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Bitcoin Halving and Working of Cryptocurrencies

Context: Crypto traders and Bitcoin miners are preparing for ‘Bitcoin halving’.

What Is Bitcoin?

  • What is It?: Bitcoin is a digital currency that exists only in electronic form, unlike physical currencies such as dollars or euros.
  • Introduced by: Satoshi Nakamoto, as a payment system that is powered by mathematical algorithms.
  • Creation and Access: The creation of Bitcoin is a communal process, open to anyone, where the currency is produced through a technique called mining, which requires computational resources contributed by a distributed network of processors.

Key Features of Bitcoin

  • Usable For Transactions: Similar to traditional forms of money that can be transacted digitally, Bitcoin can be used for electronic purchases.
  • Decentralised: A key feature of Bitcoin is its decentralised nature, meaning no single entity or institution has governance over the Bitcoin network.
    • The decentralised aspect of Bitcoin is a comfort to some users who prefer not to have their funds under the control of any banks or central institutions.
  • Anonymity: Users are not directly identified in transactions, but the transactions themselves are publicly viewable.
  • Low fees: Transaction fees are generally lower than traditional bank transfer fees.

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Satoshi: The smallest unit- one hundred millionth of a Bitcoin.

About Bitcoin Halving

  • A bitcoin halving (sometimes ‘halvening’) is an event where the reward for mining new blocks is halved, i.e. miners receive 50% fewer bitcoins for verifying transactions.
  • Bitcoin halvings are scheduled to occur once every every four years until the maximum supply of 21 million bitcoins has been generated by the network.
  • Bitcoin halvings are important events for traders because they reduce the number of new bitcoins being generated by the network.
    • This limits the supply of new coins, so prices could rise if demand remains strong.

About Cryptocurrencies

  • Cryptocurrency is a digital or virtual form of currency secured by cryptography, making it challenging to counterfeit.
  • It operates independently of any governmental or institutional control, classifying it as a decentralised currency.
  • Examples: Bitcoin, Ethereum, Stellar and Litecoin.

Working of Cryptocurrencies

  • Cryptocurrencies function through a technology called blockchain, a public digital ledger that records all transactions across a global network of computers.
  • Computers in the network verify and add transactions to the blockchain, ensuring security and transparency.
  • To engage with cryptocurrencies, users must have a digital wallet, which safeguards their public and private keys necessary for conducting transactions.
Bitcoin Halving and Working of Cryptocurrencies_4.1
Image Credit: Jelvix.com
  • Public and private keys in the wallet are essential for sending, receiving, and verifying the authenticity of cryptocurrency transactions.
  • Cryptocurrency can be obtained through mining, a process where individuals use computational power to solve complex puzzles, securing transactions on the blockchain and earning cryptocurrency as a reward.

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About the Author

I, Sakshi Gupta, am a content writer to empower students aiming for UPSC, PSC, and other competitive exams. My objective is to provide clear, concise, and informative content that caters to your exam preparation needs. I strive to make my content not only informative but also engaging, keeping you motivated throughout your journey!

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