A Review of Digital Currency Like Bitcoin Based on Blockchain Technology

A Review of Digital Currency Like Bitcoin Based on Blockchain Technology

May 31, 2018

Table of Contents1 General Introduction of Bitcoin2 How does Bitcoin work?2.1 How will the money transfer in Bitcoin?3 What is BlockChain?3.1 Why does Bitcoin use this algorithm?3.2 What is Bitcoin mining?3.3 Why do we have only 21 million Bitcoins and cannot be more? General Introduction of Bitcoin In the digital world, we face the latest inventions […]

General Introduction of Bitcoin

In the digital world, we face the latest inventions promptly because, in the digital world, the Ideation requires neither materials nor any other hardware. Your idea can be implemented quickly in the digital world. The first and most successful digital currency is Bitcoin. Moreover, Bitcoin was created in 2009 and its inventor introduced a new sort of currency. Bitcoin was invented by Satoshi Nakamoto which is a nickname. But nobody knows him.

How does Bitcoin work?

Bitcoin is a peer-to-peer system. In fact, when a sender sends money to the receiver, there is no inductor between sender and receiver. On the other hand, in the normal financial market, when a sender desires to send $1 to the receiver, the money will transform through a bank or financial institution. In addition, Bank or Financial institution will get the fee from sender or receiver in a peer-to-peer system. The money will go from sender to the receiver’s account directly without any dealer.

In a peer-to-peer system, the fee will be payable to the miners. The miners are not a designated person or company. All Bitcoin accounts holders can be a miner and receive the fee.

How will the money transfer in Bitcoin?

All financial markets require security and the main and most important challenge is transactions security. On cryptocurrencies, the transaction will be secured by Blockchain technology.

What is BlockChain?

Blockchain technology is a next to next block that connected to each other by chains.

Each block contains information like account number, account names and etc. These blocks are connected to each other by chains.

The other thing is in the block is hash, the hash is a code on each block and it’s unique according to the block information for instance:

If A’s block information changes, the Hash changes likewise. Then with chain technology, if any block hash code changes, the others block should approve this change because the B’s block hash code include the A block hash code too. With the chains, this change is connected to the other blocks; in fact, all blocks should approve this change.

Hash will be calculated by mathematics rules and each changing on the block will be changed to the hash code. Then if everyone changes the block information, the other blocks will be rejected this change because this block information did not match with the next and the previous hash code. In this technology, security is very high and hacking the system and changing the information is super hard.

Maybe you demand what will happen if a hacker changes the block information and then formulate distinct information on the other blocks.

Because in Blockchain technology, dates are not sorted out in one server and all information is copied on many different servers. The hacker should change all the system information and it is exceeding hard and perhaps impossible. Take, for example, Suppose that you are in a group with Blockchain contract and this group has 10 users.

You will get a sheet of information from a user in Blockchain system; all other users should have a copy of this sheet and approve it. Then if you or a hacker changes this information sheet, the other 9 users can understand this is a fake sheet and the system will reject the new sheet because it is not matched with their sheet.

Blockchain technology is one of the most innovative security ideas, hashing means to receive an input string of any length and giving out an output of a fixed length.

Bitcoin-using SHA-256 (Secure Hashing Algorithm 256) system, On SHA-256 algorithm, the hash information is fixed 256-bits length. This hashing system is different from the above.

Why does Bitcoin use this algorithm?

The answer is simple. If they use a simple hashing algorithm, the hash code becomes extra huge on each new block.

What is Bitcoin mining?

Momentarily we realize how Bitcoin works and we determined that Bitcoin is not sorted on one server and the Bitcoin information is a distribution on a lot of users systems.

When a block wants to change the difficult algorithm, it should be solved and approved by the system. Then these changes will need a lot of calculators. In fact, you know that in digital worlds CPU’s and GPU’s are the calculators.

Then the new super idea is that the Bitcoin users are allowed to calculate the transaction in this system. They call it as SOLVE THE BLOCK. The miners allow this system to use their CPU or GPU power for calculating the complex mathematical algorithm. They will receive Bitcoin as a reward or fee.

If the miners CPU have more power, he/she can help this system more and he can earn more rewards, in fact, the miners rent their system power to the Bitcoin system.

When Bitcoin started, the Bitcoin price was less than 0.05$ per bit and now you should pay more than 6000$ to get 1 bit! In fact, if you invested 100$ on 2009 on Bitcoin, now you would have 12,000,000$!

Bitcoin shows a new type of technology. Bitcoin is not supported by any companies or government control and this is the most important advantage of Bitcoin and this advantage smooth the successful road for Bitcoin.

Why do we have only 21 million Bitcoins and cannot be more?

Bitcoin calls Digital Gold because the Bitcoin is not unlimited, just like the real gold! Real gold will mine from the ground and Bitcoin will mine from the digital worlds! And both of them are not unlimited.

When the miner shares their CPU power in this network, they try to solve complex algorithm to unlock the blocks and for each block miners which have limited rewards And at the moment the reward is 12.5 BTC.

The hard cap means the core of Bitcoin and it cannot be changed, the Bitcoin creator, Satoshi Nakamoto, formulated Bitcoin with a maximum supply of 21 million.

Bitcoin mining rate is 25 Coins per 10 minutes and it will be half per 4 years till October 2140. All remained coin will mine. To extract each coin, miners should solve 6 blocks algorithm and this means that 6 blocks * 24 hours * 365 days * 4 = 210240 Bitcoin per year. The blocks solving reward will be decreased every 4 years according to 50 – 25 -12.5 etc.

When you calculate these numbers, you will have maximum 100 rows which mean that the maximum available Bitcoins will be 100*210240 = 21,024,000.

Bitcoin is not new now. There are a lot of other digital or cryptocurrencies at the moment and all of them get their ideas from the Bitcoin and try to improve this idea and offer new innovation. Maybe you ask “is it good to invest in cryptocurrencies or not?”

My answer is “yes” if you like risky markets.

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