The Bitcoin network is a peer-to-peer payment network that uses a cryptographic protocol. Users of this network send and receive Bitcoins by broadcasting signed messages to the network using cryptocurrency wallet software. A distributed, publicly available database called the blockchain stores these transactions. A proof-of-work system called mining achieves consensus on the governance of this database.
Who invented the Bitcoin Network?
An individual or group under the pseudonym Satoshi Nakamoto. Satoshi Nakamoto published a white paper titled “Bitcoin: A Peer-to-Peer Electronic Money System” in 2008. This happened a month after investment bank Lehman Brothers filed for the largest bankruptcy in US history and the government approved a $700 billion bailout for the sector.
A few months later the Bitcoin network went live. This introduced a system of decentralized digital currencies, without a central authority. This system allowed users to transfer digital currencies to anyone with a Bitcoin address anywhere in the world. The first transaction contained a note that referenced a headline: “The Times 03/Jan/2009 Chancellor on the brink of the second bank bailout.”
What currency does the Bitcoin Network use?
Bitcoin is the currency in the Bitcoin network of which there is a limited supply of 21 million. Each Bitcoin is divisible into 100 million satoshis. This is the smallest unit of a Bitcoin, like cents, are to the dollar. Bitcoins works like electronic money.
Why do people invest in Bitcoin?
People invest in Bitcoin because they use it to speculate and it presents a rare asymmetric risk. It has outperformed every other asset class over the past decade. Bitcoin can also provide a long-term store of value to protect savings from inflation.
How is the Bitcoin network secured?
Bitcoin mining secures the Bitcoin network. Bitcoin mining uses computing power to secure transactions against conflicts and bring new Bitcoins into the system. Bitcoin mining uses a Proof-of-Work consensus mechanism based on the SHA-256 hashing algorithm.
Miners use specialized mining nodes. They provide the computing power needed to secure the network. Miners produce blocks of validated transactions and add them to the Bitcoin blockchain. They receive block rewards and parts of the transaction fees as a reward for doing so.
Miners compete with each other to produce blocks by solving complicated calculations. The difficulty of these calculations is variable and set by the Bitcoin software. This complexity of the calculations increases every 2016 block.
Once a miner solves the last calculation, the blockchain produces a new block. The miner publishes the result as proof on the blockchain. This proof is broadcast to nodes across the network. The network then verifies the solution and the transactions contained in the block. Even though it is difficult to solve, the solution itself is then easy to prove as valid for every node.
The recorded transactions of a block appear as one confirmation on the network. This is visible on wallet software and block explorers. Each block that follows adds another confirmation. After six confirmations, transactions are confirmed. The transactions are now irreversible. In case of conflict, nodes on the Bitcoin network consider the longest chain with the greatest proof-of-work to be the correct one.
What are the Bitcoin Network’s biggest security threats?
The Bitcoin network’s biggest security threats are unauthorized spending, double spending, and blockchain history modification.
The Bitcoin network prevents unauthorized spending by its implementation of public-private key cryptography.
Double spending is whenever a user pays the same coin twice. The Bitcoin network protects itself against double-spending by recording all transactions on the blockchain. The miners check the validity of each transaction.
Blockchain history modification
Every block on the blockchain is a confirmation of a transaction. When an attacker controls more than half of the total Bitcoin network power, transactions become reversible. This is a 51% attack.
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