What is Bitcoin and how it works ?

What is Bitcoin and how it works ? | Coindelite Learn Bitcoin

Bitcoin is the first ever cryptocurrency created in 2009, made in existence by Satoshi Nakamoto. Transactions include no middlemen, i.e. complete exclusion of banks. There are no associated transaction fees and also no need to provide your real identity. Bitcoin is a type of virtual currency, produced and stored electronically. No one can control it. Bitcoins are not even printed; instead, people create these through their running computers all over the globe, utilizing such software that solves mathematical puzzles.

Why Bitcoins over standard currencies?

Bitcoin can be used to purchase anything electronically (through the internet). It can be explained as a currency that can be traded in a digital manner only.

The central idea of Bitcoin that makes it unique is that it is entirely decentralized, i.e. not any particular industry or government organization can control it. It simply means that no bank has given rights to control or put access to your money, in turn, reducing transaction fees.

Bitcoins can also be used to trade anonymously. Moreover, international payments become easy and inexpensive as bitcoins are not associated with any specific country or law. Bitcoins are being considered as excellent investment platform as the time is going by.


Who introduced it?

A software developer named Satoshi Nakamoto created bitcoin that was an electronic payment network depending on mathematical proof. The basic idea was to buy a currency without any involvement of any bank or government body. The transactions that can be performed electronically; quickly and with lowest possible transaction fees are made possible by him.


Are bitcoins being printed?

Bitcoins are being printed by no one, although they are mined. The idea behind this digital currency states that currency is not supposed to be kept under control of any central authority, that’s why its free to implement its own rules.

What banks used to do is to produce more money in order to devalue the currency. Instead, bitcoin is generated digitally, by a community of people that anyone interested may join. Bitcoins are ‘mined’, through computing power available in a distributed network being connected to the internet all the time.

This network also owns transactions done via the virtual currency, efficiently making bitcoin its own payment system.


How many bitcoins can be produced?

According to the bitcoin protocol, the number of bitcoins (fixed as 21 million) to be generated are being limited. Bitcoins can be created by miners anytime. Though, these coins can be partitioned into smaller entities (the minimum divisible amount is one hundred millionth of a bitcoin, i.e. called a ‘Satoshi’, after the founder of bitcoin).


What is the fundamental approach behind bitcoin?

Bitcoin doesn’t function like the conventional currency that you deposit some amount in the bank and then get an increased amount in return (depending on the policy you have chosen). Bitcoin is based on mathematics.

All over the globe, people are using software programs that depend on a mathematical formula to generate bitcoins. The mathematical formula is open to all to let anyone check it when needed.

The software is also available for all so that anyone can have a look at it to know that it functions what it is expected to.

To know more about bitcoin, let’s discuss some of its important characteristics:

  • Non-Degradable Value: Value of bitcoin is decided according to the level of supply and demand. It makes Bitcoin deflation because its supply is limited and no one can just mine it redundantly.


  • Flexibility: Bitcoin allows to exchange digitally. That’s why dealing in Bitcoins is a matter of utmost flexibility. One can transfer funds from anywhere at any time to anyone.


  • Portable: Bitcoin transaction is entirely internet based. That’s why it is absolutely portable. It is effortless to transfer funds to anywhere in the world in just some fraction of seconds. Whatever be the amount, it can be stored on a flash drive.


  • Decentralized: Bitcoin is fully decentralized without any involvement of central authorities. This enables increased security and also offers to perform untraceable transactions.


  • Reduced Transaction Fee: Because of no involvement of banks or government bodies, transaction fee associated with bitcoin gets reduced.


  • Fully Secured: If you have the cryptographic key for the ongoing transaction, then nothing can go wrong because, except the sender and receiver, no one gets involved in the transaction, which makes it extremely protected.


  • Impossible to Counterfeit: Bitcoin can’t be physically detected because it exists virtually. Some software may be used to identify it in the blockchain. But to do so, a lot of knowledge is required. It is not possible to counterfeit because of the cryptographic codes. None can hack or interrupt the process in between because of the blockchain technology.


  • Resolute: Bitcoin is completely digital, that’s why it won’t fade with time.


  • No interest rates associated: While using Fiat currency, users can get interested payments, but no interests are associated with cryptocurrencies because of 0% involvement of government.-

Some of the essential points to understand the functioning of Bitcoins:

  • Acquiring Bitcoins

There exist three primary ways to get bitcoins:

  1. Through Bitcoin Payments: The first way to obtain bitcoins is through bitcoin payments. It is the easiest way to attain bitcoins at very initial. In 2015, there were approx. 100,000 traders who accepted bitcoin payments coming from processing platforms like Coinify, BitPay, and Coinbase. These retailers have come up to use high-class platforms like Tesla, Microsoft, and Amazon.


  1. Bitcoin Mining: It’s like mining gold, the only change is that bitcoin mining is done online instead of being independent of geographic location. Bitcoin mining is done using multiple servers connected in series by solving complicated math problems. Many miners compete to win a reward of approx. 25 bitcoins in every 10 minute when they solve a puzzle successfully. The distribution of new bitcoins will start to fall by half after passing a four years’ duration.



  1. Buying Bitcoins: You can purchase bitcoins using cash from a bitcoin exchange platform and then transfer those bitcoins to your bitcoin wallet. Functioning of a bitcoin wallet is to store your private keys which are further matched to your bitcoin address to verify your ownership of the bitcoin.


  • Bitcoin Services

The bitcoin system is open to all, that’s why it is very convenient to start any kind of bitcoin business or to own bitcoins. Some of the associated platforms are:

  1. Services regarding Hardware/Digital Wallet: The individuals who own bitcoins, require a safe place to store them. Any digital or hardware wallet is such a medium to store bitcoins which works as a digital bank account. As bitcoins don’t involve any government interference, no significant authority could help if bitcoin transaction is being hacked in between. That’s why it is essential to secure the digital wallets with advanced protection levels to get rid of such hackers.

Cold wallets can be used to secure your bitcoins because these are hardware wallets which are not being connected to the internet, that’s why no hacker can attack a cold wallet.


  1. Bitcoin Exchange Platforms: Such a platform can also be said as bitcoin payment processor. Many exchange platforms have received a considerable amount of funding coming from various venture capitalists.


  • Blockchain Technology

Blockchain provides a digital ledger in which all the cryptocurrency transactions are being recorded chronologically and publically, and also the data is being updated with time. Blockchain comprises of a trail of information blocks that grows with the number of transactions, and new blocks are assigned according to the requirement. All the new blocks are added to the existing blockchain using a mechanism that is known as proof-of-work. Due to these leverages provided by blockchain technology, many organizations are trying to find ways to which this technology could be used in their respective functions.

  • Bitcoin Investments

The restriction in the creation of bitcoins makes it a hard tool to be invested in and also makes it more attractive to investors. Bitcoins’ prices are highly volatile, and if you’re a winner, then you may be capable of finding a way to get benefited from the changing price of bitcoin.

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