Hello Everyone,
Today I am coming with my another Long Form posts on Leo Finance. Today I am going to make a detailed article about Bitcoin and How it works as a submission of the Finance Bro Adventure on Zealy Adoption Campaign.
What is Bitcoin?
Bitcoin is the first and most widely recognized cryptocurrency. It enables peer-to-peer exchange of value in the digital realm through the use of a decentralized protocol, cryptography, and a mechanism to achieve global consensus on the state of a periodically updated public transaction ledger called a blockchain. Practically speaking, Bitcoin is a form of digital money that exists independently of any government, state, or financial institution, can be transferred globally without the need for a centralized intermediary, and has a known monetary policy that arguably cannot be altered. At a deeper level, Bitcoin can be described as a political, philosophical, and economic system. This is thanks to the combination of the technical features it integrates, the wide array of participants and stakeholders it involves, and the process for making changes to the protocol. Bitcoin can refer to the Bitcoin software protocol as well as to the monetary unit, which goes by the ticker symbol BTC.
Bitcoin Launched anonymously in January 2009 to a niche group of technologists called Satoshi Nakamoto. Bitcoin is now a globally traded financial asset with daily settled volume measured in the tens of billions of dollars. Although its regulatory status varies by region and continues to evolve, Bitcoin is most commonly regulated as either a currency or a commodity, and is legal to use (with varying levels of restrictions) in all major economies. In June 2021, El Salvador became the first country to mandate Bitcoin as legal tender.
Initial growth of the Bitcoin network was driven primarily by its utility as a novel method for transacting value in the digital world. Early proponents were, by and large, cypherpunks - individuals who advocated the use of strong cryptography and privacy-enhancing technologies as a route to social and political change. However, speculation as to the future value of Bitcoin soon became a significant driver of adoption. The price of bitcoin and the number of Bitcoin users rose in waves over the following decade. As regulators in major economies provided clarity on the legality of Bitcoin and other cryptocurrencies, a large number of Bitcoin exchanges established banking connections, making it easy to convert local currency to and from bitcoin. Other businesses established robust custodial services, making it easier for institutional investors to gain exposure to the asset as a growing number of high-profile investors signaled their interest.
Main Features of Bitcoin
- Decentralized: Nobody controls or owns the Bitcoin network, and there is no CEO. Instead, the network consists of willing participants who agree to the rules of a protocol (which takes the form of an open-source software client). Changes to the protocol must be made by the consensus of its users and there is a wide array of contributing voices including nodes end users, developers, miners and adjacent industry participants like exchanges, wallet providers, and custodians. This makes Bitcoin a quasi-political system. Of the thousands of cryptocurrencies in existence, Bitcoin is arguably the most decentralized, an attribute that is considered to strengthen its position as pristine collateral for the global economy.
- Distributed: All Bitcoin transactions are recorded on a public ledger that has come to be known as the blockchain. The network relies on people voluntarily storing copies of the ledger and running the Bitcoin protocol software. These nodes contribute to the correct propagation of transactions across the network by following the rules of the protocol as defined by the software client. There are currently more than 80,000 nodes distributed globally, making it next to impossible for the network to suffer downtime or lost information.
- Transparent: The addition of new transactions to the blockchain ledger and the state of the Bitcoin network at any given time (in other words, the 'truth' of who owns how much bitcoin) is arrived upon by consensus and in a transparent manner according to the rules of the protocol.
- Peer-to-peer: Although nodes store and propagate the state of the network (the 'truth'), payments effectively go directly from one person or business to another. This means there’s no need for any ‘trusted third party’ to act as an intermediary.
- Permissionless: Anyone can use Bitcoin, there are no gatekeepers, and there is no need to create a 'Bitcoin account.' Any and all transactions that follow the rules of the protocol will be confirmed by the network along the defined consensus mechanisms.
- Pseudo-anonymous: Identity information isn't inherently tied to Bitcoin transactions. Instead, transactions are tied to addresses that take the form of randomly generated alphanumeric strings.
- Censorship resistant: Since all Bitcoin transactions that follow the rules of the protocol are valid, since transactions are pseudo-anonymous, and since users themselves possess the 'key' to their bitcoin holdings, it is difficult for authorities to ban individuals from using it or to seize their assets. This carries important implications for economic freedom, and may even act as a counteracting force to authoritarianism globally.
- Public: All Bitcoin transactions are recorded and publicly available for anyone to see. While this virtually eliminates the possibility of fraudulent transactions, it also makes it possible to, in some cases, tie by deduction individual identities to specific Bitcoin addresses. A number of efforts to enhance Bitcoin's privacy are underway, but their integration into the protocol is ultimately subject to Bitcoin's quasi-political governance process.
Distributed Ledger Technology
Bitcoin is seen as the first distributed ledger technology. The major breakthrough was the solving of the double-spend problem. All transactions are recorded in blocks. These form the ledger that is built as more are added to the chain. The ledger is validated by computers all over the world that keep the network running. It is decentralized to the degree that no individual or group can reverse the transactions. For this reason, many feel that Bitcoin cannot be shut down. Each node runs its own copy of the blockchain. Those that add blocks validate transactions, add them to their copy of the ledger, and then broadcast these ledger additions to other nodes. This is all done without any central authority of entity. Once this is done, the software is able to determine when a particular Bitcoin was spent, which is needed to prevent double-spending. A conventional ledger records the transfers of actual bills or promissory notes that exist apart from it, but the blockchain is the only place that Bitcoins can be said to exist in the form of unspent outputs of transactions. This presents a radical change to the traditional monetary system. Here, the banks are the ones that handle all the transactions and alter the ledger. They are the gatekeepers of all the global financial activities occurring around the world. By having a network of uncorrelated node operators from around the world, blockchain offers ledger technology that could shift things away from the legacy server based systems.
Advantage of Bitcoin
Blockchain technology: Bitcoin uses blockchain technology to record every transaction on its immutable ledger. Once a block is created, there is no way to edit or modify the record on Bitcoin’s blockchain. This prevents double spending, making Bitcoin extremely fraud resistant.
Quick transactions: Bitcoin is a P2P currency whose network can generate 4.6 transactions per second. You can quickly transfer Bitcoin anywhere in the world, without having to rely on a third party. Compare this to transferring large sums across borders using the legacy banking system and you’ll see the huge advantage Bitcoin has.
Decentralised currency: Bitcoin’s decentralised nature gives individual control to the specific users. The decentralised nature of the Bitcoin network means there is:
No control over the network by an individual
No control over the Bitcoin network by a company
-No control over the Bitcoin network by a government.
If you own your keys, you have full control over your funds.Secure transactions When it comes to security, this is everyone’s priority.Bitcoin is very safe and the network itself has not once been hacked. Your private keys are a secure, string of numbers that make them almost impossible to guess using modern computing technology. While all transactions are public on the blockchain, your transactions can be viewed, but unable to be stopped.
Best performing asset: Bitcoin is actually the best performing asset over the last decade. An amazing achievement when you look at how niche cryptocurrency investing is, even today. Due to its decreasing supply structure, one benefit of Bitcoin is that its value increases with time. For example, if you bought 1 Bitcoin when it was worth 1 USD, you would have 36k USD as of today. Many people have become Bitcoin millionaires as a result.
Disadvantage of Bitcoin
Bitcoin used on the dark web: You may have heard about the dark web. The dark web is all online content that exists on darknets. These are overlay networks that use the internet, but require specific software and setups in order to gain access. Bitcoin has become the default currency of the dark web due to its permissionless transactions.
Decentralized currency: You may ask how decentralization can be both a pro and con for Bitcoin? This is because the majority of people aren’t ready for the responsibility that comes with being in total control of the security of your funds. If something goes wrong because you didn't secure your keys or sent your money to the wrong address, you have nobody to blame but yourself. With great power comes great responsibility.
Highly volatile: There's no denying that Bitcoin is a highly volatile asset. This means that Bitcoin can crash 50% in a day and nobody will bat an eyelid. Obviously a prospect that conservative investors can't deal with. But it's this volatility that also offers upside unseen in any other asset class. However, the diminishing supply curve of Bitcoin should see this volatility even out over the next decade and beyond.
Online frauds: As Bitcoin gains popularity and value, people will use social engineering techniques to engage in fraud. While the Bitcoin network itself can’t be hacked, people who store their keys on exchanges or their own servers can be hacked or simply tricked into giving their keys to malicious actors. Bitcoin isn’t the risk here, the people holding them are.
So with that I conclude my article. I hope you can get to know about LeoVerse and the projects based on Leo Finance, How it works in the Crypto sector from the post. If you want to know more about Leo Finance, $LEO or something related then definitely let me know in the comment box. I will try to answer your questions. I linked some keywords to Leo Glossary. You can click them out to know the definition to concepts of the keyword. It's nice to use them in my article.
Article Reference
[1] bitcoin.com; "https://www.bitcoin.com/get-started/what-is-bitcoin"
[2] Leo Glossary; "/@@crypto-guides/what-is-bitcoin-btc"
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