What is Bitcoin?
What is bitcoin? Bitcoin is a digital currency and digital currencies are on the rise and their popularity is fueled by a number of different factors.
- 1. Bitcoin is decentralized – no central bank.
- 2. Bitcoin is anonymous – all transactions are private.
- 3. Bitcoin is convenient and cheap – instant, low cost transactions with no debit/credit card or bank required.
The advantages of bitcoin are clear, but what exactly is a bitcoin?
What is a “Bitcoin”?
What is bitcoin exactly? Bitcoin is often described as being like something in between gold and a dollar bill – it’s not quite a currency (no one’s printing it) and it has elements of gold (limited supply). It is called a ‘digital currency’ and it can only be created and stored online. There is no single entity that controls bitcoin, all transactions are made ‘peer to peer’ i.e. from one individual to another and all transactions are entirely anonymous.
Bitcoins are produced by several users running computer scripts all over the world; these scripts solve difficult mathematical problems and once solved, an amount of bitcoin is ‘released’. These mathematical problems ensure that transactions are anonymous and it also gives rise to the term ‘cryptocurrency’ which is often used to describe bitcoin.
Bitcoin is used to purchase products and services electronically, and there’s an increasing demand for bitcoin in markets where anonymity and security is crucial.
Bitcoin is Decentralized
The best way to describe a bitcoin transaction is to compare it with a typical ‘cash in hand’ transaction from many years ago. When an individual purchases an item from another individual with cash, there is no government record taken to know that this transaction ever existed. While all bitcoin transactions are monitored on the ‘block chain’, much like cash payments, there is no record of the individuals involved in the transaction.
Bitcoin does not run through a central bank and there is no ‘bank’ that controls money supply by printing or removing bitcoin from the market. Bitcoin is produced through these mathematical problems mentioned above and there is a limited supply that cannot be manipulated by anyone, anywhere in the world.
This lack of government or bank control means that seizures of bitcoin are theoretically impossible. The impact that Black Friday had on the poker community many years ago cannot be repeated if players deal with bitcoin.
Who Created Bitcoin?
Bitcoin was developed by a software developer known as ‘Satoshi Nakamoto’. Satoshi grew tired of the conventional means of processing payments and the fees that came with them, so his idea was to create a currency that was unlinked from “legal” currencies and the associated transaction fees. This isn’t to say that bitcoin is free from fees, but the fees on transactions are heavily reduced and are insignificant in comparison to what you might expect from a wire transfer or PayPal.
Who Owns Bitcoin?
No one owns bitcoin; the currency is held entirely on the Internet and there is no single person, business or government with control over its supply or the rules on how it can be used. Bitcoin is generated by a ‘pool’ of bitcoin ‘miners’ that run these mathematical problems to solve the blockchain and earn bitcoin. This network of miners is also the very same network responsible for processing the transactions that take place, meaning bitcoin is not only a currency, but a payment network as well.
Are There Unlimited Bitcoins?
Bitcoin is limited because the protocol that established the network is forcibly capped at releasing around 21 million bitcoins. However, this is 21 million ‘whole’ bitcoins. A single bitcoin can be divided into halves, quarters, tenths and still transacted – in fact, the smallest possible amount of bitcoin is called a ‘Satoshi’ and is 0.00000001 of 1 bitcoin. In this regard, there is plenty of bitcoin to go around.
Bitcoins deviate from the norm when compared with traditional currency. Traditional currencies were once based on the value of gold and silver. Consumers could then look to the price of gold and silver to get an understanding of what their currency was worth. But bitcoin shares none of these traits, and is based on mining and mathematical problems alone.
Users across the world are running software programs to solve the mathematical problems that produce bitcoin. The Bitcoin network has an estimated 100,000 active users at any given moment, which continues to grow on a daily basis as more and more ‘miners’ attempt to earn bitcoin.
5 Key Points to Remember About Bitcoin
Now that you have a good understanding of bitcoin, be sure to keep in mind these 5 key points when it comes to using the cryptocurrency:
- 1. Decentralized: there is no one central authority for bitcoin. Banks, governments and businesses cannot control transactions and are unable to seize funds from any bitcoin users.
- 2. Easy to use: once you’re familiar with bitcoin you will find it easy to use. Accounts can be set up in minutes while bank accounts can take months with various hoops to jump through. There are no questions and no fees to setting up a bitcoin wallet.
- 3. Anonymity: spend your money on what you want, when you want. Bitcoin is an anonymous way to transfer value through the Internet – go have fun!
- 4. Transparency: the blockchain publicly stores all transaction information for anyone to see, meaning that while transactions are anonymous, they are entirely transparent.
- 5. Free from fees: one of the most important wins for bitcoin is that the fees pale in comparison to a traditional money processor. Sending the equivalent of $0.01 through the Internet is now easy and makes microtransactions more accessible for everyone anywhere in the world.