What Is Bitcoin?
Bitcoin is a type of cryptocurrency – perhaps the most popular one for that matter. Thus, bitcoins, which are usually abbreviated as BTC, are just lines of computer code that are created by high-performance computers and large quantities of electricity.
Being a currency, Bitcoin has monetary value assigned to it. There has been a lot of buzz around Bitcoin lately and the question that is on every newcomer’s mind is ‘What is Bitcoin?’. Well, to answer that question, you simply have to know what a cryptocurrency is since once you dive into the world of Bitcoin, other similar decentralized digital currencies will definitely cross your path every once in a while.
Anyway, to break down the concept of Bitcoin in the most logical way possible, all you need to know is that it is a form of digital public money that is created by scrupulous mathematical computations. Bitcoin is also open-source, which means that it is up to a community of millions of computer users, referred to as ‘miners’, to police its entire framework.
A rather more explicit explanation of the concept would be the fact that bitcoins are ultra-secure data blocks that are assigned monetary value just like bank notes. Computing power is required to move this data from one user or one location to another and to verify either of these transactions.
It can be used to pay for a variety of products and services online though there have been a few physical forms of the decentralized digital currency in the past.
Our Bitcoin guide has so much more in store for you, so if you want to know everything about it, make sure to read the rest of this guide.
Where Did Bitcoin Come From?
It is nearly a decade since Bitcoin was invented but still out of all the available Bitcoin information that the public has access to, the true identity of the inventor of Bitcoin is still quite elusive. Only known as Satoshi Nakamoto, the individual or group of people that are the brain behind Bitcoin might never be known but they did leave clear details of what they envisioned for Bitcoin.
Satoshi Nakamoto’s original white paper that was published in 2008 set the foundation and described Bitcoin as ‘a peer-to-peer electronic cash system’ that would come to replace cash transfers that are currently under the control of global financial systems.
Given Bitcoin’s recent price surges, it is possible that whoever Satoshi Nakamoto is, he or she could be the richest person on the planet.
Generally speaking, Bitcoin history has been quite elusive too, especially during the first couple of years before it gained a lot of attention. After Satoshi Nakamoto’s paper was published on October 31st, 2008, an unknown entity went ahead to register the Bitcoin.org domain shortly after on August 18th, 2008. Bitcoin mining kicked off officially after the first version of Bitcoin was announced a couple of months later on January 8th, 2009.
While it may be a bone of contention, the mystery behind the true identity of Satoshi Nakamoto is rather fitting considering the fact that privacy is a key component of the system for both Bitcoin and its ever-growing number of users.
Many people have tried to claim the mantle – the most recent one being Aussie Businessman and Computer Scientist Craig Wright. In similar cases, some other people have claimed to be aware of the true identity of the creator of Bitcoin. However, these people who include Elon Musk and a Los Angeles-based Japanese man who also happens to go by the name of Satoshi Nakamoto, have strongly refuted these claims.
How Is Bitcoin Different from Normal Printed Money?
The primary cause for the immense amount of interest on Bitcoin is its value which has continued to skyrocket despite criticism and negative speculations. However, these criticism and speculations are not completely wrong and this is one major difference between Bitcoin and normal money. Bitcoin’s value changes more rapidly than any other currency used by any stable economy – the value shifts are even higher than those registered by most stocks and bonds. For instance, the fluctuations in the value of Bitcoin have been found to be nearly ten times more than that of the US dollar.
However, the key difference between Bitcoin and normal currencies is its immunity from government and financial market interference. Even though there is a possibility that this might change, Bitcoin’s foundation was on the idea that it would be a true decentralized digital currency whose open source nature would give unanimous control to the users rather than authoritarian bodies such as the government.
Bitcoin and the other cryptocurrencies that came after it are considered to be highly controversial because they have the potential to deny central federal banks the opportunity to make money, and instead delegates the power to do so to the global community of cryptocurrency users.
How is BTC Made?
Bitcoin is the reward that a user receives for trying to solve the complex equations involved in every transaction. This, like we mentioned before, requires the use of high-performance computers and an equally large amount of electric power to operate these machines.
On the onset of Bitcoin’s journey, individual users could mine for Bitcoin rather quickly using Bitcoin mining software that utilized local computer processors and graphics cards that would calculate hashes for the next block in the chain – this is where the name ‘blockchain’ originated from. There were fewer people ‘mining’ and using Bitcoin at the time, and therefore each of these miners were able to randomly confirm the next block at a faster rate, thus generating new bitcoins for their accounts.
The situation has shifted significantly since those early days though. The Bitcoin system was made in such a way that a new block was potentially harder to find than the block that precedes it. This, in turn, reduces the number of randomized bitcoins that are created and distributed. The obvious implication here is that more effort, computing power, and electricity would be required to generate more Bitcoin.
With the number of individual or whole bitcoins continuing to increase, the number of bitcoins that are rewarded for successful completion of hash continues to decrease. Now, single users are rewarded with fractions of bitcoins – which are still very valuable – instead of whole bitcoins as it was in the past.
Advantages of BTC
1. It promotes anonymity and privacy
This is perhaps the core reason for Bitcoin’s rapid growth. Bitcoin transactions between individual users are completely hidden from the public. Whole bitcoins or fractions of it can be exchanged between users’ wallets through simple exchange of hashes without loose ends such as names, email addresses, and any other personal info. The peer-to-peer network that Bitcoin operates on uses new hashes for every single transaction which makes it quite impossible to link any user to concurrent purchases. The peer-to-peer networks are encrypted from the inside and therefore unless one gains access to a user’s Bitcoin Wallet, they cannot access the receipts or transaction history.
2. It is Decentralized
Bitcoin does not fall within any country’s jurisdiction and thus does not conform to any rules and regulations, including taxes. Its independence essentially makes it more of a barter system of trade since governments and associated financial authorities are still not equipped to handle transactions that are performed using currencies that are not theirs.
3. Bitcoins transactions are faster and safer
The issue on safety is in most part anchored by the fact that Bitcoin transactions are anonymous and private. Safety can also be viewed from another perspective when it comes to Bitcoin, that is, bitcoins are harder to steal than other forms of currency. Bitcoin users can keep them offline in their hard drives or any other form of digital storage space. When in offline storages, Bitcoin cannot be accessed or stolen by anyone. Also, unlike other forms of payment like credit cards and wire transfers which may take even months to be processed, Bitcoin transactions can be processed in just a matter of minutes.
4. It is immune to inflations
As we have seen before, governments have control over flat currency and they can print as much money as they want and this usually results in a drastic decrease in the value of these currencies. Bitcoin has a market cap of 21 million BTC which means that after all of it is mined, no more can be created by anyone. This aspect protects it from inflations as its value is directly ties to its scarcity.
The Value of Bitcoin
Bitcoin’s value, although high, fluctuates wildly – this is because of the lack of liquidity in the market and the lack of a central authority to influence supply and demand. As a result, Bitcoin is prone to speculation and manipulation and may falter because of events such as the Mt. Gox DDoS attacks that greatly diminished Bitcoin’s value.
In 2009 when it was officially launched, Bitcoin’s value was very low and could even be mined from regular laptops. Even by 2013, its value was yet to go over $15. However, 2017 was a great year for Bitcoin as it is the year that will be remembered as the year Bitcoin broke records after records to attain all-time highs. The growth has been attributed to such factors as more widespread use of the underlying blockchain, more companies jumping into Bitcoin trading, enhancement of security on the exchange networks and not forgetting the conception and spread of other cryptocurrencies such as Litecoin and Ethereum.