What is Bitcoin?
What is Bitcoin? If you are new to cryptocurrencies, you may have heard the word Bitcoin many times but what is Bitcoin actually? Bitcoin is a digital money that uses encryption to secure transactions and control the creation of new units with the help of blockchain technology. It was the first ever “cryptocurrency” created by Satoshi Nakamoto in 2008 as a decentralized alternative for fiat currency. Bitcoin enables payments to be made without the need of a central system like a bank or a central authority. After Bitcoin, there has been a wide spread of other Bitcoin-like currencies such as Ethereum, Litecoin, Dash and till date, there are over 2000 cryptocurrencies.
Core properties of Bitcoin
- Irreversibility: Because there is no central institution when it comes to the blockchain if transactions are made to a specific address, it cannot be reversed. Not even Satoshi Nakamoto or the president has the power or capacity to reverse a transaction that has been made. Therefore, if a hacker gains access to funds in an account, or if Bitcoins are transferred to the wrong address, the funds are gone.
- Fast: Sending Bitcoin is very fast thanks to the blockchain. When transactions are made, the funds get reflected almost instantly on the receiving address. This is one of the properties that makes Bitcoin better than traditional fiat currencies.
- No permission needed: With Bitcoin, no permission is needed to transfer any amount of funds from one wallet to another. Also, there are no borders with bitcoin transactions. Therefore, from the comfort of your living room, no middleman is needed to send Bitcoins to another nation all without the need for authorization from anybody.
- Secure and Anonymous: With no ID cards necessary to create or own an address, this makes sending and receiving Bitcoin anonymous. Each Bitcoin address consists of 30 characters in public keys. However, the private keys keep the funds secure and are not to be shared with anyone. The powerful cryptography makes Bitcoin very secure.
“What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party. Transactions that are computationally impractical to reverse would protect sellers from fraud, and routine escrow mechanisms could easily be implemented to protect buyers. In this paper, we propose a solution to the double-spending problem using a peer-to-peer distributed timestamp server to generate computational proof of the chronological order of transactions. The system is secure as long as honest nodes collectively control more CPU power than any cooperating group of attacker nodes.” Satoshi Nakamoto
Bitcoin evangelists believe fiat currency (dollar, euro, Yen etc) is unlimited in supply and for that reason, the central bank can always print more money whenever they feel like it. Bitcoin, on the other hand, has a limited supply of 21 million coins. These coins can be obtained either by buying Bitcoin on exchanges or by mining Bitcoin with the use of personal computers and other heavy hardware.
What is Bitcoin? How does it work?
At the first stage of owning a Bitcoin is some form of internet connection on a PC or mobile device. This is because a PC is needed both to obtain an address and also store Bitcoins. Next to that is either the purchase of Bitcoin on an exchange or the mining of Bitcoin with the use if a mining rig. The obtained Bitcoins are then being stored in an online Wallet which then gives the owner various choices of what to do with the coins. This could either be used to make payments, could be sent to exchanges for trading or could be exchanged for another cryptocurrency.
- Download a software on your phone or PC to set up your Bitcoin Wallet.
- Get your set of Public Keys generated by your software
- Buy or mine Bitcoins
- Spend, store or trade your Bitcoins
How to own Bitcoin
There are currently at least 3 ways to own Bitcoins. They could be owned either via a direct purchase via a cryptocurrency exchange, via a marketplace or by exchanging goods and services for BTC. Most cryptocurrency exchanges today accept fiat, credit or debit cards. Furthermore, to help fulfill the anonymous purpose of its creation, some crypto exchanges don’t require you to share personal information such as identification or location.
Here are 3 ways to own some of this virtual currency.
This is the most popular way to buy or own Bitcoin. There are hundreds of cryptocurrency exchanges around the world with some countries hosting dozens. The most popular and largest cryptocurrency exchange is Coinbase. There are other smaller exchanges such as Bitfinex, and Coincheck. After creating an account on a crypto exchange of your choice, buying and trading can commence within a couple of minutes to days depending on how long the verification process takes. For the purchase of BTC in most exchanges, local currencies can be used.
Buying Bitcoin from marketplaces
These marketplaces are other online platforms where BTC can either be swapped for other digital assets such as Ethereum, Litecoin, Ripple and a host of other coins or the buyer can simply get in touch with a seller. An example of a platform where Bitcoin can be swapped for other cryptocurrencies is ShapeShift while other marketplaces require the seller to get in touch with the buyer directly. In such platforms, the seller posts his coin and waits for the reaction from a buyer and if his price is found interesting, the exchange can proceed. Example of such platforms is LocalBitcoins.
Exchange of goods and services
One of the most important but developing methods of owning this coin is by exchanging goods and services for the virtual currency. In fact, this is one of the main reasons for which it was created. Most Bitcoin evangelists can’t wait to see this a reality in the nearest future. As individuals, governments, and institutions get to understand Bitcoin and its potentials, the currency is expected to gain more popularity and get accepted by the masses.
It is already being accepted in many countries for payments with Japan being one of the most crypto friendly nations in the world. Many multinational companies are also are accepting Bitcoin as an official payment method. Microsoft, for example, accepts bitcoin as one of the methods of payment meanwhile other companies such as the Dallas Mavericks plans on accepting Bitcoin.
What is Bitcoin? Hopefully, you now can answer this question. You can read what a Bitcoin wallet is and what is Bitcoin mining.