Besides the basic definition of a virtual currency, Bitcoin is a revolutionary idea that amazes the world. Although it is not the world’s first cryptocurrency, it has inspired an entire industry, transforming the way people move money and invests worldwide. However, Bitcoin’s history has a series of setbacks and challenges that you must know to understand its journey to the top.
Quick facts about bitcoin
- A mysterious entity named Satoshi Nakamoto created this virtual currency in 2008 and launched it the following year as open-source software.
- Bitcoin uses mining, a process that involves solving complex math puzzles, to generate new Bitcoins.
- Bitcoin is a decentralized digital currency, not subjected to any government or central authority.
- Bitcoin runs on blockchain technology, which automatically verifies and stores all transaction information on a shared digital ledger.
- Bitcoin is now value storage and means of payment, used worldwide.
- Bitcoin’s supply protocols limit it to 21 million Bitcoins only and, more than 18 million Bitcoins were already in circulation as of June 2021.
How bitcoin works
Blockchain technology is Bitcoin’s crown jewel that runs all its operations. Bitcoin uses a peer-to-peer network that comprises thousands of computers in different geographical locations worldwide. The network had about 10,000 nodes as of June 2021. Those computers, called nodes, run the Bitcoin code and stores the data on the blockchain.
Blockchain is a string of blocks, each containing Bitcoin transaction records. All the nodes on the network have the exact copies of all the transactions since Bitcoin’s inception. New blocks are added to the existing ones as the transactions come in and, the data is accessible to all Bitcoin users. Unlike fiat currency exchanges that involve intermediaries to verify transactions physically, the blockchain validates Bitcoin transactions.
Bitcoin users receive public and private keys for conducting transactions. The public key is like your bank account number, shared with those you wish to accept Bitcoin. On the other hand, a private key is your unique signature, used to authorize Bitcoin transfers. Those provisions and blockchain technology contribute to high-level transparency, security, and lower costs of Bitcoin transactions.
Unlike fiat currencies that users can touch and feel, Bitcoin is a digitized currency. However, it serves the same purpose as money, used to pay for goods and services. You can also use Bitcoin as a financial instrument for trading on exchanges. Bitcoin is now a high-value asset class, traded alongside commodities like gold.
For instance, if you log in to Ethereum Code or any other reputable crypto exchange platform, you will be able to quickly transfer funds from your bank account to acquire Bitcoins for trading. Alternatively, you can also opt to hold the funds in your wallet on the trading platform or elsewhere for higher payouts in the future as the Bitcoin price increases.
Key characteristics of Bitcoin
As aforementioned, Bitcoin is fully decentralized without any governing body or individual. Miners generate new Bitcoins to meet the market demand in exchange for rewards issued in Bitcoin. However, the payouts are subject to halving, which ensures fixed supply at declining rates.
Bitcoin’s decentralization is a unique characteristic that contributes to its high value and volatility. It allows users greater flexibility to send and receive money worldwide conveniently. The cost of Bitcoin transactions is also relatively lower than other digital money transfers methods and traditional currency exchanges because of blockchain technology.
Bitcoin offers faster, low-cost, and secure money transfers. It is also a high-value short-term and long-term investment asset. However, Bitcoin is also a highly volatile financial instrument since the value of a cryptocurrency mainly depends on public perception. Nevertheless, investing in Bitcoin is a great way to earn extra income and gain insights into the crypto world.