Bitcoin Blockchain
What is Bitcoin?
Bitcoin is both a cryptocurrency and a blockchain protocol. It is the first and largest cryptocurrency in the world, with the highest market cap. It was created to decentralize control of money and remove the need for a central authority (for example, banks).
The original 2008 Bitcoin white paper that first described the blockchain system and its set of computational rules --- that would serve as the backbone of the entire crypto market --- was written by a person or group of people known as Satoshi Nakamoto. The Bitcoin protocol was officially released in 2009 as open-source software.
Bitcoin, capital B, refers to a global, borderless, decentralized protocol and network, while bitcoin, lowercase b, refers to the unit of account (the cryptocurrency), which has a fixed maximum supply and a known, decreasing issuance rate.
The concept of blockchain technology first emerged in 1991, with a paper explaining the use of a continuous chain of timestamps to record information securely, and now forms the bedrock of cryptocurrencies such as Bitcoin and Ethereum. Bitcoin was largely created to facilitate the exchange of bitcoin cryptocurrency (BTC), but its potential was quickly discovered. The Bitcoin blockchain was designed to store a lot more than just data on the crypto token's movement.
What is the Bitcoin blockchain?
The Bitcoin blockchain is a digital, distributed ledger of transactions across the blockchain's network of computer systems. It aims to decentralize financial services and allows users to be in full control of their digital currency, with no third party needed. Users no longer need to go through any financial institution to make or receive online payments, unlike with the U.S. dollar, which is controlled by the Federal Reserve, meaning the user's data and currency are technically controlled by their bank and a central authority system. Current U.S. regulations also require financial service providers to verify their customers' identities when they open an account, which can be seen as a pro or a con.
The distributed database is managed by multiple participants using distributed ledger technology. Transactions are recorded using an immutable cryptographic signature (a fixed-length string known as a hash). The transactions are then organized into blocks, and each block contains a number of transactions, every one of which are recorded on the participants' ledgers. Blocks are "stacked" on top of each other and each new block includes a hash of the previous one, effectively chaining them together, thus the term "blockchain". Every time a new block is added, the previous one becomes unmodifiable, making each block more and more secure over time.
To sum this up, the blockchain's critical parts include records (block records and transaction records), blocks, hashes and chain. Transaction records include the digital asset, price and ownership data that are recorded, approved and settled across all nodes.
The Bitcoin blockchain is an amalgamation of Bitcoin (BTC) and blockchain. It is a distributed, public ledger that contains the history of every bitcoin transaction. In other words, Bitcoin is a trustless form of money that removes the need for a trusted third party to keep a ledger, because everyone part of the Bitcoin network has a copy of this ledger. A copy of the blockchain can be downloaded, and any user can inspect the path of bitcoins from one transaction to another with public data being accessible through an API. Bitcoin transactions are pseudonymous, meaning users are not required to provide proof of their identity.
How does the Bitcoin blockchain work?
The Bitcoin blockchain uses Proof of Work (PoW), a decentralized consensus mechanism that requires members of a network to expend effort solving an arbitrary mathematical puzzle to prevent anybody from gaming the system. Proof of work requires huge amounts of energy, but guarantees a secure blockchain.
Every Bitcoin transaction happens in the Bitcoin blockchain network, a peer-to-peer network made of thousands of nodes that run the protocol. This means that all the computers that are part of the network are equal to each other and there are no "special" nodes: they are all in charge of keeping the distributed network up and running.
The Bitcoin network is the digital space where hash power generation occurs. Hashing power is the processing power used by your hardware to perform and solve hashing algorithms, which are then used to create new cryptocurrencies which can be traded with one another. This process is called bitcoin mining.
Bitcoin miners earn bitcoins by finding and publishing new blocks. When a new block is broadcast (new blocks are mined all the time, about every 10 minutes), the miner who solved the block receives a given quantity of bitcoins. This is both an incentive and a reward for keeping the network secure and ensuring that all transactions are valid. Though transaction fees are optional, miners can choose which transactions to process and prioritize those that pay higher fees.
Because transactions on the network are confirmed by miners, decentralization of the network requires that no single miner or mining pool obtains 51% of the network's mining hash rate or computing power, also known as a 51% attack.
Bitcoin smart contracts
Like other smart contract platforms, Bitcoin smart contracts ensure trustless transactions, which settle on the Bitcoin network, making the history of transactions more durable through Bitcoin's proven security. The digital agreement (smart contract) is stored and executed across all nodes in the Bitcoin blockchain network, where it is given security and immutability. As it was designed to be a decentralized cryptocurrency, leaving out smart contract functionality, Bitcoin has limited scripting language and prioritizes security over programmability, making it difficult for developers to work with the syntax.
There are various types of Bitcoin Smart contracts. Script is useful for powering the Bitcoin network but isn't Turing complete, which means it doesn't allow for logical loops. This keeps the Bitcoin network safe from DoS attacks. Bitcoin's most popular script type is Pay-to-Public-Key-Hash (P2PKH). P2PKH scripts allow bitcoin to be sent to a Bitcoin address, such that only the owner of the corresponding private key can spend the bitcoin. Bitcoin's Taproot upgrade will introduce a new script type called Pay-to-Taproot (P2TR), which will unite the functionality of P2PKH and P2SH scripts, allowing bitcoin to be sent to both a public key and arbitrary scripts. More custom smart contracts can be built on top of Bitcoin, like multisignature accounts, payment channels, escrows, time locks, oracles, and more.
All of the above are executed on Bitcoin's blockchain as regular Bitcoin transactions. However, bitcoin can also be spent and used to power smart contracts on additional layers, such as the Lightning Network, which relies on multisignature transactions called Hashed Time-Locked Contracts (HTLCs) to enable instant and nearly free Bitcoin payments. It is only one of many protocols that allow bitcoin to be transferred off-chain. Others, such as the Liquid Network, side chains, and state chains, also rely on Bitcoin's smart contracting ability to enable even more use cases.
Stacks made Bitcoin smart contracts possible, allowing developers to write fully expressive smart contracts and build Web3 dApps beyond Ethereum (ETH) and other blockchains, while enjoying the security of Bitcoin. Stacks functions as the smart contract layer for Bitcoin, enabling projects that can natively use BTC and unlocking immense value while helping the growth of crypto adoption.
Stacks smart contracts offer many benefits including low transaction fees, trustlessness and immutability, a transparent and scalable programming language, as well as unrivalled security.
Stacks enables developers to write fully expressive smart contracts, allowing the creation of new types of apps, use cases, NFT marketplaces and DeFi apps such as Arkadiko, which enables users to take out a self-repaying loan in USDA (a stablecoin) that is backed by their STX tokens, or InfinitySwap, where you can transfer your BTC directly to another Bitcoin address to enter a liquidity pool.
NFTs such as music, collectibles, arts and even real estate can be minted through the Bitcoin ecosystem on NFT marketplaces such as Gamma, the largest NFT marketplace on Stacks.
How to buy Bitcoin?
Crypto exchanges such as Binance and Coinbase allow you to purchase cryptocurrencies such as Bitcoin, Ether, Cardano and Bitcoin Cash, with fiat currencies (think USD). You'll then access your crypto through your Bitcoin wallet. Platforms such as Nasdaq offer cryptocurrency prices and market activity data for US and global markets, helping you pick the right time to invest.
When you buy bitcoin, they aren't actually stored in your digital wallet. Rather, your crypto wallet will give you access to your digital assets, which are held on the blockchain. You will own a bitcoin address which has a balance recorded on the blockchain. The bitcoin address' owner controls the associated Private Key, also known as seed phrase, that allows them to sign transactions.
Flexible traders who prefer diversifying their portfolios at a lower cost and tax benefits often invest in ETFs. ETFs (exchange-traded funds) are a collection of assets whose shares are traded on a stock market. They blend the characteristics and potential benefits of mutual funds, stocks and bonds. If bitcoin's value rises, so does the ETF's, and vice versa. ETFs are now accessible for various assets and industries, including commodities and currencies.