Throughout human history people have been coming up with all sorts of approaches to exchange goods and services in a fair and efficient way. Starting from barter, to tokens, paper money, electronic money and now we’re entering the fifth wave of money — cryptocurrencies. It was Bitcoin that started this wave.
What is Bitcoin?
What is a Bitcoin Wallet?
What Can You Buy With Bitcoin?
How Does a Bitcoin Transaction Work?
What is the Blockchain?
Bitcoin Investing and Trading
Understanding Bitcoin Forks
How to Earn Bitcoin
What is Bitcoin?
Bitcoin is a purely peer-to-peer version of electronic cash that allows for online payments to be sent directly from one party to another without going through a financial institution.
The concept of a decentralized cryptocurrency was first described in the whitepaper published on the cryptography mailing list at metzdowd.com by a person (or group of people) known under the pseudonym of Satoshi Nakamoto. Stringing together various types of technologies, Satoshi managed to create what is now known as Bitcoin.
The protocol solves the double-spending problem by using the proof-of-work consensus mechanism and by recording all of the transactions on a shared, distributed ‘list’ of transactions called a blockchain (see ‘The Double Spending Problem‘ section below for more on this).
With the advent of Bitcoin, everyone who owns a smartphone with an internet connection has access to a global financial market within minutes. No censorship, no bureaucracy, and most importantly, no control. With Bitcoin, anyone, anywhere can send and receive cryptocurrency. It recognizes no borders and no sovereigns; it has rules without rulers.
There are a lot of different details that we need to connect together in a cohesive story before Bitcoin (and other cryptocurrencies) start to make sense for the novice crypto explorer. For starters, let’s explain the five features that make Bitcoin different than fiat currencies.
5 Features That Differentiate Bitcoin
Decentralized – No single state, institution or authority controls the Bitcoin network. The protocol itself is open source and it’s maintained and upgraded by a group of dedicated core developers, maintainers and contributors. The network itself is not hosted on one server, but rather on thousands of specialized machines spread around the world.
Deflationary – The issuance of the currency is steadily decreasing in a predictable and transparent manner. Also, Bitcoin’s supply is limited to 21 million coins, making it scarce, and therefore a viable store of value similar and often compared to gold.
Immutable – Transactions cannot be reversed or tampered with, without redoing the proof-of-work, which is practically impossible — the system is purely peer-to-peer and heavily encrypted, so hacking the entire network is almost out of the question.
Pseudonymous – The blockchain itself is open and transparent — everyone can see and trace every transaction back to the Genesis block (the first block of a blockchain), but the users of the network are anonymous since the protocol itself doesn’t require anyone to disclose its identity. The bitcoin address that is generated for a wallet user changes with each transaction, which makes the transaction almost impossible to trace. So you can securely transact via the Bitcoin protocol without revealing your identity to the network (it would be rare but someone with sufficient technical knowledge could track you through your IP and link your wallet address with your real-world identity, letting them trace all your bitcoin transactions).
Divisible – The smallest unit of a Bitcoin is called a satoshi and it is one hundred millionth of a Bitcoin (0.00000001). This feature of Bitcoin, combined with the newly integrated Lightning Network, makes the technology perfectly suitable for many recurring and almost instant micro-transactions.
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