CRYPTOPEDIA

What is Bitcoin?

The cryptocurrency industry is becoming more and more popular all around the world. Despite the fact that there are more than 1000 different cryptocurrencies and the number keeps growing, cryptocurrency is often associated with Bitcoin. Bitcoin is the first modern cryptocurrency in the world; it attracts thousands of users and investors from different countries. Millions of people google “How to buy Bitcoin?”, “How to sell Bitcoins”, “Bitcoin mines”, “Bitcoin wallets”, etc. You can often hear people discussing Bitcoin price or Bitcoin future in social networks and business offices. However, there is still a lot of confusion and misunderstanding when around Bitcoin.

Bitcoin as a token and Bitcoin as a protocol

First of all, it is important to understand that we can treat Bitcoin as two different units: Bitcoin as a token and Bitcoin as a protocol. Bitcoin as a token represents a digital conception, which is basically a piece of code. Bitcoin as a protocol supports Bitcoin blockchain (distributed ledger) that maintains Bitcoin as a token. Both of them are included in the term “Bitcoin”.

Bitcoin was created in 2009 as an innovative payment solution, which does not involve any third party. It means that you can send any amount of money without involving a controlling authority, such as bank, payment platform, etc. Bitcoin does not have a printed version and functions only in the internet. There are three possible ways to get Bitcoin: buy BTC on a cryptocurrency exchange; accept BTC for different services or goods; mine Bitcoin on a special software or hardware. Thus, Bitcoin does not have a central bank or any other authority, which controls its emission or any other operations connected to it. Moreover, the total supply of Bitcoins is not unlimited. Bitcoin protocol states that there are 21 000 000 BTC that can be totally mined. As soon as this amount is mined, the total supply will be tapped out. Let us hope that the protocol will be eventually changed.

Just like all other cryptocurrencies, Bitcoin is backed by the blockchain technology and ensured by cryptography. Bitcoin has both characteristics of fiat currencies and investments, which causes a lot of questions and debates.

Let us recall:

Mining is a technique of adding Bitcoin transaction records to a public ledger, where all previous transactions are stored. It is achieved through the use of computer processors.

Blockchain is a distributed public ledger, where all transactions records of each and every Bitcoin user is stored. You can not modify or delete any transaction from the system. This word consists of two parts: “block” and “chain”, which symbolize an endless number of transactions made and recorded during some particular period.

Who was the founder of Bitcoin?

It is worth noting that Bitcoin was created only after many projects with similar idea failed. There were many attempts to create a digital currency, which would be fully decentralized and independent from governments, third parties and other various institutions. Flooz, Beenz, DigiCash…and it is not a full list of companies, which tried to introduce new cryptocurrencies. However, all of them failed due to different economic, historical, technical and financial reasons. Something was missing. In 2009 an anonymous called  Satoshi Nakamoto introduced a concept of Bitcoin. This is how an idea of  a “peer-to-peer electronic cash system” came to the reality. It os important to note that Satoshi Nakamoto is not a real name and no one know who is the real founder of Bitcoin. We do not know anything about him (or her?!): nationality, profession, gender, age, etc.

Satoshi Nakamoto White Paper is incredibly popular nowadays, because more and more people and companies would like to understand the secret of the best cryptocurrency Bitcoin. The idea that Bitcoin was fully decentralized and independent, meaning that no-one could control or regulate it, became popular all around the world. Double spending is considered to be one of the biggest problems on the financial market. In 90s and early 2000s the most popular solution to this issue was the presence of a third party (server), which would make the process centralized and fully controllable. It also meant that your private and financial information, as well as all actions connected to your funds were disclosed to the third party and kept in server. No-one could even think about privacy. However, Satoshi has developed a brand new concept, which solved the issue of double spending in a revolutionary way. Bitcoin is backed by the blockchain technology, a distributed ledger, which mean that the transactions takes place only between two people.

How is Bitcoin different from traditional currencies?

Mark Carney, the UK official and the representative of the UK banking sector claimed that Bitcoin should not be treated as traditional currency, because it does not meet two important criteria of money, outlined by Adam Smith – store of value and medium of exchange: “It [cryptocurrency] has pretty much failed thus far on… the traditional aspects of money. It is not a store of value because it is all over the map. Nobody uses it as a medium of exchange”

However, you can still pay for goods, clothes, services, trips with Bitcoin. More and more platforms start to accept Bitcoin as a viable payment method.

However, Bitcoin also has a few important differences:

Decentralization

Bitcoin is fully decentralized, meaning that there is no central authority or central server, which controls it. The network is supported by a number of volunteer coders and available to users from all around the world. Unfortunately, decentralization also attracts those, who are interested in various illicit operations, such as drug trade, human trafficking, etc. In the case of real world currencies, the problem of double spending is solved by the third parties, i.e. banks, platforms or other institutions. However, Bitcoin is also capable of solving it. Sometimes, it is considered as a real threat to the world financial system.

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blockchain, ICO, bitcoin, ethereum, mining

CRYPTOPEDIA


What is Bitcoin?

Published by blockchain, ICO, bitcoin, ethereum, mining