In this post we are going to talk about what is Bitcoin by explaining how the system really works, how you can use it, what are the profits, what are the risks. This is a guide for you to understand how can you buy and sell bitcoin and where was it invented and where it goes?
What is Bitcoin in general
So what is Bitcoin in general? It is a digital currency. It was created in 2009 by a person or a team that called Satoshi Nakamato. The identity of the creator is still a mystery. No one really knows who has invented Bitcoin.
It is created and held digitally which means that bitcoin is not printed like dollar bills. They bitcoin system lets transactions to be held peer-to-peer that means there isn’t a middle man anymore such as a bank or a third party company.
Theory of Bitcoin
Bitcoin is a digital currency. Just like exchanging cash, you might use bitcoin to transfer value. Bitcoin is encrypted code which has to be decoded while the transaction needs to be confirmed. This confirming and decoding is being done by bitcoin miners who own processing hardware.
So, to look at this as simple as possible, bitcoin transactions are exchanging digital information that has values in order to buy or sell services or goods.
Bitcoin transactions are between user’s bitcoin addresses. If that address is identified by a real identity then all transactions to that address are traceable like transferring via bank or third party payments, but if it isn’t identified then you can use it for things like incognito purchases over the internet. We call this trait: anonymity.
So, to sum up what is bitcoin , Bitcoin is a digital form of currency earned through a computer algorithm and peer-to-peer transactions.
What differs between Digital currencies like bitcoin and traditional currencies like dollar or euro?
There are important ways that bitcoin and traditional currencies differ from each other.
The main characteristic of bitcoin is that it is decentralized. There is no authority controls the bitcoin network like traditional currencies which are under control of banks or government so it is a great asset for those that are uncomfortable with this supervising. Instead, The bitcoin network is maintained by a group of miners around the world.
Bitcoin solves the “Double spending problem” of traditional currencies. In digital assets like bitcoin, transactions being done through combination of cryptography and economic incentives while in traditional currencies this job is done by a third party like banks which gives them control over all the system. But in bitcoin system, transactions are done by a decentralized and distributed and open network of people, so it is owned by no-one.
Banks are able to issue currencies as many as they want due to political or economic situation and can manipulate the value of currency to others. Fiat currencies like dollars, euros, yen, etc. have an unlimited supply. so holders of the currencies must bear the cost.
But bitcoin has limited supply. There are only 21 million bitcoin. And until now, at the time of writing this post, it is just 17.8 million bitcoins are available that are mined. The supply is controlled by the algorithm. A small number of bitcoin mine every 10 minutes. If the demand grows by the popularity of bitcoin and the supply remains the same then the value will increase without any doubt. This makes bitcoin more attractive that the other assets.
Senders and receivers of traditional currencies are always identified by the banks or any company. (for verifications and comply with Anti-money laundering legislation.) in bitcoin, since there is no central validator, users do not need any identity verification in order to sending bitcoin to another user. The system just checks the previous records to confirm that the sender has enough bitcoin to send.
Once the bitcoin sent, there is no way to reverse it. Maybe this might be unsatisfactory aspect of the bitcoin but it does mean that transaction can’t be tampered with.
Satoshi is the smallest unit of Bitcoin, every 100 million of Satoshi is called 1 Bitcoin. It could enable micro transactions that in traditional money cannot proceed.