What is Bitcoin? Basics Idea and Challenges to Overcome by Bitcoin

What is Bitcoin?

Bitcoin is the most popular digital currency or a Cryptocurrency in the world.
Since the introduction of Bitcoin back in 2009 by a computer programmer or group of programmers under the pseudonym Satoshi Nakamoto, the term cryptocurrency has taken the market by storm. Cryptocurrency, which was once considered to be a niche product for tech-savvy people, now managed to garner considerable attention from both consumers and investors.
Needless to say, since the introduction of Bitcoin the cryptocurrency has come a long way with 22,904 cryptocurrencies in the market as per the statistics till March 2023.
However, the crypto market has seen several ups and downs in the recent past. Bitcoin, the most expensive cryptocurrency, has shown remarkable highs and catastrophic downturns.
However, after a prolonged decline, Bitcoin is on the way to recovery and scaled some new heights in the recent past. The current value of each Bitcoin in Indian currency is approx 23, 85,287.13 INR and it seems to be steady as of now.

What is Bitcoin mining?

Bitcoin mining is the process of regulating the transactions of Bitcoin. Since, Bitcoin is a non-centralized currency, which means no bank or third-party financial unit is there to monitor the transactions, so the transactions of Bitcoins are overseen by miners who validate the transactions. The persons participating in these transactions are called miners.

What is Blockchain?

In a nutshell, the Blockchain is the record of cryptocurrency transactions. There are several queries how blockchain works? For example there are four friends – A, B, C, and D. Now, A sent a Bitcoin to B. The record of this transaction will be stored on the computer database in the form of a block.
Again, C and D send 2 Bitcoins to B. Similarly, the transactions will again be recorded in form of blocks on the database which will be a network of database.
These blocks will also keep the records of the updated account of how many Bitcoins are left with A, C, and B after the transactions has been made.
These blocks are connected in the form of a virtual chain, forming a network of chin of blocks, thus it called block chain, so that each person in the blockchain network, such as A, B, C, and D can monitor the account in the system.
In a nutshell, A, B, C, and D are miners, since they are involved in the transactions. Bitcoin is the name of the virtual currency circulated under the network of these blocks; blockchain is the network of online ledgers, who store the information in the form of blocks; through which A, B, C, and D can view the mining or transaction details. Every Cryptocurrency has its own separate blockchain network.

What is Bitcoin Halving?

Bitcoin halving is the process through which the rewards of mining a single Bitcoin block are cut in half, it is done to increase the value of the Bitcoin, leading to a supply of new Bitcoin at bay. In another word, the process is instrumental in increasing the value of Bitcoins if the demand increases since there are only 21 million Bitcoin in the market.The halving is done through a mining algorithm written for Bitcoin.
In the first transaction back in 2012, the award per block was 25 BTC, in 2016 it was reduced to half which was 12.5 BTC, in May 2020 6.25 BTC and the next Bitcoin halving will take place in 2024. The code of the Bitcoin transaction has been programmed to do so that once all the 21 million Bitcoins have been mined the value will be reduced to half.
Since, it takes 10 mins to mine one Bitcoin so; the approx number of all 21 million Bitcoins has been calculated to be 4 years, when all the 21 million blocks will be added to the blockchain.

Major Challenges Faced by Bitcoins –

1. Early Success of Bitcoins has put major financial regulators in a spot of bother; as the volatility of the crypto may cause a deep impact on the global economy. It could put investors at risk and derail the financial markets.

2. After the recent fluctuations in the price of Bitcoin and controversy involving billionaire Elon Musk, concerning issues with climate change back in 2021; the investors are showing reluctance to put their money on Bitcoin and others.

3. Most investors are yet to understand how Bitcoin and other cryptocurrency works, and awareness of cryptocurrency and Bitcoin must be raised.
4. Bitcoin is not a currency of everyday transactions due to its high value and volatile nature.
5. Bitcoin is unregulated and thus may be prone to fraud and other payment-related malpractices.
6. Bankruptcy of Mt.Gox, one of the largest exchanges of Bitcoins resulted in the loss of revenue worth $4500 in 2014, which has brought forth the risk of digital currency. Bitcoin is yet to recover from that dent in reputation.
7. The blockchain technology regulating Bitcoin can only mine a few coins in a given time; this slowness in transactions can lead to the payment of higher premiums. However, the network system and data management system Lightning Network and Sharding respectively have been introduced to mitigate the issue.
8. The ideologies behind the invention of cryptocurrencies such as Bitcoin are deeply rooted in the decentralization and liberation of financial institutions. However, the otherness of Bitcoin and other crypto coins is drawing criticism of illicit fund transfer, money laundering, and concealed payments, making it a popular object of use for criminals.
It will be premature to say if Bitcoin is a boon or bane to the financial world. However, we need to observe the market keenly to make some predictions for the future. It is no brainer to say investing in anything be it a Bitcoin or will be naïve. On the other hand, we must not write Bitcoin off completely due to its uniqueness.