What is Bitcoin? Explain the features, mechanism, and history of Bitcoin

What is Bitcoin?

In a nutshell, bitcoin is something with asset value like gold that exists on the Internet.

Bitcoin is therefore referred to as digital gold and has the following similarities:

  • Limited and scarce like gold
  • It cannot be counterfeited like gold


to be scarce

As far as gold is currently known, it is said that there is only four 50-meter pools worth of gold. And since the total number of Bitcoins issued is set at 21 million, it can be said that it is as rare as gold.

(2) Cannot be counterfeited

Even with today’s science, it is impossible to make gold artificially. The same is true for Bitcoin, and it is impossible to create the same Bitcoin that you own. The reason why the same thing cannot be created is related to blockchain technology (*described later).


Features of Bitcoin

Let’s take a look at some of the features of Bitcoin.


The world’s first cryptocurrency

Bitcoin started in October 2008 when a person named Satoshi Nakamoto published a paper online. The thesis is called “Payment system without a central administrator using blockchain technology”.

Several developers who agreed with this paper will cooperate with Satoshi Nakamoto and work hard to create Bitcoin. As a result, bitcoin was launched in 2009.

Currencies such as Ethereum and XRP are based on this bitcoin.


no central administrator

The central administrator is the Bank of Japan in the case of currency, and the Fed (Federal Reserve Board) in the United States. In addition, credit card companies, etc., which occur when paying money, are also central administrators.

It can’t be helped, but the existence of an administrator has no choice but to be influenced by it.

On the other hand, Bitcoin can be traded directly with zero influence of the administrator because there is no central administrator.

“Blockchain technology” and “mining” hold the key to being able to trade without this administrator. Blockchain technology and mining will be explained in the next chapter, “How Bitcoin Transactions Work”.


There is an upper limit on the number of issued

Central administrators such as the Bank of Japan and the Federal Reserve balance the economy by adjusting the amount of issued yen and dollars from time to time.

However, this balance of supply and demand is very opaque and is controlled by the “convenience of the national economy”.

As a result, the state prints money recklessly, causing hyperinflation, etc., and may greatly reduce the value of the currency.

On the other hand, since Bitcoin has a maximum number of issued coins (about 21 million), hyperinflation will not occur systematically.


How bitcoin trading works

In a nutshell, blockchain is a technology that stores transaction information in multiple information terminals.

In this section, we will explain the flow of transactions by dividing them into the following two points. Blockchain trading mechanism and mining Features of using blockchain.

Transaction mechanism and mining using blockchain
The Bitcoin transaction flow consists of the following three steps.

① Organize the transaction records to be written to the blockchain
The transaction details of “Send 1 BTC from Mr. A to Mr. B” are summarized. A collection of these transactions is called a block.

Each time you make a transaction, this block will be connected. It was named Blockchain because it connects like a chain.

This block cannot be undone once confirmed. Once a transaction is confirmed, it cannot be canceled, so it cannot be tampered with later, which means we have built a very strong security.


② Decide who will be recorded on the blockchain
Once the block is finalized, decide who will be recorded on the blockchain.

In the case of Bitcoin, in order to record it, you have to use a computer to find the cipher, which is called mining.

People who cooperate in this mining are called “miners”.

The person who finds the number called the nonce earliest among the miners is given the right to connect the block to the chain.


③ Records are written to the blockchain

The transaction is confirmed and recorded on the blockchain. At this time, the miner (miner) is distributed Bitcoin as a reward.


Characteristics of blockchain used in Bitcoin
I explained that by using blockchain, it is possible to conduct transactions without going through a central administrator or a third party such as a bank. This blockchain has two features.

① Anyone can see all data 
The blockchain used by Bitcoin allows everyone to see all transactions registered in the ledger. Therefore, transactions with transparency are possible.

For example, in the case of Bitcoin, since January 3, 2009, when Bitcoin was born, current transaction records have been recorded on multiple information terminals.

② Blockchain is decentralized management, so it is strong against hacking
A centralized management system, which is a conventional management system, has the disadvantage that if one location is hacked, all the information will be stolen in the worst case.

On the other hand, when using blockchain technology, even if one information terminal is damaged or tampered with by some kind of attack, there is an information terminal that has not been hacked. , falsified information can no longer be used as falsified.


bitcoin history

Bitcoin has a history of many twists and turns. I’m going to tell you about some of the hot topics.

Value as currency for the first time in 2010

Bitcoin started operating in 2009, but it only gained monetary value in 2010. The purchase of two pizzas for 10,000 bitcoins by a programmer in Florida, USA, is said to be the first example of a commercial transaction using bitcoin.

2014 Mt Gox Incident
The Mt Gox Incident was the hacking of one of the world’s largest bitcoin exchanges, based in Japan.

In a sense, it can be said that this is the incident that caused the name of Bitcoin to become famous. In 2014, 47 billion yen worth of Bitcoin was lost due to a hack.

The truth of this matter is unknown as of 2020, and the culprit may be Mr. Marc Calbres, CEO of Mt Gox. What about Russian Alexander Pinnik? and various speculations.


2017 Hard fork creates Bitcoin Cash


Due to the growing global demand for Bitcoin, it has become necessary to deal with slow transaction speeds and soaring fees. *Scalability issue

On August 1, 2017, Bitcoin implemented a hard fork to solve scalability issues.

A hard fork is one way to update a cryptocurrency. A new rule is applied from a certain point of time block, and the past block remains the previous rule.

Since we will change the specifications of the blockchain used in virtual currency, please think that it will be a completely new currency.

And by executing a hard fork, it will become a currency with higher technical performance than the virtual currency before the hard fork. At the same time as this hard fork, a new currency may be born, and Bitcoin Cash was born from it.

*It is important to remember that a hard fork does not necessarily mean that a new currency will be created. Whether or not to create a new currency is decided by consensus within the community within the cryptocurrency. Everyone in the community may agree with the hard fork but not with the new currency. New cryptocurrencies are often born mainly when there are people who oppose the hard fork method.

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