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  • Richard Elliotby Richard Elliot
  • 2 years ago

What is Bitcoin?

What is Bitcoin? Is it a metal? Is it the new money? Is it edible?

We’ll try to solve some of your confusion around the most used cryptocurrency.

Bitcoin is a worldwide cryptocurrency and digital payment system called the first decentralized digital currency, as the system works without a central repository or single administrator. It’s a peer-to-peer system, the transactions take place without intermediaries, between users directly. These transactions are verified by network nodes and recorded in a public distributed ledger called a blockchain.

What does all that mean?

Bitcoin is virtual, digital currency. It lives on the Internet. Its created and held electronically. No one controls Bitcoin.

Unlike dollars, euros and other currencies, Bitcoins are not printed. People and, nowadays increasingly, businesses produce Bitcoin with software running on their computers, that solve mathematical problems. Those processes are called mining, and Bitcoins are the reward for mining. Bitcoin can be exchanged for other currencies, products, and services. It can also be held as an investment.

What is the difference between normal currencies and Bitcoin?

Like dollars, euros, or yen, Bitcoin can be used to buy things electronically.

Unlike dollars, euros, or yen, Bitcoin is decentralized. Conspiracy theorists rejoice because no single institution controls the bitcoin network. It means no large bank can control your Bitcoins. That’s Bitcoin’s most important characteristic, what makes it different from conventional money.

The software developer or a group of developers under the name Satoshi Nakamoto proposed bitcoin. Their idea was to make a currency independent of any central authority, transferable electronically, instantly, with very low or none transaction fees.

How do Bitcoins work?

Bitcoins behave like physical gold coins. They possess value and trade just like if they were nuggets of gold. They can be used for purchases of goods and services online, or you can store them away like investments or savings in hopes that their value will increase over time.

Bitcoins are traded from one ‘wallet’ to another.

A small personal database you store on your computer drive, on your smartphone, on your tablet, or somewhere in the cloud is called a wallet.

How are Bitcoins created?

Bitcoins are created by users who generate blocks on the network. Each block is created cryptographically by users computer power and is then added to the blockchain, letting users earn coins by keeping the network running. This process, as we already mentioned, is called mining.

The blockchain is a public ledger that records bitcoin transactions.

The blockchains maintenance is performed by a network of communicating nodes running bitcoin software. Transactions in a form ”payer A sends some bitcoins to payer B” are broadcast to the network using readily available software applications. The nodes validate transactions, add them to their copy of the ledger, and then broadcast these ledger additions to other nodes.

Anyone can join the community of people that create, or mine, coins. Bitcoins are created using computing power in a distributed network.

How can you earn Bitcoins?

Mining – You can start contributing to blockchains by generating new blocks on the network.

As payment – Bitcoins can be accepted as a means of payment for products sold or services you provide.

Working for them – There are some websites/job boards which offer payment in Bitcoins.

Are there unlimited amounts of Bitcoins?

No.

There is a limit for how many bitcoins can be created and it is built into the system so the value of the coins can’t be diluted.  The maximum amount is just under 21 million bitcoin.

Also, these coins can be divided into smaller parts (the smallest divisible amount is one hundred millionth of a bitcoin and is called a ‘Satoshi’, after the founder of bitcoin).

What is bitcoin based on?

The conventional currencies are based on gold or silver. Theoretically, if you handed over a dollar at the bank, you could get some gold back.

Bitcoin isn’t based on gold; it’s based on mathematics.

Around the world, people are using a mathematical formula freely available, with software programs that follow that formula to produce bitcoins.

The software is open source, meaning that anyone can look at it to make sure that it does what it is supposed to.

What are Bitcoins most important features?

Decentralization – Every machine that mines bitcoin and processes transactions makes up a part of the network. The machines work together. In theory, one central authority can’t tinker with monetary policy and cause a meltdown – or simply decide to take people’s bitcoins away from them. Also if some part of the network goes offline for some reason, the money keeps on flowing.

Easy to set up – Way easier than opening a bank account. You can set up a bitcoin address in seconds, no questions asked, and with no fees.

Anonymous – Bitcoin addresses are not linked to names, addresses or other personal information. So users can hold multiple bitcoin addresses.

Transparent – Bitcoin stores details of every transaction that ever happened in the blockchain.

If you have a publicly used bitcoin address, anyone can tell how many bitcoins are stored at that address but they don’t know that it’s yours.

Transaction fees are low or none – Bitcoin does not make a profit of charging you transfer commissions, unlike your bank.

Speed – Minutes after you have sent your money it will arrive at its destination, as soon as bitcoin network processes the payment.

Non-repudiable – Once you send your Bitcoins there’s no getting them back unless the recipient returns them to you. They’re gone forever.

Why are Bitcoins so controversial?

Various reasons have contributed to making Bitcoins a real media sensation.

From 2011-2013, criminal traders were buying coins in batches of millions of dollars so they could move money away from the eyes of law enforcement. As a result, the value of Bitcoins skyrocketed.

Most importantly, Bitcoins are controversial because they take the power of making money away from central federal banks, and give it to the general public. Bitcoin accounts cannot be frozen or examined by tax men, and banks are completely unnecessary for bitcoins to move. They are beyond the control of traditional police and financial institutions.

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