Bitcoin is a form of digital currency, created and held electronically. No one controls it. Bitcoins aren’t printed, like dollars or euros – they’re produced by people, and increasingly businesses, running computers all around the world, using software that solves mathematical problems.
It’s the first example of a growing category of money known as cryptocurrency.
Why is Bitcoin different from normal currencies?
Bitcoin can be used to buy things electronically just like fiat or conventional currencies like dollars, euros, rubbies, or yen, which are also traded digitally.
However, the most important characteristic of bitcoin that makes it different to conventional money, is that it is decentralized. No single institution controls the bitcoin network. This makes it easier for holders of bitcoin, because it means that a large bank can’t control their money.
Who created Bitcoin?
A software developer called Satoshi Nakamoto proposed the creation of bitcoin, which was an electronic payment system based on mathematical proof. The idea was to produce a currency independent of any central authority, transferable electronically, more or less instantly, with very low transaction fees.
How is Bitcoin printed?
Bitcoin is not printed by anyone, because bitcoin is not like fiat or conventional currency that are physically printed in the shadows by a central bank, unaccountable to the population, and making its own rules. Those banks can simply print more money to cover the national debt, thus devaluing their currency.
Instead, bitcoin is created digitally, by a community of people that are known as minners, and anyone can join to mine. That means, bitcoins are ‘mined’, using computing power in a distributed network.
This network also processes transactions made with the virtual currency, effectively making bitcoin its own payment network.
So does it mean you can’t mine unlimited Bitcoins?
That’s right. The bitcoin protocol, which means the rules that make bitcoin work, says that only 21 million bitcoins can ever be created by miners. However, these coins can be divided into smaller parts (the smallest divisible amount is one hundred millionth of a bitcoin and is called a ‘Satoshi’, which is the name of the founder.
What is Bitcoin based on?
Conventional currency has been based on gold or silver, and in theory, it is said that anyone can walk into the bank and exchange dollar for gold, of which that is not what is obtainable practically. But bitcoin isn’t based on gold; it’s based on mathematics.
Around the world, people are using software programs that follow a mathematical formula to produce bitcoins. The mathematical formula is freely available, so that anyone can check it.
The software is also open source, meaning that anyone can look at it to make sure that it does what it is supposed to.
What are the characteristics of Bitcoin?
Bitcoin has several important features that set it apart from government-backed currencies.
1. It’s decentralized
The bitcoin network isn’t controlled by one central authority. Every machine that mines bitcoin and processes transactions makes up a part of the network, and the machines work together. That means that, in theory, one central authority can’t tinker with monetary policy and cause a meltdown – or simply decide to take people’s bitcoins away from them, as the Central European Bank decided to do in Cyprus in early 2013. And if some part of the network goes offline for some reason, the money keeps on flowing.
2. It’s easy to set up
Conventional banks make you jump through hoops simply to open a bank account. Setting up merchant accounts for payment is another Kafkaesque task, beset by bureaucracy. However, you can set up a bitcoin address in seconds, no questions asked, and with no fees payable.
3. It’s anonymous
Well, kind of. Users can hold multiple bitcoin addresses, and they aren’t linked to names, addresses, or other personally identifying information. However, bitcoin stores details of every single transaction that ever happened in the network in a huge version of a general ledger, called the Blockchain. The Blockchain tells all.
4. It’s completely transparent
If you have a publicly used bitcoin address, anyone can tell how many bitcoins are stored at that address. They just don’t know that it’s yours.
There are measures that people can take to make their activities more opaque on the bitcoin network, though, such as not using the same bitcoin addresses consistently, and not transferring lots of bitcoin to a single address.
5. Transaction fees are next to non existent
Your bank may charge you a $10 fee for international transfers, But bitcoin doesn’t.
6. It is fast
You can send money anywhere and it will arrive minutes later, as soon as the bitcoin network processes the payment.
7. It can not be automatically be refunded
When your bitcoins are sent, there’s no getting them back, unless the recipient returns them to you. They’re gone and gone forever.
So, bitcoin has a lot going for it, in theory. But how does it work, in practice? Read more to find out how bitcoins are mined, what happens when a bitcoin transaction occurs, and how the network keeps track of everything.
Where to Buy and Sell Bitcoin
You can buy and sell and sell bitcoins in exchanges such:
How can bitcoin be kept save?
Bitcoin can be stored in web wallet, app wallet, paper wallet, and hardware wallet such as, trezor or nano