Due to the rise in popularity of Bitcoin, many people are eager to know what it is and how it works. But finding out the answers to these questions lead some starters to a great deal of confusion.
In this article, I will try to help you understand what is Bitcoin in the simplest way possible. So take a read and find out.
What is Bitcoin?
In January 2009, Bitcoin was created by an unknown person that goes by the alias of Satoshi Nakamoto. Bitcoin is a type of digital currency or cryptocurrency which uses Blockchain technology to facilitate peer-to-peer transactions without the involvement of a middleman, such as a banking institution or a payment gateway.
Bitcoins are created, kept, and transacted electronically on a distributed public ledger, which is verified by mathematical computations based on cryptography.
For every bitcoin holders, there’s a public key – which is a sort of bank account number or public address – to which other holders may send bitcoins. On the other hand, a kind of ATM PIN known as a private key is used to authorize bitcoin transfers.
Today, a growing number of people use bitcoins as digital assets for investment, as well as to pay for goods and services.
What Makes Bitcoin Different From Traditional Currencies?
Although you can use bitcoin like fiat currencies to pay for goods and services electronically, several characteristics separate bitcoin from government-issued currencies.
Bitcoin is Decentralized
There’s no central authority that controls the Bitcoin network. Instead, this digital currency is run by a decentralized public network of computers and maintained by a bunch of dedicated coders around the world.
Since there’s no central authority that meddles in bitcoin transactions, there’s no single point of failure. As a result, there’s an increase of resilience and efficiency to bitcoin transactions. This decentralized character is what gets people attracted to using bitcoin.
A central bank can issue as many fiat currencies as it wants, making the supply practically unlimited. Furthermore, it can also manipulate the value of a currency relative to others, which have a more or less negative effect on currency holders.
Bitcoin supply, on the other hand, is limited by an intelligent algorithm. It’s similar to gold in that there’s a limit when all gold is exhausted by mining. In the case of bitcoin, “miners” have to mine it a few at a time until they reach the maximum limit of 21 million.
The overwhelming advantage of controlled supply is that the value of bitcoin will increase if the demand increases while the supply remains the same.
Bitcoin Transactions Can’t Be Reversed
Unlike traditional currency transactions, there’s a kind of immutability when it comes to bitcoin. After more than an hour that the bitcoin transaction is recorded in the public ledger, one can’t modify or reverse it. This feature prevents tampering of bitcoin dealings.
Semi-Anonymity of Bitcoin Holders
In theory, Bitcoin users conduct transactions in semi-anonymity. For instance, when you send bitcoin to another user, you don’t need to divulge your real identity to a central validator. The Blockchain protocol will simply look at your wallet address to track recorded transactions and your bitcoin balance for authorization.
However, anti-money laundering regulations and cryptocurrency tax laws in some countries now require identity checks on bitcoin and other digital currency transactions. So you have to know every law by country before you make a bitcoin transaction. Rules on cryptocurrency differ in the United States, UK, Australia, Canada, India, and other countries.
Related Post About Bitcoin Tax Laws
Each bitcoin can be divided into one-hundred-million satoshis (100,000,000). This divisibility enables you to conduct electronic microtransactions using bitcoin that you can’t do with fiat currency.
Bitcoin is a widely circulated digital currency today, and it has characteristics that differ from traditional currencies. Bitcoin attracts people to use it because of its decentralization, limited supply, self-anonymity, immutability, and divisibility.