Bitcoin
The topic of this lecture is Bitcoin cryptocurrency. How much they talk about it everywhere, but let’s figure out what Bitcoin is.
There have been repeated attempts by society to come up with a payment system without an intermediary.
But there was a problem before the enthusiasts of «digital finance»:
Duplicate transactions or double spending — the network vulnerability, when you can spend your balance twice — we are talking about them.
In 2008, an anonymous programmer who introduced himself as Satoshi Nakamoto found a solution to the problem of double spending.
Nakomoto, posted an article on a popular cryptographic blog describing the payment system, which is the currency in which all difficulties were solved.
He suggested that instead of credit institutions and banks that record all transactions in one general ledger, all users themselves record all transactions at the same time.
As a result, any attempt to deceive the network will be noticed and the payment will be rejected. No bank, public service or individual user can influence the movement of payments, increase fees or freeze accounts.
This is how Bitcoin was born. It was the first success in creating a blockchain-based currency and solved the problem of double spending inherent in digital assets.
Bitcoin is the first decentralized digital currency in the world. This means that it does not have a single payment system, nor someone who would regulate its turnover. The idea of the creator of bitcoin is to create a financial system in which settlements will be carried out directly, without intermediaries.
It is based on blockchain, an electronic record keeping technology. Each entry is implemented as a block, and each block is chained in chronological order.
Bitcoin (BTC) — as of the end of July 2022, the cost of one bitcoin is about $20,000.
Bitcoin can be earned in many ways: mine it through mining, buy it on the open market, earn BTC through staking, and in very rare cases, get it as a result of promotions, bonuses and various games.
Let’s look at the main two methods:
buying on the open market (trading)
mining
Bitcoin can be bought using fiat currencies (for example, dollars, euros) on crypto exchange websites — for example, on Binance.com. Registration and verification of your data will take no more than an hour. We will show that in another lecture.
How is bitcoin mined?
The most famous way to get cryptocurrency is mining.
Mining works like this: a person or a group of people create a farm — many devices that support the operation of the entire network. The task of these computers is to solve a cryptographic problem and thereby record data about new transactions on the network in the blockchain.
The first device that was able to correctly match the combination to the cryptographic problem is rewarded with a part of the cryptocurrency.
Every four years, the number of bitcoins that are paid to miners when mining a block is halved. Thus, the number of bitcoins in circulation will grow gradually.
Bitcoin is valued on the same basis as fiat currencies. Its price is determined by the balance of supply and demand. In other words, bitcoin is worth as much as people are willing to pay for it. Demand is influenced by many factors: investor confidence in the prospects of cryptocurrencies, infrastructure development, the number of market participants, its volume, and many others.
After buying or mining, the question arises, how to store bitcoin?
Since cryptocurrencies have no physical expression (bills, coins, other types of receipts), a secure wallet is needed to store them and use them later.
There are a lot of options where to store bitcoin. They can be divided into two broad groups:
cold wallet
hot wallet
A cold wallet is a storage for cryptocurrency that is not connected to the internet. In other words, all the data necessary to access bitcoins is invulnerable to hackers. That is why cold wallets are called the safest way to store cryptocurrencies.
Hot wallets are bitcoin storages whose private key is located either on the Internet or on devices connected to it. Clients are provided with a hot wallet, which is securely protected by the company.
A Bitcoin wallet is a virtual storage. It is a set of files (or an application) that stores information about received and sent bitcoins.
After creating a bitcoin wallet, you get two keys — public and private.
Let’s simplify and compare it with a bank card: you, as the owner, have access to all the information, including the secret code on the back and the pin. With their help, you can pay in stores. A private key has similar functions — it gives you the opportunity to access the bitcoins that are stored in the wallet.
If one of your friends wants to transfer money to you, for example, for lunch in a cafe, then you will give him either a phone number or a card number. To transfer to your card, a secret code or pin is not needed. This can be compared to a public key — it allows another participant in the system to find out where to transfer money.
Bitcoin wallets have another secret combination — a phrase for recovering a private key. This is a random set of words that you will need if you accidentally lost access to the key. The loss of a private key and a secret phrase at the same time means a complete loss of access to the wallet.
The security of funds in user wallets directly depends on how good the private key cipher is and how securely it is “hidden” from prying eyes. One of the main dangers for those who store keys on third-party services is hacker attacks,
for example, crypto exchanges were repeatedly hacked, and bitcoin owners lost their investments forever.
Summing up this lecture, I would like to say that at the moment Bitcoin is surrounded by some uncertainty. Some sincerely believe that he is the future. Others are afraid that it can destroy the global economy, but on both sides people agree that if we trust in a digital currency without intermediaries, bitcoin or any other similar cryptocurrency, then the global economy will change for the better, become more fair, transparent and effective.