The incredible growth & perceived value of this cryptocurrency has led many people to wonder, exactly what is Bitcoin?
Bitcoin is a form of digital currency using secure encryption techniques to regulate the creation of bitcoins (bitcoin mining) and to verify transactions
All of this is done independent of a central bank or banking institutions.
If you a want a piece of the action you would be well advised to examine exactly what Bitcoin is before investing in this digital currency as you could lose your money quickly or you could make a packet.
However, it’s not only about making money with Bitcoin as it has other benefits as well.
Start Your Bitcoin Journey the Safe & Easy Way…
The Difference Between Bitcoin & bitcoin(s)
You’ll notice that sometimes the term Bitcoin is used with a capital “B” and at other times it’s bitcoin(s) with a lowercase “b”.
Yes, there is a difference as explained below;
- Bitcoin with a capital “B” refers to the Bitcoin the protocol and payment network.
- Bitcoin with a lowercase “b” usually refers to the currency itself and multiples are usually referred to as “bitcoins”.
How Did Bitcoin Start?
Bitcoin was the first of the “cryptocurrencies” which was created by someone (or a group) under the pseudonym of Satoshi Nakamoto in 2008 and then released in 2009 as open-source software.
The idea of the Bitcoin platform being used as a sort of online currency, trading in bitcoins, was then proposed as a way of having a currency that was totally independent of the banking system.
Not only were the banks excluded from getting their hands on any of the transaction fees, there would be practically zero fees and global transactions would be much faster than those administered by the traditional financial institutions.
Who Creates Bitcoins?
A feature of the bitcoin currency is that its not printed or physically manufactured in any way – bitcoins are created through a process called bitcoin mining.
This means that bitcoin production cannot be increased to cover the national debt of a country (for example) and thereby devaluing everyone’s bitcoin investment.
Bitcoin is created digitally or “mined” using computing power in a distributed network which allows bitcoin mining to take place.
In order to create a bitcoin it is “mined” through a process whereby a computer needs to successfully run a complicated algorithm creating a bitcoin which will have a market determined value at the time it is produced.
I know it’s difficult to fully understand but what it means is that it’s basically user generated and the network is also responsible for processing transactions making Bitcoin its own payment network.
According to Bitcoin’s protocol there will only ever be 21 million bitcoins created by the “mining” process.
What Is the Bitcoin Value Based On?
We know that from the early days currencies all over the world have been based on a country’s gold or precious metal reserves.
So you were always safe in the knowledge that if you handed over a unit of your country’s currency at the bank you should theoretically be reimbursed with a corresponding amount of value in gold.
However, in the case of bitcoin it’s value isn’t based on gold reserves, it’s based on computational mathematics and market forces of supply & demand.
This is basically a computer program, or algorithm that is open source and available to scrutiny, that is used to create Bitcoins.
What Can You Do With Bitcoins?
Whilst it’s not yet a universally accepted method of payment, more and more institutions & individuals are accepting Bitcoins for online payments.
In fact it was reported in the Business Times (22 May 2017) that the Japanese carrier, Peach Aviation Ltd, will become the first airline to accept bitcoin as payment for airline tickets.
Furthermore, all your Bitcoin transactions will be recorded in a ledger called the “blockchain” where, once recorded, they can never be removed although will remain anonymous unless you’ve made your wallet address public.
Bitcoin Features & Benefits
Here are some of the features that make Bitcoin a more attractive currency & financial transaction model than the conventional ones.
- Bitcoin Is Decentralized – There is no central control like a bank or government or coercive centralisation which is what we have with the current financial system – For instance the world’s monetary system, which is based upon national fiat currencies created and managed by government-sponsored central banks, is coercive.
- Quick & Easy To Set Up
- Bitcoin Transactions Are Anonymous – Transactions cannot be traced back to the user unless they publicise their wallet address.
- Tax Free – There is no way for 3rd parties to be involved in Bitcoin transactions which means that there is no way tax of any sort can be implemented on transactions.
- Paperless Transactions – All you need to pay & receive Bitcoins is a Bitcoin Wallet (which you can download) & to generate a Bitcoin Address.
- Quick and Cheap Transactions
- Bitcoin Transactions Are Irreversible – There are no refunds or “chargebacks” as there are with credit cards where the payer can request the payment to be reversed for just about any reason
- Appreciating Value – Over the 8 years or so since Bitcoin started there has been phenomenal growth which doesn’t look like stopping anytime soon. (see the graph on the right)
As I’m writing this (23 May 2017) the value of Bitcoin has broken through the ZAR34,000 barrier (USD2,200) and looks set to carry on rising although expect the ride to be bumpy.
Start Your Bitcoin Journey the Safe & Easy Way…