What is Bitcoin?

Bitcoin is the world’s first decentralized digital currency, introduced in 2009 by an anonymous developer known as Satoshi Nakamoto.

The first block in the Bitcoin network, known as the “genesis block,” was mined on January 3d, 2009. It contained the headline from the front page of the British newspaper The Times on January 3d, 2009: “Chancellor on brink of second bailout for banks.” The purpose of this message was to show that the first Bitcoin block was recorded in the blockchain no earlier than this date. It is also considered a reference to the economic crisis of that time and a call to create a new, decentralized financial system.

What are Hashing Algorithms and SHA-256?

The security and anonymity of Bitcoin are ensured by the cryptographic algorithm SHA-256. This algorithm converts any input data into a unique fixed-length code. Each time you hash the same string, the result will be identical. However, if you change even a single character in the input data, the hash will change completely. This property of the algorithm provides reliable data protection. Here are the functions the algorithm performs in Bitcoin.

Mining 

Miners solve a cryptographic problem based on SHA-256 to add a new block to the blockchain. The task involves finding a value such that the hash of the block header is less than a certain target value. This is known as proof of work (PoW).

Block Identification

Each block in the blockchain is identified by the hash of its header, created using SHA-256.

Transactions

Hashing is also used to create digital signatures, which verify the authenticity of transactions without revealing the participants’ personal information.

Who are Miners and What are Nodes?

Miners

Miners are participants in the Bitcoin network who use computational power to solve complex mathematical problems. This process is called mining, and it is necessary for confirming transactions and adding new blocks to the blockchain. Nowadays, Bitcoin is mined using specialized devices called ASICs (Application-Specific Integrated Circuits).

How does mining work?

Nodes

Nodes are computers connected to the Bitcoin network that disseminate, validate, and store blockchain data. Nodes perform various functions depending on their type.

Full Nodes

Full nodes store a complete copy of the blockchain and verify all transactions and blocks in the network. They are the backbone of the decentralized network. Full nodes participate in the verification of transactions and blocks, making them critically important for the operation of the Bitcoin network.

Light Nodes 

These nodes do not store a full copy of the blockchain but instead store block headers and some data necessary for confirming transactions. They use information from full nodes to verify transactions. Light nodes or light clients are less resource-intensive and are commonly used on mobile devices and applications where minimizing data volume and computational costs is crucial.

Mining Nodes

These nodes are responsible for mining Bitcoin. They solve mathematical problems and thereby mine new blocks for the blockchain. Mining nodes can be full nodes that store a complete copy of the blockchain and verify transactions and blocks, or standalone ASIC devices that only mine Bitcoin.

How Transactions Occur in Bitcoin and the Role of Proof of Work

Initially, the sender specifies the amount of Bitcoin they want to transfer and the recipient’s address. To make the transaction valid, the sender must sign it with their private key, which confirms that the Bitcoins belong to them and prevents alteration of the transaction after sending.

Once the transaction is signed, it is broadcast to the network and enters the memory pool (a.k.a mempool), a temporary storage for unconfirmed transactions. Miners select transactions from the mempool to include in a new block, normally prioritizing those with the highest fees.

The block also includes the hash of the previous block and additional information, such as a timestamp.

How Transactions are Confirmed

A transaction is confirmed when it is included in a block and added to the blockchain. Once a transaction is included in a block, it receives its first confirmation. With each new block added to the chain, the transaction receives an additional confirmation. Typically, six confirmations are sufficient for a large transaction to ensure its irreversibility. Confirmation time depends on network load and the fee size chosen by the sender. On average, a new block is added to the blockchain every ten minutes, but this time can vary. Transactions with higher fees are generally processed faster, as miners prefer to include them in blocks first.

Confirmations prevent double-spending, where the same Bitcoin could be spent twice. Each new block adds another layer of protection against attacks and fraud.

Proof of Work (PoW) is the algorithm that ensures the security and decentralization of the Bitcoin network. Miners solve complex mathematical problems and utilize powerful computing resources. Once they find the correct hash, the block is mined. Other nodes in the network verify the block and its transactions to ensure they comply with network rules. If the block is confirmed by the majority of nodes, it is added to the blockchain, and the miner receives a reward in the form of mined Bitcoins and fees from the transactions included in the block.

Why Do We Need Proof of Work?

Security

Mining requires significant computational power, making attacks on the network costly and unprofitable.

Decentralization

Since any miner with sufficient computational power can participate in mining, control of the network is distributed among many participants rather than concentrated in one entity.

Stability

The PoW algorithm adjusts the difficulty of the tasks so that new blocks are added to the blockchain approximately every ten minutes, ensuring the stable functioning of the network.

Why is Bitcoin So Expensive?

Hard Cap

The total supply of Bitcoin is capped at 21 million coins. This limit is built into the Bitcoin protocol and cannot be changed, creating scarcity. When supply is limited and demand is high, prices typically rise.

Growing Demand

Institutional and retail investors are increasingly investing in Bitcoin, which drives up demand. The asset is viewed as a store of value, especially during times of economic instability and rising inflation.

Decentralization and Security

Bitcoin is resistant to censorship and interference from governments and banks. Its security is ensured by cryptography and the Proof of Work algorithm.

How and Where to Buy Bitcoin

There are many ways to buy Bitcoin: centralized and decentralized exchanges (CEX and DEX), P2P platforms, exchangers, crypto wallets, and crypto ATMs.

At Bitbanker, you can buy BTC with both cryptocurrencies and fiat money. For fiat transactions, you need to complete the KYC procedure. For cryptocurrency transactions, you only need to create an account using just an email address.

Buying Bitcoin with Cryptocurrencies

Before buying, you need to top up your account balance through the “Deposit and Withdrawal” service. You can top up your balance with cryptocurrency, cash at Bitbanker offices, or bank transfer. After topping up, you can buy BTC using the “Buy and Sell” service by placing a limit or market order.

Buying Bitcoin with Fiat Money

To buy Bitcoin with fiat money, you need to top up your balance via P2P, USD, AED, or EUR at the office, or AED through a bank transfer.

Cash can be deposited at offices in Moscow (dollars or euros), Bishkek (dollars, euros, and Kyrgyz soms), and Dubai (UAE dirhams).