Welcome to the world of Bitcoin!
The world’s first cryptocurrency.
In 2009, Satoshi Nakamoto introduced Bitcoin as a way to create an independent currency that is not controlled by any government or institution.
The goal was to make a currency that is easy for everyone to use, for buying goods and services.
So, what are the basics of Bitcoin?
First, it's important to understand that Bitcoin is a type of virtual currency, meaning it has no physical form.
Each Bitcoin is made of computer code and exists only on computers. You can think of it as the serial number on a dollar bill. The serial number identifies the bill and can be tracked, which is just like the computer code that creates a Bitcoin.
To use your Bitcoin, you need to have its private key. The private key is like a secret password that gives you access to your Bitcoin. Without the private key, your Bitcoin is essentially unusable. It's important to keep your private key safe because if you lose it, you lose access to your digital funds!
In summary, Bitcoin is a decentralized digital currency that allows for peer-to-peer transactions without the need to go through a bank. It can be used all over the world and offers a level of security and anonymity that traditional banking hasn’t managed so far.
Now how about 'Bitcoin blockchain' - what does that mean?
The Bitcoin blockchain is a distributed ledger that enables the processing of Bitcoin transactions. This makes it a great way to record when people buy and sell things, as well as make payments with Bitcoin.
In the case of Bitcoin, it’s a decentralized network of computers all over the world, operated by Bitcoin miners. These miners work to process the transactions, ensure security, and also create new Bitcoin.
Since the network is run on multiple independent computers spread all across the world, it is not controlled by any single entity, such as a government, organization, or business.
This decentralization ensures that the Bitcoin blockchain is basically outside of government policies, global politics, national economies, central banks, or big industries, making it a truly independent currency.
What's a 'decentralized ledger'?
A ledger is a record of financial transactions. So, in the case of Bitcoin, it’s a record of all transactions made using the cryptocurrency. For example, if John sends Sally 1 Bitcoin, it’s recorded as a transaction on the ledger.
While transactions on this ledger are public and can be viewed by anyone with a computer, the identities of the parties involved are kept private. All we know is what their computer code names were.
This Bitcoin ledger is maintained on every computer in the network, and transactions are added to it immediately after completion. Because the ledger is located on independent computers all over the world, it is almost impossible to change.
If someone tried to change the ledger on one computer, it would no longer match the ledger on the other computers in the network, and this would be noticed straight away by miners. This makes the Bitcoin ledger highly secure.
Now, onto miners…
Bitcoin miners are responsible for processing, executing, and recording Bitcoin transactions. They do this by solving complex mathematical equations, which are so difficult that special computer systems are needed to solve them.
Miners compete to be the first to solve the equation, and the winner gets the right to process and record the next set of Bitcoin transactions.
When a miner successfully solves the equation, they are allowed to fill one block of the Bitcoin blockchain with Bitcoin transactions. Each block is 1 MB and can hold over 2,000 transactions!
This is why it's called a blockchain: the blocks of transactions are connected in a chain, creating a complete record of all completed Bitcoin transactions.
This process of solving equations and building the blockchain is what makes Bitcoin secure and decentralized. The transactions are recorded on a decentralized ledger, ensuring that no single entity has control over the network.
Isn't it genius? It's so simple, yet so powerful!
Do miners get something back for all this?
Bitcoin miners don't work for free. They are rewarded with Bitcoin for their services. It's in their best interest to keep the Bitcoin blockchain secure and process as many transactions as possible.
The Bitcoin blockchain needs these miners because it uses a Proof of Work algorithm. This process verifies, executes and records Bitcoin transactions by using pre-approved miners who have successfully solved complex mathematical equations to perform the work.
However, the miners must consume a significant amount of electricity to operate their supercomputers and solve the equations. This has led to some countries banning Bitcoin as they believe that the Proof of Work system is not environmentally friendly.
To put it simply, Bitcoin miners globally use as much electricity as a small country to run the Bitcoin blockchain. This is one of the reasons why the future of Bitcoin is uncertain.
What can you actually use Bitcoin for?
The value of Bitcoin can fluctuate greatly, reaching prices as high as $50,000 per coin and then dropping to $20,000. This can make it seem impossible for the average person to spend such a valuable asset. To be honest, many of us aren’t going to be purchasing these in bulk!
However, it is important to note that Bitcoin is divisible up to 8 decimal places. This means that you can purchase, sell, and trade as little as 0.00000001 BTC. This small amount of Bitcoin, known as a Satoshi, is worth less than a penny.
For example, even if one Bitcoin is worth $20,000, you can still purchase 0.001 BTC for $20. This makes Bitcoin accessible for everyday transactions and purchases, even when all 21 million Bitcoins are in circulation.
OK, but I have Apple Pay - why bother using Bitcoin at all?
There are a number of benefits to Bitcoin.
Goods and Services
One of the main benefits is the ability to use Bitcoin as a means of payment for goods and services. This allows for transactions to occur without the need for a middleman, such as a bank or government - which can be great for both consumers and businesses for cost savings.
Store of Wealth
Another benefit is the ability to store and transfer money easily and securely. Bitcoin is decentralized and can be sent to anyone, anywhere in the world, at any time. This eliminates the need for traditional banking systems and again, their dreaded fees.
Asset Transfers
In addition, Bitcoin can be used to purchase other cryptocurrencies. This allows for the diversification of investments and increased opportunities for growth.
Smart Contracts
Finally - there are smart contracts, which are digital agreements between a buyer and seller, which are also a key benefit of using Bitcoin. The contracts hold the agreed-upon Bitcoin in escrow, ensuring the terms of the contract are met before the payment is released to the seller.
This eliminates the need for intermediaries such as lawyers, banks, government officials, or notaries.
Conclusion
So, Bitcoin is a decentralized digital currency that is the oldest and most valuable of its kind. With a maximum supply of 21 million coins, it offers flexibility in transactions due to its divisibility of up to 8 decimal places.
The Bitcoin network is maintained by a network of independent miners who work to ensure that the blockchain and ledger remain secure and immutable. This decentralization and security make it a popular choice for storing value, as it protects against inflation, political instability, and other economic factors.
However, as the value of Bitcoin increases, it may become less practical for everyday transactions. This could lead to a decrease in demand and ultimately, a decrease in value. It's important to remember that the value of a digital currency like Bitcoin is determined by the willingness of others to pay for it.
