What is it?
Bitcoin is a virtual or digital currency known as a cryptocurrency and it is a worldwide payment system. It was created by a mysterious and unknown person who goes by the alias of Satoshi Nakamoto. Like any other currency Bitcoin can be used to purchase items or services both online and in more traditional brick and mortar stores. What separates Bitcoin from other currencies is that Bitcoin is not controlled by a government or a central bank authority. This is what people mean when the call bitcoin “Decentralized.”
Bitcoin is the first decentralized digital currency and it is not controlled by a central authority or bank. It works without having a third party verify transactions, rather it works through a peer to peer network and transactions are written down on a public ledger and verified by the network through a process known as “mining”. So, by now you are probably thinking “What is Bitcoin mining and why is it so important?”
Unlike conventional mining, Bitcoin mining is the process by which transactions are verified and added to the public ledger, which is known as the blockchain, and it is also the means through which new bitcoin is distributed.
Anyone with access to the internet and suitable hardware can participate in mining. The mining process involves compiling recent transactions into blocks and trying to solve a computationally difficult puzzle. The participant who first solves the puzzle gets to place the next block on the block chain and claim the rewards.
The rewards, which incentivize mining, are both the transaction fees associated with the transactions compiled in the block as well as newly released bitcoin.
This all sounds cool doesn’t it? Now you’re probably thinking to yourself. “Can I mine right now at this moment and get bitcoin if I solve a block?”
Well technically yes, you could. But the mining difficulty has increased dramatically. It would be extremely difficult to solve a block without joining a mining pool. Bitcoin mining pools are a way for Bitcoin miners to pool their resources together and share their hashing power while splitting the reward equally according to the amount of shares they contributed in solving a block.
Furthermore, mining on your own PC without specialized piece of equipment such as a graphics card or specialized ASIC miner would be extremely difficult and inefficient. In fact, you would most likely lose money from the electricity costs. This raises the question how does someone acquire Bitcoin?
There are several ways of purchasing Bitcoin. One of the popular ways is through Bitcoin exchanges. Exchanges such as Coinbase or Bitfinex will exchange cash for Bitcoin and vice-versa. These Bitcoins can then be stored on the exchange or your very own private wallet which is just a software that stores and protects your public and private keys. Find out more about Wallets.
Changes to Code:
Bitcoin operates using an open course code. This means that anyone can make changes to the Bitcoin code. These changes then must be accepted by 51% of the miners in order to be implemented. This is Bitcoins democratic nature, where majority will decide in which direction the currency will go.
Every Bitcoin transaction that has ever happened is recorded in a public ledger. This ledger is known as the blockchain. By using the blockchain, anyone can see how many bitcoins are stored in a specific address, and they can see the deposits and withdrawals to that address, but they will be unable to know who owns the address.
Bitcoin Transactions Can not be Reversed!
When you send bitcoins to a Bitcoin address, you can not reverse the transaction. Unlike credit cards where transaction can be disputed or reversed, Bitcoins are non-refundable. Bitcoin can not be replaced either. If your wallet is stored on your hard drive and not in a “cloud”, you could lose your bitcoins if you are hacked, get a virus or if your computer dies. These lost bitcoins can never be retrieved. That’s why it is so important to take regular backups and implement measures for Bitcoin wallet security.
Why use Bitcoin?
All these ideas are cool but why would anyone want to use Bitcoin instead of traditional cash or credit card transactions? Some people like anonymity that may come from using Bitcoin. Other people like the speed of transferring money and the low fees associated with the transfer. Other people like that Bitcoin does not lose value due to inflation and that there will only ever be 21 million Bitcoin in circulation. There have been thousands of alternative coins that emerged after Bitcoin and each may have its own use case and they are currently fighting to change their respective industries. Find more alternatives coins here and check out their markets caps.