What is Bitcoin?
Chances are you have heard about Bitcoin, but it still remains a hazy subject to you, right? If the answer is a strong yes then don’t worry you are in the right place. So you have probably been told that Bitcoin is a digital currency but what does this mean? In fact, bitcoin is much more than just currency for exchanging goods. To circumvent through the confusion surrounding this subject, we decided to separate bitcoin into two components, as a currency and as a protocol. As a currency, bitcoin can be referred to as a piece of code representing ownership of a digital asset, something like a virtual IOU. As protocol, bitcoin is defined as a distributed network maintaining a ledger or list of information.
The world’s leading cryptocurrency
From market capitalisation, to price interest and trading volume, bitcoin is not only the first cryptocurrency but also the leading cryptocurrency in the world by any measure. Even though bitcoin can be used to pay for a variety of goods and services, much of its hype is about getting rich by trading the cryptocurrency. In fact, the price of bitcoin plunged into the thousands in 2017.
When was bitcoin created and by whom?
Bitcoin was created in 2009 by an unknown person using the alias Satoshi Nakamoto as an electronic means of payment based on a mathematical system. The main goal was to produce a means of exchange that was independent of any central power or authority. This also meant that the exchange could be electronically transferred in a way that was immutable, secure and verifiable. Meaning Bitcoin has no one person governing it or controlling it, Bitcoin is totally autonomous and runs independently on a peer to peer network of computers. The computers run Bitcoin by servicing the transactions, this process is called mining and miners receive a reward for doing this. The main appeal of Bitcoin is the ability to make financial transactions without the need for a third-party intermediary such as a bank or credit card company and main reason why Bitcoin was created.
The first decentralised digital currency
This is how the bitcoin system works, payments between users is sent without passing through a central authority such as a payment getaway or bank. Bitcoin is not only held electronically but also created in the same way. They are not printed like euros or dollars. Instead, bitcoins are computer-produced globally with the use of free software.
Bitcoin was the first example of what is known today as cryptocurrencies. With verification based on cryptography, cryptocurrencies are a growing asset class sharing some characteristics of traditional currencies.
How is bitcoin different from traditional currencies?
If both parties are willing, this cryptocurrency can be used to pay for things electronically. In this sense, the cryptocurrency is like conventional dollars, yen or euros which are also digitally traded. However, bitcoins differ from flat digital currencies in various key ways:
- It is decentralised
Decentralisation is the key characteristic of bitcoin; its network is not controlled by any single institution. While bitcoin is operated by an open network of dedicated computers spread across the globe, Fiat currencies are run by banks and governments and can be manipulated by their own self-preserving interests. The bitcoin market attracts both groups and individuals who are not comfortable with the control governments or banks have over their money.
- It has limited supply
Since conventional currencies have unlimited supply they can be issued in large quantities by the central banks or their value manipulated. Bitcoin on the other hand uses an algorithm which tightly controls its supply.
- It has anonymity
The users of bitcoin operate in semi anonymity, since there is no central authority they don’t need to identify themselves when sending bitcoins to each other.
- It has immutability
Unlike the electronic transaction of conventional currencies, you cannot reverse bitcoin transactions. However, don’t be disquieted because it doesn’t necessarily mean that transaction on the bitcoin network can’t be tampered with.
- It has divisibility
Satoshi, the smallest unit of this cryptocurrency represents one hundredth million of a bitcoin. This means that bitcoin has the potential of enabling micro transactions unlike electronic money.