: they are hard to earn, they are limited in supply and easy to check. Economists define money as a value, medium of exchange and unit of account, and at the same time agree that bitcoin meets all of these criteria. However, it is best used as a medium of exchange.
According to studies conducted by the University of Cambridge, since 2017, 2.9 million BTC have been spent and exchanged, as well as 5.8 million unique users using a cryptocurrency wallet have been registered.
If mining is not effective, can something be done?
How to earn bitcoins without resorting to mining? The most obvious way is trading on exchanges, which is similar to the well-known currency trading. Since the BTC rate is constantly fluctuating, a significant profit can be made due to the difference in rates. You can buy and sell bitcoin in Russia on various international exchanges both independently and through financial brokers.
You can withdraw bitcoins through the same exchangers, acquiring any currency or electronic money for them.