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Bitcoin is a digital and global money system currency. It allows people to send or receive money across the internet, even to someone they don’t know or don’t trust. Money can be exchanged without being linked to a real identity. The mathematical field of cryptography is the basis for Bitcoin’s security.
A Bitcoin address, or simply address, is an identifier of 26-35 letters and numbers, beginning with the number 1 or 3, that represents a possible destination for a bitcoin payment. Addresses can be generated at no cost by any user of Bitcoin. For example, using Bitcoin Core, one can click “New Address” and be assigned an address. It is also possible to get a Bitcoin address using an account at an exchange or online wallet service.
There are currently two address formats in common use:
Common P2PKH which begin with the number 1; e.g.: 1BvBMSEstWetqTFn5Au4m4GFg7xJaNVN2.
Newer P2SH type starting with the number 3; e.g.: 3MXknxVapwv6QkMoQv99MBuXZ2XpPewHn9.
Contents From Wikipedia
One of the differences between using bitcoin and using regular money online is that bitcoin can be used without having an internet connection to link any sort of real-world identity to it. Unless someone chooses to link their name to a bitcoin address, it is hard to tell who owns the address. Bitcoin does not keep track of users; it keeps track of addresses where the money is. Each address has two important pieces of cryptographic information, or keys: a public one and a private one. The public key, which is what the “bitcoin address” is created from, is similar to an email address; anyone can look it up and send bitcoins to it. The private address, or private key, is similar to an email password; only with it can the owner send bitcoins from it. Because of this, it is very important that this private key is kept secret. To send bitcoins from an address, you prove to the network that you own the private key that corresponds to the address, without revealing the private key. This is done with a branch of mathematics known as public key cryptography.
A public key is what determines the ownership of bitcoins, and is very similar to an ID number. If someone wanted to send you bitcoins, all you would need to do is supply them your bitcoin address, which is a version of your public key that is easier to read and type. For example, if Bob has 1 bitcoin at the bitcoin address “ABC123,” and Alice has no bitcoins at the bitcoin address “DEF456,” Bob can send 0.5 bitcoins to “DEF456.” As soon as the transaction is processed, Alice and Bob both have 0.5 bitcoins. Anyone using the system can see how much money “ABC123” has and how much money “DEF456” has, but they cannot tell anything about who owns the address.
In the example above, “ABC123” and “DEF456” are the bitcoin addresses of Bob and Alice. But Bob and Alice each have a second key which only they individually know. This is the private key, and it is the “other half” of a Bitcoin address. The private key is never shared, and allows the owner of the bitcoins to control them. However, if the private key is not kept secret, then anyone who sees it can also control and take the bitcoins there. This happened on live TV when Bloomberg’s Matt Miller accidentally showed a private key to viewers. The money was taken immediately. The person who took it, told others about it later, saying “I’ll send it back once Matt gives me a new address, since someone else can sweep [empty] out the old one.”
Sites or users using the Bitcoin system are required to use a global database called the blockchain. The blockchain is a record of all transactions that have taken place in the Bitcoin network. It also keeps track of new bitcoins as they are generated. With these two facts, the blockchain can keep track of who has how much money at all times.
To generate a bitcoin, a miner must solve a math problem. However, the difficulty of the math problem depends on how many people are mining for bitcoin at the moment. Because of how complicated the math problems usually are, they must be calculated with very powerful processors. These processors can be found in CPUs, graphics cards, or specialized machines called ASICs. The process of generating the bitcoins is called mining. People who use these machines to mine bitcoins are called miners. Miners either compete with one another or work together in groups to solve a mathematical puzzle. The first miner or group of miners to solve the particular puzzle are rewarded with new bitcoins.
The puzzle is determined by the transactions being sent at the time and the previous puzzle solution. This means the solution to one puzzle is always different from the puzzles before. Attempting to change an earlier transaction, maybe to fake bitcoins being sent or change the number of someone’s bitcoins, requires solving that puzzle again, which takes a lot of work, and also requires solving each of the following puzzles, which takes even more work. This means a bitcoin cheater needs to outpace all the other bitcoin miners to change the bitcoin history. This makes the bitcoin blockchain very safe to use.
A popular image associated with Bitcoin is a QR code. QR codes are a group of black and white boxes that are similar to barcodes. Barcodes are a row of lines, and QR codes are a grid of squares. Bitcoin uses QR codes because they can store more information in a small space, and a camera such as a smartphone can read them. The two QR codes on the Bitcoin note are the public and private addresses, and can be scanned with a number of online tools.
Everyone in the Bitcoin network is considered a peer, and all addresses are created equal. All transactions can take place solely from peer to peer, but a number of sites exist to make these transactions simpler. These sites are called exchanges. Exchanges provide tools for dealing in Bitcoin. Some allow the purchase of Bitcoin from external accounts, and others allow trading with other cryptography-based currencies like Bitcoin. Most exchanges also provide a basic “wallet” service.
Wallets provide a handy way to keep track of all of a user’s public and private addresses. Because addresses are pseudo-anonymous, anyone can have as many addresses as they want This is useful for dealing with multiple people, but it can get complicated to manage multiple accounts. A wallet holds all of this information in a convenient place, just like a real wallet would. A backup of a wallet prevents ‘losing’ the bitcoins.
Bitcoin adoption and use continues to grow a lot every year. Since 2012, Bitcoin has gained the attention of the mainstream media; one way is the WannaCry ransomware created in May 2017.Adoption growth has not only happened for consumers, but also for many companies, who are looking to make use of all of the advantages of Bitcoin.
How Bitcoin Mining Works
Where do bitcoins come from? With paper money, a government decides when to print and distribute money. Bitcoin doesn’t have a central government.
With Bitcoin, miners use special software to solve math problems and are issued a certain number of bitcoins in exchange. This provides a smart way to issue the currency and also creates an incentive for more people to mine.
Bitcoin is Secure
Bitcoin miners help keep the Bitcoin network secure by approving transactions. Mining is an important and integral part of Bitcoin that ensures fairness while keeping the Bitcoin network stable, safe and secure.
Bitcoin Mining Hardware Comparison
Currently, based on (1) price per hash and (2) electrical efficiency the best Bitcoin miner options are:
- 4.73 Th/s
- 0.25 W/Gh
- 8.8 pounds
- 13.5 Th/s
- 0.098 W/Gh
- 8.1 pounds
Bitcoin mining is the process of adding transaction records to Bitcoin’s public ledger of past transactions or blockchain. This ledger of past transactions is called the block chain as it is a chain of blocks. The block chain serves to confirm transactions to the rest of the network as having taken place.
Bitcoin nodes use the block chain to distinguish legitimate Bitcoin transactions from attempts to re-spend coins that have already been spent elsewhere.
What is Bitcoin Mining?
What is the Blockchain?
The primary purpose of mining is to allow Bitcoin nodes to reach a secure, tamper-resistant consensus. Mining is also the mechanism used to introduce Bitcoins into the system: Miners are paid any transaction fees as well as a “subsidy” of newly created coins.
This both serves the purpose of disseminating new coins in a decentralized manner as well as motivating people to provide security for the system.
Bitcoin mining is so called because it resembles the mining of other commodities: it requires exertion and it slowly makes new currency available at a rate that resembles the rate at which commodities like gold are mined from the ground.
What is Proof of Work?
A proof of work is a piece of data which was difficult (costly, time-consuming) to produce so as to satisfy certain requirements. It must be trivial to check whether data satisfies said requirements.
Producing a proof of work can be a random process with low probability, so that a lot of trial and error is required on average before a valid proof of work is generated. Bitcoin uses the Hashcash proof of work.
What is Bitcoin Mining Difficulty?
The Computationally-Difficult Problem
Bitcoin mining a block is difficult because the SHA-256 hash of a block’s header must be lower than or equal to the target in order for the block to be accepted by the network.
This problem can be simplified for explanation purposes: The hash of a block must start with a certain number of zeros. The probability of calculating a hash that starts with many zeros is very low, therefore many attempts must be made. In order to generate a new hash each round, a nonce is incremented. See Proof of work for more information.
The Bitcoin Network Difficulty Metric
The Bitcoin mining network difficulty is the measure of how difficult it is to find a new block compared to the easiest it can ever be. It is recalculated every 2016 blocks to a value such that the previous 2016 blocks would have been generated in exactly two weeks had everyone been mining at this difficulty. This will yield, on average, one block every ten minutes.
As more miners join, the rate of block creation will go up. As the rate of block generation goes up, the difficulty rises to compensate which will push the rate of block creation back down. Any blocks released by malicious miners that do not meet the required difficulty target will simply be rejected by everyone on the network and thus will be worthless.
The Block Reward
When a block is discovered, the discoverer may award themselves a certain number of bitcoins, which is agreed-upon by everyone in the network. Currently this bounty is 25 bitcoins; this value will halve every 210,000 blocks. See Controlled Currency Supply.
Additionally, the miner is awarded the fees paid by users sending transactions. The fee is an incentive for the miner to include the transaction in their block. In the future, as the number of new bitcoins miners are allowed to create in each block dwindles, the fees will make up a much more important percentage of mining income.