The world got to learn a new concept of Cryptocurrency through Bitcoin. The topic of what is a cryptocurrency and what is bitcoin have become synonymous and are used interchangeably. We all have learned what cryptocurrency is, what blockchain is, its key features, and what led to the emergence of cryptocurrency. In this article, we will know cryptocurrency more specifically and shall gather all knowledge concerning bitcoin, the world’s first cryptocurrency.
Bitcoin was created by a mysterious individual or group of individuals named Satoshi Nakamoto in 2009. Since it is based on a decentralized system, it is based on blockchain technology. It runs on the bitcoin protocol(A set of rules and regulations to maintain the sanity of the bitcoin blockchain network).
Proof of work forms the basis of the bitcoin blockchain. It is a hexadecimal SHA 256 hash algorithm puzzle that needs to be solved to create a block in the blockchain and to fulfill transactions that occurred in the block. The algorithm is very difficult to solve and needs a sophisticated computational device. The nodes(stakeholders/devices in the blockchain) get into a rat race to solve it, and the node that solves the algorithm puzzle gets the reward in case of creating a block in the blockchain and a transaction fee for successful transactions. The transaction is considered a success only after getting validation from other users and storing it in their network. The process of creating or adding a block in the blockchain is called Bitcoin Mining, and nodes who indulge in this process are called Bitcoin Miners. Miners give a certain reward for adding a new block to the chain. We will discuss it later.
While we have an overview of blockchain technology and bitcoin Mining, we must know the structure of the block to have crystal clear knowledge of blockchain and bitcoin Mining. The block consists of things listed below:-
In Mining, the role of the timestamp is significant as we have finite Nonce values and finite hashes. The Nonce are finite in number, there are around 4 billion nonces, and total hashes are in 10^77. Hashes are in more numbers.
A single miner can exhaust all the nonce values in 40 secs through its computer, and there is still uncertainty of hitting the given hash value. There are millions of nodes in the bitcoin network, so to solve this problem, the timestamp is used because the hash value and nonce value are changed every millisecond. After every millisecond, the nodes can again use the exhausted Nonce.
Another important thing in bitcoin mining is that the GPU or the computer device is set to solve hash values in the descending order, which means the algorithm with the highest hash value first and the lowest hash value, at last, is set to protect the chain from breaking down. There should be standardization in which blocks should be added as there are a variety of nodes with different kinds of computational power, and there is no proper classification of transaction fees attached to the pending hash value. However, it is measured in proportion to the hash value, so the miners would be only interested in the highest hash value and will not try to solve the smaller hash value, which would result in the breakage of the blockchain.
The smallest unit is known as Satoshi. One bitcoin is equivalent to 100 million satoshis. The “B” in bitcoin stands for Ledger, and “b” stands for the amount of bitcoin.
Bitcoin is capped at 21 million, and for every block creation or transaction, the miner gets the reward of 6.25 bitcoin. The reward gets halved after every four years or after an interval of every 210,000 blocks created. The next halving will take place in May 2024. Continuation of the halving process will go on till 2140. According to experts, in the year 2140, miners will get 0 rewards. The halving process will maintain the supply of bitcoins in the market. The capping is done to avoid the devaluation of the currency, which happens in traditional fiat currency.
In this way, bitcoin tries to maintain the flow of liquidity in the market. However, the excess demand and supply shortage due to monetary policy results in soaring bitcoin value.
What kind of effect having will have on the bitcoin market and miners will be a topic of discussion in another blog.