Crypto currency the bitcoin

CRYPTOSLATESTNEWS.COM 2
Crypto Currency
THE BITCOIN
By Hector Jayat

INDEX
1.What is a Crypto currency? ………………………………………………………………………………………………….. 04
2.What is Bitcon? ……………………………………………………………………………………………………………………..
3.Bitcoin Mining ……………………………………………………………………………………………………………………… 11
4.How to Buy Bitcoin ………………………………………………………………………………………………………………. 15
5.Who is Satoshi Nakamoto? …………………………………………………………………..................................
6.Crypto Token – What Are They? ………………………………………………………………………………………….
7. Bitcoin Block ……………………………………………………………………………………………………………………….
8. How Does Bitcoin Mining Works? ………………………………………………………………………………………
9. Block Chain Explained ………………………………………………………………………………………………………..
10. What Determines The Price of 1 Bitcoin? ………………………………………………………………………..

1. What Is Cryptocurrency?
A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes
it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized
networks based on blockchain technology—a distributed ledger enforced by a disparate
network of computers.
A defining feature of cryptocurrencies is that they are generally not issued by any central
authority, rendering them theoretically immune to government interference or manipulation.
KEY TAKEAWAYS
• A cryptocurrency is a form of digital asset based on a network that is distributed across a
large number of computers. This decentralized structure allows them to exist outside the
control of governments and central authorities.
• The word “cryptocurrency” is derived from the encryption techniques which are used to
secure the network.
• Blockchains, which are organizational methods for ensuring the integrity of transactional
data, are an essential component of many cryptocurrencies.
• Many experts believe that blockchain and related technology will disrupt many industries,
including finance and law.
• Cryptocurrencies face criticism for a number of reasons, including their use for illegal
activities, exchange rate volatility, and vulnerabilities of the infrastructure underlying them.
However, they also have been praised for their portability, divisibility, inflation resistance, and
transparency.
Understanding Cryptocurrencies
Cryptocurrencies are systems that allow for secure payments online which are denominated
in terms of virtual "tokens," which are represented by ledger entries internal to the system.
"Crypto" refers to the various encryption algorithms and cryptographic techniques that
safeguard these entries, such as elliptical curve encryption, public-private key pairs, and
hashing functions.
Types of Cryptocurrency
The first blockchain-based cryptocurrency was Bitcoin, which still remains the most popular
and most valuable. Today, there are thousands of alternate cryptocurrencies with various
functions and specifications. Some of these are clones or forks of Bitcoin, while others are
new currencies that were built from scratch.

Bitcoin was launched in 2009 by an individual or group known by the pseudonym "Satoshi
Nakamoto."1 As of March 2021, there were over 18.6 million bitcoins in circulation with a total
market cap of around $927 billion.2
Some of the competing cryptocurrencies spawned by Bitcoin’s success, known as "altcoins,"
include Litecoin, Peercoin, and Namecoin, as well as Ethereum, Cardano, and EOS. Today,
the aggregate value of all the cryptocurrencies in existence is around $1.5 trillion—Bitcoin
currently represents more than 60% of the total value.
Some of the cryptography used in cryptocurrency today was originally developed for military
applications. At one point, the government wanted to put controls on cryptography similar to
the legal restrictions on weapons, but the right for civilians to use cryptography was secured
on grounds of freedom of speech.
Advantages and Disadvantages of Cryptocurrency
Advantages
Cryptocurrencies hold the promise of making it easier to transfer funds directly between two
parties, without the need for a trusted third party like a bank or credit card company.
These transfers are instead secured by the use of public keys and private keys and different
forms of incentive systems, like Proof of Work or Proof of Stake.
In modern cryptocurrency systems, a user's "wallet," or account address, has a public key,
while the private key is known only to the owner and is used to sign transactions. Fund
transfers are completed with minimal processing fees, allowing users to avoid the steep fees
charged by banks and financial institutions for wire transfers.
Disadvantages
The semi-anonymous nature of cryptocurrency transactions makes them well-suited for a
host of illegal activities, such as money laundering and tax evasion. However, cryptocurrency
advocates often highly value their anonymity, citing benefits of privacy like protection for
whistleblowers or activists living under repressive governments. Some cryptocurrencies are
more private than others.
Bitcoin, for instance, is a relatively poor choice for conducting illegal business online, since
the forensic analysis of the Bitcoin blockchain has helped authorities arrest and prosecute
criminals. More privacy-oriented coins do exist, however, such as Dash, Monero, or ZCash,
which are far more difficult to trace.

Special Considerations
Central to the appeal and functionality of Bitcoin and other cryptocurrencies
is blockchain technology, which is used to keep an online ledger of all the transactions that
have ever been conducted, thus providing a data structure for this ledger that is quite secure
and is shared and agreed upon by the entire network of an individual node, or computer
maintaining a copy of the ledger.
Every new block generated must be verified by each node before being confirmed, making it
almost impossible to forge transaction histories.
Many experts see blockchain technology as having serious potential for uses like online
voting and crowdfunding, and major financial institutions such as JPMorgan Chase (JPM)
see the potential to lower transaction costs by streamlining payment processing.
However, because cryptocurrencies are virtual and are not stored on a central database, a
digital cryptocurrency balance can be wiped out by the loss or destruction of a hard drive if
a backup copy of the private key does not exist.
At the same time, there is no central authority, government, or corporation that has access to
your funds or your personal information.
Criticism of Cryptocurrency
Since market prices for cryptocurrencies are based on supply and demand, the rate at which
a cryptocurrency can be exchanged for another currency can fluctuate widely, since the
design of many cryptocurrencies ensures a high degree of scarcity. Some aspecto that
affect the cryptos´ value as well are the impulse some big companies give or not to the
bitcoin acceptance.
Bitcoin has experienced some rapid surges and collapses in value, climbing as
high as $19,000 per Bitcoin in Dec. of 2017 before dropping to around $7,000 in
the following months, going way up $65,000 and recently on Jun 2021 going down
to $30,000 and recovering after July the 24th fo reach the $40ks in August and
growing. Cryptocurrencies are thus considered by some economists to be a short-
lived fad or speculative bubble.

There is concern that cryptocurrencies like Bitcoin are not rooted in any material goods.
Some research, however, has identified that the cost of producing a Bitcoin, which requires
an increasingly large amount of energy, is directly related to its market price.
Cryptocurrency blockchains are highly secure, but other aspects of a cryptocurrency
ecosystem, including exchanges and wallets, are not immune to the threat of hacking. In
Bitcoin's 10-year history, several online exchanges have been the subject of hacking and
theft, sometimes with millions of dollars worth of "coins" stolen.
Nonetheless, many observers see potential advantages in cryptocurrencies, like the
possibility of preserving value against inflation and facilitating exchange while being easier to
transport and divide than precious metals and existing outside the influence of central banks
and governments.
What Is Cryptocurrency FAQs
What Is Cryptocurrency in Simple Words?
Cryptocurrencies are systems that allow for secure payments online which are denominated
in terms of virtual "tokens."
How Do You Get Cryptocurrency?
Any investor can purchase cryptocurrency through crypto exchanges like Coinbase, Cash
app, and more.
What Is the Point of Cryptocurrency?
Cryptocurrency Many experts see blockchain technology as having serious potential for uses
like online voting and crowdfunding, and major financial institutions such as JPMorgan Chase
(JPM) see the potential to lower transaction costs by streamlining payment processing.
How Does Cryptocurrency Make Money?
Cryptocurrencies allow for secure payments online which are denominated in terms of virtual
"tokens," which are represented by ledger entries internal to the system. Investors can make
money with cryptocurrency by mining Bitcoin, or simply selling their Bitcoin at a profit.
What Are the Most Popular Cryptocurrencies?
Bitcoin is by far the most popular cryptocurrency, followed by other cryptocurrencies such as
Etherum, XRP, Dogecoin, USD, Litecoin, Polygon, Cardano among many others.

2.What Is Bitcoin?
Bitcoin is a digital currency created in January 2009. It follows the ideas set out in
a whitepaper by the mysterious and pseudonymous Satoshi Nakamoto.1 The identity of the
person or persons who created the technology is still a mystery. Bitcoin offers the promise of
lower transaction fees than traditional online payment mechanisms and, unlike government-
issued currencies, it is operated by a decentralized authority.
Bitcoin is a type of cryptocurrency. There is no physical bitcoin, only balances kept on a
public ledger that everyone has transparent access to. All bitcoin transactions are verified by
a massive amount of computing power. Bitcoin is not issued or backed by any banks or
governments, nor is an individual bitcoin valuable as a commodity. Despite it not being legal
tender in most parts of the world, bitcoin is very popular and has triggered the launch of
hundreds of other cryptocurrencies, collectively referred to as altcoins. Bitcoin is commonly
abbreviated as "BTC."
KEY TAKEAWAYS
• Launched in 2009, bitcoin is the world's largest cryptocurrency by market capitalization.
• Unlike fiat currency, bitcoin is created, distributed, traded, and stored with the use of a
decentralized ledger system, known as a blockchain.
• Bitcoin's history as a store of value has been turbulent; it has gone through several cycles of
boom and bust over its relatively short lifespan.
• As the earliest virtual currency to meet widespread popularity and success, bitcoin has
inspired a host of other cryptocurrencies in its wake.

Understanding Bitcoin
The bitcoin system is a collection of computers (also referred to as "nodes" or "miners") that
all run bitcoin's code and store its blockchain. Metaphorically, a blockchain can be thought of
as a collection of blocks. In each block is a collection of transactions. Because all the
computers running the blockchain have the same list of blocks and transactions, and can
transparently see these new blocks being filled with new bitcoin transactions, no one can
cheat the system.
Anyone—whether they run a bitcoin "node" or not—can see these transactions occurring in
real-time. To achieve a nefarious act, a bad actor would need to operate 51% of the
computing power that makes up bitcoin. Bitcoin has around 10,000 nodes, as of June 2021,
and this number is growing, making such an attack quite unlikely.
But if an attack were to happen, bitcoin miners—the people who take part in the bitcoin
network with their computers—would likely fork to a new blockchain, making the effort the
bad actor put forth to achieve the attack a waste.
Balances of bitcoin tokens are kept using public and private "keys," which are long strings of
numbers and letters linked through the mathematical encryption algorithm that was used to
create them. The public key (comparable to a bank account number) serves as the address
published to the world and to which others may send bitcoin.
The private key (comparable to an ATM PIN) is meant to be a guarded secret and only used
to authorize bitcoin transmissions. Bitcoin keys should not be confused with a bitcoin wallet,
which is a physical or digital device that facilitates the trading of bitcoin and allows users to
track ownership of coins. The term "wallet" is a bit misleading, as bitcoin's decentralized
nature means it is never stored "in" a wallet, but rather decentrally on a blockchain.
Peer-to-Peer Technology
Bitcoin is one of the first digital currencies to use peer-to-peer technology to facilitate instant
payments. The independent individuals and companies who own the governing computing
power and participate in the bitcoin network—bitcoin "miners"—are in charge of processing
the transactions on the blockchain and are motivated by rewards (the release of new bitcoin)
and transaction fees paid in bitcoin.

These miners can be thought of as the decentralized authority enforcing the credibility of the
bitcoin network. New bitcoin are released to the miners at a fixed, but periodically declining
rate. There are only 21 million bitcoin that can be mined in total. As of June 2021, there are
over 18 million bitcoin in existence and less than 3 million bitcoin left to be mined.
In this way, bitcoin and other cryptocurrencies operate differently from fiat currency; in
centralized banking systems, the currency is released at a rate matching the growth in
goods; this system is intended to maintain price stability. A decentralized system, like bitcoin,
sets the release rate ahead of time and according to an algorithm.
3. Bitcoin Mining
Bitcoin mining is the process by which bitcoin is released into circulation. Generally, mining
requires solving computationally difficult puzzles to discover a new block, which is added to
the blockchain.
Bitcoin mining adds and verifies transaction records across the network. Miners are rewarded
with some bitcoin; the reward is halved every 210,000 blocks. The block reward was 50 new
bitcoins in 2009. On May 11th, 2020, the third halving occurred, bringing the reward for each
block discovery down to 6.25 bitcoins.
A variety of hardware can be used to mine bitcoin. However, some yield higher rewards than
others. Certain computer chips, called Application-Specific Integrated Circuits (ASIC), and
more advanced processing units, like Graphic Processing Units (GPUs), can achieve more
rewards. These elaborate mining processors are known as "mining rigs."
One bitcoin is divisible to eight decimal places (100 millionths of one bitcoin), and this
smallest unit is referred to as a Satoshi. If necessary, and if the participating miners accept
the change, bitcoin could eventually be made divisible to even more decimal places.

History of Bitcoin
Aug. 18, 2008
The domain name bitcoin.org is registered. Today, at least, this domain is "WhoisGuard
Protected," meaning the identity of the person who registered it is not public information.
Oct. 31, 2008
A person or group using the name Satoshi Nakamoto makes an announcement to the
Cryptography Mailing list at metzdowd.com: "I've been working on a new electronic cash
system that's fully peer-to-peer, with no trusted third party. This now-famous whitepaper
published on bitcoin.org, entitled "Bitcoin: A Peer-to-Peer Electronic Cash System," would
become the Magna Carta for how bitcoin operates today.
Jan. 3, 2009
The first bitcoin block is mined—Block 0. This is also known as the "genesis block" and
contains the text: "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks,"
perhaps as proof that the block was mined on or after that date, and perhaps also as relevant
political commentary.
Jan. 8, 2009
The first version of the bitcoin software is announced to the Cryptography Mailing list.
Jan. 9, 2009
Block 1 is mined, and bitcoin mining commences in earnest.
Who Is Satoshi Nakamoto?
No one knows who invented bitcoin, or at least not conclusively. Satoshi Nakamoto is the
name associated with the person or group of people who released the
original bitcoin whitepaper in 2008 and worked on the original bitcoin software that was
released in 2009. In the years since that time, many individuals have either claimed to be or
have been suggested as the real-life people behind the pseudonym, but as of June 2021, the
true identity (or identities) behind Satoshi remains obscured.

Although it is tempting to believe the media's spin that Satoshi Nakamoto is a solitary,
quixotic genius who created bitcoin out of thin air, such innovations do not typically happen in
a vacuum. All major scientific discoveries, no matter how original-seeming, were built on
previously existing research.
There are precursors to bitcoin: Adam Back’s Hashcash, invented in 1997, and subsequently
Wei Dai’s b-money, Nick Szabo’s bit gold, and Hal Finney’s Reusable Proof of Work.8 The
bitcoin whitepaper itself cites Hashcash and b-money, as well as various other works
spanning several research fields. Perhaps unsurprisingly, many of the individuals behind the
other projects named above have been speculated to have also had a part in creating bitcoin.
There are a few possible motivations for bitcoin's inventor deciding to keep their identity
secret. One is privacy: As bitcoin has gained in popularity—becoming something of a
worldwide phenomenon—Satoshi Nakamoto would likely garner a lot of attention from the
media and from governments.
Another reason could be the potential for bitcoin to cause a major disruption in the current
banking and monetary systems. If bitcoin were to gain mass adoption, the system could
surpass nations' sovereign fiat currencies. This threat to existing currency could motivate
governments to want to take legal action against bitcoin's creator.
The other reason is safety. Looking at 2009 alone, 32,489 blocks were mined; at the reward
rate of 50 bitcoin per block, the total payout in 2009 was 1,624,500 bitcoin. One may
conclude that only Satoshi and perhaps a few other people were mining through 2009 and
that they possess a majority of that stash of bitcoin.
Someone in possession of that much bitcoin could become a target of criminals, especially
since bitcoin is less like stocks and more like cash, where the private keys needed to
authorize spending could be printed out and literally kept under a mattress. While it's likely
the inventor of bitcoin would take precautions to make any extortion-induced transfers
traceable, remaining anonymous is a good way for Satoshi to limit exposure.

Bitcoin as a Form of Payment
Bitcoin can be accepted as a means of payment for products sold or services provided.
Brick-and-mortar stores can display a sign saying “Bitcoin Accepted Here”; the transactions
can be handled with the requisite hardware terminal or wallet address through QR codes and
touch screen apps. An online business can easily accept bitcoin by adding this payment
option to its other online payment options: credit cards, PayPal, etc.
El Salvador became the first country to officially adopt Bitcoin as legal tender in June 2021.
Bitcoin Employment Opportunities
Those who are self-employed can get paid for a job related to bitcoin. There are several
ways to achieve this, such as creating any internet service and adding your bitcoin wallet
address to the site as a form of payment. There are also several websites and job boards
that are dedicated to digital currencies:
• Cryptogrind brings together work seekers and prospective employers through its website.
• Coinality features jobs—freelance, part-time and full-time—that offer payment in bitcoin, as
well as other cryptocurrencies like Dogecoin and Litecoin.
• Jobs4Bitcoins is part of reddit.com.
• BitGigs
• Bitwage offers a way to choose a percentage of your work paycheck to be converted into
bitcoin and sent to your bitcoin address.

4. How to Buy Bitcoin
Investing in Bitcoin
Many bitcoin supporters believe that digital currency is the future. Many individuals who
endorse bitcoin believe it facilitates a much faster, low-fee payment system for transactions
across the globe. Although it is not backed by any government or central bank, bitcoin can be
exchanged for traditional currencies; in fact, its exchange rate against the dollar attracts
potential investors and traders interested in currency plays.
Indeed, one of the primary reasons for the growth of digital currencies like bitcoin is that they
can act as an alternative to national fiat money and traditional commodities like gold.
In March 2014, the IRS stated that all virtual currencies, including bitcoin, would be taxed
as property rather than currency. Gains or losses from bitcoin held as capital will be realized
as capital gains or losses, while bitcoin held as inventory will incur ordinary gains or losses.
The sale of bitcoin you mined or purchased from another party, or the use of bitcoin to pay
for goods or services, are examples of transactions that can be taxed.
Like any other asset, the principle of buying low and selling high applies to bitcoin. The most
popular way of amassing the currency is through buying on a bitcoin exchange, but there are
many other ways to earn and own bitcoin.
Some of the best Crypto Exchange Webiste are listed below:
CoinBase.com
Digital Crypto Wallet and Exchange Website
Binance.com
Cryptocurrency Wallt & Exchange Website
Bitso.com

Bitrue.com
Nexo
Trade Cryptos Website
Bexplus.com
Bitcoin Exchange website
Crypto.com
Trade Cryptos website
Metatask
A crypto wallet & gateway to blockchain apps
Bitcoin Wallet
Wallet Exchange for bitcoins
Cex.io
A trusted and secure bitcoin and crypto exchange

Types of Risks Associated With Bitcoin Investing
Although Bitcoin was not designed as a normal equity investment (no shares have been
issued), some speculative investors were drawn to the digital currency after it appreciated
rapidly in May 2011 and again in November 2013. Thus, many people purchase bitcoin for its
investment value rather than its ability to act as a medium of exchange.
However, the lack of guaranteed value and its digital nature means the purchase and use of
bitcoin carries several inherent risks. Many investor alerts have been issued by the Securities
and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA),
the Consumer Financial Protection Bureau (CFPB), and other agencies.
The concept of a virtual currency is still novel and, compared to traditional investments,
bitcoin doesn't have much of a long-term track record or history of credibility to back it. With
its increasing popularity, bitcoin is becoming less experimental every day; still, after only a
decade, all digital currencies remain in a development phase. "It is pretty much the highest-
risk, highest-return investment that you can possibly make,” says Barry Silbert, CEO of
Digital Currency Group, which builds and invests in bitcoin and blockchain companies.
Regulatory Risk
Investing money into bitcoin in any of its many guises is not for the risk-averse. Bitcoin is a
rival to government currency and may be used for black market transactions, money
laundering, illegal activities, or tax evasion. As a result, governments may seek to regulate,
restrict, or ban the use and sale of bitcoin (and some already have). Others are coming up
with various rules.
For example, in 2015, the New York State Department of Financial Services finalized
regulations that would require companies dealing with the buy, sell, transfer, or storage of
bitcoin to record the identity of customers, have a compliance officer, and maintain capital
reserves. Any transactions worth $10,000 or more will have to be recorded and reported.
The lack of uniform regulations about bitcoin (and other virtual currencies) raises questions
over their longevity, liquidity, and universality.
Security Risk
Most individuals who own and use bitcoin have not acquired their tokens through mining
operations. Rather, they buy and sell bitcoin and other digital currencies on any of the
popular online markets, known as bitcoin exchanges or cryptocurrency exchanges.

Bitcoin exchanges are entirely digital and, as with any virtual system, are at risk from
hackers, malware, and operational glitches. If a thief gains access to a bitcoin owner's
computer hard drive and steals their private encryption key, they could transfer the stolen
bitcoin to another account. (Users can prevent this only if their bitcoin is stored on a
computer that is not connected to the internet, or else by choosing to use a paper wallet—
printing out the bitcoin private keys and addresses, and not keeping them on a computer at
all.)
Hackers can also target bitcoin exchanges, gaining access to thousands of accounts
and digital wallets where bitcoin is stored. One especially notorious hacking incident took
place in 2014, when Mt. Gox, a bitcoin exchange in Japan, was forced to close down after
millions of dollars worth of bitcoin was stolen.
This is particularly problematic given that all bitcoin transactions are permanent and
irreversible. It's like dealing with cash: Any transaction carried out with bitcoin can only be
reversed if the person who has received them refunds them. There is no third party or a
payment processor, as in the case of a debit or credit card—hence, no source of protection
or appeal if there is a problem.
Insurance Risk
Some investments are insured through the Securities Investor Protection Corporation.
Normal bank accounts are insured through the Federal Deposit Insurance
Corporation (FDIC) up to a certain amount depending on the jurisdiction.
Generally speaking, bitcoin exchanges and bitcoin accounts are not insured by any type of
federal or government program. In 2019, prime dealer and trading platform SFOX announced
it would be able to provide bitcoin investors with FDIC insurance, but only for the portion of
transactions involving cash.
Fraud Risk
While bitcoin uses private key encryption to verify owners and register transactions,
fraudsters and scammers may attempt to sell false bitcoin. For instance, in July 2013, the
SEC brought legal action against an operator of a bitcoin-related Ponzi scheme. There have
also been documented cases of bitcoin price manipulation, another common form of fraud.

Market Risk
Like with any investment, bitcoin values can fluctuate. Indeed, the value of the currency has
seen wild swings in price over its short existence. Subject to high volume buying and selling
on exchanges, it has a high sensitivity to any newsworthy events. According to the CFPB, the
price of bitcoin fell by 61% in a single day in 2013, while the one-day price drop record in
2014 was as big as 80%.
If fewer people begin to accept bitcoin as a currency, these digital units may lose value and
could become worthless. Indeed, there was speculation that the "bitcoin bubble" had burst
when the price declined from its all-time high during the cryptocurrency rush in late 2017 and
early 2018.
There is already plenty of competition, and although bitcoin has a huge lead over the
hundreds of other digital currencies that have sprung up because of its brand recognition
and venture capital money, a technological breakthrough in the form of a better virtual coin is
always a threat.
Splits in the Cryptocurrency Community
In the years since bitcoin launched, there have been numerous instances in which
disagreements between factions of miners and developers prompted large-scale splits of the
cryptocurrency community. In some of these cases, groups of bitcoin users and miners have
changed the protocol of the bitcoin network itself.
This process is known as "forking," and it usually results in the creation of a new type of
bitcoin with a new name. This split can be a "hard fork," in which a new coin shares
transaction history with bitcoin up until a decisive split point, at which point a new token is
created. Examples of cryptocurrencies that have been created as a result of hard forks
include bitcoin cash (created in August 2017), bitcoin gold (created in October 2017), and
bitcoin SV (created in November 2017).
A "soft fork" is a change to the protocol that is still compatible with the previous system rules.
For example, bitcoin soft forks have increased the total size of blocks.

5.Satoshi Nakamoto
Who Is Satoshi Nakamoto?
Satoshi Nakamoto is the anonymous name used by the creators of the Bitcoin
cryptocurrency.
Although the name Satoshi Nakamoto is often synonymous with Bitcoin, the actual person
that the name represents has never been found, leading many people to believe that it is a
pseudonym for a person with a different identity or a group of people.
KEY TAKEAWAYS
• Satoshi Nakamoto is the pseudonym who penned the original Bitcoin whitepaper and is the
identity credited with inventing Bitcoin itself.
• While several people have claimed to be Satoshi, the true identity has never been verified
nor revealed.
• Given the price of BTC today, Satoshi would be a billionaire.
Understanding Satoshi Nakamoto
Satoshi Nakamoto may not be a real person. The name might be a pseudonym for the
creator or creators of Bitcoin who wish to remain anonymous.
For most people, Satoshi Nakamoto is the most enigmatic character in cryptocurrency. To
date, it is unclear if the name refers to a single person or a group of people. What is known is
that Satoshi Nakamoto published a paper in 2008 that jumpstarted the development of
cryptocurrency.
The paper, Bitcoin: A Peer-to-Peer Electronic Cash System, described the use of a peer-to-
peer network as a solution to the problem of double-spending.1 The problem—that a digital
currency or token could be duplicated in multiple transactions—is not found in physical
currencies since a physical bill or coin can, by its nature, only exist in one place at a single
time. Since a digital currency does not exist in physical space, using it in a transaction does
not necessarily remove it from someone’s possession.
Solutions to combating the double-spend problem had historically involved the use of trusted,
third-party intermediaries that would verify whether a digital currency had already been spent
by its holder. In most cases, third parties, such as banks, can effectively handle transactions
without adding significant risk.
However, this trust-based model still results in fraud risk if the trusted third party can't
actually be trusted. Removing the third-party could only be accomplished by building
cryptography into transactions.

Nakamoto proposed a decentralized approach to transactions, ultimately culminating in the
creation of blockchains. In a blockchain, timestamps for a transaction are added to the end of
previous timestamps based on proof-of-work, creating a historical record that cannot be
changed.
Because the record of transactions is distributed across many nodes in the system, it is
difficult if not impossible for a bad actor to gain enough control of the system to rewrite the
ledger to their own advantage. The blockchain records are kept secure because the amount
of computational power required to reverse them discourages small-scale attacks.
The convention is that Bitcoin with a capital "B" should be used when referring to the Bitcoin
system, network, protocol, etc.; bitcoin with a small "b" should be used when referencing
bitcoin tokens or units in exchange.
History of Satoshi Nakamoto
The persona Satoshi Nakamoto was involved in the early days of Bitcoin, working on the first
version of the software in 2009. Communication to and from Nakamoto was conducted
electronically, and the lack of personal and background details meant that it was impossible
to find out the actual identity behind the name.
Nakamoto’s involvement with Bitcoin, however, ended in 2010. The last correspondence
anyone had with Nakamoto was in an email to another crypto developer saying that they had
"moved on to other things." The inability to put a face to the name has led to significant
speculation as to Nakamoto’s identity, especially as cryptocurrencies increased in number,
popularity, and notoriety.
While the identity of Nakamoto has not been ascribed to a provable person or persons, it is
estimated that the value of bitcoins under Nakamoto's control—which is thought to be about
1 million in number—may exceed $50 billion in value. Given that the maximum possible
number of bitcoins generated is 21 million, Nakamoto's stake of 5% of the total bitcoin
holdings has considerable market power. Several people have been put forward as the "real"
Satoshi Nakamoto, though none have been definitely proven to be Nakamoto.
Dorian Nakamoto
Dorian Nakamoto is an academic and engineer in California who was named as the creator
of Bitcoin by Leah McGrath Goodman in a Newsweek article in March of 2014. McGrath's
article says, "The trail followed by Newsweek led to a 64-year-old Japanese-American man
whose name really is Satoshi Nakamoto," but subsequent investigation ruled Nakamoto out
of the running.

Hal Finney
Bitcoin is the product of the cypherpunk movement, and one of the pillars of that movement
was Hal Finney. Finney died in 2014. Finney was active in the Bitcoin community before and
after its launch, and Finney is the first person to receive Bitcoin in a transaction.3 He also
coincidentally lived a few blocks from Dorian Nakamoto who, it has been surmised, might
have been the inspiration for a pseudonym invented by Finney.
Nick Szabo
Like Finney, Szabo was an early cypherpunk and was friends with many people in that circle.
In 2005, he wrote a blog post hypothesizing a digital currency called "Bitgold" that would not
depend on the trust of third parties.4
Craig Wright
One of the more colorful characters to be nominated as the person behind Satoshi Nakamoto
is Craig Wright, an Australian academic and businessman. Two articles in Wired and
Gizmodo suggested that Wright might be the person behind Bitcoin, but subsequent
investigations have concluded that he had perpetrated an elaborate hoax. He still claims,
however, to be the man behind the coin.
Clues From Bitcoin's Blockchain
Analysis of Bitcoin's blockchain has helped to deduce which addresses are likely Satoshi
Nakamoto's to a relatively high degree of certainty. According to chain analysis from Sergio
Demián Lerner, the chief scientist of RSK Labs, Satoshi has around 1 million bitcoin or 100
million U.S. dollars. These addresses date all the way back to the beginning of Bitcoin in
2009.
Over the years, bitcoins from some very early addresses have been moved, leading many to
speculate whether or not this was Satoshi each time (even though there were some other
miners active). Thus far, this analysis has shown that each of these transactions has most
likely not been from Satoshi addresses and that his bitcoin stash is still dormant.5
On May 21st, 2020, a Twitter account that monitors various blockchains and reports large
transactions, called @whale_alert tweeted this:

40 #BTC (391,055 USD) transferred from possible #Satoshi owned wallet (dormant since
2009) to unknown wallet. The coins in this transaction were mined in the first month of
Bitcoin's existence. 6
This immediately caused a ripple across Twitter. The @Bitcoin Twitter handle tweeted a poll
asking if Twitter users were bullish, neutral, or bearish on the news that this could have been
Satoshi. At first, bearish had the lead. A day later, 34% of those who answered said it was
bullish, 35.6% said it was neutral, and 30% said it was bearish.
Even though indicators on the blockchain pointed to this being someone other than Satoshi,
many Twitter users seemed to assume that it was and began to experience anxiety that
Satoshi was dumping his bitcoin holdings. Fear and uncertainty seemed to fill up the
comment section, with some asking if they should sell and others saying that they would sell
right away.
While others tried to chime in and explain that these addresses were likely not Satoshi and
that, even if it were, they could have been moving to another address rather than to an
exchange to sell (proposing that Satoshi was not actually dumping his bitcoin). Many also
asked why it even matters if Satoshi wants to move bitcoin or sell it because Bitcoin is
decentralized and one person's actions, whether it is Satoshi or not, should not be relevant.
Regardless, the price immediately dropped 4% after this news came out, highlighting once
again just how volatile these markets are and how easily news, even if unproven or untrue,
can swing a market. It also showed that, even though Bitcoin is decentralized, with no sole
leader or control point, the community is still so obsessed with its creators that this one
person or person's movements can have some level of control over the system.

6.Crypto Tokens
What Are Crypto Tokens?
The term crypto token refers to a special virtual currency token or how cryptocurrencies are
denominated. These tokens represent fungible and tradable assets or utilities that reside on
their own blockchains. Crypto tokens are often used to fundraise for crowd sales, but they
can also be used as a substitute for other things. These tokens are usually created,
distributed, sold, and circulated through the standard initial coin offering (ICO) process, which
involves a crowdfunding exercise to fund project development.
KEY TAKEAWAYS
• Crypto tokens are a type of cryptocurrency that represents an asset or specific use and
resides on their blockchain.
• Tokens can be used for investment purposes, to store value, or to make purchases.
• Cryptocurrencies are digital currencies used to facilitate transactions (making and receiving
payments) along the blockchain.
• Altcoins and crypto tokens are types of cryptocurrencies with different functions.
• Created through an initial coin offering, crypto tokens are often used to raise funds for crowd
sales.
How Crypto Tokens Work
As noted above, crypto tokens are cryptocurrency tokens. Cryptocurrencies or virtual
currencies are denominated into these tokens, which reside on their own blockchains.
Blockchains are special databases that store information in blocks that are then chained or
linked together. This means that crypto tokens, which are also called crypto assets, represent
a certain unit of value.
Here's how it all works. Crypto refers to the various encryption algorithms and cryptographic
techniques that safeguard these entries, such as elliptical curve encryption, public-private
key pairs, and hashing functions.
Cryptocurrencies, on the other hand, are systems that allow for secure payments online
which are denominated in virtual tokens. These tokens are represented by ledger entries
internal to the system.

These crypto-assets often serve as the transaction units on the blockchains that are created
using the standard templates like that of the Ethereum network that allows a user to create
tokens.3 Such blockchains work on the concept of smart contracts or decentralized
applications (Dapps), where the programmable, self-executing code is used to process and
manage the various transactions that occur on the blockchain.
For example, you can have a crypto token that represents a certain number of customer
loyalty points on a blockchain that is used to manage such details for a retail chain. There
can be another crypto token that gives entitlement to the token holder to view 10 hours of
streaming content on a video-sharing blockchain. Another crypto token may even represent
other cryptocurrencies, such as a crypto token being equal to 15 bitcoins on a particular
blockchain. Such crypto tokens are tradable and transferrable among the various participants
of the blockchain.
Crypto coins are forms of currency that can be used to make purchases but you can use a
crypto token for many other reasons, including as investments, to store value, and for making
purchases.
Tokens are created through an initial coin offering, which represents the cryptocurrency
version of an initial public offering (IPO). Tokens are created by cryptocurrency companies
that want to raise money. Investors who are interested in the company can purchase these
tokens.
Investors can use crypto tokens for any number of reasons. They can hold onto them to
represent a stake in the cryptocurrency company or for an economic reason—to trade or
make purchases of goods and services.
Crypto Tokens vs. Cryptocurrencies vs. Altcoins
The term crypto token is often erroneously used interchangeably with the
words cryptocurrency and altcoins in the virtual currency world. But these terms are distinct
from one another.
A cryptocurrency is a standard currency used for making or receiving payments on a
blockchain, with the most popular cryptocurrency being Bitcoin. The cryptocurrency is the
superset while altcoins (and crypto tokens) are two subset categories.

Altcoins are alternative cryptocurrencies that were launched after the massive success
achieved by Bitcoin.2 The term means alternative coins—that is—other than bitcoins. They
were launched as enhanced substitutes of bitcoin with the claims to overcome some of
the pain points of Bitcoin. Litecoin, Bitcoin Cash, Namecoin, and Dogecoin are common
examples of altcoins. Though each has tasted varying levels of success, none have
managed to gain popularity akin to bitcoin.
Cryptocurrencies and altcoins are essentially specific virtual currencies that have their own
dedicated blockchains and are primarily used as a medium for digital payments. On the other
hand, crypto tokens operate on top of a blockchain that acts as a medium for the creation
and execution of decentralized apps and smart contracts, and the tokens are used to
facilitate the transactions.
According to the Financial Industry Regulatory Authority, regulators continue to crack down
on ICO fraud, so be sure you do your research before investing in any cryptocurrency—the
same way you would with any stock.5
Crypto Token FAQs
What Is a Crypto Token?
A crypto token is a virtual currency token or a denomination of a cryptocurrency. It represents
a tradable asset or utility that resides on its own blockchain, and allows the holder to use it
for investment or economic purposes.
What Is the Purpose of Tokens?
Crypto tokens can be used to represent an investor's stake in the company or they can be
used for an economic purpose, just like legal tender. This means token holders can use them
to make purchases or they can trade tokens just like other securities to make a profit.
Is Bitcoin a Token or a Coin?
Bitcoin is a cryptocurrency, which has virtual tokens or coins that can be used to trade or
make purchases.
What Is the Difference Between a Crypto Coin and Token?
Crypto coins allow individuals to make payments using their digital currency. People can use
tokens, though, for many more reasons. They can use them for trading, to hold and store
value, and, of course, to use as a form of currency.

What Are Different Types of Tokens in Blockchain?
Tokens that reside on blockchains include reward tokens, currency tokens, utility tokens,
security tokens, and asset tokens.
Crypto Commodity
What Is a Crypto Commodity?
Crypto-commodity is a general term used to describe a tradable or fungible asset that may
represent a commodity, utility, or a contract in the real- or virtual-world through exclusive
tokens on a blockchain network.
Understanding Crypto Commodities
A quick dive into the evolutionary history of cryptocurrency platforms is helpful in
understanding the concept of crypto-commodities.
As the Bitcoin network evolved, it gained popularity for its ease of payment processing and
its decentralized nature. Technology stalwarts were quick to realize that blockchain networks
could be used for more than simple online payments. This is how Ethereum emerged, a
unique smart contract-based crypto-commodity system.
Although Ethereum works as a standard blockchain network and has its own virtual currency
token (ETH), it offers a lot more functionality than the bitcoin network. On Ethereum, anyone
can create their own digital tokens, which are easily tradable and can have valuations
independent from ETH.
These digitized tokens can be used to represent any kind of virtual or real-world asset, such
as in-game objects, rewards points, or real-world commodities.
For instance, an app developer could use a specific type of token to pay for platform hosting,
a user could pay a different type of token to watch blockchain-based online media content,
and another token could be used for online betting.
Essentially, any blockchain-based platform that allows representation of a tradable and
fungible asset through the use of unique tokens can be described as a crypto-commodity
ecosystem. The rules for owning and transacting with these assets are enforced through
programmable code in the form of smart contracts and decentralized apps.

Other blockchain-based platforms that support crypto-commodity trading include NEO,
Cardano, and QTUM.
Examples of Crypto Commodities
Most crypto-commodities refer to tokens used to access online services. For example, the
Brave browser has its own built-in cryptocurrency, which is used to pay for advertisements
and content creation. Many cryptocurrency exchanges have their own digital tokens, which
are used to pay trading fees and other expenses of using the platform.
Virtual tokens can also be used to represent real-world commodities. The Digix Gold Token
(DGX) is a digitally tradeable form of gold, in which each token represents one gram of the
precious metal, backed by gold bars in a secure vault. However, unlike regular gold, the
tokens are weightless, easily divisible, and nearly impossible to steal. There have also been
efforts to tokenize crude oil, electricity, and even bananas.
Cryptocurrencies Traded as Commodities
The term "crypto-commodity" can also refer to cryptocurrencies that are legally regulated and
traded as commodities, as opposed to securities. Both bitcoin and ether, the cryptocurrency
of the Ethereum network, are widely considered to be commodities by authorities at the
Commodity Futures Trading Commission and the Securities and Exchanges Commission.
This distinction is important because sales of securities are closely regulated by the U.S. and
other national governments. Because Bitcoin and Ether are not considered securities, they
can be freely traded on traditional asset markets, as well as cryptocurrency exchanges. Both
the Chicago Mercantile Exchange and the Cboe Options Exchange
have announced cryptocurrency-based products, which can be readily traded alongside more
traditional commodities like gold and corn.

7.Block (Bitcoin Block)
What Is a Block (Bitcoin Block)?
Blocks are files where data pertaining to the Bitcoin network are permanently recorded. A
block records some or all of the most recent Bitcoin transactions that have not yet entered
any prior blocks. Thus, a block is like a page of a ledger or record book. Each time a block is
‘completed’, it gives way to the next block in the blockchain. A block is thus a permanent
store of records which, once written, cannot be altered or removed.
KEY TAKEAWAYS
• A block can be thought of like a link in a chain. It possesses parts or all of the records of the
transactions that preceded it.
• the blockchain network is comprised of millions of blocks that are in a constant state of flux.
• A block is virtually impossible to hack. If it was possible, it would have the same effect as a
bank robber reaching over the counter and not only taking money but all the bank's records
as well.
• Bitcoin miners can solve complex mathematical equations, and are awarded BTC, or
bitcoins, for their effort in finding the solutions.
•
How a Block (Bitcoin Block) Works
The Bitcoin network witnesses a great deal of transaction activity. Maintaining a record of
these transactions helps users track what was paid for and by whom. The transactions
executed during a given period of time are recorded into a file called a block, which is the
basis of the blockchain network.
A block represents the ‘present’ and contains information about its past and future. Each time
a block is completed it becomes part of the past and gives way to a new block in the
blockchain. The completed block is a permanent record of transactions in the past and the
new transactions are recorded in the current one.
This way, the whole system works in a cycle and data gets permanently stored. Each block
comprises records of some or all recent transactions, and a reference to the block that
preceded it which, along with Bitcoin's peer-to-peer verification system, makes it
virtually impossible for a user to tamper with previously recorded transaction data.

Special Considerations: Bitcoin Mining
A mathematical problem is linked with each block. Miners are constantly processing and
recording transactions as part of the process of competing in a type of race. They race to
‘complete the current block’ in order to win Bitcoins. When a winning miner is able to solve it,
the answer is shared with other mining nodes and it is validated. Every time a miner solves a
problem, a newly minted 12.5 BTC (Bitcoin currency symbol) is awarded to the miner and
enters the circulation.
The first record in that next block is a transaction that awards the winning miner (who
completed the previous block) the newly minted BTC. It is the difficulty of the mathematical
problem that regulates the creation rate of new Bitcoins since new blocks can’t be submitted
to the network without the answer. Based on the fact that it takes around 10 minutes on
average to solve the problem, approximately 12.5 new Bitcoins are minted every 10 minutes.
An Example of a Block (Bitcoin Block)
By way of analogy, it is possible to compare ordinary banking transactions to transactions
over the Bitcoin network. A blockchain is like a record of bank transactions, whereas a block
might be a single transaction confirmation that a bank ATM prints out after you use the
machine. Within the blockchain network, the individual blocks build a 'ledger' much like an
ATM or bank would record your transactions.
Blockchain though, records the chain across all their users instead of one. This is similar to a
bank, but the blockchain offers an increased level of privacy versus normal banking
institutions.

8. How Does Bitcoin Mining Work?
What Is Bitcoin Mining?
Bitcoin mining is the process by which new bitcoins are entered into circulation, but it is also
a critical component of the maintenance and development of the blockchain ledger. It is
performed using very sophisticated computers that solve extremely complex computational
math problems.
Cryptocurrency mining is painstaking, costly, and only sporadically rewarding. Nonetheless,
mining has a magnetic appeal for many investors interested in cryptocurrency because of the
fact that miners are rewarded for their work with crypto tokens. This may be because
entrepreneurial types see mining as pennies from heaven, like California gold prospectors in
1849. And if you are technologically inclined, why not do it?
However, before you invest the time and equipment, read this explainer to see whether
mining is really for you. We will focus primarily on Bitcoin (throughout, we'll use "Bitcoin"
when referring to the network or the cryptocurrency as a concept, and "bitcoin" when we're
referring to a quantity of individual tokens).
KEY TAKEAWAYS
• By mining, you can earn cryptocurrency without having to put down money for it.
• Bitcoin miners receive Bitcoin as a reward for completing "blocks" of verified transactions,
which are added to the blockchain.
• Mining rewards are paid to the miner who discovers a solution to a complex hashing puzzle
first, and the probability that a participant will be the one to discover the solution is related to
the portion of the total mining power on the network.
• You need either a GPU (graphics processing unit) or an application-specific integrated
circuit (ASIC) in order to set up a mining rig.

A New Gold Rush
The primary draw for many mining is the prospect of being rewarded with Bitcoin. That said,
you certainly don't have to be a miner to own cryptocurrency tokens. You can also buy
cryptocurrencies using fiat currency; you can trade it on an exchange like Bitstamp using
another crypto (as an example, using Ethereum or NEO to buy Bitcoin); you even can earn it
by shopping, publishing blog posts on platforms that pay users in cryptocurrency, or even set
up interest-earning crypto accounts.
An example of a crypto blog platform is Steemit, which is kind of like Medium except that
users can reward bloggers by paying them in a proprietary cryptocurrency called
STEEM. STEEM can then be traded elsewhere for Bitcoin.
The Bitcoin reward that miners receive is an incentive that motivates people to assist in the
primary purpose of mining: to legitimize and monitor Bitcoin transactions, ensuring their
validity. Because these responsibilities are spread among many users all over the world,
Bitcoin is a "decentralized" cryptocurrency, or one that does not rely on any central authority
like a central bank or government to oversee its regulation.
How to Mine Bitcoins
Miners are getting paid for their work as auditors. They are doing the work of verifying the
legitimacy of Bitcoin transactions. This convention is meant to keep Bitcoin users honest and
was conceived by Bitcoin's founder, Satoshi Nakamoto. By verifying transactions, miners are
helping to prevent the "double-spending problem."
Double spending is a scenario in which a Bitcoin owner illicitly spends the same bitcoin twice.
With physical currency, this isn't an issue: once you hand someone a $20 bill to buy a bottle
of vodka, you no longer have it, so there's no danger you could use that same $20 bill to buy
lotto tickets next door. While there is the possibility of counterfeit cash being made, it is not
exactly the same as literally spending the same dollar twice. With digital currency,
however, as the Investopedia dictionary explains, "there is a risk that the holder could make
a copy of the digital token and send it to a merchant or another party while retaining the
original."
Let's say you had one legitimate $20 bill and one counterfeit of that same $20. If you were to
try to spend both the real bill and the fake one, someone that took the trouble of looking at
both of the bills' serial numbers would see that they were the same number, and thus one of
them had to be false. What a Bitcoin miner does is analogous to that—they check
transactions to make sure that users have not illegitimately tried to spend the same bitcoin
twice. This isn't a perfect analogy—we'll explain in more detail below.

Once miners have verified 1 MB (megabyte) worth of Bitcoin transactions, known as a
"block," those miners are eligible to be rewarded with a quantity of bitcoins (more about the
bitcoin reward below as well). The 1 MB limit was set by Satoshi Nakamoto, and is a matter
of controversy, as some miners believe the block size should be increased to accommodate
more data, which would effectively mean that the bitcoin network could process and verify
transactions more quickly.
Note that verifying 1 MB worth of transactions makes a coin miner eligible to earn bitcoin—
not everyone who verifies transactions will get paid out.
1MB of transactions can theoretically be as small as one transaction (though this is not at all
common) or several thousand. It depends on how much data the transactions take up.
"So after all that work of verifying transactions, I might still not get any bitcoin for it?"
That is correct. To earn bitcoins, you need to meet two conditions. One is a matter of effort;
one is a matter of luck:
• You have to verify ~1MB worth of transactions. This is the easy part.
• You have to be the first miner to arrive at the right answer, or closest answer, to a numeric
problem. This process is also known as proof of work.
Image by Sabrina Jiang © Investopedia 2021

"What do you mean, 'the right answer to a numeric problem'?"
The good news: No advanced math or computation is involved. You may have heard that
miners are solving difficult mathematical problems—that's not exactly true. What they're
actually doing is trying to be the first miner to come up with a 64-digit hexadecimal number (a
"hash") that is less than or equal to the target hash. It's basically guesswork.
The bad news: It's guesswork, but with the total number of possible guesses for each of
these problems being on the order of trillions, it's incredibly arduous work. In order to solve a
problem first, miners need a lot of computing power. To mine successfully, you need to have
a high "hash rate," which is measured in terms of megahashes per second (MH/s),
gigahashes per second (GH/s), and terahashes per second (TH/s).
That is a great many hashes.
If you want to estimate how much bitcoin you could mine with your mining rig's hash rate, the
site Cryptocompare offers a helpful calculator.
Mining and Bitcoin Circulation
In addition to lining the pockets of miners and supporting the Bitcoin ecosystem, mining
serves another vital purpose: It is the only way to release new cryptocurrency into circulation.
In other words, miners are basically "minting" currency. For example, as of Nov. 2020, there
were around 18.5 million bitcoins in circulation.1
Aside from the coins minted via the genesis block (the very first block, which was created by
founder Satoshi Nakamoto), every single one of those bitcoins came into being because of
miners. In the absence of miners, Bitcoin as a network would still exist and be usable, but
there would never be any additional bitcoin. There will eventually come a time when Bitcoin
mining ends; per the Bitcoin Protocol, the total number of bitcoins will be capped at 21
million.2
However, because the rate of bitcoin "mined" is reduced over time, the final bitcoin won't be
circulated until around the year 2140. This does not mean that transactions will cease to be
verified. Miners will continue to verify transactions and will be paid in fees for doing so in
order to keep the integrity of Bitcoin's network.
Aside from the short-term Bitcoin payoff, being a coin miner can give you "voting" power
when changes are proposed in the Bitcoin network protocol. In other words, miners have a
degree of influence on the decision-making process on such matters as forking.

How Much a Miner Earns
The rewards for Bitcoin mining are reduced by half every four years. When bitcoin was first
mined in 2009, mining one block would earn you 50 BTC. In 2012, this was halved to 25
BTC. By 2016, this was halved again to 12.5 BTC. On May 11, 2020, the reward halved
again to 6.25 BTC. In November of 2020, the price of Bitcoin was about $17,900 per bitcoin,
which means you'd earn $111,875 (6.25 x 17,900) for completing a block.3 Not a bad
incentive to solve that complex hash problem detailed above, it might seem.

It is expected the end of bitcoin mining to end by 20125
If you want to keep track of precisely when these halvings will occur, you can consult
the Bitcoin Clock, which updates this information in real-time. Interestingly, the market price
of Bitcoin has, throughout its history, tended to correspond closely to the reduction of new
coins entered into circulation. This lowering inflation rate increased scarcity and historically
the price has risen with it.
If you are interested in seeing how many blocks have been mined thus far, there are several
sites, including Blockchain.info, that will give you that information in real-time.

What Do I Need to Mine Bitcoins?
Although early on in Bitcoin's history individuals may have been able to compete for blocks
with a regular at-home computer, this is no longer the case. The reason for this is that the
difficulty of mining Bitcoin changes over time.
In order to ensure the smooth functioning of the blockchain and its ability to process and
verify transactions, the Bitcoin network aims to have one block produced every 10 minutes or
so. However, if there are one million mining rigs competing to solve the hash problem, they'll
likely reach a solution faster than a scenario in which 10 mining rigs are working on the same
problem. For that reason, Bitcoin is designed to evaluate and adjust the difficulty of mining
every 2,016 blocks, or roughly every two weeks.
When there is more computing power collectively working to mine for bitcoins, the difficulty
level of mining increases in order to keep block production at a stable rate. Less computing
power means the difficulty level decreases. To get a sense of just how much computing
power is involved, when Bitcoin launched in 2009 the initial difficulty level was one. As of
Nov. 2019, it is more than 13 trillion.
All of this is to say that, in order to mine competitively, miners must now invest in powerful
computer equipment like a GPU (graphics processing unit) or, more realistically, an
application-specific integrated circuit (ASIC). These can run from $500 to the tens of
thousands. Some miners—particularly Ethereum miners—buy individual graphics cards
(GPUs) as a low-cost way to cobble together mining operations.
The photo below is a makeshift, homemade mining machine. The graphics cards are those
rectangular blocks with whirring fans. Note the sandwich twist-ties holding the graphics cards
to the metal pole. This is probably not the most efficient way to mine, and as you can guess,
many miners are in it as much for the fun and challenge as for the money.
The "Explain It Like I'm Five" Version
The ins and outs of Bitcoin mining can be difficult to understand as is. Consider this
illustrative example of how the hash problem works: I tell three friends that I'm thinking of a
number between one and 100, and I write that number on a piece of paper and seal it in an
envelope. My friends don't have to guess the exact number; they just have to be the first
person to guess any number that is less than or equal to the number I am thinking of. And
there is no limit to how many guesses they get.

Let's say I'm thinking of the number 19. If Friend A guesses 21, they lose because of 21>19.
If Friend B guesses 16 and Friend C guesses 12, then they've both theoretically arrived at
viable answers, because of 16 < 19 and 12 < 19. There is no "extra credit" for Friend B, even
though B's answer was closer to the target answer of 19. Now imagine that I pose the "guess
what number I'm thinking of" question, but I'm not asking just three friends, and I'm not
thinking of a number between 1 and 100.
Rather, I'm asking millions of would-be miners and I'm thinking of a 64-digit hexadecimal
number. Now you see that it's going to be extremely hard to guess the right answer.
If B and C both answer simultaneously, then the ELI5 analogy breaks down.
In Bitcoin terms, simultaneous answers occur frequently, but at the end of the day, there can
only be one winning answer. When multiple simultaneous answers are presented that are
equal to or less than the target number, the Bitcoin network will decide by a simple majority—
51%—which miner to honor.
Typically, it is the miner who has done the most work or, in other words, the one that verifies
the most transactions. The losing block then becomes an "orphan block." Orphan blocks are
those that are not added to the blockchain. Miners who successfully solve the hash problem
but who haven't verified the most transactions are not rewarded with bitcoin.
What Is a "64-Digit Hexadecimal Number"?
Well, here is an example of such a number:
0000000000000000057fcc708cf0130d95e27c5819203e9f967ac56e4df598ee
The number above has 64 digits. Easy enough to understand so far. As you probably
noticed, that number consists not just of numbers, but also letters of the alphabet. Why is
that?
To understand what these letters are doing in the middle of numbers, let's unpack the word
"hexadecimal."
As you know, we use the "decimal" system, which means it is base 10. This, in turn, means
that every digit of a multi-digit number has 10 possibilities, zero through nine.

"Hexadecimal," on the other hand, means base 16, as "hex" is derived from the Greek word
for six and "deca" is derived from the Greek word for 10. In a hexadecimal system, each digit
has 16 possibilities. But our numeric system only offers 10 ways of representing numbers
(zero through nine). That's why you have to stick letters in, specifically letters a, b, c, d, e,
and f.
If you are mining Bitcoin, you do not need to calculate the total value of that 64-digit number
(the hash). I repeat: You do not need to calculate the total value of a hash.
So, what do "64-digit hexadecimal numbers" have to do with Bitcoin mining?
Remember that ELI5 analogy, where I wrote the number 19 on a piece of paper and put it in
a sealed envelope?
In Bitcoin mining terms, that metaphorical undisclosed number in the envelope is called
the target hash.
What miners are doing with those huge computers and dozens of cooling fans is guessing at
the target hash. Miners make these guesses by randomly generating as many "nonces" as
possible, as fast as possible. A nonce is short for "number only used once," and the nonce is
the key to generating these 64-bit hexadecimal numbers I keep talking about. In Bitcoin
mining, a nonce is 32 bits in size—much smaller than the hash, which is 256 bits.

The first miner whose nonce generates a hash that is less than or equal to the target hash is
awarded credit for completing that block and is awarded the spoils of 6.25 BTC.
In theory, you could achieve the same goal by rolling a 16-sided die 64 times to arrive at
random numbers, but why on earth would you want to do that?
The screenshot below, taken from the site Blockchain.info, might help you put all this
information together at a glance. You are looking at a summary of everything that happened
when block #490163 was mined. The nonce that generated the "winning" hash was
731511405. The target hash is shown on top. The term "Relayed by Antpool" refers to the
fact that this particular block was completed by AntPool, one of the more successful mining
pools (more about mining pools below).
As you see here, their contribution to the Bitcoin community is that they confirmed 1768
transactions for this block. If you really want to see all 1768 of those transactions for this
block, go to this page and scroll down to the heading "Transactions."
(source: Blockchain.info)

"So how do I guess at the target hash?"
All target hashes begin with zeros—at least eight zeros and up to 63 zeros.
There is no minimum target, but there is a maximum target set by the Bitcoin Protocol. No
target can be greater than this number:
00000000ffff0000000000000000000000000000000000000000000000000000
Here are some examples of randomized hashes and the criteria for whether they will lead to
success for the miner:
Note: These are made-up hashes. Image by Sabrina Jiang © Investopedia 2021
"How do I maximize my chances of guessing the target hash before anyone else does?"
You'd have to get a fast mining rig, or, more realistically, join a mining pool—a group of coin
miners who combine their computing power and split the mined Bitcoin. Mining pools are
comparable to those Powerball clubs whose members buy lottery tickets en masse and
agree to share any winnings. A disproportionately large number of blocks are mined by pools
rather than by individual miners.

In other words, it's literally just a numbers game. You cannot guess the pattern or make a
prediction based on previous target hashes. The difficulty level of the most recent block at
the time of writing is about 17.59 trillion, meaning that the chance of any given nonce
producing a hash below the target is one in 17.59 trillion. Not great odds if you're working on
your own, even with a tremendously powerful mining rig.
"How do I decide whether Bitcoin will be profitable for me?"
Not only do miners have to factor in the costs associated with expensive equipment
necessary to stand a chance of solving a hash problem. They must also consider the
significant amount of electrical power mining rigs utilize in generating vast quantities of
nonces in search of the solution.
All told, Bitcoin mining is largely unprofitable for most individual miners as of this writing. The
site Cryptocompare offers a helpful calculator that allows you to plug in numbers such as
your hash speed and electricity costs to estimate the costs and benefits.
(Source: Cryptocompare)

What Are Coin Mining Pools?
Mining rewards are paid to the miner who discovers a solution to the puzzle first, and the
probability that a participant will be the one to discover the solution is equal to the portion of
the total mining power on the network.
Participants with a small percentage of the mining power stand a very small chance of
discovering the next block on their own. For instance, a mining card that one could purchase
for a couple of thousand dollars would represent less than 0.001% of the network's mining
power. With such a small chance at finding the next block, it could be a long time before that
miner finds a block, and the difficulty going up makes things even worse. The miner may
never recoup their investment. The answer to this problem is mining pools.
Mining pools are operated by third parties and coordinate groups of miners. By working
together in a pool and sharing the payouts among all participants, miners can get a steady
flow of bitcoin starting the day they activate their miners. Statistics on some of the mining
pools can be seen on Blockchain.info.
"I've done the math. Forget mining. Is there a less onerous way to profit from
cryptocurrencies?"
As mentioned above, the easiest way to acquire Bitcoin is to simply buy it on one of the many
exchanges. Alternately, you can always leverage the "pickaxe strategy." This is based on the
old saw that during the 1849 California gold rush, the smart investment was not to pan for
gold, but rather to make the pickaxes used for mining.
To put it in modern terms, invest in the companies that manufacture those pickaxes. In a
cryptocurrency context, the pickaxe equivalent would be a company that manufactures
equipment used for Bitcoin mining. You may consider looking into companies that make
ASICs equipment or GPUs instead, for example.
Is Bitcoin Mining Legal?
The legality of Bitcoin mining depends entirely on your geographic location. The concept of
Bitcoin can threaten the dominance of fiat currencies and government control over the
financial markets. For this reason, Bitcoin is completely illegal in certain places.
Bitcoin ownership and mining are legal in more countries than not. Some examples of places
where it is illegal are Algeria, Egypt, Morocco, Bolivia, Ecuador, Nepal, and
Pakistan.4 Overall, Bitcoin use and mining are legal across much of the globe.

Risks of Mining
The risks of mining are often that of financial risk and a regulatory one. As mentioned, Bitcoin
mining, and mining in general, is a financial risk. One could go through all the effort of
purchasing hundreds or thousands of dollars worth of mining equipment only to have no
return on their investment. That said, this risk can be mitigated by joining mining pools. If you
are considering mining and live in an area that it is prohibited you should reconsider. It may
also be a good idea to research your countries regulation and overall sentiment towards
cryptocurrency before investing in mining equipment.
One additional potential risk from the growth of Bitcoin mining (and other proof-of-work
systems as well) is the increasing energy usage required by the computer systems running
the mining algorithms. While microchip efficiency has increased dramatically for ASIC chips,
the growth of the network itself is outpacing technological progress. As a result, there are
concerns about the environmental impact and carbon footprint of Bitcoin mining.
There are, however, efforts to mitigate this negative externality by seeking cleaner and green
energy sources for mining operations (such as geothermal or solar), as well as utilizing
carbon offset credits. Switching to less energy-intensive consensus mechanisms like proof-
of-stake (PoS), which Ethereum is planning to do, is another strategy; however, PoS comes
with its own set of drawbacks and inefficiencies.

9. Block Chain Explained
If you have been following banking, investing, or cryptocurrency over the last ten years, you
may have heard the term “blockchain,” the record-keeping technology behind the Bitcoin
network.
KEY TAKEAWAYS
• Blockchain is a specific type of database.
• It differs from a typical database in the way it stores information; blockchains store data in
blocks that are then chained together.
• As new data comes in it is entered into a fresh block. Once the block is filled with data it is
chained onto the previous block, which makes the data chained together in chronological
order.
• Different types of information can be stored on a blockchain but the most common use so far
has been as a ledger for transactions.
• In Bitcoin’s case, blockchain is used in a decentralized way so that no single person or group
has control—rather, all users collectively retain control.
• Decentralized blockchains are immutable, which means that the data entered is irreversible.
For Bitcoin, this means that transactions are permanently recorded and viewable to anyone.
What is Blockchain?
Blockchain seems complicated, and it definitely can be, but its core concept is really quite
simple. A blockchain is a type of database. To be able to understand blockchain, it helps to
first understand what a database actually is.
A database is a collection of information that is stored electronically on a computer system.
Information, or data, in databases is typically structured in table format to allow for easier
searching and filtering for specific information. What is the difference between someone
using a spreadsheet to store information rather than a database?

Spreadsheets are designed for one person, or a small group of people, to store and access
limited amounts of information. In contrast, a database is designed to house significantly
larger amounts of information that can be accessed, filtered, and manipulated quickly and
easily by any number of users at once.
Large databases achieve this by housing data on servers that are made of powerful
computers. These servers can sometimes be built using hundreds or thousands of
computers in order to have the computational power and storage capacity necessary for
many users to access the database simultaneously.
While a spreadsheet or database may be accessible to any number of people, it is often
owned by a business and managed by an appointed individual that has complete control over
how it works and the data within it.
So how does a blockchain differ from a database?
Storage Structure
One key difference between a typical database and a blockchain is the way the data is
structured. A blockchain collects information together in groups, also known as blocks, that
hold sets of information. Blocks have certain storage capacities and, when filled, are chained
onto the previously filled block, forming a chain of data known as the “blockchain.”
All new information that follows that freshly added block is compiled into a newly formed
block that will then also be added to the chain once filled.
A database structures its data into tables whereas a blockchain, like its name implies,
structures its data into chunks (blocks) that are chained together. This makes it so that all
blockchains are databases but not all databases are blockchains.
This system also inherently makes an irreversible timeline of data when implemented in a
decentralized nature. When a block is filled it is set in stone and becomes a part of this
timeline. Each block in the chain is given an exact timestamp when it is added to the chain.
Transaction Process:

Attributes of Cryptocurrency

Decentralization
For the purpose of understanding blockchain, it is instructive to view it in the context of how it
has been implemented by Bitcoin. Like a database, Bitcoin needs a collection of computers
to store its blockchain. For Bitcoin, this blockchain is just a specific type of database that
stores every Bitcoin transaction ever made.
In Bitcoin’s case, and unlike most databases, these computers are not all under one roof,
and each computer or group of computers is operated by a unique individual or group of
individuals.
Imagine that a company owns a server comprised of 10,000 computers with a database
holding all of its client's account information. This company has a warehouse containing all of
these computers under one roof and has full control of each of these computers and all the
information contained within them.
Similarly, Bitcoin consists of thousands of computers, but each computer or group of
computers that hold its blockchain is in a different geographic location and they are all
operated by separate individuals or groups of people. These computers that makeup
Bitcoin’s network are called nodes.
In this model, Bitcoin’s blockchain is used in a decentralized way. However, private,
centralized blockchains, where the computers that make up its network are owned and
operated by a single entity, do exist.
In a blockchain, each node has a full record of the data that has been stored on the
blockchain since its inception. For Bitcoin, the data is the entire history of all Bitcoin
transactions. If one node has an error in its data it can use the thousands of other nodes as a
reference point to correct itself.
This way, no one node within the network can alter information held within it. Because of this,
the history of transactions in each block that make up Bitcoin’s blockchain is irreversible.
If one user tampers with Bitcoin’s record of transactions, all other nodes would cross-
reference each other and easily pinpoint the node with the incorrect information. This system
helps to establish an exact and transparent order of events. For Bitcoin, this information is a
list of transactions, but it also is possible for a blockchain to hold a variety of information like
legal contracts, state identifications, or a company’s product inventory.

In order to change how that system works, or the information stored within it, a majority of the
decentralized network’s computing power would need to agree on said changes. This
ensures that whatever changes do occur are in the best interests of the majority.
Transparency
Because of the decentralized nature of Bitcoin’s blockchain, all transactions can be
transparently viewed by either having a personal node or by using blockchain explorers that
allow anyone to see transactions occurring live. Each node has its own copy of the chain that
gets updated as fresh blocks are confirmed and added. This means that if you wanted to, you
could track Bitcoin wherever it goes.
For example, exchanges have been hacked in the past where those who held Bitcoin on the
exchange lost everything. While the hacker may be entirely anonymous, the Bitcoins that
they extracted are easily traceable. If the Bitcoins that were stolen in some of these hacks
were to be moved or spent somewhere, it would be known.
Is Blockchain Secure?
Blockchain technology accounts for the issues of security and trust in several ways. First,
new blocks are always stored linearly and chronologically. That is, they are always added to
the “end” of the blockchain. If you take a look at Bitcoin’s blockchain, you’ll see that each
block has a position on the chain, called a “height.” As of November 2020, the block’s height
had reached 656,197 blocks so far.
After a block has been added to the end of the blockchain, it is very difficult to go back and
alter the contents of the block unless the majority reached a consensus to do so. That’s
because each block contains its own hash, along with the hash of the block before it, as well
as the previously mentioned time stamp. Hash codes are created by a math function that
turns digital information into a string of numbers and letters. If that information is edited in any
way, the hash code changes as well.
Here’s why that’s important to security. Let’s say a hacker wants to alter the blockchain and
steal Bitcoin from everyone else. If they were to alter their own single copy, it would no longer
align with everyone else's copy. When everyone else cross-references their copies against
each other, they would see this one copy stand out and that hacker's version of the chain
would be cast away as illegitimate.
Succeeding with such a hack would require that the hacker simultaneously control and alter
51% of the copies of the blockchain so that their new copy becomes the majority copy and
thus, the agreed-upon chain. Such an attack would also require an immense amount of
money and resources as they would need to redo all of the blocks because they would now
have different timestamps and hash codes.

Due to the size of Bitcoin’s network and how fast it is growing, the cost to pull off such a feat
would probably be insurmountable. Not only would this be extremely expensive, but it would
also likely be fruitless. Doing such a thing would not go unnoticed, as network members
would see such drastic alterations to the blockchain. The network members would then fork
off to a new version of the chain that has not been affected.
This would cause the attacked version of Bitcoin to plummet in value, making the attack
ultimately pointless as the bad actor has control of a worthless asset. The same would occur
if the bad actor were to attack the new fork of Bitcoin. It is built this way so that taking part in
the network is far more economically incentivized than attacking it.
Bitcoin vs. Blockchain
The goal of blockchain is to allow digital information to be recorded and distributed, but not
edited. Blockchain technology was first outlined in 1991 by Stuart Haber and W. Scott
Stornetta, two researchers who wanted to implement a system where document timestamps
could not be tampered with. But it wasn’t until almost two decades later, with the launch of
Bitcoin in January 2009, that blockchain had its first real-world application.
The Bitcoin protocol is built on a blockchain. In a research paper introducing the digital
currency, Bitcoin’s pseudonymous creator, Satoshi Nakamoto, referred to it as “a new
electronic cash system that’s fully peer-to-peer, with no trusted third party.”
The key thing to understand here is that Bitcoin merely uses blockchain as a means to
transparently record a ledger of payments, but blockchain can, in theory, be used to
immutably record any number of data points. As discussed above, this could be in the form of
transactions, votes in an election, product inventories, state identifications, deeds to homes,
and much more.
Currently, there is a vast variety of blockchain-based projects looking to implement
blockchain in ways to help society other than just recording transactions. One good example
is that of blockchain being used as a way to vote in democratic elections. The nature of
blockchain’s immutability means that fraudulent voting would become far more difficult to
occur.
For example, a voting system could work such that each citizen of a country would be issued
a single cryptocurrency or token. Each candidate would then be given a specific wallet
address, and the voters would send their token or crypto to whichever candidate's address
they wish to vote for. The transparent and traceable nature of blockchain would eliminate the
need for human vote counting as well as the ability of bad actors to tamper with physical
ballots.

Blockchain vs. Banks
Banks and decentralized blockchains are vastly different. To see how a bank differs from
blockchain, let’s compare the banking system to Bitcoin’s implementation of blockchain.

How is Blockchain Used?
As we now know, blocks on Bitcoin’s blockchain store data about monetary transactions. But
it turns out that blockchain is actually a reliable way of storing data about other types of
transactions, as well.
Some companies that have already incorporated blockchain include Walmart, Pfizer, AIG,
Siemens, Unilever, and a host of others. For example, IBM has created its Food Trust
blockchain1 to trace the journey that food products take to get to its locations.

Why do this? The food industry has seen countless outbreaks of e Coli, salmonella, listeria,
as well as hazardous materials being accidentally introduced to foods. In the past, it has
taken weeks to find the source of these outbreaks or the cause of sickness from what people
are eating.
Using blockchain gives brands the ability to track a food product’s route from its origin,
through each stop it makes, and finally its delivery. If a food is found to be contaminated then
it can be traced all the way back through each stop to its origin.
Not only that, but these companies can also now see everything else it may have come in
contact with, allowing the identification of the problem to occur far sooner, potentially saving
lives. This is one example of blockchains in practice, but there are many other forms of
blockchain implementation.
Banking and Finance
Perhaps no industry stands to benefit from integrating blockchain into its business operations
more than banking. Financial institutions only operate during business hours, five days a
week. That means if you try to deposit a check on Friday at 6 p.m., you will likely have to wait
until Monday morning to see that money hit your account. Even if you do make your deposit
during business hours, the transaction can still take one to three days to verify due to the
sheer volume of transactions that banks need to settle. Blockchain, on the other hand, never
sleeps.
By integrating blockchain into banks, consumers can see their transactions processed in as
little as 10 minutes,2 basically the time it takes to add a block to the blockchain, regardless of
holidays or the time of day or week. With blockchain, banks also have the opportunity to
exchange funds between institutions more quickly and securely. I
n the stock trading business, for example, the settlement and clearing process can take up to
three days (or longer, if trading internationally), meaning that the money and shares are
frozen for that period of time.
Given the size of the sums involved, even the few days that the money is in transit can carry
significant costs and risks for banks. European bank Santander and its research partners put
the potential savings at $15 billion to $20 billion a year.
Capgemini, a French consultancy, estimates that consumers could save up to $16 billion in
banking and insurance fees each year through blockchain-based applications.

Currency
Blockchain forms the bedrock for cryptocurrencies like Bitcoin. The U.S. dollar is controlled
by the Federal Reserve. Under this central authority system, a user’s data and currency are
technically at the whim of their bank or government. If a user’s bank is hacked, the client’s
private information is at risk. If the client’s bank collapses or they live in a country with an
unstable government, the value of their currency may be at risk.
In 2008, some of the banks that ran out of money were bailed out partially using taxpayer
money. These are the worries out of which Bitcoin was first conceived and developed.
By spreading its operations across a network of computers, blockchain allows Bitcoin and
other cryptocurrencies to operate without the need for a central authority. This not only
reduces risk but also eliminates many of the processing and transaction fees.
It can also give those in countries with unstable currencies or financial infrastructures a more
stable currency with more applications and a wider network of individuals and institutions
they can do business with, both domestically and internationally.
Using cryptocurrency wallets for savings accounts or as a means of payment is especially
profound for those who have no state identification. Some countries may be war-torn or have
governments that lack any real infrastructure to provide identification. Citizens of such
countries may not have access to savings or brokerage accounts and therefore, no way to
safely store wealth.
Healthcare
Health care providers can leverage blockchain to securely store their patients’ medical
records. When a medical record is generated and signed, it can be written into the
blockchain, which provides patients with the proof and confidence that the record cannot be
changed. These personal health records could be encoded and stored on the blockchain with
a private key, so that they are only accessible by certain individuals, thereby ensuring
privacy.
Records of Property
If you have ever spent time in your local Recorder’s Office, you will know that the process of
recording property rights is both burdensome and inefficient. Today, a physical deed must be
delivered to a government employee at the local recording office, where it is manually
entered into the county’s central database and public index. In the case of a property dispute,
claims to the property must be reconciled with the public index.

This process is not just costly and time-consuming—it is also riddled with human error, where
each inaccuracy makes tracking property ownership less efficient. Blockchain has the
potential to eliminate the need for scanning documents and tracking down physical files in a
local recording office. If property ownership is stored and verified on the blockchain, owners
can trust that their deed is accurate and permanently recorded.
In war-torn countries or areas that have little to no government or financial infrastructure, and
certainly no “Recorder’s Office,” it can be nearly impossible to prove ownership of a property.
If a group of people living in such an area is able to leverage blockchain, transparent and
clear timelines of property ownership could be established.
Smart Contracts
A smart contract is a computer code that can be built into the blockchain to facilitate, verify,
or negotiate a contract agreement. Smart contracts operate under a set of conditions that
users agree to. When those conditions are met, the terms of the agreement are automatically
carried out.
Say, for example, a potential tenant would like to lease an apartment using a smart contract.
The landlord agrees to give the tenant the door code to the apartment as soon as the tenant
pays the security deposit. Both the tenant and the landlord would send their respective
portions of the deal to the smart contract, which would hold onto and automatically exchange
the door code for the security deposit on the date the lease begins.
If the landlord doesn’t supply the door code by the lease date, the smart contract refunds the
security deposit. This would eliminate the fees and processes typically associated with the
use of a notary, third-party mediator, or attornies.
Supply Chains
As in the IBM Food Trust example, suppliers can use blockchain to record the origins of
materials that they have purchased. This would allow companies to verify the authenticity of
their products, along with such common labels as “Organic,” “Local,” and “Fair Trade.”
As reported by Forbes, the food industry is increasingly adopting the use of blockchain to
track the path and safety of food throughout the farm-to-user journey.
Voting
As mentioned, blockchain could be used to facilitate a modern voting system. Voting with
blockchain carries the potential to eliminate election fraud and boost voter turnout, as was
tested in the November 2018 midterm elections in West Virginia.Using blockchain in this way
would make votes nearly impossible to tamper with.

The blockchain protocol would also maintain transparency in the electoral process, reducing
the personnel needed to conduct an election and providing officials with nearly instant
results. This would eliminate the need for recounts or any real concern that fraud might
threaten the election.
Advantages and Disadvantages of Blockchain
For all of its complexity, blockchain’s potential as a decentralized form of record-keeping is
almost without limit. From greater user privacy and heightened security to lower processing
fees and fewer errors, blockchain technology may very well see applications beyond those
outlined above. But there are also some disadvantages.
Pros
• Improved accuracy by removing human involvement in verification
• Cost reductions by eliminating third-party verification
• Decentralization makes it harder to tamper with
• Transactions are secure, private, and efficient
• Transparent technology
• Provides a banking alternative and way to secure personal information for citizens or
countries with unstable or underdeveloped governments
Cons
• Significant technology cost associated with mining bitcoin
• Low transactions per second
• History of use in illicit activities
• Regulation
Here are the selling points of blockchain for businesses on the market today in more detail.
Advantages of Blockchain
Accuracy of the Chain
Transactions on the blockchain network are approved by a network of thousands of
computers. This removes almost all human involvement in the verification process, resulting
in less human error and an accurate record of information.

Even if a computer on the network were to make a computational mistake, the error would
only be made to one copy of the blockchain. In order for that error to spread to the rest of the
blockchain, it would need to be made by at least 51% of the network’s computers—a near
impossibility for a large and growing network the size of Bitcoin’s.
Cost Reductions
Typically, consumers pay a bank to verify a transaction, a notary to sign a document, or a
minister to perform a marriage. Blockchain eliminates the need for third-party verification and,
with it, their associated costs. Business owners incur a small fee whenever they accept
payments using credit cards, for example, because banks and payment processing
companies have to process those transactions. Bitcoin, on the other hand, does not have a
central authority and has limited transaction fees.
Decentralization
Blockchain does not store any of its information in a central location. Instead, the blockchain
is copied and spread across a network of computers. Whenever a new block is added to the
blockchain, every computer on the network updates its blockchain to reflect the change. By
spreading that information across a network, rather than storing it in one central database,
blockchain becomes more difficult to tamper with.
If a copy of the blockchain fell into the hands of a hacker, only a single copy of the
information, rather than the entire network, would be compromised.
Efficient Transactions
Transactions placed through a central authority can take up to a few days to settle. If you
attempt to deposit a check on Friday evening, for example, you may not actually see funds in
your account until Monday morning. Whereas financial institutions operate during business
hours, five days a week, blockchain is working 24 hours a day, seven days a week, and 365
days a year.
Transactions can be completed in as little as ten minutes and can be considered secure after
just a few hours. This is particularly useful for cross-border trades, which usually take much
longer because of time-zone issues and the fact that all parties must confirm payment
processing.

Private Transactions
Many blockchain networks operate as public databases, meaning that anyone with an
internet connection can view a list of the network’s transaction history. Although users can
access details about transactions, they cannot access identifying information about the users
making those transactions. It is a common misperception that blockchain networks like
bitcoin are anonymous, when in fact they are only confidential.
That is, when a user makes public transactions, their unique code called a public key, is
recorded on the blockchain, rather than their personal information. If a person has made a
Bitcoin purchase on an exchange that requires identification then the person’s identity is still
linked to their blockchain address, but a transaction, even when tied to a person’s name,
does not reveal any personal information.
Secure Transactions
Once a transaction is recorded, its authenticity must be verified by the blockchain network.
Thousands of computers on the blockchain rush to confirm that the details of the purchase
are correct. After a computer has validated the transaction, it is added to the blockchain
block. Each block on the blockchain contains its own unique hash, along with the unique
hash of the block before it.
When the information on a block is edited in any way, that block’s hashcode changes—
however, the hash code on the block after it would not. This discrepancy makes it extremely
difficult for information on the blockchain to be changed without notice.
Transparency
Most blockchains are entirely open-source software. This means that anyone and everyone
can view its code. This gives auditors the ability to review cryptocurrencies like Bitcoin for
security. This also means that there is no real authority on who controls Bitcoin’s code or how
it is edited. Because of this, anyone can suggest changes or upgrades to the system. If a
majority of the network users agree that the new version of the code with the upgrade is
sound and worthwhile then Bitcoin can be updated.
Banking the Unbanked
Perhaps the most profound facet of blockchain and Bitcoin is the ability for anyone,
regardless of ethnicity, gender, or cultural background, to use it. According to the world bank
there are nearly 2 billion adults that do not have bank accounts or any means of storing their
money or wealth.5 Nearly all of these individuals live in developing countries where the
economy is in its infancy and entirely dependent on cash.

These people often earn little money that is paid in physical cash. They then need to store
this physical cash in hidden locations in their homes or places of living leaving them subject
to robbery or unnecessary violence. Keys to a bitcoin wallet can be stored on a piece of
paper, a cheap cell phone, or even memorized if necessary. For most people, it is likely that
these options are more easily hidden than a small pile of cash under a mattress.
Blockchains of the future are also looking for solutions to not only be a unit of account for
wealth storage, but also to store medical records, property rights, and a variety of other legal
contracts.
Disadvantages of Blockchain
While there are significant upsides to the blockchain, there are also significant challenges to
its adoption. The roadblocks to the application of blockchain technology today are not just
technical. The real challenges are political and regulatory, for the most part, to say nothing of
the thousands of hours (read: money) of custom software design and back-end programming
required to integrate blockchain to current business networks. Here are some of the
challenges standing in the way of widespread blockchain adoption.
Technology Cost
Although blockchain can save users money on transaction fees, the technology is far from
free. The “proof of work” system that bitcoin uses to validate transactions, for example,
consumes vast amounts of computational power. In the real world, the power from the
millions of computers on the bitcoin network is close to what Denmark consumes annually.
Assuming electricity costs of $0.03~$0.05 per kilowatt-hour, mining costs exclusive of
hardware expenses are about $5,000~$7,000 per coin.10
Despite the costs of mining bitcoin, users continue to drive up their electricity bills in order to
validate transactions on the blockchain. That’s because when miners add a block to the
bitcoin blockchain, they are rewarded with enough bitcoin to make their time and energy
worthwhile. When it comes to blockchains that do not use cryptocurrency, however, miners
will need to be paid or otherwise incentivized to validate transactions.
Some solutions to these issues are beginning to arise. For example, bitcoin mining farms
have been set up to use solar power, excess natural gas from fracking sites, or power from
wind farms.
Speed Inefficiency
Bitcoin is a perfect case study for the possible inefficiencies of blockchain. Bitcoin’s “proof of
work” system takes about ten minutes to add a new block to the blockchain. At that rate,
it’s estimated that the blockchain network can only manage about seven transactions per
second (TPS).

Although other cryptocurrencies such as Ethereum perform better than bitcoin, they are still
limited by blockchain. Legacy brand Visa, for context, can process 24,000 TPS.
Solutions to this issue have been in development for years. There are currently blockchains
that are boasting over 30,000 transactions per second.
Illegal Activity
While confidentiality on the blockchain network protects users from hacks and preserves
privacy, it also allows for illegal trading and activity on the blockchain network. The most cited
example of blockchain being used for illicit transactions is probably the Silk Road, an online
“dark web” drug marketplace operating from February 2011 until October 2013 when it was
shut down by the FBI.
The website allowed users to browse the website without being tracked using the Tor
browser and make illegal purchases in Bitcoin or other cryptocurrencies. Current U.S.
regulations require financial service providers to obtain information about their customers
when they open an account, verify the identity of each customer, and confirm that customers
do not appear on any list of known or suspected terrorist organizations.
This system can be seen as both a pro and a con. It gives anyone access to financial
accounts but also allows criminals to more easily transact. Many have argued that the good
uses of crypto, like banking the unbanked world, outweigh the bad uses of cryptocurrency,
especially when most illegal activity is still accomplished through untraceable cash.
Regulation
Many in the crypto space have expressed concerns about government regulation over
cryptocurrencies. While it is getting increasingly difficult and near impossible to end
something like Bitcoin as its decentralized network grows, governments could theoretically
make it illegal to own cryptocurrencies or participate in their networks.
Over time this concern has grown smaller as large companies like PayPal begin to allow the
ownership and use of cryptocurrencies on its platform.
What's Next for Blockchain?
First proposed as a research project in 1991, blockchain is comfortably settling into its late
twenties. Like most millennials its age, blockchain has seen its fair share of public scrutiny
over the last two decades, with businesses around the world speculating about what the
technology is capable of and where it’s headed in the years to come.

With many practical applications for the technology already being implemented and explored,
blockchain is finally making a name for itself at age twenty-seven, in no small part because of
bitcoin and cryptocurrency. As a buzzword on the tongue of every investor in the nation,
blockchain stands to make business and government operations more accurate, efficient,
secure, and cheap with fewer middlemen.
As we prepare to head into the third decade of blockchain, it’s no longer a question of "if"
legacy companies will catch on to the technology—it's a question of "when."
10.What Determines the Price of 1 Bitcoin?
What Determines Bitcoin's Price?
Bitcoin is a cryptocurrency developed in 2009 by Satoshi Nakamoto, the name given to the
unknown creator (or creators) of this virtual currency. Transactions are recorded in a
blockchain, which shows the transaction history for each unit and is used to prove ownership.
Unlike investing in traditional currencies, bitcoin is not issued by a central bank or backed by
a government. And buying a bitcoin is different than purchasing a stock or bond because
bitcoin is not a corporation. Consequently, there are no corporate balance sheets or Form
10-Ks to review.
KEY TAKEAWAYS
• Purchasing stocks grants you ownership in a company, whereas purchasing bitcoin grants
you ownership of that cryptocurrency.
• Bitcoin is neither issued nor regulated by a central government and therefore is not subject to
governmental monetary policies.
• Bitcoin prices are primarily affected by its supply, the market's demand for it, availability, and
competing cryptocurrencies.
• As of December 2020, approximately 88.5% of the total bitcoin supply had been mined.
Understanding What Determines Bitcoin's Price
Unlike investing in traditional currencies, bitcoin is not issued by a central bank or backed by
a government; therefore, the monetary policy, inflation rates, and economic growth
measurements that typically influence the value of currency do not apply to bitcoin.
Contrarily, bitcoin prices are influenced by the following factors:

• The supply of bitcoin and the market's demand for it
• The cost of producing a bitcoin through the mining process
• The rewards issued to bitcoin miners for verifying transactions to the blockchain
• The number of competing cryptocurrencies
• The exchanges it trades on
• Regulations governing its sale
• Its internal governance
Supply and Demand
Countries without fixed foreign exchange rates can partially control how much of their
currency circulates by adjusting the discount rate, changing reserve requirements, or
engaging in open-market operations. With these options, a central bank can potentially
impact a currency’s exchange rate.
The supply of bitcoin is impacted in two different ways. First, the bitcoin protocol allows new
bitcoins to be created at a fixed rate. New bitcoins are introduced into the market when
miners process blocks of transactions, and the rate at which new coins are introduced is
designed to slow over time. For example, growth slowed from 6.9% (2016), to 4.4% (2017) to
4.0% (2018).
This can create scenarios in which the demand for bitcoins increases at a faster rate than the
supply increases, which can drive up the price. The slowing of bitcoin circulation growth is
due to the halving of block rewards offered to bitcoin miners and can be thought of as
artificial inflation for the cryptocurrency ecosystem.
Secondly, supply may also be impacted by the number of bitcoins the system allows to exist.
This number is capped at 21 million, where once this number is reached, mining activities will
no longer create new bitcoins. For example, the supply of bitcoin reached 18.587 million in
December 2020, representing 88.5% of the supply of bitcoin that will ultimately be made
available.
Once 21 million bitcoins are in circulation, prices depend on whether it is considered practical
(readily usable in transactions), legal, and in demand, which is determined by the popularity
of other cryptocurrencies.
El Salvador made Bitcoin legal tender on June 9, 2021. It is the first country to do so. The
cryptocurrency can be used for any transaction where the business can accept it. The U.S.
dollar continues to be El Salvador’s primary currency.

The artificial inflation mechanism of the halving of block rewards will no longer have an
impact on the price of the cryptocurrency. However, at the current rate of adjustment of block
rewards, the last bitcoin is not set to be mined until the year 2140 or so.
Competition
While bitcoin may be the most well-known cryptocurrency, there are hundreds of other
tokens vying for user attention. While bitcoin is still the dominant option concerning market
capitalization, altcoins including Ethereum (ETH), Tether (USDT), Binance Coin (BNB),
Cardano (ADA), and Polkadot (DOT) are among its closest competitors as of March
2021.4 Further, new initial coin offerings (ICOs) are constantly on the horizon due to the
relatively few barriers to entry.
The crowded field is good news for investors because the widespread competition keeps
prices down. Fortunately for bitcoin, its high visibility gives it an edge over its competitors.
Cost of Production
While bitcoins are virtual, they are nonetheless produced products and incur a real cost of
production—with electricity consumption being the most important factor by far. Bitcoin
"mining" as it is called, relies on a complicated cryptographic math problem that miners all
compete to solve—the first one to do so is rewarded with a block of newly minted bitcoins
and any transaction fees that have been accumulated since the last block was found.
What is unique about bitcoin production is that unlike other produced goods, bitcoin's
algorithm only allows for one block of bitcoins to be found, on average, once every ten
minutes. That means the more producers (miners) that join in the competition for solving the
math problem only have the effect of making that problem more difficult—and thus more
expensive—to solve in order to preserve that ten-minute interval.
Research has shown that bitcoin's market price is closely related to its marginal cost of
production.
Availability on Currency Exchanges
Just as equity investors trade stocks over indexes like the NYSE, Nasdaq, and the FTSE,
cryptocurrency investors trade cryptocurrencies over Coinbase, GDAX, and other
exchanges. Similar to traditional currency exchanges, these platforms let investors trade
cryptocurrency/currency pairs (e.g. BTC/USD or bitcoin/U.S. dollar).
The more popular an exchange becomes, the easier it may draw in additional participants to
create a network effect. And by capitalizing on its market clout, it may set rules governing
how other currencies are added.

For example, the release of the Simple Agreement for Future Tokens (SAFT)
framework seeks to define how ICOs could comply with securities regulations. Bitcoin’s
presence on these exchanges implies a level of regulatory compliance, regardless of the
legal gray area in which cryptocurrencies operate.
Regulations and Legal Matters
The rapid rise in the popularity of bitcoin and other cryptocurrencies has caused regulators to
debate how to classify such digital assets. While the Securities and Exchange Commission
(SEC) classifies cryptocurrencies as securities, the U.S. Commodity Futures Trading
Commission (CFTC) considers bitcoin to be a commodity. This confusion over which
regulator will set the rules for cryptocurrencies has created uncertainty—despite the surging
market capitalizations.
Furthermore, the market has witnessed the rollout of many financial products that use bitcoin
as an underlying asset, such as exchange-traded funds (ETFs), futures, and other
derivatives.
This can impact prices in two ways. First, it provides bitcoin access to investors who cannot
afford to purchase an actual bitcoin, thus increasing demand. Second, it can reduce price
volatility by allowing institutional investors who believe bitcoin futures are overvalued or
undervalued, to use their substantial resources to make bets that bitcoin’s price will move in
the opposite direction.
Forks and Governance Stability
Because bitcoin is not governed by a central authority, it relies on developers and miners to
process transactions and keep the blockchain secure. Software changes are consensus-
driven, which tends to frustrate the bitcoin community, as fundamental issues typically take a
long time to resolve.
The issue of scalability has been a particular pain point. The number of transactions that can
be processed depends on the size of blocks, and bitcoin software is currently only able to
process approximately three transactions per second. While this wasn’t a concern when
there was little demand for cryptocurrencies, many worry that slow transaction speeds will
push investors towards competitive cryptocurrencies.
The community is divided over the best way to increase the number of transactions. Changes
to the rules governing the use of the underlying software are called “forks.” “Soft forks”
pertain to rule changes that do not result in the creation of a new cryptocurrency, while “hard
fork” software changes result in new cryptocurrencies. Past bitcoin hard forks have included
bitcoin cash and bitcoin gold.

What Gives Bitcoin Value FAQs
How Is Bitcoin Value Calculated?
Bitcoin's value is largely dependent on its supply and the market's demand for it. Its value is
also attributed to other factors, such as alternative digital currencies—including their supply
and price—availability, and rewards for mining. Intrinsic value can also be estimated by
computing the average marginal cost of production of a bitcoin at any given point in time,
based on the block reward, price of electricity, energy efficiency of mining hardware, and the
mining difficulty.
How Does Bitcoin Increase in Value?
As bitcoin nears its maximum limit, demand for it increases. The increased demand and
limited supply push the price per bitcoin upward. Also, more institutions are investing in
bitcoin and accepting it as a form of payment, thereby increasing its utility and making it a
preferred medium of exchange among consumers.
Bitcoin is relatively safe due to cryptography and robust protocols and readily available
through several exchanges. Also, you need not purchase a full bitcoin to have ownership of
it. Fractional shares are available, increasing its attractiveness and value.
How Does Bitcoin Make Money?
Unlike stock, bitcoin does not represent ownership in a company or entity. Owning bitcoin is
owning digital currency, much like owning US$1 is owning paper currency. Bitcoin miners
earn rewards for completing blocks of verified transactions, and owners of bitcoin make
money as the price per coin increases. For example, if you purchased 100 coins at $65.52
(100 x $65.52 = $6,552) on July 5, 2013 (bitcoin's record low) and held it until its all-time high
of $61,683.86 on March 13, 2021, you would have $6,168,386.
Why Is Bitcoin So Valuable?
The demand for bitcoin is increasing, whereas the availability of new supply is shrinking, with
the size of each block reduced by half, on average, every four years and the final bitcoin to
be mined somewhere around the year 2140. Indeed, unlike most other produced goods, the
rate of supply of new bitcoins cannot increase in response to spikes in demand.
A supply and demand imbalance results in increased prices. Some consumers, companies,
and investors favor bitcoin for this and the potential ability to hedge inflation. The resulting
popularity contributes to increased demand, and thus an increased price.

What Makes Bitcoin Prices Go Up and Down?
Bitcoin's price fluctuates for various reasons, including media coverage, speculation, and
availability. With negative press, some bitcoin owners panic and sell their shares, driving
down the price. Vice versa with positive press.
Also, when the volume of bitcoin sold on the market increases, the price decreases. As more
institutions adopt bitcoin as an investment and medium of exchange, its price increases.
Also, many people have eroded confidence in their fiat currency and seek alternative sources
to store their money. Because bitcoin is decentralized and unregulated, it is a favorable
alternative, thus driving up its price.
Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is highly risky and
speculative, and this article is not a recommendation by Investopedia or the writer to invest in
cryptocurrencies or other ICOs. Since each individual's situation is unique, a qualified
professional should always be consulted before making any financial decisions.
Investopedia makes no representations or warranties as to the accuracy or timeliness of the
information contained herein. As of the date this article was written, the author does not own
bitcoin.

Sources:
https://wikipedia.org
https://www.investopedia.com/terms
http://cryptoslatestnews.com
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