What Is Bitcoin? – The Most Updated Step-by-step Guide

 What is Bitcoin?

Bitcoin is a digital form of cash that was invented in 2009 by a person (or group of people) called Satoshi Nakamoto. His stated goal was to create “a new electronic cash system” that was “completely decentralized with no server or central authority.” The fiat currency is prone to inflation, not private, separated into 180 different currencies, hard to divide into smaller fragments, vulnerable to rising transaction fees and much more. Satoshi had a plan to create a purely peer-to-peer electronic cash that would not have properties of the fiat currency. Bitcoins can be sent from person to person without the need of a financial institution. The entire system of bitcoin functions due to the work done by a group of people called miners.

Bitcoin transactions have the following property –

• Irreversible: Since bitcoin is transferred in a peer-to-peer blockchain network, there is no way to undo a transaction once it has taken place. 
• Pseudonymous: Neither transactions nor accounts are connected to real-world identities. The address where bitcoins are sent or received consists of a chain of around 30 characters. Even though it is possible to analyze the flow of bitcoins from a particular wallet address, it is almost impossible to connect the real-world identity of users with those addresses.
• Fast and global: Transactions are propagated nearly instantly and since they happen in a global network of computers they are completely indifferent to anyone’s physical location. Bitcoin can be sent and received in any part of the world.
• Secure: Bitcoin funds are locked in a public key cryptography system. Only the owner of the private key can send it to someone. Strong cryptographic technology makes it impossible to break into someone’s wallet and steal cryptocurrencies unless they have access to the private key.
• Permissionless: Bitcoin is a decentralized digital form of cash which does not require any authorization to be used. 

The Origin of Bitcoin

Bitcoin is a combination of various other ideas in cryptographic money that have been culminating over the last three decades. The idea of unalterable data structures which is seen in blockchain technology can be traced back to the early 1990s when Stuart Haber and W. Scott Stornetta proposed a system for timestamping documents. Much like the blockchains of today, it relied on cryptographic techniques to secure data and to prevent it from being tampered with. Although Bitcoin is the most successful attempt at creating digital money, some of its predecessors include David Chaum’s DigiCash (1980s), Adam Back’s Hashcash (1997), Nick Szabo’s Bit Gold And Wei Dai’s B-money (1998), Sander And Ta-shma’s Auditable, Anonymous Electronic Cash (1999) And Hal Finney’s RPOW (2004).

 

Where can we use Bitcoin

Bitcoins can be used to make payments for various activities. Various companies have started accepting payments in Bitcoin or other cryptocurrencies. There are states in the United States which have allowed to pay taxes in Bitcoin. The market for peer-to-peer payments in Bitcoin and other cryptocurrencies is growing and more companies are joining the wagon.

 

Value of Bitcoin

Bitcoin has the characteristics of money (durable, portable, fungible, scarce, divisible, and recognizable) and its decentralized, censorship-resistant, secure, and borderless nature further adds to its value. 

Bitcoin derives its value from the fact that international remittances have now become cheaper due to low transaction costs and many people can make payments to any part of the world without revealing their identity or going through an intermediary such as a bank.

There is a large group of people who prefer holding (also known as hodling) on to their bitcoins for a long term. Because it’s scarce and difficult to produce, investors consider bitcoin to be a store of value and have also nicknamed it as digital gold. 

Holders believe that these traits – combined with global availability and high liquidity – make it an ideal medium for storing wealth in for long periods. They believe that Bitcoin’s value will continue to appreciate over time.

How does Bitcoin work

Unlike traditional banking and payment systems, the Bitcoin system is based on decentralized trust. When one person makes payment in bitcoins,  it is written on a public ledger which everyone can see and verify. The blockchain is this shared public ledger on which the entire Bitcoin network relies. Each member of the network has a copy of the updated public ledger.  All confirmed transactions are included in the blockchain. This allows Bitcoin wallets to calculate their spendable balance so that new transactions can be verified thereby ensuring they’re actually owned by the spender. The integrity and the chronological order of the blockchain are enforced with cryptography. It is important to note that Bitcoin does not exist physically. It is this unbreakable blockchain that ensures that the public ledger cannot be tampered with. The public ledger contains the list of all the wallet addresses, the Bitcoins held in each one of them and the transactions that have taken place.

To understand the technical aspect of how Bitcoin works, it is important for us to get familiar with blockchain technology, nodes and the mining procedure. 

 

Blockchain Technology Explained

Blockchain is a type of a decentralized database (distributed ledger technology) managed by multiple participants, across multiple nodes and is append-only, which means that data can only be added to it. It is extremely difficult or almost impossible to modify the data.

Data is added over time in structures called blocks, each built on top of the last one and includes a piece of information that links back to the previous one. This information is known as hash. 

Hashing is a unique way of producing a unique output (a hash) when data (the transaction) of any size passes through a hashing function. Even a slight change to the data (the transaction) can significantly change the hash value. Since, blocks in a blockchain are stacked on top of each other, there is no way we can alter the information in the previous blocks without invalidating the blocks that follow.

Using Secure Hashing Algorithm 256 (SHA-256), a function used extensively in Bitcoin, we can see that data of any length and even similar but not complete resemblance gives 64 different characters in the hash value i.e. 256 bits length.

For example, the hash values that we get for CoinDCX and coindcx using the  SHA-256 algorithm are very different because of the case sensitivity.

CoinDCX	ED5584ED1AC8674FA9C423CB9286C21F40C6C3362F825BB1AE23C5AF245530A8
coindcx	5BB46DAAF41EEF9CCD2F2DBB2D14B786135D75DD8FE9ABC3AEBD2965640418EC

 

Consensus in the Bitcoin Blockchain

Consensus in a decentralized network is defined by the rules based on which the network operates. The job of the nodes in this network is to confirm the validity of the information contained in the blocks. Maintaining the consensus between nodes, verification of transactions and voting on proposals are all among the main tasks of full nodes. 

 

Bitcoin Nodes

The machines connected in the Bitcoin network are called nodes. These can be anything from a mobile phone operating a Bitcoin wallet (light node) to a dedicated computer (full node) that stores a full copy of the blockchain that shares information with the other nodes. Nodes are essential for keeping any cryptocurrency network running by constantly monitoring the Bitcoin blockchain to distinguish legitimate Bitcoin transactions from non-legitimate ones. Their basic job is to prevent attempts to double-spend bitcoins that have already been spent elsewhere. The different kinds of nodes have a special role to perform in the bitcoin network. All of them act as a communication point to the network

 

Full Node

A full node is integral to Bitcoin’s decentralization. It validates transactions and blocks if they follow certain rules. Almost all full nodes also support the network by accepting transactions and blocks from other full nodes, validating those transactions and blocks, and then relaying them to further full nodes. Full nodes storing a full copy of the blockchain are referred to as full archival nodes.

Most full nodes run the Bitcoin Core software, which is the reference implementation of the Bitcoin protocol. Bitcoin Core was the program released by Satoshi Nakamoto in 2009 – it was simply named Bitcoin at the time, but was later renamed to avoid any confusion. Other implementations can be used, too, provided they’re compatible with Bitcoin Core.

Full nodes download and validate blocks and transactions, and propagate them to the rest of the network. Because they independently verify the authenticity of the information they’re being provided with, the user doesn’t rely on a third party for anything.

 

Light Node

Light nodes depend on full nodes for functioning as they are less resource intensive. These nodes do not perform the function of full nodes. Light nodes only download a portion of each block (called a block header) that contains information that allows users to check that their transactions are in a specific block. Their only task, therefore, is to verify transactions in the blockchain using simplified payment verification (SPV). 

Light nodes are usually desktop and mobile wallets as they have constraints in bandwidth or space.

 

Mining Node

Mining node is a full node that solves complex cryptographic puzzles in a process referred to as mining. Each miner aims to be the first node to create a new block in the blockchain and tries to prove that it is the one that has performed the required work (Proof of Work). Each block consists of the many transactions that are being validated, a separate header consisting of the previous winning block hash, the merkle root i.e. the hash of all the hashes of all the transactions that are part of a block in a blockchain network, a one time random number called a nonce and finally the timestamp. The SHA-256 algorithm is then used to generate a hash value of 64 with at least 17 zeroes. Miners keep trying with random numbers till they get the valid hash value. Specialised mining units can produce trillions of hash values every second. This is why it is called Proof of Work. 

Once the entire network verifies it, a new block is added to the existing blockchain and the miner receives a reward.  While technically miners use specialised ASIC hardware to add blocks to the Bitcoin blockchain and receive rewards for doing so, the letters ASIC stand for application-specific integrated circuits which have been designed for a particular use, such as Bitcoin mining. 

 

Mining in Bitcoin

The two biggest activities that miners do are mining of blocks for the blockchain and adding transactions to the blocks. We will describe these processes in detail now

 

Mining of Blocks

Mining nodes can be set up and computing power is used to solve cryptographically hard puzzles to find new blocks to add to the blockchain. This process follows the Proof of Work (PoW) protocol and as each block enters the system, it is broadcast to the peer-to-peer computer network of users for validation. In this way, all users are aware of each transaction, which prevents stealing and double-spending, where someone spends the same currency twice. The process also helps blockchain users trust the system. 

The miners responsible for the discovery get a reward of 6.25 bitcoins. This reward is halved after every 210,000 blocks and the process is known as halving. Halving of bitcoin happens every four years.

Since miners often spend a lot of money and computing power to successfully find a new block, falling rewards can often disincentivize lone miners. This is why miners often join forces to create mining pools. The metric which defines the degree of toughness of mining is known as difficulty.

 

 

Reasons behind Bitcoin Halving

Although Satoshi Nakamoto never fully explained his reasoning for capping the supply of Bitcoins at twenty-one million units, some speculate that it’s merely a product of starting with a block subsidy of 50 BTC, which is halved every 210,000 blocks.

In contrast to fiat money, which loses purchasing power over time as new units enter into circulation, having a finite supply means that Bitcoin is not prone to debasement in the long run. 

Had the halving mechanism not been created by Satoshi, all of Bitcoin would be mined by 2016. The halving mechanism provides an incentive to mine for the next hundred years.

Impacts of Bitcoin Halving

Those that are most impacted by halvings are miners. This is because each block mined after the halving, reduces their revenue by half, while exerting the same amount of computational power. The reward also consists of transaction fees, but to date, these have only made up a fraction of the block reward.

Halvings could, therefore, make it unprofitable for some participants to continue mining. What this means for the wider industry is unknown. A reduction in block rewards might lead to further centralization in mining pools, or it could simply promote more efficient mining practices.

If Bitcoin continues to rely on a Proof of Work algorithm, fees would need to rise to keep mining profitable. This scenario is entirely possible, as blocks can only hold so many transactions. If there are a lot of pending transactions, those with higher fees will be included first. But this again will be a problem if transaction fees are too high as many people might not be able to afford it.

Bitcoin Mining Difficulty

Difficulty is a parameter that bitcoin uses to keep the average time between blocks steady as the network’s hash power changes. The average time usually taken to find a block is 10 minutes. One can spend the bitcoins they received only when the transaction has been completed after the network reaches a consensus. Until then it is possible that some network nodes believe otherwise, if somebody is attempting to defraud the system by reversing a transaction. The more confirmations a transaction has, the less risk there is of a reversal.

Ten minutes was specifically chosen by Satoshi as a tradeoff between first confirmation time and the amount of work wasted due to chain splits. After a block is mined, it takes time for other miners to find out about it, and until then they are actually competing against the new block instead of adding to it. If someone mines another new block based on the old block chain, the network can only accept one of the two, and all the work that went into the other block gets wasted. Lengthening the time between blocks reduces this waste.

To make sure that this timing does not change, the Bitcoin protocol increases network difficulty when it becomes easier for miners to mine and decreases network difficulty when it becomes harder for miners to mine. 

 

Hash Rate

The term hash rate refers to the speed at which a computer is able to perform hashing computations. In the context of Bitcoin, hash rate is one of the critical metrics in judging the health of a Proof of Work protocol that represents the efficiency and performance of a mining machine. It defines how fast a mining hardware operates when trying to compute a valid block hash.

Higher the network hash rate, higher the speed and security of the network and higher is the difficulty. This eventually makes it tougher for the miners to mine easily in the network and maintain a consistent bitcoin block time of ten minutes.

Typically, the hash rate is measured in hashes per second (h/s) along with an SI prefix, such as mega, giga, or tera. For instance, a blockchain network that computes one trillion hashes per second would have a hash rate of 1 Th/s.

The hash rate of Bitcoin reached 1 Th/s in 2011, and 1,000 Th/s in 2013. In the early stages of the network, users could mine new blocks using their personal computers and graphics cards. But with the creation of specialized mining hardware (known as ASIC miners), the hash rate started to increase very fast, causing the mining difficulty to rise. Thus, personal computers and graphics cards are no longer suitable for Bitcoin mining. Bitcoin’s hash rate surpassed 1,000,000 Th/s in 2016, 10,000,000 Th/s in 2017 and 67,500,000 Th/s 2019.

 

Adding Transactions to the Blocks

When a transaction in bitcoin takes place, the miners are responsible to add them to the latest block that has been created. The transaction is deemed to be completed only when it has been added to the block. But to add these transactions, the miners charge a transaction fee to complete the process. If the traffic for transactions in bitcoin is very high then the sender can pay the miner a higher fee to complete a transaction quickly.

The high traffic of transactions leads to various other problems. Each block on the blockchain has a limit of 1mb and only a limited number of transactions can be entered in a block at once. This has been a topic of debate since the time of the rise in popularity of Bitcoins. 

The 1mb block size limit was first created to cut down on the spam transactions which may clog up the entire bitcoin network. However, with the increase in bitcoin’s popularity, the rate at which the blocks filled up were increasing as well. More often than not, people actually had to wait till new blocks were created so that their transactions would go through. This created a backlog of transactions and paying a higher transaction fee was the only way to incentivize the miners to complete the transaction. While this is profitable for the miners, it is pretty inconvenient for users who may not be that well to do.

Bitcoin – The Scalability Dilemma

Scalability is a measure of a system’s ability to grow to accommodate increasing demand. For Bitcoin and other cryptocurrencies, we use the term to describe the ease of upgrading a blockchain so it can process a higher number of transactions.

Need for Scaling

One of the main functions of Bitcoin is to be used as an alternative for fiat money to many payments. Due to its rising popularity and relatively low throughput, only a limited amount of transactions can be processed per block. 

To reduce the time taken for a transaction to complete, users of Bitcoin often pay a higher transaction fee to incentivize miners to add their transactions to the blockchain. Since miners seek to make a return on their investment into hardware and electricity, they prioritize transactions with higher fees. If there are a lot of transactions in the network’s waiting room (called the mempool), fees can rise significantly making it impossible for some users to pay for the fee.

This is one of the main problems of a decentralized currency.

To maintain decentralization, it is not possible to increase the size of the block as full nodes need to download new information roughly every ten minutes. If it becomes too burdensome for them to do so, they would prefer quitting the network. This would affect the security and credibility of the entire system

If the protocol is to be used for payments, Bitcoin enthusiasts believe that effective scaling needs to be achieved in different ways.

 

Arguments in Favour of Bitcoin’s Block Size Increase

• The increase in block size leads to an increase in the number of transactions that can now be present in a particular block. This increases the transaction fee that a miner receives on mining a new block.
• The purpose of bitcoin was to be accessible to all people. With no rise in block size, transaction fees will keep rising till the point when holding bitcoin would be expensive for the common man.
• The need of the hour is to have quick, efficient and low cost transaction fees for bitcoin. In case this does not happen, people might go back to the conventional banking system thus failing Satoshi’s mission of a decentralized currency.

 

Arguments Against Bitcoin’s Block Size Increase

• Miners will lose incentive because transaction fees will decrease. Since the block sizes will increase transactions will be easily inserted, which will significantly lower the transaction fees.  This may de-incentivize the miners and if the number of miners decreases then this will affect the overall credibility of the network. This might also lead to a 51% attack.
• A rise in blockchain size means that the amount of processing power required to mine will increase as well. This will take out all the small mining pools and give mining powers exclusively to the large scale pools. This will in turn increase centralization which goes against the very essence of bitcoins.
• It will split the community: A block size increase will inevitably cause a fork in the system which will make two parallel bitcoins and hence split the community in the process.  

 

The Lightning Network

One of the most notable solutions to the scalability issue for bitcoin is the Lightning Network. This is a layer two solution because it moves transactions away from the blockchain instead of recording them on the base layer.

The Lightning Network allows users to send funds near-instantly and for free. There are no constraints on throughput (provided users have the capacity to send and receive). To use the Bitcoin Lightning Network, two participants lock up some of their coins in a special address. The address has a unique property – it only releases the bitcoins if both parties agree. 

From there, the parties keep a private ledger that can reallocate balances without announcing it to the main chain. They only publish a transaction to the blockchain when they’re done. The protocol then updates their balances accordingly. These parties don’t need to trust each other. If one tries to cheat, the protocol will detect it and punish them.

In total, a payment channel like this one only requires two on-chain transactions from the user – one to fund their address and one to later dispense the coins. This means that thousands of transfers can be made in the meantime. With further development and optimization, the technology could become a critical component for large blockchain systems.

 

Bitcoin Improvement Proposal (BIP)

A Bitcoin Improvement Proposal (BIP) is a standard for proposing changes to the Bitcoin protocol, or in some cases a source for information for the Bitcoin community. Additionally, some BIPs are proposed changes to the BIP process itself.

BIPs can include consensus-critical changes (like soft fork and hard fork protocol upgrades) but also other changes that benefit from coordination across different Bitcoin software implementations, such as changes to the peer-to-peer layer or new backup seed formats.

Not all changes to a Bitcoin software implementation affect the Bitcoin protocol. Some changes make the code run more efficiently, or change the user interface. Such changes, therefore, do not require a BIP.

 

History of Bitcoin Improvement Proposal (BIP)

The BIP process was first developed and introduced by an early Bitcoin developer Amir Taaki who believed that the Bitcoin development process would benefit from becoming more structured and accountable.

He submitted his first BIP (BIP 0001) on August 19, 2011, which described the BIP process itself. It was heavily based on the process for improving Python, a programming language, described in Python Enhancement Proposal 0 (PEP 0).

The numbers assigned to each BIP are assigned by the BIP editor. The current BIP editor is Bitcoin Core contributor and Bitcoin Knots maintainer Luke-Jr. BIPs are numbered once the draft BIP meets some minimal criteria.

 

Bitcoin Forks

Since Bitcoin is open-source, anyone can modify the software that will affect the functions of the nodes. While some updates will make a node incompatible with the network, others will make them backward-compatible. This process of changes made to the bitcoin software is called forking. There are two types of forks – soft and hard. Let us discuss them in detail.

Soft Fork

A soft fork is a change to the rules that allows updated nodes to interact with old ones. While the newer nodes do not recognize the old software protocols as they are following the new rules, older nodes can recognize the older as well as the updated nodes of the software. This means that all old nodes remain part of the same network, no matter which version they run. 

Hard Forks

The one difference between soft fork and hard fork is that there is no going back in a hard fork. Once the software update has been implemented, all the nodes have to join the updated version of the software to interact with the network. 

Bitcoin, in 2017, went through a controversial hard fork in a scenario similar to the above. A minority of participants wanted to increase the block size to ensure more throughput and cheaper transaction fees. Others believed this to be a poor scaling strategy. Eventually, the hard fork gave birth to Bitcoin Cash (BCH), which split from the Bitcoin network and now has an independent community and roadmap.

 

Segwit as a Soft Fork

Bitcoin Core is a free and open-source software that serves as a bitcoin node and provides a bitcoin wallet which fully verifies payments. Instead of direct blocksize increase (hard fork), Bitcoin Core resorted to Segwit (soft fork).

Segwit utilizes sidechains to store signature data away from the main bitcoin blockchain. Sidechain is a parallel chain which runs along with the main chain. The side chain will be attached to the main chain via a two-way peg. These chains are interoperable, meaning that assets can flow freely from one to the other.

Dr. Peter Wiulle, who was part of the Blockstream team, thought of adding an extra feature to this sidechain.

This sidechain would include the signature data of all transactions, separating it from the main chain in the process. This feature would be called Segregated Witness (Segwit). Thus, excluding the signature from the main block increased the block space and made the network faster.

So, to implement Segwit as a soft fork, developers had to arrange the signature data in the side chains in the form of a Merkle Tree (encodes the blockchain data in an efficient and secure manner) and keep a part of the signature data in a new part of the block. Interestingly, it was Segwit that prompted the creation of Bitcoin Cash.

 

Some of the Early Bitcoin Forks

Bitcoin XT

Bitcoin XT was one of the first notable fork of the bitcoin protocol that launched in late 2014 to include some of the changes mentioned in the Bitcoin Improvement Proposal (BIP 64), that was proposed to Bitcoin Core. These changes included – increasing the number  of Bitcoin Transactions from 7/ sec to 24/sec, increasing the block size from 1 mb to 8 mb and by making sure that the blocksize would double in size automatically every 2 years. This fork would have been fully activated once 75% of the miners gave their approval for the changes.

XT gained a lot of interest in the early stages as more than 1000 nodes ran its software in the late summer of 2015 however interest soon began to drop as the 75% threshold was not achieved by early 2016, the earliest possible switchover date.

 

Bitcoin Gold (BTG)

Bitcoin Gold is a hard fork of Bitcoin which took place at block 491407, on 24 October 2017. The reason why this fork happened was because of Bitcoin’s perceived mining centralization.

Since Bitcoin follows the Proof of Work protocol and does ASIC mining, people and organizations that can afford faster and more powerful ASICs usually have better chances of mining than the others. As a result of this, bitcoin isn’t as decentralized as it is perceived to be.

This is why Bitcoin Gold came about which uses the memory hard equihash as Proof of Work algorithm instead of the SHA-256. Because of this small adjustment, BTG could not be mined by ASICs, they can be mined via GPUs.

However, despite their philosophy, Bitcoin Gold suffered from a 51% attack. As a result, they were forced to hard fork to decentralize the mining hash power.

Bitcoin Cash (BCH)

The most successful Bitcoin fork yet is Bitcoin Cash. The primary motivation of Bitcoin Cash’s existence depends solely on carrying out more transactions. The major differences between Bitcoin and Bitcoin Cash are that the block size is 8 mb, BCH does not have Segwit or the replace by fee feature but instead has replay and wipeout protection.

 

Bitcoin in Charts (as on 19–06–2020 on blockchain.com )

Mempool size

To submit a transaction to the miners, nodes have to relay it to each other until it has propagated across the entire network. The mempool is the node’s holding area for all the pending transactions. It is the node’s collection of all the unconfirmed transactions it has already seen enabling it to decide whether or not to relay a new transaction. Moreover, there are as many mempools as there are nodes.

Since the Bitcoin network is a peer-to-peer network, not all nodes have a similar computing capacity meaning each Bitcoin node builds its own version of the mempool by connecting to the Bitcoin network. Based on RAM capacity, some have larger storing capacity while others have a smaller storing capacity of unconfirmed transactions. As a result, each node has its own rendition of the pending transactions. This explains the variety of mempool sizes & transactions counts found on different sources.

When a node receives a new block, it removes all the transactions present in the block and all the conflicting transactions present in the mempool. This results in a fall in the mempool size.

There is no financial benefit for nodes to maintain the entire mempool. During earlier timers, the RAM would reach its capacity, crach and restart with an empty mempool. Now, as soon as the mempool is about to reach its capacity, transactions with a fee-rate lower than a threshold (set by the node) are immediately removed from the mempool and only new transactions with a large enough fee are allowed access to the mempool.

In the chart given below, we can see that the mempool size was enormous, especially due to the rising price of Bitcoin which resulted in trading in the cryptocurrency in large volumes.

Blocks and Transactions

As on 19th June, 2020, we have already mined 635,418 blocks and counting. Clicking on the block number gives us interesting features like the reference block hash value, the number of confirmations the block has received, the time stamp, the miner node who was successful in mining the block, the number of transactions confirmed in the block, the difficulty and a lot more. These characteristics help many bitcoin users find out what the current status is of their transactions.

Clicking on the hash value gives users a detailed description about the confirmation of the transaction, the block in which it is included, number of confirmations the block has received, the total amount of the transaction and the fees paid to the node for mining the block.

Market Capitalization in USD

The Market Capitalization in USD chart shows the total USD value of bitcoin in circulation. We can see how Bitcoin has risen to fame over the years.

Exchange Trade Volume (USD)

The total USD value of trading volume on major bitcoin exchanges. This graph clearly indicates how many Bitcoins are being bought and sold on specific exchanges. We can see that Exchange Trade Volume started increasing during May 2017 (same time when BTC price started rising) and reached its peak in December 2017. High Trade Volume is also a good indicator of the general interest in the crypto market.

The following chart only includes the data for few exchanges only.

Average Block Size (MB)

The following graph shows the average block size of the Bitcoin blockchain since its inception.

Average Transactions Per Block

The following graph shows the average number of transactions per block in a day in the Bitcoin blockchain since 2009. It shows how Bitcoin has become popular over the years. The increase in transactions per block shows how quickly people are adapting themselves to the new way of using digital currency. The average number of transactions per block on 18th June, 2020 were 2,289.

Average Confirmation Time

The average time for a transaction with miner fees to be included in a mined block and added to the public ledger is given in the following graph. Evidently, the average time shot up in early 2018 when more transactions in Bitcoin started taking place.

Total Hash Rate (TH/s)

As discussed in under Hash Rate, mining hashrate is a key security metric. The more hashing (computing) power in the network, the greater its security and its overall resistance to attack. Although Bitcoin’s exact hashing power is unknown, it is possible to estimate it from the number of blocks being mined and the current block difficulty. Daily numbers (raw values) may periodically rise or drop as a result of the randomness of block discovery.

The chart below gives an estimated number of terahashes per second the bitcoin network is performing in the last 24 hours. Clearly a rise in hash rate indicates the rise in security of the entire network.

The are more interesting charts on the difficulty of the network, the change in transaction fees and other characteristics of the Bitcoin network at https://www.blockchain.com/

What do people think about Bitcoin

There is no shortage of celebrities and public figures who have consistently advocated for bitcoin to be the next big thing. Let us have a look at what some of them have said –

• “Bitcoin is a remarkable cryptographic achievement and the ability to create something that is not duplicable in the digital world has enormous value.” — Eric Schmidt (Google CEO)
• “We have elected to put our money and faith in a mathematical framework that is free of politics and human error.” — Tyler Winklevoss (Co-inventor of Facebook).

In 2017, it was reported that Tyler Winklevoss and his twin Cameron may have become the first Bitcoin billionaires. They purchased $11 million worth of Bitcoin in 2013 and the cryptocurrency has grown exponentially since then.

• “Bitcoin actually has the balance and incentives right, and that is why it is starting to take off.” — Julian Assange (Founder of Wikileaks)
• “I really like Bitcoin. I own Bitcoins. It’s a store of value, a distributed ledger. It’s a great place to put assets, especially in places like Argentina with 40 percent inflation, where $1 today is worth 60 cents in a year, and a government’s currency does not hold value. It’s also a good investment vehicle if you have an appetite for risk. But it won’t be a currency until volatility slows down.” — David Marcus (CEO of Paypal)
• “[Bitcoin] will evolve into an industry as big, if not bigger, than the Internet. My man Ben Horowitz really opened my eyes to that point. This isn’t of the Internet age, bitcoin is its own age.” — Nas (Rapper)
• “I love how new technology makes our lives easier, and to me that’s exciting. Bitcoin unites my fans around the world using one currency.” — Mel B (Singer)

Conclusion

While Bitcoin is the first coin that comes to people’s minds when they think of blockchain technology and cryptocurrency, there are many other coins that have developed due to the scalability issue of Bitcoin. Other cryptocurrencies like Ethereum and Ripple have been formed on other blockchain platforms.

While Bitcoin can be a volatile asset at times because of its low volume and liquidity, the fact that it is decentralized and can be trusted is one of its strong USPs. There are a few interesting sites you could look at to learn more about cryptocurrency transactions and view the mining of blocks in real time.

Blockchain.info — Blockchain info is the go-to place for checking transactions on the ledger. You can check how much money your wallet contains, or, for that matter, how much BTC is stored at any particular wallet address.

Bitnodes — Run by the Bitcoin Foundation, Bitnodes estimates and visualizes the size of the bitcoin network.

Wizbit — Wizbit shows all transactions and newly mined blocks in real-time on an eye-catching spinning globe.

 

You can read Bitcoin’s original Whitepaper here.

 

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