What Is Bitcoin and How Does It Work?
Bitcoin is a form of virtual currency, which uses blockchain technology to handle transactions that take place between users of a decentralised network.
The Bitcoin blockchain is essentially a digital ledger. Groups of transactions are listed in ‘blocks’ that are added to a chain. Because all users have access to a copy of this ledger, it would be extremely difficult for someone to lie about how many Bitcoins they held, since the ledger would contradict them.
No central authority, such as a bank, is involved with handling the transactions. This makes the system totally peer-to-peer, allowing anyone with access to the internet to transact with others around the world instantly
Different Ways To Earn Bitcoin
The process of validating a transaction is complex, and requires computers in the Bitcoin network to solve a cryptographic problem. The first to do so is rewarded with the newly minted Bitcoin. By this process, around 900 Bitcoins are ‘mined’ every day.
Mining Bitcoin requires a huge amount of energy. By some estimates, carrying out a single Bitcoin transaction requires 707 kilowatt-hours (kWh) of electricity—roughly 60 times the amount used by the average Australian household in a day.
It also requires an elaborate ‘rig’, and specific mining software, making it difficult for new miners to break in. For this reason, Bitcoin miners regularly band together to create what’s called a ‘pool’—sharing resources and splitting profits.
It’s also worth noting that the amount of Bitcoin awarded for processing each transaction halves every four years. The next halving will occur in April 2024, which will drop the reward from 6.25 Bitcoins per block down to 3.125. There’s also a hard limit on the total supply of Bitcoins (21 million). Once this limit is reached, no more can be mined.