What Is Bitcoin?

By information.com — Published September 26, 2017

What Is Bitcoin?

Bitcoins have been causing quite a stir all over the world since their invention in 2009 by an anonymous person who uses the pseudonym Satoshi Nakamoto. They received even more attention after criminal traders bought them in millions to launder money outside the territory of the law from 2011 to 2013. Since then, Japan has accepted the digital currency as a legal tender, while countries like Denmark and South Korea are extremely welcoming toward this new financial technology.

Bitcoin is a type of cryptocurrency and the first of its kind. To put it simply, it is a digital currency that is independent of third-party control. This means that it is not under the regulation of any bank or government. Its value is determined by the people who use it - node count (number of active users), supply and demand, utility and other factors. When you make a transaction through the internet using bitcoins as a mode of payment, there are no transaction fees, no middlemen to direct your money. Therefore, it is a person-to-person digital money. Power lies in the hands of the users, which means little to no transaction fees, shorter transaction period and very few restrictions.

How Do Bitcoins Work?

Bitcoins are based on the technology of blockchaining. A blockchain is simply a ledger or database that registers every transaction made using bitcoins. Although it is public and can be viewed by anyone, it is highly secure as it is heavily encrypted. Anyone can see the history of transactions, but no one can trace anything back to you. It is anonymous that way. People can only see your wallet address, but not your identity.

Before any transaction is completed, a huge network of people who have dedicated their computers to creating bitcoins called “miners” have to accept it. Unless every miner agrees to the transaction’s validity, it cannot be registered on the blockchain. Each miner has to solve a complex mathematical equation to verify the legitimacy of the transaction and ensure that no one makes transactions they cannot afford. For every problem solved, they are awarded bitcoins. This attracts more miners, which is important because the higher the number of miners, the more secure the network is.

How Does One Acquire Bitcoins?

Apart from mining, there are many other ways one can get their hands on bitcoins. The easiest and most common method is to simply buy them on an exchange, hoping that their value will increase with time. This seems like a great idea because as of now, one bitcoin is around 3773 USD and it is rapidly increasing every day. Most popular bitcoin exchanges are Mt.Gox, Bitstamp, Coinbase, etc.

Another way is to transfer bitcoins from one wallet to another. Your wallet is in the blockchain, and has distinct public and personal addresses. The public address is where others can send money to, whereas the personal address is the one you use to log in and gain access to your bitcoins. Popular wallets known for their high security and reliability are Ledger Nano S and TREZOR.

The Future Of Bitcoins

Bitcoins are traversing an unclear path, and it is hard to tell what will become of them. It was designed in such a way that mining will automatically stop when there are 21 billion bitcoins issued in the world. As of now, more than half of all the bitcoins that will ever exist have been mined (around 12 million).

As mentioned before, countries like Japan have recognized and accepted bitcoins as legal tender, and many websites are now accepting the cryptocurrency as a payment option. Despite this, many governments around the globe are worried due to the lack of control and regulation of the currency.

Recently, the Chinese government shut down a bunch of cryptocurrency exchanges, ordering them to stop trading bitcoins. This comes as a surprise because China has always been very keen to lead the world in developing a sovereign digital currency. Despite this, many giant Chinese tech companies have expressed their interest to study and dig deeper into the world of block-chaining technology.

The government says that it has taken this course of action to prevent financial risks and it still hopes the country will be at the forefront in the development blockchain technology and digital currency. Plus, it has not completely banned mining and owning bitcoins; it has just banned trading them. This means that miners can still operate and sell overseas.

In conclusion, the cryptocurrency world and related areas of financial technology have always been met with a lot of doubt and speculation. But the fact that Bitcoin and other common digital currencies like Litecoin and Etherium are increasingly championed by governments and companies could suggest that digital currency has a bright future ahead.

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