Bitcoin, a word that has gained so much popularity overtime, on television, in university, among friend groups and even has area where members of the Bitcoin community can regroup.
Bicoin Island, a paradise site near the Philippines. Image Source : cryptoofficiel.com
But what is Bitcoin ? How does it works ?
The Beginning
The 31th of october 2008 while the stock market crashed, a person under the pseunonym of Satoshi Nakamoto introduced to the public the whitepaper of Bitcoin that he had prepared for 2 years.
Satoshi Nakamoto was a member of the cypherpunks community, a group of activists that don’t trust the gouvernement and that promote privacy-enhancing technologies such as Bitcoin.
He published the “whitepaper of Bitcoin”, explaining how it works and why the world needs it.
The Functionality
As you may know Bitcoin was created to be a form a currency that is independent of governments that can print as much as they want, thus creating inflation.
Source : analisagold.com
However in real life, controling the amount of money of each person is much easier that in the digital world.
For exemple : If I had 10 (physical) dollars and gave it to you, I will not have those dollars on me anymore.
However on the internet, what is stopping me from duplicating my money by sending 20 dolars even tho I don’t have them ? This is called the “double-spend problem”.
The banks have solve this issues by having a database where they can see how many money each of us have so that we can’t cheat the system.
However, the main drawback is that it is a centralized and opaque solution.
However, the Power of Bitcoin is that it has the ability to solve this double-spend dilemma in a decentralized manner by making all the “Miners” of the network hold the record of the transactions taking place and controling if the sender has the amount of Bitcoin he wants to send.
Thus, nobody alone control the network and most importantly, it is transparent, everyone can see all the transaction but keeping the anonymity of senders and receivers.
The Miners
After what I said above, it seems like miners have a very important role in the Bitcoin ecosystem, but who are they ? And why do they do that ? We are going to find out.
First of all, everyone that have access to electricity and a mining divice such as a computer can start mining.
Before I start to explain some activities miners do, you need to know that a blockchain can have different ways to function, some don’t need miners but validators (Ethereum) some don’t require a lot of electricity (Proof of Stake) etc…
They all have different pros and cons :
So in the case of Bitcoin, it is a Proof of work (POW) mechanism.
The activities miners realise are very important for the security and the function of the blockchain.
In more details, their role is to verify the transactions and updating the transaction history in order to make the network safe from attacks.
Each transactions are put inside a block by one miner, and by doing so, he is rewarded with 6.25 BTC (at the time of writing) for each new block created + transactions fees (Fluctuates with network activity).
Seems like a lot of rewards ? Yes but…
In order to be the chosen miner, you have to solve a math equation by guessing the correct answer, in order to find the answer you have to test all of the differents combinations.
So as you guessed, the amount of electricity you need is very high. That’s why there are companies who are specialized in mining BTC who have “mining farms” where there are a lot of powerful computers trying to solve the equation.
So the real amount of rewards is : 6,25 BTC — the electricity bill + transactions fees.
And this is if you manage to find the answer one time ! Which is very very rare if you are mining alone.
The Tokenomics
What are tokenomics and why is that important ?
Tokenomics is the economy of a token, it help us understand the future path of a token. For exemple, what is the maximum supply ? (if there is one ), is the token inflationary or deflationary, how is it distributed among the community, investors, team…
Source : neptunereview
In the case of Bitcoin :
- The maximum supply is 21 millions BTC
- The number of new Bitcoin created is divided by 2 every 4 years, thus reducing inflation
- The token is inflationary with a rate of 0.5% per year at the time of writing
- The current supply circulating is 19,438,806 which means that nearly 92.5% of the total supply of BTC is in circulation.
So Bitcoin is a currency that is similar to gold because there is not an infinite supply and the rate of newly issued Bitcoin is fairly low and will tend to be even lower.
That’s why people call Bitcoin the digital gold ! It has proven that it is a store value.
Conclusion :
Bitcoin is a product of an ideology that believe in the right of privacy and the right of financial freedom for everyone.
And you, what do you think of the concept of Bitcoin ? Will it be successful ?
As always thank you for reading !
This article was published first on Medium
Disclaimer : This is not a financial advice, you need to do your own research !
