What is bitcoin? Bitcoin is a digital currency that was created in 2009 by an unknown person using the alias Satoshi Nakamoto.
Transactions are made without middlemen, so there are no transaction fees and no need to give your real name. You can buy things with them anonymously.
There are security risks, so be careful with your bitcoin wallet and make sure it has enough backup copies on different storage media.
Contents
What is bitcoin?
It is a digital currency, created and held electronically. No one controls it. Bitcoins aren’t printed, like dollars or euros – they’re produced by people, and increasingly businesses, running computers all around the world, using software that solves mathematical problems.
How does bitcoin work?
Bitcoin is a decentralized digital currency that enables instant peer-to-peer transactions.
It does not rely on trusting one central monetary authority. Instead, bitcoin relies on cryptography and the consensus of everyone in the system to ensure that all transactions are valid.
These transactions are cryptographically signed and verified by every user (or “node”) in the network.
When a transaction is entered into the network, bitcoin miners race to solve an increasingly difficult mathematical problem based on a cryptographic hash algorithm involving that transaction.
Whoever solves the equation first gets rewarded with newly minted bitcoins! The valid transactions are then recorded in a public ledger which everyone can see.
If you want to send someone some of your hard-earned bitcoins, you simply enter your transaction into the decentralized ledger.
The easiest way to visualize the bitcoin system is a shared public notebook that keeps track of who has how much money at all times.
If you want to add an entry to the ledger, everyone in the network will immediately see it and can verify its correctness.
Since there are potentially people all over the world validating transactions, it is very difficult to subvert this system.
So how does one get bitcoins?
One can either mine or purchase bitcoins. What is bitcoin mining? Mining involves solving increasingly difficult math problems using dedicated hardware that is then added to the public ledger of transactions known as the blockchain.
Mining serves two purposes:
1) it adds transactions to the public ledger and
2) releases new bitcoins into the economy.
That is, everyone in the network agrees that a certain number of newly minted bitcoins should be distributed for mining every 10 minutes, while all other bitcoins remain constant in supply forever.
Today, mining requires specialized hardware and consumes a lot of electricity, so people typically just purchase bitcoins. One can buy bitcoins from a bitcoin exchange, through a broker, or from other people via marketplaces.
What is the blockchain?
The blockchain is essentially a public ledger of every transaction since the beginning of time.
Since there are potentially multiple copies of this ledger in different locations, it is very hard to tamper with. This is essentially what makes bitcoin so secure, as tampering with the ledger would require crossing every individual copy in the world!
For instance, If you wanted to tamper with a transaction that occurred last night, you would have to control 51% or more of all blockchains in existence, simultaneously.
Since there are thousands of copies of this ledger in different locations, it is unlikely that an entity could acquire control over more than one copy at a time.
So how do I know my bitcoin is secure?
You don’t need to trust anyone! Bitcoin was designed from the ground up for security and ease of use. All transactions are cryptographically signed by the sender and can be verified by anyone running a full node.
What is a full node?
A “full node” is simply a bitcoin client that stores the entire history of all transactions ever made, from the genesis block to present day.
A full node downloads every transaction in the entire system since the beginning of time and validates them against the consensus rules.
If you are running a full node, you will know when transactions take place because your client will alert you of new blocks.
So how can I get started?
There are numerous resources online that can help you set up a bitcoin wallet and start using bitcoins. A simple internet search for “bitcoin resources” will yield many results.
Keep in mind, the bitcoin technology is still in its infancy, so there may be some kinks to work out along the way.
Why is bitcoin so popular?
The price of bitcoin is breaking records day after day, so this question is very popular right now. A lot of people are interested in crypto-currencies and follow their exchange rates on the internet.
They read blog posts, news articles and watch Youtube videos to find out more about it.
Many people are entertained by the idea that they don’t need to trust banks or other financial institutions anymore. They see bitcoin as a kind of digital gold, the new Internet, and the future of money.
However, there are still people who don’t understand how it works and why is it so valuable.
Some may even think that it’s just a scam, but our question today isn’t about bitcoin price, but about the main reason for bitcoin popularity.
As you can normally see in news articles or blog posts, there are at least 4 reasons why bitcoin is so popular and why it’s here to stay.
Here are several most often mentioned arguments:
– Bitcoin transactions are free (or very cheap)
– Transactions in the bitcoin network aren’t reversible; the merchant can’t return the money after a purchase
– The system is run not by a person or a company, but by thousands of computers around the world, so there’s no need to trust any third party
– There are no international borders for bitcoin. You can send your bitcoins from one part of the world to another in just several minutes
– Bitcoin is based on open source code, which means that everyone can see it and make changes to improve it
So, if they’re so many good reasons why you should join the bitcoin community right now, what’s the main reason? It turns out that bitcoin popularity is caused by all of these arguments together.
What do we mean? People started to use bitcoin just because it’s a decentralized, anonymous, and secure currency. Once you have your bitcoins, it’s becomes very easy for you to buy stuff from the Internet without having a bank account or a credit card.
You can send money around the world in just several minutes and all of this is possible only thanks to the open-source code. So, bitcoin’s popularity is caused by the fact that it’s a secure digital currency which anyone can use in an anonymous way.
Why use bitcoin when there are other options like cash, credit cards, and checks?
Using bitcoin is by far the most convenient way to transfer money at a very low cost. As opposed to other options, there are no fees involved with bitcoin transactions.
This is especially beneficial for anyone who transfers money abroad or online as it can be difficult and costly to exchange currencies.
Furthermore, since bitcoin has become so mainstream, more businesses have begun adopting it as a form of payment for their goods and services.
This means that you can buy virtually anything using bitcoin through these retailers which adds even more value to your bitcoins!
On top of all this, sending money through bitcoin is faster than other forms of payment because transactions are processed almost instantly compared to waiting days on checks or international wires.
Lastly, doing business with bitcoins saves time because there are no forms to fill out and you don’t have to go through the process of setting up an account.
Pros of using bitcoins (low transaction fees)
· No paper money, no physical bitcoins.
· There is no middle man (i.e. banks) involved with transactions; they are peer-to-peer transactions that occur “over the internet”. This means that you do not have to pay transaction fees or wait for your account to be approved by a bank before transferring funds.
Cons of using bitcoins (security risks)
· Bitcoin transactions are irreversible. This means that if you send money to the wrong address or your bitcoin wallet is hacked, there is no way to retrieve any lost funds unless the receiving party agrees to send them back.
Furthermore, bitcoins can be stolen in a number of ways and once they are gone it is very unlikely that you will get them back. As such, it’s good practice not to store large amounts of bitcoins on exchanges, instead, keep them in your personal wallet where they can’t be hacked.
· Bitcoin transactions do not come with consumer protection.
Bitcoin payments are similar to cash transactions in this respect and rely on the security of the Bitcoin network which has been mostly successful so far; however; like anything involving money transfers, there’s always the risk that you may never receive your bitcoins. On top of this, it is not easy to prove that you sent money to someone else due to the pseudonymous nature of bitcoin transactions.
Nowadays, more businesses are accepting cryptocurrencies as digital currencies because they are cheap and close to instantaneous compared to using other forms of payment like cash or checks.
However, using cryptocurrency can still be risky since they do rely on third parties (i.e. exchanges) for storing them which can be hacked or go out of business at any point in time; therefore if you choose to use cryptocurrency make sure that your coins will always be safe by storing them yourself in a personal bitcoin wallet rather than through an exchange service provider.
Conclusion
Cryptocurrencies are digital currencies that exist on the internet and aren’t regulated by any bank or government. If you choose to use cryptocurrency, make sure your coins will always be safe by storing them yourself in a personal wallet rather than through an exchange service provider.
Furthermore, it’s good practice not to store large amounts of bitcoins on exchanges because they can be hacked or go out of business at any point in time; therefore if you want complete control over your bitcoin funds then keep them secured offline in cold storage.
