What is Bitcoin? It is a question that confuses most of the people today. The term Bitcoin has become highly popular latelybut there are many who do not know about it properly. Bitcoin is a cryptocurrency and it is the first cryptocurrency that has ever been created. Though it first appeared in 2009, no one knows exactly who created it as the cryptocurrencies are regarded for their anonymity. However, Bitcoin was developed by a person under the pseudonym of Satoshi Nakamoto who has been in the dark since leaving behind the vast Bitcoin legacy.
As Bitcoin is known to be the first ever cryptocurrency, the coins that have been created just after that are popularly called Altcoins or in another term, alternative coins. Ethereum, Ripple, Litecoin, Dash, NEM and hundreds of other Altcoins have been created since Bitcoin came into existence. And the number is still rising.
Bitcoin is a digital intangible financial asset. But where and how do you keep your Bitcoin(s)? There are two ways to store Bitcoins. One can store it offline in hardware devices. This type of storage is known as cold storage. If you store your bitcoins in an online wallet then it is termed as hot storage. But storing bitcoins online is subjected to various risks since it can be targeted by cybercriminals. Nevertheless, it will not be the case for cold storage and it will protect your coins completely.
On the other hand, there is a downside to cold storage too. If you lose your hardware device then you will lose your coins too and one does not have any other way to access them. As a matter of fact, it has been estimated that over $30 billion worth Bitcoins have sadly been lost by the owners as well as miners.
How does Bitcoin work?
By design, Bitcoins are intrinsically digital coins and they are self-governing. What does that mean? It means that you do not need any help from banks or any other financial institutions to move the coins or to store them. As a matter of fact, once you are in possession of Bitcoins, these coins behave like authentic or real gold coins. They have the value and you can trade them for gold and other instruments. As a currency, you can use Bitcoin for several purposes like buying goods or services online. Microsoft, Expedia and Newegg are just a few to name among companies who let you buy products on their online stores with Bitcoin. Else, you can also keep them stored in your wallet in hope for the increase in their value in the near future.
Like we mentioned before, you need to have a wallet to procure bitcoins or to carry out Bitcoin transactions. The wallets can be described small personal database which you can store in your hardware devices (cold storage), in your computer, tablet, smartphone or anywhere on a cloud-based platform (hot storage).
But who prints Bitcoin? Well, Bitcoins are not printed by any centralised bank in its mint. It is a completely mathematical process which was described by so called Satoshi Nakamoto. That is why; no one can forge Bitcoin like the real world currencies. It uses mathematical formulas to be produced. Hence, the process of mining Bitcoins is intensive. So, this is virtually impossible.
Regulations and Value of Bitcoin:
The value of Bitcoin changes on a daily basis. You can easily check the price of Bitcoin online for the day. So, can the system create an unlimited number of Bitcoins? No, that is not the case. The system will only create 21 million bitcoins of which 16.78 million has already been mined as of 31st Dec, 2017. Once it reaches the 21million mark, the production of Bitcoin will stop and it is thougth that this scarcity shall make the Bitcoins more valuable.
The best thing about Bitcoin is that it is decentralised. It means that Bitcoin is not regulated by any central bank or governmental institution. It is well known that in the past the value of a currency used to depend on the amount of gold that the country has. However, it is not same for Bitcoin. Since it is completely self-contained, each Bitcoin has a value that resides within them.
Bitcoin is mined digitally: to be specific by an interested community of miners which any individual can join. The mining of Bitcoin completely depends on computation power and the distributed network that it uses. Miners actually function as ledger keepers or auditors for every Bitcoin and they earn Bitcoins each week for their services. Plus, Bitcoin also offers to carry out transactions from any part of the world. Thus, it makes this cryptocurrency a digitalised payment system too.
Why use Bitcoin?
You can use Bitcoin to purchase online products / services and send / receive money anonymously. Furthermore, it has made the international payments very easy as well as cheap since it is not controlled by the government of any country. Small-scale businesses also like Bitcoin since there are no credit card fees involved in it. There are also people who buy and store bitcoins in their wallets in hope for the increase of its value in future.
Characteristics of Bitcoin:
Here are some characteristics of Bitcoin that you need to know about:
1. It is completely decentralised:
The Bitcoin network is completely decentralised which means it is not controlled by any central bank or government. The computers that mine Bitcoin form a great part of its network and they act collectively. It theoretically implies that no central authority has the power to meddle with its monetary policy; create a meltdown or take away people’s money (like European Central Bank did in Cyprus in 2013). Even if any part of this system goes offline due to any reason, the money continues to flow.
2. Very easy to set-up:
Opening a bank account in a centralised bank is no less than a headache. You need to go through a lot of hassle and paperwork to set a merchant account. However, that is not the case for Bitcoin. You can create your own Bitcoin wallet within a few seconds without having to pay anything.
The anonymity of Bitcoin is one of the major things that attract people around the world. You can own several Bitcoin addresses and they will not be linked to your name or address or any other personal information.
4. Completely Transparent:
Though Bitcoin is known for its anonymity, it is also highly transparent. It stores all the transaction happening in its network in a publicly available digital ledger called blockchain. By looking at the blockchain ledger, anyone can say how many bitcoins are there in a particular address if it has been publicly used. Nevertheless, there is no way to tell that the address is yours. You can make your activities opaque by changing the address frequently and by not transferring a large number of coins to a single address.
5. Minimum Transaction Fees:
High transaction fee during international transfer is a major problem that you face. The banks could even charge a transaction fee for international wire transfer as high as $50. But it will never be the case for Bitcoin.
6. Fast Transactions:
You can actually transfer money from one Bitcoin wallet to another in a matter of minutes. Once the system registers the transaction, the money will be transferred to the recipient’s wallet.
7. They are non-repudiable:
Bitcoin transactions are non-repudiable. It means once you have sent bitcoins then there is no going back or in other words, there is no way of cancelling the transaction. Unless the recipient returns the Bitcoin, there is no way of getting it back.
Theoretically speaking, there is a lot more to Bitcoin that one can even fathom. Like, how does it operate in reality or how does the system keep track of everything? Stay tuned for further useful information.