Bitcoin Blockchain Explained – Bitcoin Best Definition Essay

Bitcoin Blockchain Explained – Bitcoin Best Definition Essay

Bitcoin Blockchain Explained – Bitcoin Best Definition Essay

The oldest of the known cryptocurrencies has a firm grip on the world. What was once only a topic in isolated chat rooms has now become a prominent discussion in public. “Bitcoin” is on everyone’s lips and even the most conservative investor circles are now considering investing in it. But what is “Bitcoin”, who invented it, what is the meaning behind it and why does it have a real value? This article will provide answers to these and other questions.

An informative Name

Bit-Coin, a name made up of the terms bit – digital storage unit – and coin – has become a widely accepted financial asset, the price of which, at least recently, has only known one direction, straight to the moon, as hodlers would say. It all started in 2008 when a mysterious person under the pseudonym Satoshi Nakamoto published a document, describing a digital currency whose aim is to revolutionize our financial system from the base up. The BTC whitepaper was born. In the following year, software was developed based on the BTC whitepaper, and the first actual Bitcoin was mined. [1] The matter of identity of the ominous Nakamoto is has not yet been conclusively solved. Some prominent names in the crypto industry have claimed this name for themselves in the past, but it has not yet been finally clarified. The only real chance to get on the track of this puzzle lies in BTC itself, because the blockchain does not forget. Should the first bitcoins be moved, this could serve as an indication of Satoshi Nakamoto’s identity, but so far, any research in this matter has turned up only loose ends.

How it all started – Bitcoin Best Definition Essay

The Bitcoin whitepaper, published in the course of the financial crisis in 2008, had the aim of creating an independent, multinational and decentralized financial system in order to prevent such financial crises in the future. The financial crisis, whose domino effect started with the insolvency of the Lehman Brothers Bank, had shaken the financial world to its foundations. Numerous state interferences and financial aids were necessary to keep the system from collapsing, the effects of which are still clearly felt today, for example in the form of the low interest rate policy. These events got people thinking and BTc is one such intellectual offspring. [2] After the publication of the white paper, Bitcoin was worked on for a few months until the first block of the blockchain was mined on January 3, 2009. The political message of the bitcoins becomes evident when you look at the hidden message in the Genesis block of the blockchain. In it, you can find the encrypted text “Chancellor on the verge of the second bailout for banks”, which was also the front page of the 3rd of January 2009 in the British newspaper “The Times”. This represented a message as well as a justification for the “raison d’être” of Bitcoin. It should be ensured that something like this would never happen again.

However, a currency only has a right to exist if something can really be bought with it, a so-called use case. It wasn’t until 2010 that Bitcoin was first used to buy a real product. The American Laszlo Hanyecz wanted to know whether it was possible to buy something with BTC and on May 22, 2010 ordered two pizzas for the unbelievable amount of 10,000 Bitcoin. At that time, the coins were worth around 30 euros. Measured against the current value of BTC, the most expensive pizza delivery ever!

 

Bitcoin Blockchain Explained – How does Bitcoin work?

Bitcoin is the first official so-called cryptocurrency. The term crypto goes back to the Greek word cryptography, which meant secret writing. This encryption of information is also a central aspect of cryptocurrencies and grants the user a certain degree of anonymity. Nobody should be able to manipulate the digital currency, so by definition Bitcoin is an encrypted digital currency. Initially, of course, many people who prefer to stay in the dark also used this, which is why Bitcoin is still said to have a criminal image today. But actually, the opposite is the case, because Bitcoin is open source and accessible to everyone. All transactions that have ever taken place with BTC can be read on the blockchain. The blockchain, as the name suggests, is a series of blocks, with each block comprising a series of transactions. Every transaction must be confirmed, and the contents of this transaction are also stored in the following block, and so on, which makes manipulation virtually impossible. The entire blockchain is stored on many computers around the world and is freely accessible. That also makes manipulation more difficult. Simply put, the system is like the tally stick method in antiquity. The creditor and the debtor hold two sticks parallel to each other. Then as many notches are cut with a knife as there are debts, across both sticks. Everyone takes home one stick after the transaction. Neither of the two can manipulate the stick because then there is no identical notch on the “partner stick” and the offense would be noticeable immediately. The blockchain is a modern tally stick, because each block contains key data from the block before it, so it cannot be manipulated. There is always only one block after the next.

But what is that good for? Sure, it might be a nice gimmick for the programmers, but is there really any use? The answer is yes. Because the blockchain is secure, encrypted and cannot be manipulated, no financial institutions are required as intermediaries. In the traditional financial system, we rely on the good reputation of our financial institutions to ensure that our finances are handled responsibly and that all transactions are checked. However, this system is very complex, expensive and has several weak points.

 

To participate in this payment system without central authorities, all you need is internet access and a BTC wallet. [3]

 

All account transactions are stored in the blockchain, an eternal cash book. The formerly criminal image no longer comes into play today due to the traceability of transactions and the increasing skill of investigators; this role has been taken over by other, less transparent, and more anonymous cryptocurrencies. For the reasons mentioned, it is understandable that our modern financial institutions are not exactly enthusiastic about a decentralized financial system because it makes many of their areas of responsibility redundant.

 

How to send Bitcoin.

You need two things to carry out a Bitcoin transaction[4]: A Bitcoin address and a private key. The private key, consisting of a sequence of letters and numbers, is kept secret, while the randomly generated address, also consisting of a sequence of letters and numbers, is publicly accessible. This way, everyone knows what is on a Bitcoin address, but only the person who has the private key has access. A transaction is also based on this basic principle. If person A wants to send a certain amount of Bitcoin to person B, they need both addresses, that of the sender and that of the recipient. The transaction is signed via the wallet in which the private key is stored and sent to the BTC network. There the transaction is confirmed by the Bitcoin miners and the newly created block is added to the blockchain. The number of confirmations required also determines the duration of the transaction.

Transaction costs

The transaction costs can be set manually on many wallets. In general, however, higher transaction costs result in quick confirmation because they are processed by the miners in a prioritized manner. As a rule, however, the costs are significantly lower than, for example, international bank transfers. Transaction costs have increased recently because the Bitcoin network is becoming busier every day and the number of transactions is limited. The higher the demand, the higher the cost of getting confirmation quickly.

Bitcoin value and halving

The maximum amount of Bitcoin is limited. Every four years there is a so-called halving, in which the reward for mining a new block is halved. As a result, only half as many new Bitcoin are in circulation as in the same period before. Consequently, this also means that the total achievable amount of Bitcoin is limited to around 21 million Bitcoin. [5]  Of these, just over 18 million BTC have already been mined. This is exactly why many still view the value of Bitcoin as significantly undervalued, despite the current high price. 6/7 of all Bitcoins already exist and they are getting fewer and fewer over time, also because many BTC are no longer accessible due to lost private keys and are therefore lost to the system. If there were only about 20 million gold bars in the world, what would a gold bar be worth? The situation is similar with Bitcoin, as long as and if it is recognized as an object of value and means of payment, it is a very rare commodity and. Unlike gold bars, Bitcoin can be broken up into pieces and sent to the other end of the world within minutes which gives it a distinct advantage over its solid counterpart.

Bitcoin will never reach 21 million BTC in circulation. The verifiably lost Bitcoin alone make this impossible. … So we come to a total of 16,676,039.6 BTC, which are currently actually in circulation. So a total of 1,698,960.4 bitcoins could be lost forever. [6]

Future for bitcoin?

Bitcoin was the first real cryptocurrency, but it is also the oldest and that is usually not an advantage for technical projects. Although many teething problems have already been eliminated, the digital base and order book is overloaded due to the growing onslaught, which many financial institutions like to interpret as a serious weak point in the system, along with possible hacker attacks. However, changes have already been made to the blockchain in the past in order to increase the maximum possible number of transactions in a block and such changes will also have to take place in the future if the currency is to survive. Nevertheless, I am optimistic that BTC will also be able to develop further over time. Other major cryptocurrencies, lead by Ethereum, have already made the change from Proof of Work to Proof of Stake and are in the process of doing so. I’m not an expert, but why shouldn’t that be somehow possible for Bitcoin too, because it will take many more years until the last block is mined and change is possible. Bitcoin has a market capitalization of around 522 billion dollars, as of January 2021, of a total of over 800 billion in the entire crypto market, with a dominance of 62.9%. The dominance may decrease over time as other cryptocurrencies gain in importance, but a permanent decline in capitalization is difficult to imagine, too many institutional investors have already accepted Bitcoin as an asset. The crypto asset manager Greyscale is currently buying more Bitcoin every day than are being mined and may continue to do so in the foreseeable future. Of course, that does not mean that the Bitcoin price cannot fluctuate any further, but many analysts predict it has a bright future.

 

JP Morgan analysts expect a Bitcoin price of $ 146,000 coming up[7]

 

According to the “Handelsblatt”, Bitcoin could become as popular as an investment as gold in the long term. The JP Morgan experts point out that more and more investors are withdrawing money from gold and gold Etfs and investing in Bitcoin. Many so-called millennials prefer BTC to classic gold. Over the years, millennials are becoming an increasingly important part of the investor universe, and so too is the acceptance of Bitcoin. [8]  Similar to the current turbulence in stock trading, shaped by social media such as the Reddit Subchannel WSB, cryptocurrencies are also heavily influenced by young, inexperienced investors. But today’s young investors may be tomorrow’s asset managers, which is why I always try to keep an open perspective for change.

Looking Ahead – Bitcoin Blockchain Explained – Bitcoin Best Definition Essay

Our financial system is changing, you do not need to be an economic genius to notice that. We are moving more and more to cash free payment transactions and financial institutions also have to shift their priorities in order to survive. The time of good savings accounts may be over for a while, partly due to the ongoing low interest rate policy and also due to the shift in investment behavior. We are experiencing a transition to digital money and investment portfolios and cryptocurrencies are the next logical step. Our times bring many changes, both politically and economically. Bitcoin is the best example that no system lasts forever, it has proven this through its creation, shows it daily through its growing adaptation and will possibly also prove it in the end with its extinction or its evolution.

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[1] https://www.hanseaticbank.de/klarmacher/wissen/was-ist-ein-bitcoin-kryptowaehrung-einfach-erklaert visited on  25.01.2021 at 08:20 PM

[2] https://btcdirect.eu/de-at/geschichte-von-bitcoin visited on 25.01.2021 at 08:30 PM

[3]Zitat: https://www2.deloitte.com/de/de/pages/innovation/contents/bitcoin-wert-der-kryptowaehrung.html; visited on 30.01.2021 at 09:20 PM

[4] https://www.btc-echo.de/academy/bibliothek/bitcoin-transaktion/; visited on 30.01.2021 at 09:31 PM

[5] https://bitcoin-2go.de/bitcoin-fuer-immer-verloren-so-viel-weniger-btc-sind-tatsaechlich-im-umlauf/; besucht visited on 30.01.2021 at 09:56 PM

[6] https://bitcoin-2go.de/bitcoin-fuer-immer-verloren-so-viel-weniger-btc-sind-tatsaechlich-im-umlauf/; visited on 30.01.2021 at 09:56 PM

[7] https://www.handelsblatt.com/finanzen/maerkte/devisen-rohstoffe/kryptowaehrung-analysten-von-jp-morgan-erwarten-langfristig-einen-bitcoin-kurs-von-146-000-dollar/26768996.html?ticket=ST-4243664-Wwzn5cijDbAHqtlbhwmo-ap6;  visited on 30.01.2021 at 10:18 PM

[8] https://www.handelsblatt.com/finanzen/maerkte/devisen-rohstoffe/kryptowaehrung-analysten-von-jp-morgan-erwarten-langfristig-einen-bitcoin-kurs-von-146-000-dollar/26768996.html?ticket=ST-4243664-Wwzn5cijDbAHqtlbhwmo-ap6;  visited on 30.01.2021 at 10:18 PM

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