What is Bitcoin (BTC)?
Bitcoin (BTC) is a cryptocurrency created in January 2009 by Satoshi Nakamoto whose identity is still a mystery for all of us.
Bitcoin is the first decentralized cryptocurrency that you can send by using the internet without a third-party involvement (like banks etc.). Transactions are verified by network nodes through cryptography and recorded in a public distributed ledger called a blockchain.
Bitcoin is a transparent ledger. Anyone can sneak a peek into the ledger and see all transactions and balances.
Bitcoin depends on Proof of Work (PoW) algorithm which makes it the first widely adopted application of PoW.
How Bitcoin Works?
“Bitcoin uses peer-to-peer technology to operate with no central authority or banks; managing transactions and the issuing of bitcoins is carried out collectively by the network. It is open-source; its design is public, nobody owns or controls Bitcoin and everyone can take part. Through many of its unique properties, it allows exciting uses that could not be covered by any previous payment system.”
♠ Let’s have a look at an example:
When I want to send money to my friend via PayPal, Paypal keeps the track of the amount of money that I have in my account and then lets me send the money. PayPal verifies my transactions and keeps the ledger of my transactions. So there is only one ledger which company holds and the authority that verifies the transaction is PayPal. I need to TRUST PayPal in this transaction.
In the Bitcoin Network, that ledger is distributed across every participant, so anybody who’s in the network has a copy of it. When I want to send Bitcoin to my friend, the transaction gets propagated across the network. When a miner adds the transaction to the blockchain by mining a new block which includes my transaction, my friend will see the amount that I sent to him/her. So there is not a centralized authority that verifies my transaction. Rather than that, there are a group of miners.
Once Bitcoin transferred to someone, the miner who verifies that transaction will get a reward ( He/she is getting Bitcoin for verification).
How Is Bitcoin Different From Traditional Currencies?
Bitcoin can be used to pay for things via the internet as USD, Euro etc. which are also traded digitally. But it differs from the traditional currencies in some ways:
Bitcoin is a decentralized currency. No one controls the Bitcoin network. There is no third party involvement in transfers. Rather than a bank, there are a group of miners who verify the transactions.
Unlike the fiat currencies, BTC has limited supply (21 million). So because of the limited supply, we may say that it would be even more valuable in the future.
With Fiat money, central banks are deciding when to print and distribute the money. With Bitcoin, miners use computing power to solve a mathematical puzzle and get a certain number of BTC as a reward in exchange. So basically, miners are creating new blocks (creating Bitcoins) rather than a centralized authority.
In the traditional method, central banks can print new money without asking anyone but the Bitcoin Network automatically changes the difficulty of the math problem (mathematical puzzle) depending on how fast the problem (puzzle) solved. So it is impossible to create limitless of Bitcoins in a day. For now, the average amount of BTC mined per day is 1,800. With math, we can say that the last BTC will be available in the year 2140.
Unlike traditional methods, you can not change the Bitcoin transactions. It is not possible to reverse the transaction.
“Satoshi” is the smallest unit of Bitcoin. It is 0.00000001 BTC, so it enables microtransactions.
When compared with a bank, BTC transaction fees are really low.
Unlike Banks and Credit card companies recording every transaction in one central ledger, In the Bitcoin Network, all of the users record all of the transactions at the same time.
If I want to send Money from the USA to Russia, It will take 2-3 days via Bank. With BTC, it only takes minutes.
In my opinion, rather than cash (payment), Bitcoin is more like Gold. It has limited supply, we can say that it is a store of value. It has the advantage of being the first in the market. I believe, it has a place in the crypto market as the market stands.