What is Bitcoin, Why it have value.

What is Bitcoin? 

In order to understand Bitcoin first we need to separate it into two components. First, the one that people identify as Bitcoin regularly, The Token. This is a fragment of code that represent ownership of a digital concept. 

Then, we have the bitcoin protocol, a distributed network that maintains a ledger of balances of bitcoin the token. The protocol enables users to send information and value between participants without the need of central authority, such as a bank. 

Who created bitcoin? 

The cryptography mailing list is one of the most important mailing list about cryptography were people share ideas. In 2008 a mysterious Japanese user with the pseudonym of Satoshi Nakamoto released a white paper that rapidly captivated a lot of users. In this paper Satoshi proposed a protocol that allow users to create and transact digital money. 

There is a lot of conspiracy theories about who is the one who created. As of today, there is many self-proclaimer creators of this protocol. However, no one know who the creator really is. We just know that was created in 2008 for a developer or group of developers with the pseudonymous of Satoshi Nakamoto. With the idea of producing a protocol that allow users to exchange information and value in a decentralized peer to peer network, and allow transaction to be secure, verifiable and immutable. 

If you think about it, this digital money is not that innovative. In our daily lives we already use digital money to pay or bills and buy groceries. Your bank account just reflects numbers that represent the amount of money equivalent of dollars. But you don’t have physical money store at your bank. In fact, banks just hold a fraction on cash from the balances of their clients. However, what makes bitcoins innovative what the possibility of transact in a peer to peer system with no need of a central authority. 

How Bitcoin Works?

Bitcoin is a peer to peer (P2P) network similar to Ares or Kasaa. Two popular peers to peer sharing application at the beginning of the millennia. When you tried to download music, or a movie on these P2P networks, the files are not in central server. Instead files are in a network of thousands of users. Anyone who have an open a torrent client in his server and the file downloaded, serves as the source server from which you download the file. So, when you want to download a song, the torrent program compile file extracts from the users that have that song downloaded on their computers. Files are share between users. This was the system that Satoshi believe was great solution for the bitcoin protocol.

In order to know how much money users have it was needed a global ledger. A transaction list like a bank book. This ledger will contain absolutely all the transaction made in history of this coin. No only your, but from everyone that participate in the system. In addition, the ledger is public, and everyone have access to review it at any time. This way it can be track all the transaction made on the protocol. 

So, probably you are asking if the ledger is public and everyone can see the transaction made by other users how it could be private. However, each account for every user is anonymous. It has not names, last names or any information of the user. This ledger or database is also known as blockchain.

What is the Blockchain?

Blockchain is a sequence of chained blocks. Each block is related to the previous block and same as the movies from Ares the ledger is located among thousands of users around the world. Making it impossible to modify past records. A block contains transaction data and each of them is created by the community of users. Anyone at home with the use a computer can create a block and add it to the ledger. people who do this are called miners. 

To make it simple, Image you have two people John and Arya. John want to transfer money to Arya and the miners will say something like “Ok, I will take data about the transaction and I will create a block and add it to the ledger”. After that is done the transaction would be valid and money will be in Arya wallet. This transaction is recorded in the PC of all the user in the network. This mean that blockchain database is registered around the world. Miners when finish to mine a block that verify transaction, send the information to all the participants of the network to be added to the blockchain. Each block contains multiple transaction.

Bitcoin rules:

Blocks are made of text: This text is the transactions data like the bank book, but in this case is text inside the PC like the one in the Notepad.

Block size 1 MB: Each block has approximate size of one mega bite and all the transaction that fit would be added to the block which then will we added to the blockchain. Each block can contain an approximate between 2000 and 2200 transaction.

A block every 10 minute: just one block would be created every 10 minute. This mean that the blockchain leger will growth every minute by one block and the capacity would be between 2000 and 2200 transition every 10 minute. 

Miners: Miners that generate a valid block that would be added to the ledger will receive a reward. This reward was 50 bitcoins in the first block that was created, then after 210 thousand blocks reward was cut by half, and the process would be repeated every 210 thousand blocks. At present time the reward is 12 bitcoins for the miner who generate a valid block. Miner compete between each other to generate these blocks. Now they create mining groups to increase the mining power and increase the likelihood of creating a valid block. This groups are called mining pools.

How to add a block to the ledger:

To add a block to the ledger the miner that generate it must send it to the rest of the miners. Then the majority had to approved that is valid. Also, in addition to the block a hash would be generated.

What is Hash?.

What information a block contains?

1. Hash of the previous block:
2.  Date & time of creation
3. The reward transaction for the miner
4. All the transaction that fit into the 1 MB block.

What makes Bitcoin unique and why it has value?

Often people have hard time trying to understand how something that have no physical properties can have value. However, one of the easiest way to help them understand how information have value is asking them the next question. Ask them if they would trade their phone along with all the information on it (Photos, conversations, browser history, passwords) for the newest model with no information. I guarantee they wouldn’t accept the offer. Then ask: why not, If the newest phone has more value? Decentralization: One Limit supply: Privacy: Immutability: Divisibility: