Mining

Bitcoin is digital money that can be sent over the internet without a bank having to approve the transaction. It runs on a decentralized network of computers, which checks and records transactions in a public ledger, the blockchain. Its currency is denoted BTC and is not issued by any central bank.What is Bitcoin and who created it?Bitcoin went live in 2009, after Satoshi Nakamoto published its technical description. The name is a pseudonym, and the real identity of the creator, or group of creators, remains unknown.The original idea was a peer-to-peer electronic payment system. In other words, two people should be able to transfer value without relying on a central administrator that keeps the books and decides which payments are allowed.The word Bitcoin usually describes both the network and its currency. “Bitcoins” are not a different product. They are the units of value transferred within this system.BTC and satoshisYou don’t need to own a whole bitcoin. Each BTC is divisible into 100 million satoshis, so a transfer can involve a very small fraction of one.The protocol’s current rules set a maximum supply of 21 million BTC. This doesn’t mean they have all been created already, nor that the limited supply guarantees a rising price.What does it mean that it is decentralized?At a bank, your balance exists in a system managed by that institution. In Bitcoin, many independent computers keep copies of the history and check that the same rules are followed.The code is publicly available, and anyone with the right equipment and connection can run a node. There is no central switch that controls the whole network.That doesn’t mean all participants have the same role or the same influence. Large mining pools, exchanges and service providers can create concentrations of power, but they don’t automatically gain the right to change the rules for everyone.How Bitcoin and the blockchain workThink of a shared ledger, copies of which are kept by people in different parts of the world. The difference from a shared document is fundamental: no one can simply open the history and change whatever they want.The blockchain organizes transactions into groups, called blocks, that are cryptographically linked to each other. As a result, a change to older data is detectable, and reversing confirmed history requires computational work.Who checks the transactions?Full nodes independently check transactions and blocks against Bitcoin’s rules. Among other things, they check that there is a valid digital signature and that the coins being spent haven’t already been used.This solves the problem of double spending: the attempt to pay two different recipients with the same digital money. No vote of all users is needed for every payment; the nodes apply common rules and reject anything that breaks them.Confirmations and waiting timeWhen a transaction is included in a block, it gets its first confirmation. Each subsequent block built on top of it adds another, usually making it harder to reverse.The network targets a new block roughly every ten minutes on average, not exactly every ten minutes. How long a payment takes also depends on congestion and on the fee the sender offers.What is Bitcoin mining?Mining is the process by which new blocks are proposed and new BTC is issued according to the protocol. Miners compete using specialized machines known as ASICs.They don’t solve useful mathematical equations, as is often claimed. They perform repeated hashing computations, looking for a result that meets the network’s difficulty target. This is the proof of work mechanism.The miner who finds a valid block can receive the set reward of new BTC and the fees of the transactions in it. The issuance of new coins is cut periodically by halving the block reward, known as the halving. Nodes still reject a block that breaks the rules, even if it was produced with expensive equipment.Mining requires electricity, cooling and capital. For someone in Greece, the cost of electricity is a critical factor, and an ordinary computer is not practically competitive Bitcoin mining equipment. Profitability is not a given.How a Bitcoin wallet worksA digital wallet doesn’t store coins the way a wallet holds banknotes. It manages the private keys that allow you to sign transactions and prove your right to spend.A Bitcoin address can be shared to receive payments. The private key, by contrast, must stay secret. Many wallets provide a seed phrase (recovery phrase) that can restore access; anyone who gets hold of it can also take control of the funds.With self-custody, you control the keys and take on the job of protecting them. When BTC is held on an exchange, the keys are usually controlled by the company. It is more convenient, but it adds provider risk.A transaction in practiceThe recipient gives the sender an address or a QR code.The sender checks the address, network, amount and fee.The wallet signs the transaction and broadcasts it to the network.The transaction is checked and waits to be included in a block.The recipient waits for the number of confirmations they consider appropriate for that payment.There is no central customer service that can cancel a confirmed transfer to the wrong address. That’s why checking before you send really matters.Where is it used and where does its value come from?Bitcoin is used to transfer value, for international payments and, by some holders, as a long-term asset. However, it isn’t accepted in every store, and the base chain doesn’t always offer cheap micropayments. The Lightning Network, a layer 2 network, aims for faster and cheaper payments, with additional technical requirements.Its price in euros is set by supply and demand in the markets. Limited issuance, transferability and trust in how the network works all contribute to demand, but there is no guaranteed value or return.The comparison with gold is mainly about scarcity, not any guarantee of stability. Think of a coffee priced in euros: if it is paid for in BTC, the merchant takes on exchange-rate risk until they convert it.The risks and what applies to users in GreecePrice volatility can lead to large losses. There are also scams, stolen seed phrases, malicious apps and the risk of exchanges going insolvent. The security of the network does not guarantee the security of every service that uses the Bitcoin name.Bitcoin is pseudonymous, not fully anonymous. Transactions are public, and addresses can be linked to identities, especially through services that verify their customers’ identity.For users in Greece, the EU’s MiCA regulation sets rules for crypto-asset service providers. It doesn’t turn BTC into a bank deposit, nor does it eliminate the risk of loss. Tax treatment needs to be checked against the current guidance of AADE (Greece’s Independent Authority for Public Revenue) and each taxpayer’s circumstances; keeping a record of your transactions and receipts helps you document your position.Our viewAt Cryptonomy, we believe Bitcoin’s real innovation is transferring digital value under public rules, without a single administrator. That is technologically interesting regardless of the day-to-day price moves.But we don’t overlook its energy consumption, its limitations for payments or the responsibility of custody. Decentralization gives you more autonomy, but it doesn’t come with a safety net. In any case, we keep understanding the technology separate from expecting a profit.Frequently asked questionsWhat is Bitcoin, in a nutshell?It is a digital currency and payment network with no central bank. Transactions are checked by computers that follow common rules and are recorded on the blockchain.Do I need to buy a whole bitcoin?No. One BTC is divisible into 100 million satoshis, so you can hold or transfer a fraction of one.Is Bitcoin anonymous?Not fully. Addresses don’t necessarily show a name, but the transaction history is public and can be linked to individuals.Can I lose my bitcoin?Yes. Losing your keys without a backup, theft, a mistaken transfer or a provider’s collapse can all lead to losing access or funds.How much does a Bitcoin transfer cost?The fee on the base chain depends mainly on how much space the transaction takes up and on the demand for block space, not simply on the amount. An exchange may charge a separate withdrawal fee.