What is Bitcoin?

What is Bitcoin?

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Bitcoin is a new generation of money transactions. It is a type of cryptocurrency, or digital currency, with little or no oversight by the government. It works via peer-to-peer technology that is public, open-sourced so it is available to anyone, anywhere

Because of its unique exchangeability, bitcoin has become increasingly popular. But where did bitcoin come from?

History of Bitcoin

As far as cryptocurrencies go, bitcoin is the oldest and most familiar form. It began on January 3, 2009, by Satoshi Nakamoto and a group of cyber experts.  Nakamoto’s real identity is still a mystery and the group has not made an official public statement for years.

By 2017, over 16.7 million bitcoins were in circulation, valued at an estimated 250 billion dollars! By 2019 that number jumped to 18 million bitcoins. That sounds like a lot, but in reality, the US dollar has over 3.7 trillion in circulation and even gold has a $7 trillion-dollar price tag.

When created, Nakamoto and group limited the number of coins that can ever be circulated to just under 12 million, and most experts predict this will be reached by 2140.

Bitcoin transactions are recorded in a public ledger and duplicates of these transactions can be found on global servers. Really anyone with extra time and an extra computer can set up a node, or server. Every 10 minutes, as transactions are being recorded, miners go through and collect them into something called “a block,” then they are permanently added to a “blockchain.”

Basically, it’s a lot like a high-tech version of a private account book.

Since the software is open-source, everyone has access to view or contribute to the software framework.  MIT is just one of the organizations working to improve this software.

But why was bitcoin created in the first place?

Purpose of Bitcoin

Bitcoin was created to be another way to perform electronic currency transactions without government oversight. But the benefits for individuals and businesses make it worth another glance.

Benefits of Bitcoin for Individuals

  • Mobility of Payments. Bitcoin can be used on mobile devices, where you can pay using a two-step authentication process
  • Security. Math, energy, and proof of work (PoW) are all protectors of bitcoin ownership. They help ward off criminals bent on stealing your crypto valuables.
  • Availability. Unlike banks, which have working hours, bitcoin is electronic, so it can be used anywhere, anytime.
  • International Trade.  There are no pesky restrictions or fees associated with sending bitcoins across borders. There are no minimums or maximums and most definitely no wait times.
  • Fee Structure. With bitcoin, there are no institutions to regulate how much fees are in transactions. You decide fees between different bitcoin wallets, and since fees are not related to quantity spent, you don’t have to worry about volume when you transfer.
  • Identity Protection. Like credit cards, you do have access to cash anywhere, but unlike credit cards, there is no number associated with your account, so there is nothing to collect for identity theft.

Benefits of Bitcoin for Businesses

  • Fee Structure. Depending on the wallet, you can pay higher fees if you want faster transaction confirmation, but really you control what fees you pay.
  • Fraud Protection. Credit card fraud is well-known amongst business owners, so it’s easy to see the appeal of a difficult-to-trace technology like bitcoin. And, no longer worry about chargebacks, bitcoin transactions are irreversible.
  • International Trade. Much like individuals, businesses can enjoy unhindered cross-border trade with bitcoin. With no bank red-tape, international business trade is even easier.
  • No PCI Standard Compliance. Since bitcoin is unregulated, businesses don’t need to worry about compliance with the PCI Standard. You still need to secure your digital bitcoin wallet, but without having to worry about proprietary customer data, PCI compliance is a thing of the past.
  • Free Visibility. As an emerging form of payment, accepting bitcoin payments could put your business on the map. It could be just the thing your business needs to boost customer engagement.
  • Consensus Spending. With bitcoin’s multi-signature component, businesses can control spending by requiring a group of people to approve the transactions. A board of directors, for instance, could require a Board vote before expenditures of a certain level could be approved.
  • Transparency. For the accountant, it is easier to record as well. Instead of producing lengthy documentation for activities, transactions can be confirmed at any time through the blockchain.

How is Bitcoin Stored?

While cryptocurrencies are kept in digital “wallets,” the question of ownership ultimately falls among a consensus of online users.  Access to these digital wallets is provided by a private key. It is entirely reasonable that you could just memorize your key, giving access to your virtual cash for spending. This idea is known as “brain wallet.”

How bitcoins are measured.

Bitcoin measurement is divided by a value of 7 decimal places out. A milli is one-thousandth of a bitcoin, and a satoshi is one-hundredth-millionth.

Can bitcoin be converted to cash?

In short, yes, bitcoin is exchangeable for cash, because it is considered an asset, and assets can be exchanged for cash value. Bitcoin is not the only cryptocurrency thought, there are many other types in circulation as well. Transactions occur across advanced communications platforms, making it simple for even small businesses to take part in the exchange. But really, there is not a universal solution to convert bitcoin into another form of currency.

Fun Facts About Bitcoin

  • The network that runs bitcoin transactions is decentralized; as in there is no oversight.
  • Bitcoins run on something called blockchain technology – AKA distributed ledger technology (DLT).
  • Bitcoin leads the field in cryptocurrency popularity. More networks accept it that any other cryptocurrency
  • Growing bitcoin popularity has made everyday transactions subject to high fees and longer confirmation wait time
  • Sharp fees gave rise to second-layer technologies like the Lightning Network (LN) which charge less
  • Speculators love bitcoin because of its market volatility. With great risk, comes great reward!
  • Wealthy bitcoin investors are referred to as “whales.” Whales have more influence on bitcoin prices than regular traders.

The Bitcoin Bottom Line

The fact is, there are still many things we are learning about bitcoin. As it gathers momentum and regulations over its use change, it is important to keep abreast of any developments. But you don’t really need to be an expert in order to invest.

Since the market is still so volatile around the value to place on bitcoin, it does carry an element of risk. That’s not to say traditional currency doesn’t carry risk as well. You run the risk that a government body could seize or freeze your bank account, or those illegal entities could hack into any number of your payment systems and open you up to fraud.

Like any financial decision, you do have the option to go it alone, or you can choose to align yourself with a more knowledgeable body to assist with trading. 

The basic rule of thumb is that any currency runs the risk of failure or recession, but so far bitcoin has been a reliable form of digital payment.

Bitcoin use is poised for growth, but in reality, no one can predict what the future will hold for it or any other currency for that matter.

Jason Conor
Jason Conor author check sign Pro Investor

Chief Editor of the CheckItsReal site and is responsible for ensuring all the content on our site is accurate, relevant, and helpful. I am a cryptocurrency writer. I have been following the crypto space since early 2017, and I have written extensively about it. My work has appeared in some of the most respected publications in the space.

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