Bitcoin is a type of digital or virtual currency that is created and held electronically. It is a medium of exchange like normal currencies (such as USD, Pounds, Yen, e.t.c.) but without any government interference or manipulation. You can rightly refer to it as cash for the internet.
Bitcoin, as a network, enables a new payment system that is completely decentralized. This means it is a peer-to-peer network that is powered by users with neither a central authority nor middlemen.
What makes Bitcoin different from other currencies?
Bitcoin is different from other currencies in two major ways. First, unlike centralized banking, Bitcoin is fully decentralized which makes it independent of any government’s regulation. No one has control over Bitcoin as it purely subject to the market forces of demand and supply. Second, it is a common practice for financial institutions to print more fiat currencies, hence inflation. It is different with Bitcoin because the digital currency will never have more than 21 million coins in circulation.
So no one can print it?
Yes, no one can print Bitcoin. It is not like the physical currencies which are printed by central banks of nations who are unaccountable to their citizens and make their own rules. If there is a problem like national debt, these banks can simply print more money to cover it, thereby devaluing their currency in the process.
Conversely, Bitcoin is created digitally by a community of people (which anyone can join) called miners. The community mines Bitcoin by solving complex calculations in a distributed network. There’s, however, a limit to the number of coins the miners can create as Bitcoin’s protocol is that there can only be 21 million coins. The miners also confirm transactions which makes the digital currency its own payment network.
Who created it?
Bitcoin is the first implementation of a concept called cryptocurrency. The concept was first mentioned on the cypherpunks mailing list by Wei Dai in 1998. It was used to describe a form of money that uses cryptography.
Bitcoin was created in 2009 by a pseudonym software developer named Satoshi Nakamoto as an electronic payment system based on mathematical proofs. His identity remains unknown as he left the project in 2010 without revealing much about himself. However, his identity is irrelevant because his influence is limited to the changes he made before leaving which mean he has no control of the network.
What is Bitcoin based on?
Paper money has been based on either gold or silver. Theoretically, this means you can give the bank some money and have gold back in exchange (although this never worked in practice). Bitcoin, on the other hand isn’t based on gold but on mathematics. It means, by using software programs that follow mathematical formula, you can produce bitcoins. Anyone around the world can use the formula which is freely available. To prevent people from cutting corners, the software for mining bitcoins is open source, meaning anyone can check it to make sure it does what it is supposed to do.
What are its characteristics?
Bitcoin has some interesting characteristics which are almost the opposite of physical money. Below are some of them:
- Bitcoin is decentralized. All the software that produces bitcoin is only a part of the network. As a result, it is impossible for a central authority to interfere or manipulate the digital currency.
- Bitcoin is easy to set up. Unlike brick and mortar banks where you have to endure the stress of opening an account, you can set up your bitcoin address in seconds from your online device for free.
- Bitcoin is anonymous. Do you like to keep your identity private? Bitcoin helps you in this regard. You can keep multiple bitcoin addresses without divulging your bio-data.
- Bitcoin is transparent. All transactions that occur in the network are stored in a huge digital ledger called Blockchain. You can check a bitcoin address on the blockchain to know how many coins are stored there (even though the identity of the owner remains unknown.)
- Sending and receiving Bitcoin is fast. You can send coins to another wallet address and it will arrive in minutes as soon as the network confirms the transaction.
- Bitcoin is non-repudiable. In other words, once a bitcoin transaction is carried out, it cannot be reversed. For example, if you send bitcoins to a wallet address, they’re gone forever – except if the receiver returns them back to you.
Many will agree that Bitcoin is one of the greatest inventions of the 21st century. Since its creation in the last decade, it has grown to be revolutionary in global economy, garnering attention and usage from millions of people worldwide.