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Bitcoin Exclusive 2021| How does it work?

Bitcoin Exclusive 2021| How does it work?

What is bitcoin

Bitcoin (BTC) is the pioneer among cryptocurrencies. It is a decentralized, censorship-resistant digital currency based on blockchain technology. However, it is not regulated by any state or central bank. It is inflation-proof as the inventor Satoshi Nakamoto limited the absolute amount to 21 million.

Bitamp Bitcoin Wallet can neither be physically printed nor controlled, regulated, or even manipulated by a central bank or other central institution. Nevertheless, we can use the currency like any other to purchase goods, services, or as a store of value (digital gold).


The basis of Bitcoin is the so-called Blockchain. The name results from the cryptographically linked blocks that contain the transaction data. This decentralized register is not subject to any state control, nor is it subject to any central bank controlling the amount of money or setting the framework conditions. The currency is thus self-governing and is therefore protected from inflationary fluctuations of state influences.

Blockchain explained

In our comprehensive Article on Blockchain, you will understand what a blockchain is and how it works.

Cryptocurrency pioneer

Bitcoin, the oldest Cryptocurrency in the world, still defines the defining aspects of the blockchain and cryptocurrencies topic today. The Bitcoin network has the most network participants by far and is considered the safest, most stable, and most censorship-resistant cryptocurrency. In the media and public discussion, Bitcoin is still the currency used as a proxy for the overall concept.

However, the theoretical construct on which Bitcoin is based goes back to the 1990s. However, the theory only implied the release of Bitcoin in 2008 and is still implying a working system in 2009. As a result, Bitcoin is the pioneer among digital currencies and precisely defines the standard on which most of the later cryptocurrencies were built. A mystery also surrounds the origin of Bitcoin. So far, nobody can say with certainty who is really behind the development of Bitcoin.

Bitcoin was launched by Satoshi Nakamoto (TechnicalWhitepaper). However, it is unclear whether an individual software developer or an entire group is behind this name or pseudonym. Countless theories are circulating on the Internet about who could be the father of cryptocurrency. A valid answer is still not available.

What is certain is that the first Bitcoin mines at the beginning of 2009, and billions of transactions have been carried out since then. The Blockchain grew to an impressive 210 gigabytes during this time, with the great B dominating the digital currency market.

Current figures and data on Bitcoin

Inventor Satoshi Nakamoto

Publication 2009

Consensus algorithm Proof of work

Maximum amount 21,000,000

Price $ 31,836.53

Market capitalization $ 597,161,175,841.31

Trading volume $ 210,087,351.28

Transactions per day 218.384

Average block size 1.05 MB

Blockchain size 354,576.62 MB

The current numbers automatically confirm from



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How many bitcoin are there?

The total number of Bitcoin is limited to just under 21 million Bitcoin and is a (mathematically) limited resource. Forecasts assume that the last of it will form in 2140. “Satoshi” often gives Smaller Bitcoin amounts. A satoshi corresponds to one hundred millionth of a bitcoin and records as the smallest unit in the Blockchain. Incidentally, the name of the team pays homage to the founder of digital currency.

Is Bitcoin Anonymous?

Bitcoin is considered pseudo-anonymous. Even if it originally began in the darknet, the popular currency is used less as an anonymous means of payment for illegal transactions.

The reason for this is the nature of its Blockchain; it is every transaction transparent saved. A transaction includes both the amount of Bitcoin transferred and the data of the sender and recipient. Although no names are displayed in plain text in the Blockchain, it is technically possible to assign the Bitcoin addresses to real people. It is therefore only of limited appeal for illegal activities such as money laundering or drug trafficking. In addition, there are now other currencies such as MoneroZcash, or Dash that offer a far higher level of anonymity. In the meantime, however, there are also options for disguising Bitcoin transactions using special methods (e.g., CoinJoin, Bitcoin Mixing).

How does the great ‘B‘ work?

The decentralized structure of Bitcoin means that all transactions take place transparently within its network. To become part of the network, you need a “Bitcoin account,” naming Wallet.

The wallet has a unique identifier and a cryptographic key pair (so-called “private key” and “public address”) and can be installed on the computer as well as on the smartphone. The private key plays a digital signature, a kind of password, to dispose of your Bitcoin in the Blockchain. The public key serves as a public address (comparable to an email address) to send Bitcoins.

You can find deeper details on how the technology behind B works in our Article on Blockchain.

The benefits of Bitcoin

The decentralized and tamper-proof architecture of  Bitcoin makes mediators/middlemen, such as banks or credit institutions, sometimes excessive. It eliminates the expensive transaction costs that banks often charge their customers for international transactions.

All signed transactions give the participants the security that the marketing will reach the intended recipient. In addition, the method of processing and confirmation of the transactions within the network takes place in a few minutes without any detours.

The advantages of Bitcoin at a glance

  • Censorship-resistant and tamper-proof
  • Decentralized: No company or entity controls Bitcoin; the network belongs to “everyone and nobody.”
  • “Permissionless” – anyone can participate in the financial system, even without a bank account.
  • Global network for value transfer and storage
  • Freed from strong inflation by limiting the total amount in the protocol code

Where can I buy Bitcoin?

We can buy Bitcoin on various exchanges and trading platforms. You can get an overview of reputable providers here: Exchanges for it. We recommend eToro to trade with Bitcoin.

If you need a guide, you can check out our Guide to Buying Bitcoin.

The term B’s weaknesses

Bitcoin is subject to some restrictions that have been deliberately set out in the protocol. The volume of transactions increases with the ever-increasing number of users. The high frequency means that nowadays, transactions can often no longer be processed quickly enough.

The origin of the problem lies in the block size determined by the protocol, the limit of which is simply insufficient for the current transaction density. The current block size was in 2010 to 1 MB fixed. It means that all blocks that exceed this size meet rejection. The original intention for the measure was to prevent hackers from crippling the system through attacks. However, this decision is a limitation for the network and is increasingly causing frustration for users. It is not uncommon for users to have to wait several hours for a transaction in times of heavy workload. Many Bitcoin developers and groups are currently working on solutions for the bitcoin scaling problems. One of the most ardent and advanced projects is the so-called Lightning Network.

Can the Lightning Network solve the scaling problem?

There are different approaches to solving the scaling problem, which has sparked numerous discussions within the community. One of the best-known proposed solutions is the so-called Lightning Network, which could process transactions faster and more cheaply.

The Lightning Network is a billing system set up as a “second protocol level” on its blockchain. Several transactions are placed on a separate payment channel and used smart contracts in the first step.

What are smart contracts?

In our Articles about smart contracts, you will receive interesting information about the functionality and advantages of smart contracts.

The execution of transactions only takes a few seconds and generates significantly lower fees. It does this by decreasing the number of transactions that must be stored on the Blockchain forever. Instead, the transactions flow into so-called ” payment channels ” and are exchanged between the payers outside the Blockchain.

The final status of the payment channel can be sent to the Bitcoin network at any time, which securely offsets the funds on the Blockchain. The capacity of the network is presently around 1,000 Bitcoin. Further information and technical details are available on the Lightning Network website.

Bitcoin power consumption

According to the Cambridge Center for Alternative Finance(CCAF), the electricity consumption of the Bitcoin network is currently around 115 TWh per year (terawatt hours). That is approximately 0.55% of global energy production and corresponds to a smaller country like Sweden or Malaysia.

The power consumption of Bitcoin mining is a point of criticism repeatedly taken up and is hotly debated by the media. The consensus algorithm “Proof of work,” which makes the network possibly the most secure network globally, is very energy-hungry. The energy expended in the proof of work makes spam and manipulation attacks on the Bitcoin blockchain extremely time-consuming and almost impossible.

Around 39% of the miners (source: CCFA) already rely on alternative energy sources such as solar or wind powerUnused and we can often use excess electricity for mining, making mining very cost-efficient and environmentally friendly. Due to the natural conditions, mining with green electricity is comparatively cheap, even in countries like Iceland. Nevertheless, the most mining industry still relies on affordable coal energy, for example, in China. This generation of energy undoubtedly harms our environment, which is why the criticism of Bitcoin’s electricity consumption is certainly justified.

 Bitcoin Power Consumption Compared to Gold and Banking – Source: ARK Investment LLC, 2020

If you compare the power consumption of Bitcoin with banking or gold production, Bitcoin does relatively well. We should not use this comparison to play down the power consumption of Bitcoin but only to better assess the dimensions. However, one thing is clear: Work must and will be done on the electricity consumption of Bitcoin (coal electricity share) in the future.

It’s Future

Bitcoin is open-source software, which means that the community is constantly working on new technological developments, innovations, and features. Two of the most interesting and promising results at the moment are the so-called “Schnorr signatures” and “MimbleWimble.”

Schnorr signatures

Every signed transaction takes place within the network. This signature enlarges the transaction data and thus harms the speed and inflates the size of the Blockchain. With the help of Schnorr’s signature be several transactions were signed together. It will noticeably reduce the size of the trade and can help solve storage and scaling issues.


“MibleWimble” is a protocol that focuses in particular on scalability and anonymity. The basis of the protocol is again the Blockchain. All transactions are cryptographically concealed so that they can no longer be assigned. Thanks to mathematical algorithms, however, it still ensures that there is no generation of false coins. In addition, it is not possible to send more money than is available in the account (“double spending”). The lean architecture of the system reduces the size of the transaction data, which greatly reduces the scaling problem. The approach is currently only in its infancy, which means that MimbleWimble is now only getting used and tested in a few projects.

Where can I buy cryptocurrencies?

We recommend eToro for trading cryptocurrencies. In our overview of the best Cryptocurrency exchanges, you can find other reputable providers in comparison.


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