What is Bitcoin? Notwithstanding that less than 1% of the world population have heard of bitcoin, the question of what is Bitcoin is becoming more popular. People who never heard of Bitcoin before, are now asking about this “new” digital currency and trying to understand why a cyber currency should have value.
In this article we are going to explain what is Bitcoin in simple language for anyone who is a crypto currency virgin. It is a new world of financial concept that may in time revolutionize currencies. It is a method of payment without borders and its value is not tied to any political instability of any one particular country.
What Is Bitcoin? Is it really “Mined”?
Yes, Bitcoin is a digital currency that is “mined” electronically. It is not a printed currency. Bitcoin is a form of currency that allows traders to pay for goods and services without involving banks. Any holder of Bitcoin can exchange it for currency.
Bitcoin and any other type of cryptocurrency such as Litecoin, Ethereum, Monero etc., are digital currencies.
All crypto currencies are gaining in strength but none are as mighty as the Bitcoin.
Bitcoin is created and held electronically. No one controls the bitcoin market because no one prints bitcoin. Unlike paper currencies like Sterling, Dollars or Euro, Bitcoin is “mined” or produced by regular people.
The cryptocurrency “mining” business is done by solving complicated “mathematical formulas” and by running computers all around the world. Here is some history that relates to the question of “what is bitcoin?”
Who is the Creator of Bitcoin? What is Bitcoin?
There is much myth around who first thought up of digital currencies, block chains and Bitcoin itself. To be perfectly honest, no one really knows.
As the story goes the original developer is called “Satoshi Nakamoto”.
It is meant to have originated in Japan by a mathematical genius. In truth, it is more likely to have been a bunch of geeks in Silicon
Valley who came up with this ingenious method of “mining” digital gold.
The computer science experts who probably created the concept of Bitcoin started off their road to stellar success in October 2008. The written code for Bitcoin allows for the mining of no more than 21 million Bitcoins. To date, it appears that 17 million Bitcoin have already been mined – or better still the mathematical formula, that becomes more and more complicated with time has been solved 17 million times. All transactions form part of a Blockchain.
So as of today, May 2017 there are just 4 million Bitcoins yet to be mined. The mining work is becoming much harder and far more expensive. It is said that the electricity needed to generate the production of one bitcoin at this point is more expensive than the market value of bitcoin itself. Hence, we are seeing some meteoric price soaring in the value of Bitcoin.
Interesting Tit-Bits about Nakamoto and Bitcoin
It is said that whoever is really the inventor of Bitcoin – the said “Nakamoto” is today the holder of 1 million bitcoin. The net cap worth is 1.7 billion at the current market price of $1700 per Bitcoin.
The original 1 million bitcoins that were mined by Nakamoto remain unspent.
Although Nakamoto is touted to be someone in his late 30’s male and from Japan, this is all speculation. Possibly, whoever is really heading the coding could well be located in Europe. The use of perfect British anecdotes in forums and the times related to blogging tend to give this away.
Personally, I would not try to surmise or narrow down who invented Bitcoin and the blockchain related to it. I am far more interested in what Bitcoin really is all about.
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What is Bitcoin? What is it Based On? The Characteristics of Bitcoin Explained
#1 Brief History of Paper Money
Whereas regular currencies are based on gold, Bitcoin is based on mathematics.
The original development of conventional currencies as we know them today are portions of the value of precious metals namely gold and silver. The original legal tender was gold and silver coins. A gold coin was really worth its weight in gold.
When holding one gold coin became too expensive to exchange, the “banks” or “money lenders” issued fractional papers to distribute as a medium of exchange. The actual gram of gold that backed up the “paper money” was held in a vault.
At the time when paper money historically emerged, the papers were more like an “I OWE U”. The certification of “owing” was used as a medium to give value to any “barter” transactions. The “I OWE U” was issued by a trusted lender. The lenders who later became the “banks” had a good reputation. They were trusted to hold the physical gold in store and would always make good for the paper money.
Whenever someone wanted to exchange the IOU’s for real gold, they would only need to go to the “lender” who had signed them and return enough papers that were the equivalent of a gold coin. This was how banks got started. In time the price of gold rose so much that the physical gold was safer in a vault than in hand.
Later the IOU’s became legal tender and became government-centralized currencies, backed by gold in Central Banks.
#2 Crypto Currency as Legal Tender
As you can imagine, introducing paper money in exchange of gold, was as revolutionary then, as introducing cryptocurrencies as legal tender to the world is today.
Unlike paper money, Bitcoin is based on mathematics and not gold.
People all over the world use software programs to solve mathematical formulas and then produce Bitcoin. Anyone can check the formula and this is freely available. The Bitcoin software is a public source. Therefore, anyone can check to make sure that it works as it is supposed to.
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What Sets Bitcoin Apart as a Means of Payment?
What makes bitcoin different to standard government-backed currencies is that it is DECENTRALIZED. Bitcoin is not controlled by any particular government. The machines that produce Bitcoin work together and every machine that mines and processes Bitcoin makes up part of a global network.
The huge advantage of decentralization is that no government can “mess it around”. When the Central European Bank in Cyprus decided to take people’s money away in 2013 is a classic example of how governments can “mess around” with currencies. With Bitcoin, this is impossible. If for any reason one machine is offline, the flow is uninterrupted globally because the chain is individual and can be traced anywhere.
#2 Simplicity and Easy to Setup
If you have recently tried to open a bank account anywhere in the world, you will know the song and dance you have to perform in order to even get an appointment to open an account. The bureaucracy is cumbersome and it is only getting worse not better.
If you want to open a Bitcoin account, all you have to do is set up a Bitcoin address. No fees are payable and no questions are asked. The whole process will take you seconds to do.
#3 All Secrets Lie in the Blockchain
You can hold as many Bitcoin addresses as you wish. The addresses are not linked to any name or address. You can remain fairly anonymous using Bitcoin.
However, since all transaction are recorded in the blockchain – the blockchain acts as a massive general ledger.
As such, anyone can tell how many bitcoins are stored in a publicly used bitcoin address, but no one will know whom the address really belongs to. Because of this, the transactions are completely transparent.
#4 Fast and Irrevocable
Transactions to carry out payments are very fast. They literally arrive in minutes. Once the network processes the payment, the bitcoins leave your wallet or arrive into your wallet.
The second the bitcoin leaves your account, this is irrevocable. Meaning that once a transaction is processed it is irreversible. Only the receiver of the bitcoin can return them to you. Otherwise once gone, they are gone for good. This is part of the understanding of what is bitcoin. The ease and speed of bitcoin transfer.
How to Acquire Bitcoins
Now that the question “What is Bitcoin” has been resolved, you may want to acquire Bitcoin.
Bitcoins are bought and sold on what is called “bitcoin exchanges”. Bitcoin exchanges allow regular people to open a “Digital Wallet” and gain an address. Once done a wallet holder can buy and sell Bitcoin using different currencies at the current market price.
Once you own Bitcoin you can either use it as an investment – the price of Bitcoin has gone from $900 to $1700 between March 2017 and May 2017 or else can use it as a means of payment. Read How Bitcoin Hit $1400 on MayDay!
You can send bitcoin to any other bitcoin holder. Transfers are done digitally from one account holder to another in minutes.
Bitcoin can now be converted to cash directly through PayPal
Will Bitcoin become the new Gold?
In the past, Bitcoin was shrouded by controversy. The fact that Bitcoin is so anonymous and largely unregulated invariably raised questions about its future.
However, this is all about to change. Japan passed a law in May 2017 to accept bitcoin as a legal method of payment. Russia, previously opposing Bitcoin, is allegedly looking at ways in which to regulate bitcoin. The SEC in the United States is reconsidering its decision to all Bitcoin to be traded as an ETF. All of these moves have seen a major price hike in Bitcoin.
Therefore, notwithstanding the controversy, it would appear that Bitcoin is not just here to stay, but is here to flourish.
Now that state regulators are moving to implement conformity, Bitcoin is becoming a very attractive investment instrument to investors who previously were skeptical about the safety and volatility of the cryptocurrency.
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