What is a Bitcoin?
What is a Bitcoin?
Bitcoin is a digital currency – a cryptocurrency – similar to the former US Gold Standard currency except it operates like its own Internet and is the first decentralized global currency. They can easily be exchanged for goods, services and other currencies.
Bitcoin is more than just a standard currency and as such, it should be thought of in light of:
Bitcoin Transactional properties:
Irreversible: a transaction cannot be reversed after confirmation. This means that after you confirm a transaction, no one can help you reverse it – not your miner, not your banker, not the president of the US not even Satoshi can reverse it for you. There is no safety net so if you send to a wrong wallet or to a scammer, then you’ve lost whatever you sent.
Pseudonymous: there are no real world identities attached to accounts or transactions. You receive bitcoin via addresses, which is made up of 30 randomly seeming chains of characters. It is impossible to link those addresses with the real world identities of the owners even though the transaction flow can be analyzed.
Fast and global: transactions carried out are confirmed almost instantly and because they occur in a global network of computers, our location bears no significance. The same process happens irrespective of if I send bitcoin to my next-door neighbor or if I send to a stranger in the other side of the world.
Secure: only the owner of the public key cryptography system where bitcoin is locked can have access to the bitcoin and possibly send from such account. The scheme is unbreakable thanks to the strong cryptography and the magic of big numbers. To paint an image; a Fort Knox s not as secure as a bitcoin wallet.
Permissionless: you don’t need to seek permission to use cryptocurrency. It’s something that is open to everyone who cares to use. It’s a free software that you can install, after which you can receive and send bitcoin to other digital currencies and no one can stop you.
Where do Bitcoins come from?
Bitcoins are from an open-source computer-mining program - similar to that of the lottery system – that yields a commodity like gold.
Below are brief explanations of how the terms “lottery” and “gold” are applicable to Bitcoin mining.
“Lottery” simply implying that your computer is trying to beat every other computer on the network to decipher a large number. 25 BTC is awarded to the miner or group of miners that complete the process before any other system on the mining network. Note that this kind of lottery is a lot more difficult than the regular lottery thus a faster mining system would mean more reward. After every 4 years, the reward for miners is reduced by half thus making bitcoin a finite creation.
“Gold” just like there are only X amount of gold that can be discovered here on earth, only 21,000,000 Bitcoins will ever be created. As time goes on, the value of bitcoin will increase because of its finite supply while the traditional currencies tend to lose value as time goes on.
How do Bitcoins work?
Without getting too technical, bitcoin is just like a very big public ledger (blockchain) where every transaction done everywhere in the world. These transactions- once completed – are recorded in blocks and visible to everyone on the system. All users are made aware of a transaction in this system and this prevents double spending and stealing. This increases the trust of blockchain users. Bitcoin is more or less the love child of Gold, dollar and visa.
There is no central money authority with bitcoin unlike other traditional currencies that are regulated by Central banks. Bitcoin operates on a blockchain, which is an open source transaction ledger. Once a new block is mined, the transaction data is withheld in the blockchain and confirmed. The blockchain is then downloaded by every single wallet; making the transaction irreversible. To ensure anonymity, every transaction information is encrypted but there’s little room for improvement in this area.
Bitcoins are created mathematically when computers solve extremely difficult tasks known as bitcoin mining. Bitcoin mining was designed such that it becomes a lot more difficult to mine as time goes on. Possible bitcoin mining is pegged at 21 million. This implies that the central banks have no means of devaluing the bitcoins in circulation; neither do they have the power to flood the market with new bitcoins.
How are Bitcoins stored?
Bitcoins are stored on wallet, which is provided by the bitcoin network and serves as a bank for the user and allows the transfer of bitcoin from one user to another. There are a number of ways a wallet can be stored. They include:
- Smartphone apps
- Mobile wallet device
- Paper wallet
- CPU wallet
- Online wallet provider
- In your brain
Bitcoins are just like cloud money because they are stored in a blockchain. You can exchange them through a wallet or service provider at any time.
What is Mining?
Mining, also known as processing ensures that the bitcoin process remains secure by chronologically adding new blocks to the chain and making sure they are in a queue. As each transaction is concluded, blocks are chopped off, codes are decoded and bitcoins are exchanged or transferred.
Also, miners can solve cryptographic problems and generate new bitcoins in the process. This serves as an effective approach to issue currency as well as an incentive to miners.
The reward is an amount, which everyone in the network agrees to but generally, it is 12.5 bitcoins plus the fees paid by the person sending the bitcoin. The number of BTCs has been pegged at 21 million in order to prevent inflation and ensure the system is properly managed. The puzzle for mining bitcoin becomes harder as the years go by and the reward keeps getting halved every 4 years.
How do Bitcoins have a real world value?
The value of bitcoin keeps changing as more of it is mined. Holding onto these coins enable them gain value over time especially with more and more people joining the revolution. The fact that time and money was put into creating this digital currency, it ticks the initial value of currency hence the years of hard work, innovation and energy production.
Imagine you are the miner: you come p against millions of people all over the world to invest time, money and brainpower into mining the coins. It only makes sense that you get rewarded for it. While everyone intends to get back their capital and some profit on every investment, people began exchanging bitcoin for different commodities and traditional currencies. This serves as the basis upon which people outside crypto mining now have the opportunity to exchange bitcoin hence the ever-growing networking effect.
Now more people who aren’t bitcoin inclined are exchanging a lot of cash for bitcoin and wondering what on earth they are going to do with it.
Why are people investing so much money into Bitcoin?
Bitcoin is just like gold! Some see it as the gold of the Internet. People will keep investing in it as long as they believe that there is value in it. The fact that bitcoin has no central control means that it cannot be manipulated by corrupt bankers and politicians.
People are gradually losing confidence in the conventional legal tender like USD and EUR because of the recurrent problems we see in the world economies. Governments have demonstrated time and time again that they can freeze your bank accounts; bitcoin ensures that never happens. Imagine stuffing money away, somewhere only you can reach and even better, you can access it from anywhere.
It is not easy for a beginner to wrap his/her head around bitcoin and cryptocurrency. It’s like having to explain the Internet to someone that lived in the 60’s. While they might think they understand what you’re saying, they may never truly understand it until they experience it firsthand. Cryptocurrencies like bitcoins aren’t going anywhere so feel free to dive in. it may be difficult to know what the world will be like ten to twenty years from now but with the promise currently being showed by cryptocurrency, I am excited for what the future holds.
In my opinion, whomever Satoshi Nakamoto is, he is definitely a genius and a humanitarian.
You can go through the official white paper released by bitcoin if you wish to get a more technical view of what Bitcoin really is and how it works.
Where can I buy Bitcoins?
I’d recommend Coin base of beginners within the United States because they offer ACH bank transactions and a very user-friendly interface. Also, at this point in time, it is the most heavily funded bitcoin company and works just like every other typical exchange except, it trades bitcoin easily and securely via the Internet.