What Is Bitcoin?

What is Bitcoin?

The reason it's so hard for most people to understand Bitcoin is that most people don't really understand money. Money isn't wealth. It's an accounting system used to facilitate the exchange of wealth. (The paradox of money is that while everyone wants it, no one actually wants it - they want the stuff they can buy with it!) Many people are put off by the fact that Bitcoins are 'just data'. But that's what ALL money is, information! More precisely, money is a means for credibly conveying information about value given but not yet received (or at least not yet received in a form in which it can directly satisfy a person's wants or needs).

To put it yet another way, money is a ledger. With fiat currencies like the dollar, that ledger is centralized. And that gives the central authority responsible for maintaining that ledger tremendous power, power that history has proven will inevitably be abused. With Bitcoin, the ledger is decentralized. And that means that no one individual or entity has the power to arbitrarily create new units (thereby causing inflation), freeze (or seize) your account, or block a particular payment from being processed. We've had decentralized money before. After all, no one can simply print new gold into existence. And the 'ledger' of gold is distributed because the physical gold itself (the 'accounting entries' in the metaphor) is distributed. But with gold, that decentralization comes at a heavy price (literally). The physical nature of gold makes it hugely inefficient from a transactional perspective.

Why is Bitcoin Important?

Bitcoin is a consensus network that enables a new payment system and a completely digital money. It is the first decentralized peer-to-peer payment network that is powered by its users with no central authority or middlemen. From a user perspective, Bitcoin is pretty much like cash for the Internet. Bitcoin can also be seen as the most prominent triple entry bookkeeping system in existence.

It is the first currency in the world that is both decentralized and digital. It is more reliably scarce than gold, more transactionally efficient than "modern" digital banking, and enables greater financial privacy than cash. It could certainly still fail for one reason or another, but if it doesn't, it has the potential to be very, very revolutionary.

Bitcoin is the world's leading digital currency used by people anywhere in the world.

If you don't know where you are going, any road will get you there - Forbes Magazine

Bitcoin is an agreement amongst a community of people to use 21 million secure mathematical tokens--"bitcoins"--as money. With a total market capitalisation of approximately $2 billion, the Bitcoin network is made up of thousands of computers run by individuals all over the world.

To get started using bitcoin you need a Bitcoin wallet. Like a real wallet it stores your Bitcoins and is used to send and receive payments using unique addresses. People can send and receive bitcoins directly to anyone with a bitcoin wallet, anywhere in the world, almost instantly and at almost no cost.

Bitcoin is a banking system without banks.

Bitcoins are impossible to counterfeit, infinitely divisible, and there will never be more than 21 million of them (infinitely divisible means just that: the smallest unit of bitcoin is currently 0.000000001, but could easily be made smaller if needed).

Anytime a Bitcoin transaction is made between users, it?s recorded on a publicly shared log called the Blockchain. These transactions are checked and confirmed by miners. Miners are essentially people with powerful computers who, in exchange for newly created Bitcoins, check and verify transactions are correct. With tens of thousands of miners contributing, transactions run smoothly, and the network is constantly secure. Thanks to users and Bitcoins large network, no coins can be reproduced or double spent.

Cryptography makes it impossible for anyone to spend funds from another users wallet and can be used to encrypt a wallet so it cannot be used with-out a password. This type of security is also used for credit card transactions and electronic bank transfers.

There is no company or central bank controlling Bitcoin so it cannot be inflated like the dollar. In fact the embedded code has been pre-set so that only a limited number of Bitcoins can ever be in circulation. To ensure a steady rate of distribution, Bitcoin production has been modelled on gold mining. Just like mining for gold becomes increasingly difficult over time so does creating new Bitcoins. It is estimated that the final Bitcoins will be produced in the year 2140.

Who created Bitcoin?

Bitcoin is the first implementation of a concept called "cryptocurrency", which was first described in 1998 by Wei Dai on the cypherpunks mailing list, suggesting the idea of a new form of money that uses cryptography to control its creation and transactions, rather than a central authority. The first Bitcoin specification and proof of concept was published in 2009 in a cryptography mailing list by Satoshi Nakamoto. Satoshi left the project in late 2010 without revealing much about himself. The community has since grown exponentially with many developers working on Bitcoin.

Satoshi's anonymity often raised unjustified concerns, many of which are linked to misunderstanding of the open-source nature of Bitcoin. The Bitcoin protocol and software are published openly and any developer around the world can review the code or make their own modified version of the Bitcoin software. Just like current developers, Satoshi's influence was limited to the changes he made being adopted by others and therefore he did not control Bitcoin. As such, the identity of Bitcoin's inventor is probably as relevant today as the identity of the person who invented paper.

Who controls the Bitcoin network?

Nobody owns the Bitcoin network much like no one owns the technology behind email. Bitcoin is controlled by all Bitcoin users around the world. While developers are improving the software, they can't force a change in the Bitcoin protocol because all users are free to choose what software and version they use. In order to stay compatible with each other, all users need to use software complying with the same rules. Bitcoin can only work correctly with a complete consensus among all users. Therefore, all users and developers have a strong incentive to protect this consensus.

Some information on this page was sourced from www.bitcoin.org under The MIT Licence (MIT)

Create your account now to get started

Create An Account