Sure, it makes sense. You are right that
our website is not completely educational as we provide instant Bitcoin purchase service AND free Bitcoin robo advisor service. However, there are no ADS on our website at all. I will post a summary of "How Bitcoin Works" content in this thread. Here we go.
BITCOIN DEFINITION & CHARACTERISTICSBitcoin DefinitionBitcoin is a digital store of value and a disinflationary digital currency designed to facilitate financial transactions without a centralized intermediary and government control.
You can read the original Bitcoin whitepaper by clicking on the
following link.
Bitcoin CharacteristicsBitcoin has the following unique characteristics and distinctive features.
Decentralized. No one controls Bitcoin as its blockchain is globally distributed.
Censorship-Resistant. Governments and central banks cannot take control over Bitcoin.
Trustless. Nobody has to trust anybody else in order the Bitcoin network to function.
Irreversible. Bitcoin transactions are irreversible unlike traditional banking transfers.
Pseudonymous. Bitcoin addresses do not contain any personal information.
Divisible. Every Bitcoin is divided into 8 decimal places (0.00000001 BTC).
Limited Supply. Bitcoin has a disinflationary economic model and a fixed supply of 21 million.
Fast Settlement. Bitcoin transactions are fast, cost-effective, and cross-border.
BITCOIN ECONOMIC MODELAbout Bitcoin ScarcityThe most important advantage of Bitcoin is its unique disinflationary economic model that makes it an excellent investment alternative to gold and traditional fiat currency. Total Bitcoin supply is fixed at 21 million. As of August 2020, around 18.45 million bitcoin have already been mined, which is roughly 88% of the total supply.
The current disinflationary Bitcoin economic model will transform into a deflationary model once the last Bitcoin is mined. This is how Bitcoin economic model works in contrast with the traditional fiat system. No more Bitcoin will be mined beyond 2140 and the total Bitcoin supply will be only decreasing for such reasons as lost Bitcoin and mistaken Bitcoin transaction.
Bitcoin Inflation RateThe current block reward amount is equal to 6.25 BTC per Bitcoin block and decreases by half every 210,000 blocks, or approximately every four years. We estimate that around 900 bitcoins will be mined on daily basis until the next Bitcoin halving event in 2024.
Bitcoin block reward will be reduced to 3.125 BTC per block at this time and Bitcoin inflation rate will drop below 1% first time ever. Notably, Bitcoin inflation rate will become equal to 0% when the last bitcoin is mined, presumably in 2140. Once the last bitcoin is mined, the Bitcoin economic model will become purely deflationary.
HOW BITCOIN BLOCKCHAIN WORKSWhat Is Bitcoin Blockchain?First of all, bitcoin is a digital asset and therefore does not have physical monetary value like a gold or fiat currency. Rather, bitcoin is just a record on the Bitcoin blockchain that confirms bitcoin ownership. Bitcoin blockchain is a distributed ledger of timestamped bitcoin transactions that are bundled into blocks. The Bitcoin blockchain is immutable and bitcoin transactions are irreversible. Bitcoin network consists of thousands of Bitcoin miners and Bitcoin nodes.
Role of Bitcoin MinersThe security of the Bitcoin network is ensured by Bitcoin miners. Bitcoin miners use powerful computers to solve complex cryptographic problems to validate Bitcoin transactions and receive a Bitcoin reward. This computing process is called “proof-of-work”. The first miner that finds the solution to the cryptographic problem and creates a new Bitcoin block, receives a Bitcoin block award. This is how new bitcoins are created. Each Bitcoin block is mined every 10 minutes on average, which is roughly 144 blocks per day.
Besides block rewards, Bitcoin miners earn Bitcoin transaction fees that are currently much smaller than the block reward amount. Specifically, they receive transaction fees for verifying and processing Bitcoin transactions included in the block they have mined and added to the Bitcoin blockchain. We expect that Bitcoin transaction fees will increase substantially once the last Bitcoin is mined and no more block rewards are available. Miners are driven by financial incentives and they tend to prioritize Bitcoin transactions with the highest transaction fees.
How Bitcoin Halving WorksEach Bitcoin block is mined every 10 minutes on average, which is approximately 144 blocks per day. The Bitcoin production decreases by half every 210,000 blocks or approximately every four years. The last halving event took place in May 2020 and Bitcoin miners currently receive block reward of 6.25 bitcoins per block. Subsequently, roughly 900 bitcoins are mined every day until the next Bitcoin halving event in 2024. This is how new bitcoins are created.
Bitcoin Halving and Price IncreaseBitcoin’s inflation rate is decreasing based on the mathematical algorithm, unlike the inflation rate of fiat currencies. We expect that the lack of new supply will cause the future increased demand for Bitcoin. Besides that, Bitcoin halving has been historically an extremely positive event for Bitcoin price action. Based on the recent
Kraken report, halvening kicked off Bitcoin bull runs with price appreciation of 9,000% and 3,000% in 2012 and 2016, respectively.
Next Bitcoin Halving Event in 2024Next Bitcoin halving event is expected in 2024, when Bitcoin block reward will be reduced to 3.125 bitcoins per block from the current amount of 6.25 bitcoins per block. This means the daily Bitcoin supply will be reduced to approximately 450 bitcoins per day from the current supply of approximately 900 bitcoins per day. We assume that Bitcoin price will continue increasing in the foreseeable future, due to the algorithmically predetermined decrease of its supply and presumably steady if not increasing demand for Bitcoin from both institutional and retail investors.
Bitcoin ImprovementsA new Bitcoin block is created on average every ten minutes, with the block size limited to 1 MB. Therefore, Bitcoin block can accommodate only a limited number of Bitcoin transactions and it takes approximately ten minutes for Bitcoin nodes to verify them. As a result, Bitcoin has a scalability problem because of the limited number of Bitcoin transactions that can be processed in a given time. Bitcoin community has been trying to resolve the scalability issue, considering various technical improvements of the Bitcoin protocol.
Fortunately, some of these attempts were successful. For example, Bitcoin technical improvement SegWit increased Bitcoin block size by removing signature data from Bitcoin transactions. The Lightning Network proposal aims to make Bitcoin scalable by introducing instant payments that occur off-chain. Lightning transactions offer considerably lower fees and faster settlement times than do Bitcoin on-chain transactions.