Bitcoin is considered the digital money of the Internet because it is widely used for transferring funds online. As a digital asset, its value has experienced certain ups and downs, but lately, the price has followed an upward trend, and it surpassed $60,000, which definitely put cryptocurrencies on the map.
If you’re just starting out as a crypto newbie in this field, then there are some important questions you need to understand about Bitcoin. Here, we have chosen the perfect questions for beginners that will help you get a better grasp of the Bitcoin ecosystem.
What Is Bitcoin?
Bitcoin is a completely distributed virtual currency that is used nowadays as a solid alternative to fiat currencies. As we mentioned earlier, the main purpose was to develop a secure way of transferring money online without depending on commercial, financial institutions.
That’s why the blockchain network is fully peer-to- peer-based and distributed, and it works without the interference of any third parties. Based on the trajectory of Bitcoin today, there are over 70 million Bitcoin wallets, which means the cryptocurrency is globally adopted by not just individual investors but also a lot of businesses. Therefore, today you can even use BTC to purchase different digital and physical products and services.
Why Bitcoin Is a Safe-Haven Asset?
Bitcoin is deemed a safe-haven asset because it has a limited number of BTC that can ever be produced. Satoshi Nakamoto, the creator of Bitcoin, has put a restriction on the total number of Bitcoin tokens to 21 million. Very much like gold and oil, Bitcoin has a scarce supply, which is one of the reasons that triggered the success of Bitcoin in the long run.
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Another attribute associated with safe-haven assets like Bitcoin that makes them an excellent hedge against inflation is the fact that their supply isn’t regulated with monetary and fiscal policies. Actually, the political and financial crisis or economic instability don’t have a direct influence on the value of Bitcoin and other safe-haven assets like gold, for example.
How Is Bitcoin Generated?
Bitcoin is inextricably associated with the blockchain network, which is the underlying technology of Bitcoin and other cryptocurrencies. Each new Bitcoin is generated and recorded with the validation of each subsequent block of BTC transactions. More specifically, the miners work on high-end computer systems to add the blocks of transactions to the network and verify the legitimacy of the transactions; by doing that, new Bitcoin tokens are being issued.
The rate at which new Bitcoins are being produced is impacted by the level of difficulty of mining and the event of Bitcoin halving. The halving event was designed by Satoshi Nakamoto in order to create Bitcoin as a deflationary cryptocurrency, and due to this event, the quantity of new BTC that is generated is halved, as well as the block reward of the miners.
The outcomes of the last halving are approximately 3 million Bitcoins left to be mined, and the block reward is worth 6.25 BTC. The level of difficulty of mining slows down the work of the miners on the network because it increases the difficulty of the mining process based on the collective computing power in the blockchain system.
How Is It Secured?
The BTC transactions are secured by the so-called consensus algorithm (proof of work). This happens when the miners validate the block of transactions on the network, and when they do that, they also prevent the problem of double-spending from occurring in the network. Additionally, each block of transactions is linked via cryptography, and the number of nodes (computer systems) adds another layer of security, and as we mentioned earlier, the competition in the blockchain network is on the rise.