What Is Bitcoin?

This post is an introduction to Bitcoin (BTC)

Overview

Bitcoin is an innovative payment network and a new kind of money. Bitcoin can be described as a digital currency that is not backed by anything physical. Bitcoin is a currency, and should not be mistaken for a stock. It is like an online version of cash.

Definition: Bitcoin is a cryptocurrency, a form of electronic cash. It is a decentralized digital currency without a central bank or single administrator that can be sent from user-to-user on the peer-to-peer bitcoin network without the need for intermediaries.

What Is A Blockchain?

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A blockchain is a public or private ledger of all transactions that have ever occurred on a cryptocurrencie’s peer-to-peer network. It can be described as one long record book, which dates back to the first few transactions which occurred for whichever particular cryptocurrency. As transactions are continuing to be to be processed, the ledger will continue to grow and build on itself. Hence the reason why we call it a chain.

This ledger is stored on thousands of computers and is updated multiple times every hour. The blockchain solves a problem which prevented previous digital currencies from succeeding, “Double Spending”. Double-spending is a potential flaw in a digital cash in which the same single digital coin or token can be spent more than once.

Who Created Bitcoin

When the financial crisis hit parts of the United States of America back in 2008, the world was in a dying need to have something reliable and decentralized in power. In 2008, Bitcoin (BTC) was first stated in a white paper entitled “Bitcoin — A Peer to Peer Electronic Cash System” under the pseudonym name “Satoshi Nakamoto”.

Satoshi Nakamoto is believed to have created the first blockchain database and to be the first to solve the double spending problem other digital currency failed to.

Satoshi Nakamoto claims to be a man living in Japan born on April 5th, 1975 but there are speculations that he is actually either an individual programmer or group of programmers with a penchant for computer science and cryptography.

How Is Bitcoin Different From Traditional Currencies

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Decentralization: Bitcoin’s most important characteristic is that it is decentralized. No single institution controls the bitcoin network. It is maintained by a group of volunteer coders. and run by an open network of dedicated computers spread around the world. This attracts individuals and groups that are uncomfortable with the control that banks or government institutions have over their money.

Limited supply: Fiat currencies, like the Rand (ZAR) have an unlimited supply. Central banks can issue as much money as they want, and can attempt to manipulate a currency’s value relative to others. With bitcoin, on the other hand, the supply is tightly controlled by the underlying algorithm. A small number of new bitcoins trickle out every hour, and will continue to do so at a diminishing rate until a maximum of 21 million has been reached. This makes bitcoin more attractive as an asset.

Pseudonymity: While senders of traditional electronic payments are usually identified, users of bitcoin in theory operate in semi-anonymity. Since there is no central validator, users do not need to identify themselves when sending bitcoin to another user. When a transaction request is submitted, the protocol checks all previous transactions to confirm that the sender has the necessary bitcoin as well as the authority to send them. The system does not need to know his or her identity.

Immutability: Bitcoin transactions cannot be reversed, unlike electronic fiat transactions.

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This is because there is no central adjudicator that can reverse a transaction. If a transaction is recorded on the network, and if more than an hour has passed, it is impossible to modify. While this may disquiet some, it does mean that any transaction on the bitcoin network cannot be tampered with.

Divisibility: The smallest unit of a bitcoin is called a satoshi, named after the creator Satoshi Nakamoto. It is one hundred millionth of a bitcoin (0.00000001)

Bitcoin Mining Explained

Bitcoin mining is the process of adding transaction records to Bitcoin’s public ledger of past transactions or as discussed earlier, the blockchain. The blockchain serves to confirm transactions to the rest of the network as having taken place.

How To Buy Bitcoin

Bitcoin can be bought at fiat to crypto exchanges like; Binance.com, Luno.com, Ice3x.com and Bitfund.co.za with traditional payment methods such as credit cards, or electronic fund transfers (EFTs).

Why Use Bitcoin?

It’s decentralized and brings power back to the people: Bitcoin has attracted many people who see the current financial system as unsustainable and unfair. This factor has won the hearts of those who view politicians and government with suspicion and corruption. It is no surprise that there is a huge community of ideologists actively building, buying, and working in the cryptocurrency ecosystem.

Freedom: The concept that one could carry billions of Rands in Bitcoin across borders, pay for anything at any time, anywhere, and not have to wait on extended bank delays is a major selling point.

Security: Bitcoin payments do not necessarily need to be tied to one’s personal information. Since personal information is left out of the transactions, users are not as exposed to threats such as identity theft. Bitcoin can also be backed up and encrypted to ensure the security of your money, and the ability to choose from hundreds of wallets to store your Bitcoin in.

Low Transaction Fees: Banks and services like PayPal, i-pay and payfast charge you to send and receive money. Bitcoin replaces the 2.5% “transaction fee” with one that’s only a fraction of that.

Legality of Bitcoin

Bitcoin and blockchain regulation is constantly being introduced and updated. Bitcoin and blockchain is still in its infancy. Adoption of Bitcoin has mainly been caused by hype. Real adoption will occur when its benefits are realised. Bitcoin can be tracked and traced.

Conclusion

Bitcoin is still a relatively young currency but it has achieved substantial user adoption and growth. Bitcoin’s network only grows stronger as more people learn about Bitcoin’s fundamental technology and potential in relation to other methods of value storage. Bitcoin has been deemed the gold of the internet, and rightly so, as it is changing the way people view currency and perceive value.

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