What is Bitcoin?
By now, you’ve most probably heard about Bitcoin and cryptocurrencies. Bitcoin is the world’s first and most famous cryptocurrency. To put it as simple as possible, Bitcoin is a distributed digital cryptocurrency created by a mysterious figure (or a group of persons) under the pseudonym of Satoshi Nakamoto.
The idea of digital currencies isn’t particularly new. However, Bitcoin managed to solve the biggest disadvantage of digital currencies – that of double-spending. To do this, Bitcoin uses a system called blockchain.
Bitcoin is powered by users all over the world linked together by this central ledger which is the blockchain. In short, the blockchain is the “place” where every single transaction made using Bitcoin is recorded. Each transaction is included in the “blocks.” Each block is added to the system and broadcasted to the network for user validation. The blockchain is responsible for validating transactions and ensuring the integrity of the network.
Therefore, the blockchain is a decentralized, free-market meaning that there is no central authority (like a government or a financial institution) that controls it. The power of the network is literally in the hands of its users. Bitcoin boasts a high degree of anonymity and privacy protection as there is no personal information involved in Bitcoin transactions such as social security numbers, names, or account numbers. Bitcoin can be sent almost instantly around the world.
How is Bitcoin created?
One of the most interesting aspects of Bitcoin is the way it is created, a way that’s entirely different from anything the world has ever seen before. It’s created through a process called “mining.” Without overcomplicating things, Bitcoin mining is the process of verifying blocks. Every couple of minutes, a block is released into the network. Each block containing dozens and even thousands of transactions.
This is where the “miners” come into play. They convert the so-called blocks into sequences of code, also known as “hashes.” This process of mining Bitcoin is expected to go on for another 122 years, until the year 2140 when the maximum cap of Bitcoin will be reached. Every 2016 blocks, the network difficulty changes. As more miners join the network, the mining difficulty changes. What’s more important is the fact that the reward for mining Bitcoin blocks halves every 210,000 blocks.
So, how do miners mine Bitcoin? The process of Bitcoin mining (or crypto mining in general) is done using powerful, specialized computers. In the early days of Bitcoin mining, literally, anyone with a decent computer could step in and mine. Nowadays, the situation requires more powerful equipment such as high-grade GPUs and ASIC miners. For those of you interested in Bitcoin mining, it’s important to note that there are about 17 million Bitcoins already in existence, meaning that there are only around four million available to be mined.
The advantages and disadvantages of Bitcoin
Bitcoin is an astonishing invention with some even calling it the most important invention of the century. Regardless, Bitcoin has various noteworthy pros. The first and most important one is the freedom it provides. With Bitcoin, users can send and receive funds anywhere in the world, no matter the local currency or the location. Contrary to popular belief, Bitcoin is not entirely private, as there are ways to trace Bitcoin transactions back to their source. However, Bitcoin is largely anonymous since, as mentioned before, Bitcoin transactions use digital wallet IDs, and never personal details.
Since there is a finite supply of Bitcoin (only 21 million Bitcoin will ever exist), Bitcoin will most likely become an even more sought-after asset, especially because several million Bitcoin are presumably lost.
Another advantage of Bitcoin is the transparency it brings. Since the blockchain ledger is available to anyone who wishes to download it, it means that anyone can check transactions. The fact that it’s decentralized means that no central bank, or any central authority, for that matter, can control Bitcoin.
Just like all things, Bitcoin is not perfect. In the early days, Bitcoin was renowned for its low transaction fees. Nowadays, Bitcoin is one of the most, if not the most, expensive cryptocurrency to transfer. Since the blockchain is an immutable collection of records, it’s impossible to recover lost Bitcoins. That’s why it is extremely important to pay attention to where you are sending Bitcoins.
Instability is a problem that has plagued the crypto market since its inception and continues to do so. Unfortunately, Bitcoin is not immune to price volatility which makes it difficult to use as a reliable currency.
How to buy and store Bitcoin?
Since Bitcoin is the oldest, most popular, and most valuable cryptocurrency, there’s no surprise that there are a staggering number of exchanges and trusted sources from where anyone can buy it. The most widespread method of buying Bitcoin is via cryptocurrency exchanges such as Coinbase, Huobi, Kraken, Binance, and Bitstamp, to name a few. However, users also have other options, such as buying Bitcoin from a dedicated Bitcoin ATM. Another option for buying Bitcoin is with methods such as PayPal, Neteller or Skrill.
Since Bitcoin is all digital, to become Bitcoin holders, users require a Bitcoin wallet. There’s an entire debate regarding which type of crypto wallets are best, but generally speaking, hardware wallets seem to be the best, especially if privacy and security are your main concerns. Hardware wallets are physical devices which are not connected to the Internet. Some of the most popular hardware wallets are Ledger Nano S, Trezor, and KeepKey.
Bitcoin is without a doubt a very debated subject, and it, alongside its underlying technology, seems to be on everyone’s lips these days. Even though Bitcoin still has a lot of problems, it’s an invention that can be very helpful to a lot of people. What is more interesting is the fact that Bitcoin might replace various official currencies. If that will happen or not, only time will tell. Regardless of Bitcoin’s future, there’s a very good chance that its core, the blockchain, will most likely be the one to revolutionize various important aspects of our lives.