What is Bitcoin?
What Is Bitcoin?
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.
But we’re keen to dive deeper into the origin of bitcoins, like many of you. Why is bitcoin a reality today? The team behind the most popular cryptocurrency on the market was influenced by the economic recession back in 2009. Then, common currencies like the U.S. dollar or Euro were questionable at best, and so Nakamoto and the rest of the team developed a brand-new type of digital currency designed to compare gold.
Initially, the concept of bitcoin was nothing more than a white paper written by the anonymous individual we now know as Satoshi Nakamoto. In this online white paper, they detailed how bitcoins work; namely, how this new form of cryptocurrency can replace paper and coin money to ensure everyday transactions continue without fail. With a public and private key protecting the transaction, the team even outlined a public mint, or central authority organization, to help ensure the sanctity of each transaction to avoid theft, scams, or double-spending of coins.
With an outline detailing how bitcoins function in the digital and economic space, the only thing left was an incentive. Why would someone buy bitcoin when traditional banks and money were still widespread? Everyone knew common currencies, and most had a trusted bank institution in town. Why bitcoins?
Like all other global currencies, bitcoins are subject to fluctuations in value. But, by spending CPU power and electricity, it was entirely possible to generate new coins, thereby building one’s digital wealth over time.
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 Does Bitcoin Work?
The term “cryptocurrency” scares away many people. They fear total loss when it comes to their digital investments. The thing is, bitcoin is more than a payment method to replace common currencies, it’s an entire ecosystem spread worldwide through the power of the internet. Let’s dive in and answer the question of ‘how does bitcoin works?’
When you want bitcoin technology explained, you need to focus your efforts on two key terms: blockchain and bitcoin. You can’t have one without the other.
The entire power structure of bitcoin revolves around open-source code called the blockchain. Blockchain is the public history of all bitcoin transactions organized into structures known as “blocks” that link together, like a chain, to help prevent unwanted tampering or scams. Essentially, speaking, the blockchain creates a permanent record of all transactions worldwide, and every user operates under the same structure and ruleset designed to create a fair and thriving digital economy spread across the globe.
When a transaction occurs, the blockchain creates something of a bitcoin public ledger to monitor and track transactions accurately. As such, bitcoin balances are now more easily reviewed than ever before.
In fact, there are numerous apps and wallets available to collect, hold, and transfer bitcoin online. These apps include the likes of Exodus, Electrum, Mycelium, and Ledger Nano S.
When you buy something online, say, through PayPal, you expect some modicum of security, correct? The same goes for payments utilizing bitcoin.
That’s why safety features, like the bitcoin digital signature and bitcoin signature verification, help to protect every bitcoin transaction that occurs.
Furthermore, the blockchain records all bitcoin transaction data to help build a secure economy.
But what about bitcoin processing? You may know that it’s entirely possible to undergo a full bitcoin mining process, but what is the bitcoin processing time?
For those users who willingly spend electricity and CPU power to help validate bitcoin transactions, they are rewarded with bitcoins of their own. This is the mining process. In all, it takes around 10 minutes to mine a single block.
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 a “brain wallet.”
As we previously mentioned, you have a few options when it comes to bitcoin storage options. These are known as wallets, and some of them do cost a bit of money to purchase and set up an account. The upside, however, is that you have your entire bitcoin account in one place, for easy access and monitoring.
Types of Wallets
There are multiple types of bitcoin wallet options on the market today. For instance, you have digital wallets, paper wallets, desktop wallets, and hardware wallets. The one you choose depends on your needs.
For instance, if you use cryptocurrency regularly, a physical wallet you can bring with you makes more sense than a desktop wallet to leave at home.
The two key subcategories of bitcoin wallets include hot wallets and cold wallets, which require an internet connection or no connection at all, respectively.
No matter the physical or digital wallet you purchase, they will always be “hot” or “cold.”
What is a bitcoin hot wallet? A hot wallet relies on a stable internet connection or a device with a working connection, like a tablet or smartphone. You would use a hot wallet to send and receive cryptocurrency, but also to view the number of tokens you have direct access to.
Conversely, a bitcoin cold wallet does not rely on an internet connection to function. It is an offline wallet best used for storing cryptocurrency and little else. You cannot buy items or send bitcoins to other users with a cold wallet, which makes this type ideal for those playing the long game.
A bitcoin hardware wallet is one of the most popular bitcoin storage methods on the market today.
These wallets allow users to store private keys and remove them from various devices with ease. You’ve likely seen one before. It resembles a thumb USB drive, and comes stock with a few unique features, like private transaction signatures.
A bitcoin desktop wallet, otherwise known as a software wallet, is an application on your home computer or mobile device that acts as a virtual wallet to access and monitor cryptocurrency exchanges and balances.
These types of wallets act as quick payment processors, and most work with iOS and Android for on-the-go usage.
A bitcoin web wallet is completely hands-free. It’s run by another company, out of your control, and you often pay a subscription fee or transaction fee to keep your account open and running. The upside, however, is the additional security features most companies enact. Plus, you can keep track of bitcoin, make payments, and more without buying costly software or hardware.
If you routinely make purchases outside of the home, then a bitcoin mobile wallet makes the most sense. These digital wallets work efficiently with most mobile devices and operating systems, like iOS and Android.
A mobile wallet will display your bitcoin balance, make transactions, and access cryptocurrency from anywhere with an internet connection.
Lastly, we have bitcoin paper wallets. It’s an old-school method mixed with new-school crypto technology to track private and public keys and crypto transactions. How? By printing out a piece of paper with keys in the form of scannable barcodes built by an app. Essentially, you can take your bitcoin balance offline and out of the prying eyes of anyone in the world.
Bitcoin Units of Measurement
Unlike with physical money, the layman has no idea what a unit of cryptocurrency looks or acts like, and so most want to know the value of 1 bitcoin.
The answer varies, though. Currently, the value of 1 bitcoin fluctuates on a daily basis; sometimes multiple times per hour, and so measuring the value of most cryptocurrencies relies on monitoring various websites and apps set up to track bitcoin as a whole.
In the past, we’ve seen a single unit of bitcoin sell for upwards of $60,000 U.S. dollars. We’ve also witnessed significant drops, such as when cryptocurrency was in its infancy. Back then, it was common to see a single unit of bitcoin selling for no more than $1,000, which is still a lot for any form of currency on the market today.
If you want to follow the rise and drop of bitcoin prices, consider finding a marketplace you enjoy, like Coinbase or Kraken.
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.
As to whether can bitcoin be converted to cash, you only have to look online to find brokerage exchanges or P2P selling organizations to help you earn physical cash from your cryptocurrency.
Third-Party Broker Exchanges
Your best bet when it comes to selling bitcoin for cold-hard cash is to use a third-party brokerage. These firms allow you to buy bitcoin, then exchange your crypto wallet for, say, U.S. dollars.
A few of the best broker exchanges include:
- Interactive Brokers
The exchange you sign up for depends on your needs. Some, like Interactive Brokers, excel at working with professional day traders. Others, like eToro, prove capable for everybody interesting in buying and selling cryptocurrencies.
It’s important to note that most broker exchanges come with their own fee structure. So, take your time when selecting a broker and read their fine print before signing up.
Online P2P Selling
Your other option is a p2p bitcoin exchange, or peer-to-peer crypto exchange, in which two users come together to make a deal. This deal usually occurs via a third-party service, such as an escrow service, to help protect both the buyer and seller until the transaction is complete.
How a p2p bitcoin exchange work is, when you begin buying bitcoin, the exchange holds the seller’s bitcoin in an escrow account. Once the payment for said bitcoin is verified and approved, only then will the bitcoin release into your wallet.
When it comes to p2p selling, a few top options include LocalCoinSwap, Paxful, and Whales Heaven.
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.