Bitcoin is a digital form of money running on a distributed network of computers.
The first cryptocurrency that came into existence, Bitcoin was conceptualized in a whitepaper published in 2008 by someone who uses the pseudonym Satoshi Nakamoto.
More than a decade after its creation on January 3, 2009, Bitcoin is currently the most widely known and used cryptocurrency.
Like in real life, your wallet must be secured. Bitcoin makes it possible to transfer value anywhere in a very easy way and it allows you to be in control of your money.
Such great features also come with great security concerns.
At the same time, Bitcoin can provide very high levels of security if used correctly.
Always remember that it is your responsibility to adopt good practices in order to protect your money.
Since Bitcoin’s creation, thousands of new cryptocurrencies have been launched, but bitcoin
(abbreviated as BTC) remains the largest by market capitalization and trading volume.
Depending on your goals, bitcoin can function as:
• an investment vehicle
• a store of value similar to gold
• a way to transfer value around the world
• even just a way to explore an emerging technology
Bitcoin is a currency native to the Internet. Unlike government-issued currencies such as the dollar or euro, Bitcoin allows online transfers without a middleman such as a bank or payment processor.
The removal of those gatekeepers creates a whole range of new possibilities, including the potential for money to move around the global internet more quickly and cheaply, and allowing individuals to have maximum control over their own assets.
Bitcoin is legal to use, hold, and trade, and can be spent on everything from travel to charitable donations. It’s accepted as payment by businesses including Microsoft and Expedia.
Is bitcoin money? It’s been used as a medium of exchange, a store of value, and a unit of account—which are all properties of money. Meanwhile, it only exists digitally; there is no physical version of it.
To really grasp how bitcoin works, it helps to start at the beginning. The question of who created bitcoin is a fascinating one, because a decade after inventing the technology—and despite a lot of digging by journalists and members of the crypto community—its creator remains anonymous.
• The principles behind Bitcoin first appeared in a white paper published online in late 2008 by a person or group going by the name Satoshi Nakamoto.
• This paper wasn’t the first idea for digital money drawing on the fields of cryptography and computer science—in fact, the paper referred to earlier concepts—but it was a uniquely elegant solution to the problem of establishing trust between different online entities, where people may be hidden (like bitcoin’s own creator) by pseudonyms, or physically located on the other side of the planet.
• Nakamoto devised a pair of intertwined concepts: the bitcoin private key and the blockchain ledger. When you hold bitcoin, you control it through a private key—a string of randomized numbers and letters that unlocks a virtual vault containing your purchase. Each private key is tracked on the virtual ledger called the blockchain.
• When Bitcoin first appeared, it marked a major advance in computer science, because it solved a fundamental problem of commerce on the internet: how do you transfer value between two people without a trusted intermediary (like a bank) in the middle? By solving that problem, the invention of bitcoin has wide-ranging ramifications: As a currency designed for the internet, it allows for financial transactions that range across borders and around the globe without the involvement of banks, credit-card companies, lenders, or even governments. When any two people—wherever they might live—can send payments to each other without encountering those gatekeepers, it creates the potential for an open financial system that is more efficient, more free, and more innovative. That, in a nutshell, is bitcoin explained.
Unlike credit card networks like Visa and payment processors like Paypal, bitcoin is not owned by an individual or company. Bitcoin is the world’s first completely open payment network which anyone with an internet connection can participate in. Bitcoin was designed to be used on the internet, and doesn’t depend on banks or private companies to process transactions.
One of the most important elements of Bitcoin is the blockchain, which tracks who owns what, similar to how a bank tracks assets. What sets the Bitcoin blockchain apart from a bank's ledger is that it is decentralized, meaning anyone can view it and no single entity controls it.
Here are some details about how it all works:
• Specialized computers known as ‘mining rigs’ perform the equations required to verify and record a new transaction. In the early days, a typical desktop PC was powerful enough to participate, which allowed pretty much anyone who was curious to try their hand at mining. These days the computers required are massive, specialized, and often owned by businesses or large numbers of individuals pooling their resources. (In October 2019, it required 12 trillion times more computing power to mine one bitcoin than it did when Nakamoto mined the first blocks in January 2009)
• The miners’ collective computing power is used to ensure the accuracy of the ever-growing ledger. Bitcoin is inextricably tied to the blockchain; each new bitcoin is recorded on it, as is each subsequent transaction with all existing coins.
• How does the network motivate miners to participate in the constant, essential work of maintaining the blockchain—verifying transactions? The Bitcoin network holds a continuous lottery in which all the mining rigs around the world race to be the first to solve a math problem. Every 10 min or so, a winner is found, and the winner updates the Bitcoin ledger with new valid transactions. The prize changes over time, but as of early 2020, each winner of this raffle was awarded 12.5 bitcoin.
•At the beginning, a bitcoin was technically worthless. As of the end of 2019, it was trading at around $7,500. As bitcoin’s value has risen, its easy divisibility (the ability to buy a small fraction of one bitcoin) has become a key attribute. One bitcoin is currently divisible to eight decimal places (100 millionths of one bitcoin); the bitcoin community refers to the smallest unit as a ‘Satoshi.’
• Nakamoto set the network up so that the number of bitcoin will never exceed 21 million, ensuring scarcity. There are currently around 3 million bitcoin still available to be mined, which will happen more and more slowly. The last blocks will theoretically be mined in 2140.
Cryptocurrencies and traditional currencies share some traits — like how you can use them to buy things or how you can transfer them electronically — but they’re also different in interesting ways. Here are a few highlights.
|Who manages it?|
|A network of computers running open source code||The government that issues it|
|How does it hold its value?|
|Primarily based on supply and demand||Primarily based on confidence in the government that issues it|
|How is it secured?|
|By a network of computers that verify every transaction — anyone with an internet connection can participate||By third parties like banks and governments — only a select few can participate|
|Are there physical bills or coins?|
|Can I buy things with it?|
|Yes, but only where merchants accept it||Yes, but typically only in the country that issues it|