What is Bitcoin?
Simply put, Bitcoin is a cryptocurrency. It is a decentralized digital currency that uses peer-to-peer technology and does not require a central bank or a single administrator.
Bitcoin was invented by a software developer with a pseudonymous name of Satoshi Nakamoto on January 3, 2009, after the source code of Bitcoin was released as open-source software.
Bitcoins are created by a process known as mining, which involves competing with fellow miners through your computer hardware to solve complex mathematical problems. Digital ledgers, known as Blockchain, record every new block of transaction. This way the length of the blockchain increases with every addition of a new block.
Nakamoto mined the first block of cryptocurrencies which resulted in the creation of 50 bitcoins. This first block is referred to as the Genesis Block.
To promote bitcoin’s development, the Bitcoin Foundation was formed in September 2012. In December 2017, Bitcoin, which initially traded for next to nothing had a price of few dollars for one Bitcoin for the first few years. In January 2009, Bitcoin reached its all-time high of $19,783.06 on 17 December 2017. However, cryptocurrencies, including bitcoin, collapsed 80% from their peak, making the crash worse than the Dot-com bubble’s 78% collapse. As of November 2019, the price of the bitcoin remains around $9,000.
Let’s have a look at how Bitcoin is different from traditional fiat currencies.
While fiat currencies have an unlimited supply, the supply of bitcoin is regulated by the underlying algorithm. The limit of bitcoin that can be mined is 21 million.
While fiat currency is regulated by the central government, bitcoin is not backed by any central authority but controlled by all the Bitcoin users. This leads to a decentralized approach to Bitcoin transactions.
As the users are identified by the address of their wallet, bitcoin provides pseudonymity to their identity. While it is possible to track the transaction flow, this doesn’t necessarily lead to real-world identity of the user.
A transaction cannot be reversed once it is confirmed, unlike electronic fiat transactions as there is no central jurisdiction that regulates the transaction.
Bitcoin can be divided into one hundred millionth times (0.00000001). This unit is called a satoshi. Microtransactions of such a small nature are facilitated by Bitcoin which traditional electronic money cannot.
Cryptocurrencies like bitcoins facilitate instant settlement of cash, unlike electronic cash settlement systems that can take days.
Low operation cost
The transaction fees of sending money across different countries are lower with cryptocurrencies than using bank gateways.
However, not every country has accepted cryptocurrencies transactions as legal. Some of the reasons include the difficulty of understanding the blockchain technology. The volatile nature of the market for cryptocurrencies makes it unpredictable. So, there is always a risk attached to them. The irreversible nature of bitcoin transactions also makes people shun cryptocurrencies.
Bitcoin, along with every other cryptocurrency, would have to satisfy different criteria if they envision to become part of the mainstream financial system.