Everything You Need to Know About Bitcoin
Bitcoin has been at the center of the cryptocurrency world for the last few years. As the first and leading cryptocurrency, Bitcoin is synonymous with almost any mention of digital currencies. So what is a Bitcoin? We’ve covered everything you need to know.
What is Bitcoin?
Bitcoin is a digital currency or P2P payment system, most commonly referred to as a cryptocurrency, which can be used to buy or sell products and services to or from merchants that accept digital currencies as a method of pay.
As part of a network, or a framework, Bitcoins platform is completely decentralized, meaning no one person or figure of authority can control or own Bitcoin. In total, only twenty-one million Bitcoins can exist at any given time.
Bitcoin first surfaced back in 2009 after a programmer by the name of Satoshi Nakamoto published details of the work of the first cryptocurrency in the world. Satoshi called his work "Bitcoin: A Peer-to-Peer Electronic Cash System”.
Many speculate about the true identity of Nakamoto, with some arguing that he isn’t only one programmer, but a like-minded group of experts who worked together to achieve the first digital currency.
One year after Bitcoin was revealed, Nakamoto vanished from the cryptocurrency scene with a reported one million Bitcoins and leaving his (or their) creation in the hands of a few trusted key members, namely a software programmer by the name of Gavin Andresen.
One of the biggest advantages of Bitcoin is the fact that it is decentralized. Andersen explained that after Nakamoto named him lead developer and vanished, his main focus was to continue making Bitcoin even more decentralized.
By doing so, he ensured that Bitcoin remains completely independent from any government or corporate influence. No authority can claim Bitcoin as its own or intervene in any user’s transactions or assets.
Bitcoin users also have complete control over their own assets, as no interfering presence can confiscate a user’s coins or impose unwarranted fees on any transaction they conduct.
How It Works
The blockchain is the foundation of Bitcoin. It consists of a chain of blocks, which store data about all transactions in the system. Chain structure making it incredibly difficult to commit fraud or steal user data from a block without being discovered.
Any attempted changes to the blockchain, whether it’s a single digit or a block itself, will affect the entire chain since removing even one block can cause the network to crumble. Due to this one key aspect, unauthorized changes to a chain, whether a mistake or an illegal attempt at stealing Bitcoins or user data, can easily be identified by simply going back to the recorded transactions.
A cryptocurrency wallet, which each user possesses, can be used to locate and verify any transaction concerning the user. It achieves through public and private keys, essentially digital signatures, which are used to authenticate transactions.
Bitcoin is a unique concept due to its many unorthodox characteristics as opposed to every day, more traditional currencies. Among them are:
1. Independence: Nakamoto designed Bitcoin to be a completely independent digital currency without the influencing hand of any one authority.
2. Complete Anonymity: The anonymity of Bitcoin regarding its users proves to be an advantage and a disadvantage. Unlike banking systems where every single detail about a client is recorded, Bitcoin only requires that a user possess a wallet to conduct any transactions. Many prefer the complete anonymity it provides, although this gives way for many criminal and other illegal activities to constantly finds ways of abusing the framework.
3. Open Records: While anonymity is a key component of the blockchain, whether for illegal purposes or otherwise, pinning down one wallet address to any single user is an almost impossible feat.
4. Speed: Selling, purchasing and paying in Bitcoins occurs almost instantly, usually taking only a few minutes as opposed to more conventional systems which could take days or weeks to process any transactions.
5. Proof of Pay: Any payment or sending of Bitcoins through the network to another user can only be reversed by the receiving party should they choose to do so. By designing the system that way, it makes it impossible for anyone to deny receiving funds and avoids any malicious attempts at claiming fraud.
How to use Bitcoins
After it was created, Bitcoin became a topic of debate after many wondered how it would actually be used. As of today, that notion has completely changed. Many big-name companies like Microsoft allow customers to make purchases from their online stores by paying with Bitcoins.
Online casinos are famous for implementing Bitcoin and cryptocurrencies into their platforms and allowing players globally to pay through digital currencies. With each passing day, more businesses, companies, and services are implementing Bitcoin payment methods into their services to draw in more potential customers and clients.
Given its volatile nature, Bitcoin has also found its way into investment markets globally. As an asset that can drop or rise massively in value overnight, many are flocking to the investment in order to maximize profits.
Acquiring Bitcoins is as simple as paying for them. Many markets trade, sell and purchase the digital currency. Cryptocurrency exchanges also allow people to purchase Bitcoins, although prior to that, every user must have a Bitcoin wallet. This allows anyone to store their assets, possess a digital signature and an address for future transactions.
Digital wallets aren’t the only way of storing Bitcoins. Personal hard drives can also act as a “software wallet”, allowing any user to keep their assets stored on their computers, as opposed to digitally storing them in exchanges’ wallets.
Wallets also come in different types - tools specifically designed for the purpose of storing Bitcoins, such as paper and hardware wallets, are rising in popularity. These devices don’t store assets online which makes them much harder to break into, unlike digital wallets which are prime hunting grounds for hackers and cryptojackers.
One of the most well-known methods for acquiring Bitcoins is by mining for them. Before Bitcoins popularity saw major companies and investors spike up its rate of exchange to an unprecedented level, mining for Bitcoins was as simple as possessing a computer with a strong enough processor and a steady power supply.
As only 21 million Bitcoins can exist at any given time, the amount of coins left to mine is plummeting at a consistent and fast pace. Well-funded companies and investors have also purchased hardware designed for the sole purpose of mining the digital currency, only making it harder for an average user with limited resources to compete.
The Up & Downside
As with any other new technology, Bitcoin has its pros and cons. Bitcoin was designed to be a completely decentralized currency, fully operated by everyone involved in the digital world, whether it is a large and internationally recognized company or an average investor sitting at home. Without a governing figure involved, Bitcoins blockchain is open to each and every user.
Another added benefit is that Bitcoin is completely digital, meaning that it takes no effort to relocate, send, or receive payments and other transactions. Sending Bitcoins is as simple as the click of a button on any device.
After a miner has processed a new block, a fee is received as payment. Mining for cryptocurrencies is coming to an end since once 21 million coins have been mined in total. Then every Bitcoin in existence will be floating in the cryptocurrency sphere. At that point, trading, buying or selling Bitcoins will be the only method of acquiring them.
Bitcoin’s framework transparency also ensures that any and every single transaction or change to the blockchain is saved and stored. This makes it easy to simply go back, check the information within a certain block and find out everything you need to know.
Bitcoin cannot be forged or counterfeited, making the cryptocurrency secure and stable and cutting down on illicit attempts at abusing the digital currency.
As many countries are still wrapping their heads around Bitcoin and cryptocurrencies in general, it is difficult to get past the currency’s dark side. The nature of Bitcoins allows criminals to buy illegal goods and services through dark web markets, a notorious online bazaar for criminals, hackers and more.
In addition, most governments have yet to implement the proper guidelines and regulations which keeps cryptocurrencies at a stand-still while waiting for the proper laws to be placed.
Private and public keys are secret passwords each user must possess to access and utilize their electronic wallets. Without them, it’s impossible to open an account and check assets or make transactions, which makes losing a key a massive issue.
One of Bitcoins biggest cons is the volatile and unpredictable market. While Bitcoin could be worth over $19,000 one day, the value could drastically change in a matter of hours.
Many consider Bitcoin to be nothing more than a pyramid scheme. Some investors have said that cryptocurrencies are only as valuable as they are due to the recent craze and hype surrounding them and that something is only as valuable as people make them.
As miners, investors, and buyers continue purchasing and distributing Bitcoins, the digital currencies supply is rapidly declining, only adding even more value to each individual coin.
Since Bitcoin and cryptocurrencies, in general, are not governed or owned by one authority, it makes it hard to implement taxes on the digital money. Several countries and governments have enforced regulations to minimize money-laundering and other illegal actions.
The United States looks at Bitcoin as a property instead of a currency which requires all involved parties, including miners, to submit a record of received Bitcoins during tax returns. Europe takes an opposite stand on Bitcoin, looking at it as a virtual currency instead. Japan has also made it clear that Bitcoin is a legitimate and accepted method of paying for services and goods, exempting it from any consumer taxes in the country.
Is it worth it?
Last year, Bitcoin broke records when its value rose to unprecedented levels over $20,000, dropping back down to around $12,000 in the days to follow and eventually dropping even lower this year to a current value of around $6,400. It’s impossible to predict how valuable a Bitcoin will or can be. At any given moment, its value could drop to nothing, essentially making it worthless, or the cryptocurrency can continue climbing in value with unstoppable intent.