Bitcoin has become the first cryptocurrency in the world. Satoshi Nakamoto, the real personality (or personalities) of whom is unknown even today, created it in 2008. As for now, there is a great variety of different cryptocurrencies, but Bitcoin still remains the most popular. The word Bitcoin was created by merging of two English words: “bit”, a virtual minimum unit of computer memory and “coin”, which is a flat round piece of metal, used as money. The concept is appealingly simple – Bitcoin is digital money, that enables safe peer-to-peer transactions between the users on the internet. Bitcoin is often abbreviated to BTC.
Bitcoin alongside with the other cryptocurrencies is considered the money of the new millennium, because they are radically different from public financial systems (i.e. banks), and from electronic payment services (like PayPal). Bitcoin is decentralized, it means that it doesn’t rely on any institutions or intermediaries in the transactions: any two people in any part of the word can transfer each other money directly and anonymously. The removal of the third party Every transaction is entered into a blockchain, which is the record of all transactions ever made with bitcoin.
The invention of Bitcoin helped to solve a fundamental economic problem on the internet – how to make secure economic transactions on the internet without a trusted intermediary (like bank, payment service or government). Alongside with the solution to this problem, Bitcoin provided some additional advantages: as the payments appear digitally, they are fast, work across borders and without governments and authorities around the globe. It opens the way for creation of an open, efficient, free, and more innovative financial system.
There is no need to buy the whole bitcoin, if you can’t or don’t want to. You can buy a fraction of one.
Why is Bitcoin considered money?
There is no physical equivalent of Bitcoin, its only digital. But it bears certain functions, i.e. a store of value, a medium of exchange and a unit of account – all considered to be features of money. It can be used, held or traded absolutely legally in most countries, it is accepted as donations and payments by many businesses and organizations.
How can the inflation of Bitcoin be avoided?
What is the way to avoid inflation in the financial system of Bitcoin? As for now, the quantity of currency is ever growing. So, what helps Bitcoin not to lose its value, but even increase in it permanently? From the very beginning this currency was limited in quantity. In the initial code of the program, there were entered into the system certain conditions: the rule of mining new coins and the limit of 21 million Bitcoins. From the moment the first block of bitcoin was obtained, the countdown started in the system, after which the issue will be completely stopped. According to preliminary data, this number of cryptocurrencies should be mined by 2033. This ensures scarcity that is the main mechanism to avoid inflation?
How does Bitcoin work?
It was already mentioned that bitcoin is decentralized and no authority or organization owns it. Anyone with an internet connection in part of the world can participate in the first completely opened payment network of the world. The foundation of Bitcoin’s work is blockchain, that records all the transactions.
In our days “mining” of Bitcoin requires special powerful equipment, but it didn’t at the beginning. When bitcoin was just invented, simple personal computers could participate in mining. Now the process requires massive and powerful machines that not everyone can afford. So, they are mainly owned by groups of people or businesses. Specialized computers perform the math equations that help to verify and record new transactions. These computers are called ‘mining rigs’.
How much does one Bitcoin cost?
When it just appeared, Bitcoin wasn’t worth anything. But since that time its value has been permanently growing. And as it is growing in value, the easy divisibility of bitcoin becomes a very useful and attractive feature. One bitcoin can be divided currently to eight decimal places (that means 100 millionths of one bitcoin); the smallest part of a bitcoin is called a ‘Satoshi’.
So, how does it happen that Bitcoin has value? The answer is: the same as other, more traditional currencies do – because people agree about its value.
How to get Bitcoin?
There are several ways to become the owner of a Bitcoin. The easiest way is to buy bitcoin through an online exchange. Online exchange services allow easy to send, receive, buy, sell, and store bitcoin without the need to hold it yourself.
Another way is more complicated, but in this case, you are on your own and make transactions outside of an online exchange.
Every person entering the bitcoin network is issued a private key (which is long, complicated, and almost impossible to guess), a kind of personal password, on the base of which a public key is generated.
When making transactions with bitcoin, you use a public key, which can be referred to as a key, providing access to your assets.
Any person can send bitcoin to someone, using their public key, but only the owner of the private key is provided with the access to the bitcoin in the “virtual vault” after it was sent.
The simplest way to store Bitcoin is to use a virtual wallet. From the virtual wallet money can be transferred to a traditional bank account.
How to purchase goods with Bitcoin?
It is believed that the first non-digital things, bought with a Bitcoin were two pizzas in the USA, back in 2013. Since that time a lot has changed, and bitcoin is used widely and easily for purchasing different goods.
Transactions with bitcoin are similar to those with a credit or debit card. Generally, you are not asked to enter the card info, but instead you have to enter the certain amount of money needed for the payment, and the public key of the seller (which is similar to an email address) with the help of the special application of your virtual wallet. If you are using a smartphone or a tablet, the process can be simplified with a QR code that will appear when you scan the code, and the application will enter the necessary information automatically.
What are the main advantages of Bitcoin as a new type of money?
- It is private (no need to provide any unnecessary personal information – just a public key).
- It is simple to use (everything can be done with the help of user-friendly applications).
- It is global (only the internet connection is needed).
- It is flexible (can be sold for cash in the ATM-machine, used for online-shopping, charity donations, investments or even space-trips).
- It is irreversible (the payment can’t be called back by the sender – the same as with cash).
- It is safe and secure (the system has never been hacked yet, you don’t have to send any sensitive information, transactions are cryptographically secured).
- It is open (every transaction is public and can be checked).