What is Bitcoin?
The first question you may be asking is what is Bitcoin? Bitcoin is a peer-to-peer payment system and private digital coin.
The coin was created with the intention of being free from government interference and manipulation. It serves as a store of value and a means of exchange, allowing users around the world to complete transactions quickly and easily without the need for go-betweens.
To answer this question, we'll first briefly look at the history and design of the currency.
bit coin
Bitcoin is a digital coin
Bitcoin is a digital currency that is used worldwide for making payments. It was created in 2009 by an anonymous computer programmer, Satoshi Nakamoto, and the original unit is called a bit.
Satoshi
named this unit after himself. Since then, Bitcoin has been the subject of
speculations and debate about its author. While there's no governmental
oversight or central bank backing, the currency is considered a decentralized
currency.
Like all digital currencies, bitcoins don't have intrinsic value. Unlike fiat currency, which is backed by a gold reserve, bitcoins are completely anonymous and can be transferred without a third party.
As an alternative to traditional banknotes, bitcoins can be used anywhere,
including for online shopping, travel, and investment. And because they're
decentralized, they are free from country restrictions, credit card fees, and
other problems.
The price of bitcoin fluctuates, just like any other investment. Due to its high volume on exchanges, it's highly sensitive to newsworthy events and prices have fallen dramatically over the past few years.
As a result, the value of bitcoin has seen wild swings during its short life.
One of the crazier price swings reported by the CFPB in 2013 was 61%, and more
than eighty percent in 2014.
The digital coin's blockchain was created with a distributed digital record in mind. Blockchain is a chain of blocks linked together in chronological order, which contains information on every transaction that's ever happened.
Blocks in the blockchain are accessed by anybody who wants to see them. Therefore, Bitcoin has become the most widely used digital currency in the world today.
Its popularity is growing. So why is bitcoin so popular? For starters, it's decentralized and works by sending and receiving funds without any third party involved.
It's a peer-to-peer payment system
A peer-to-peer payment system works on the same principles as traditional monetary systems but with greater security. The entire process is anonymous, and transactions are recorded in a distributed public database called the blockchain.
This database is secured by cryptography and a proof-of-work system, called mining, that allows users to reach a consensus on transactions.
The development of bitcoin began in 2007, with Satoshi
Nakamoto claiming to have started work on the software in 2007 and releasing it
as open-source software in 2009. The actual transaction takes place through a
web-based cryptocurrency exchange or a hardware wallet.
A bitcoin wallet-to-wallet transfer is another way to transfer money between two people. To send someone a bitcoin, you initiate a transfer request from the vendor's wallet to the customer's wallet. Once you've chosen the recipient's wallet, you can select how much you'd like to transfer.
The recipient can choose whether they want to receive the money in
bitcoin or in their local currency. Each transaction costs a small fee to the
bitcoin miner, which varies depending on the time it takes to confirm the
transaction.
With a peer-to-peer payment app, a user can transfer money from any bank account to another user's bank account. In some cases, a user will be asked to verify their identity before a transaction can take place.
After this verification, they can withdraw their funds into a bank account, transfer it to a PayPal account, or even a prepaid debit card. The process is based on an API that is developed by financial services.
It's a non-virtual good
A bitcoin enthusiast offered to pay a pizza delivery service of 10,000 bitcoins (BTC), which was worth about $25 at the time. The successful purchase marked bitcoin's first non-virtual good purchase.
Since then, bitcoin has become easier to use and less invasive to personal information. The only information you need to give a bitcoin merchant is a shipping address.
Bitcoin was also an early adopter's choice for online payments, enabling the growth of eBay and PayPal.
It's backed by mathematics
In order for money to have any value, it must be backed by something, and Bitcoin is backed by mathematics. That is exactly what makes bitcoins so valuable as a form of money.
Because they are backed by mathematics, they can be used to make purchases, make payments, and transfer funds across the globe. The popularity of this form of money is soaring, and the numbers of users, merchants, and startups using it are continuing to grow.
It's decentralized
One of the major benefits of a decentralized currency like Bitcoin is that there are no third-party intermediaries.
As such, transactions through Bitcoin are faster and cheaper than those conducted through traditional banking institutions. This decentralization also makes Bitcoin more secure, since there is no central point of failure.
A
decentralized currency can also be a safer investment for the average investor.
That's why so many people are attracted to it. But how can you tell if Bitcoin
is a good choice for your investment?
Bitcoin uses blockchain technology, a public, open-source ledger that records all of the transactions that take place on it. The blockchain is decentralized because it relies on a vast network of powerful computers, or miners, to confirm each transaction.
These computers, known as
nodes, operate in a peer-to-peer network and serve as the backbone of the
Bitcoin network. Because there is no central point, there is no central
authority to monitor the network and prevent the system from functioning
properly.
The value of a bitcoin is not guaranteed by any central bank or company, but by its market price. This makes it incredibly valuable, and many people believe that the decentralization of the currency is one of the reasons why it's so valuable.
It also prevents shady actors from rigging the currency and manipulating its value. Further, bitcoin has a cap of 21 million units, meaning it's not possible for a central bank or a central authority to create more of it or increase its value.