Get a bite-sized version of Crypto Fundamentals
Bitcoin is where it all started. It laid the foundations for the postmodern world of web3.
Meet Satoshi Nakamoto.
The actual identity of the creator of Bitcoin is unknown. It amazes me that we don’t know who this person is, even today.
The Bitcoin Whitepaper
The Whitepaper was inspired by the 2008 financial crisis.
Abstract: A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.
The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work.
The blockchain is a shared public ledger on which the entire Bitcoin network relies. All confirmed transactions are included in the blockchain. It allows Bitcoin wallets to calculate their spendable balance so that new transactions can be verified thereby ensuring they’re owned by the spender. The integrity and the chronological order of the blockchain are enforced with cryptography.
A transaction is a transfer of value between Bitcoin wallets that gets included in the blockchain. Bitcoin wallets keep a secret piece of data called a private key or seed, which is used to sign transactions, providing mathematical proof that they have come from the owner of the wallet. The signature also prevents the transaction from being altered by anybody once it has been issued. All transactions are broadcast to the network and usually begin to be confirmed within 10–20 minutes, through a process called mining.
Mining is a distributed consensus system that is used to confirm pending transactions by including them in the blockchain. It enforces a chronological order in the blockchain, protects the neutrality of the network, and allows different computers to agree on the state of the system. To be confirmed, transactions must be packed in a block that fits very strict cryptographic rules that will be verified by the network. These rules prevent previous blocks from being modified because doing so would invalidate all the subsequent blocks.
Proof of Work (PoW)
PoW requires nodes on a network to provide evidence that they have expended computational power to achieve consensus in a decentralized manner.
It involves iterations of SHA-256 hashing algorithms. The “winner” of a round of hashing, however, aggregates and records transactions from the mempool into the next block. Because the “winner” is randomly chosen proportional to the work done, it incentivizes everybody on the network to act honestly and record only true transactions.
The current reward for mining a block is 6.25 BTC which is equivalent to ₹2 Crore.
Security and decentralization are the pillars of Bitcoin. It could very well be the only secure way of holding and transferring funds in the future.