From Horse Carts to Cryptocurrency: The Irresistible Rise of Blockchain Mastery (Part 4)

What is Bitcoin?

Bitcoin is a type of digital money that cannot be guaranteed by a single bank or government. Instead, it is governed by a global computer network. When you complete a transaction, it is published on a public list that anybody may view. This list, known as the blockchain, is secure and cannot be modified. Miners validate transactions and add them to the blockchain by solving problems. This makes Bitcoin transactions clear and reliable. Furthermore, Bitcoin's supply is limited, which helps to keep its value stable.

History of Bitcoin:

Satoshi Nakamoto, a person or organization, developed Bitcoin in 2008. It began operations in 2009 with the mining of the first block, and the first real-world transaction occurred in 2010. Price volatility defined its early years, as did major events like the Mt. Gox exchange collapse and the Silk Road elimination in 2013. From 2014 to 2017, mainstream acceptance exploded, resulting in price increases. Bitcoin's halving incidents in 2012, 2016, and 2020 dropped mining rewards. Institutional adoption rose in 2020 and 2021, despite ongoing regulatory changes.

Blockchain vs Coin vs Token

Blockchain: Think of blockchain as a digital library notebook that keeps track of every book borrowed and returned. Each entry is permanent and linked to the previous one, resulting in a chain. This guarantees the library's records are safe and secure.

Coin: Our library system uses "LibrarianCoins" (LC) as its digital currency. Users can use LibrarianCoins to pay fines, reserve books, and access premium library services such as online resources. LibrarianCoins can only be used in the library environment.

Token: Assume the library connects with nearby museums and theatres to provide combined memberships. To address this, they implement "MemberTokens" (MT). These member tokens indicate membership advantages at various cultural institutions. Users can use MemberTokens to attend a variety of activities and services provided by the library and its partners. MemberTokens, on the other hand, are integrated into the library's blockchain system, providing safe and transparent transactions among all participating institutions.

Bitcoin's monetary policy:

Bitcoin's monetary policy is like a gold mine. In a gold mine, there is only a certain amount of gold to dig up. Similarly, Bitcoin has a fixed number of coins that will ever exist: 21 million. Finding fresh bitcoins becomes more difficult over time when "halving" incidents occur. These incidents limit the number of new bitcoins that miners may get. Bitcoin is generated by a large number of individuals using computers to verify transactions, similar to many miners digging in different locations. Overall, Bitcoin's mechanism is similar to a gold mine in that it has a finite supply, and obtaining more coins becomes more difficult over time, much like discovering more gold in a mine.

The Halving:

Imagine you are a Bitcoin miner, similar to a digital gold miner. When you successfully validate transactions and upload them to the blockchain, you will be paid with Bitcoin. When Bitcoin first launched in 2009, miners got 50 bitcoins for each block of transactions they confirmed. Every four years, a "halving event" takes place. This means the reward for miners has been reduced in half. So, in 2012, the reward for each block was reduced from 50 to 25 bitcoins. Then, in 2016, it was reduced again to 12.5 bitcoins per block. In 2020, it was further reduced to 6.25 bitcoins per block.

These halving events are part of Bitcoin's design to manage its supply. Making it more difficult to mine new bitcoins over time helps ensure that there aren't too many bitcoins flooding the market at once. This scarcity is one reason why many consider Bitcoin precious, similar to gold. Furthermore, because it is more difficult to obtain new bitcoins, the price of existing ones frequently rises. So, every time a halving event happens, it's a major issue in the Bitcoin industry because it affects how many new bitcoins are produced, and eventually, it affects their value.

Block Frequency:

Block frequency in Bitcoin refers to how frequently new blocks are added to the network. The Bitcoin protocol has a target block time of around 10 minutes. However, the time it takes miners to solve hard mathematical puzzles and add new blocks varies. Sometimes miners solve problems quicker than the goal time, resulting in a shorter block frequency; other times, they take longer, resulting in a longer block frequency.

For example, if miners solve problems and add new blocks every 9 minutes on average, then the block frequency is 9 minutes. The variation in block frequency has an impact on how quickly transactions are confirmed on the Bitcoin network. When blocks are added more rapidly, transactions are confirmed faster; however, if blocks are added slowly, transactions may face confirmation delays. Overall, block frequency is an important part of the Bitcoin network's operation, affecting transaction processing times and network efficiency.