What is Bitcoin?
BTC, short for Bitcoin, is a decentralized virtual currency that was invented by Satoshi Nakamoto. The anonymous inventor or group published a white paper in 2008 as a proof of concept, then released it as open-source prototype software in 2009. Bitcoin uses peer-to-peer technology to operate without a central authority or banking institution; managing transactions and issuing new BTC, also known as mining, is carried out collectively by the network. Bitcoin has many unique characteristics compared to traditional credit cards such as international payments, low transaction fees, irreversible transactions for merchants, and security through encryption.
How is new Bitcoin created?
Bitcoins are only created as a reward for proof of work involving cryptographic hashes called mining. Users offer their computing power to verify and record payments in to a public ledger, known as the blockchain. Bitcoin that is already mined is in circulation and can be exchanged for goods and services. There will only ever be 21 million bitcoins in existence, with the final fractions of bitcoin being redeemed by miners in the year 2140. If this great bitcoin experiment succeeds and people still use it after that point, BTC miners will be supported exclusively by numerous small transaction fees – which are required to let your transactions be included swiftly into the blockchain. However, these coins can be divisible into smaller units, unlike regular currencies bitcoins are divisible by up to 10^8, which means that over time people will have the ability to use tiny little fractions of bitcoin to buy things. The smallest divisible unit of a bitcoin is aptly named a ‘Satoshi’.
How is bitcoin price calculated?
The price of bitcoin is determined by its supply and demand. When demand for bitcoin increases, the price increases, and when demand falls, the price falls. There is only a limited number of BTC in circulation and new bitcoins are created at a predictably diminished rate. Demand must follow this level of inflation to keep the price stable.
Why do people trust Bitcoin?
Unlike centralized fiat payment systems, Bitcoin is fully open-source and decentralized. Transactions can be verified independently at any time. Bitcoin payments can be made instantly and directly without an intermediary. The whole system is protected by a combination of elliptic curve cryptography and hashing on the sha256 curve. Together these mechanisms sufficiently provide large enough random key-space that cannot be attacked by hackers or gamed through mathematics.
Who controls the Bitcoin network?
No organization or individual wields total control of theentire network. The Bitcoin network has no dependence on a central authority nor single administrator. Managing transactions and issuing new bitcoins are carried out collectively on the above mentioned blockchain. The Bitcoin protocol itself cannot be modified without the cooperation of nearly all its users to aggregately run updated software.
What are the Characteristics that make bitcoin different to conventional money?
Bitcoin has several features that it different than government backed currencies:
- The very Decentralized nature of Bitcoin sets it above from conventional money that is issued by a central bank or federal agency.
- It is very easy to setup Bitcoin Software and Take Payments- Unlike a conventional bank account, you can set up a bitcoin address in seconds without any fees or documentation.
- The anonymous nature of Bitcoin sets it apart from conventional money. A bank account has links to your real name and other personally identifying information.
- Transparency on the blockchain makes it different to conventional money. All bitcoin transactions and newly issued bitcoins are recorded in public view and can be seen in real-time.
- Ease of transferring money- you can send and receive money anywhere in the world within minutes, as soon you broadcast the transaction, it gets confirmed and spread to the other peers within the network.
- You can choose your own fees while spending your bitcoin. Paying high transaction fees can encourage very fast conformation on the bitcoin network. However, Fees are unrelated to the amount transferred, so it’s possible to send 10,000 BTC with no fee, and just wait a bit longer for them to be confirmed (Up to three days.)
- Bitcoin transactions are secure, irreversible, and do not contain customers’ sensitive or personal information. This offers strong protection against identity theft compared to checks or credit cards.