A beginners guide to Bitcoin
The Bitcoin system enables payments without using a bank or payment gateway like PayPal. Bitcoins aren’t printed, like dollars or euros, they’re produced by computers all around the world using free software.
It was the first example of what we today call “cryptocurrencies“.
Bitcoins share characteristics of traditional currencies while adding stronger verification and validation.
Cryptocurrencies are a growing asset class.
Who created it?
A software developer going by the name of Satoshi Nakamoto proposed bitcoin in 2008.
The developer’s idea was to produce a means of exchange, independent of a central authority, transferable in a secure and verifiable way.
The key characteristics are :
1 – Decentralization
There is no single institution that controls the network. It operates on an open network of decentralized computers spread around the world.
Transaction integrity is maintained by the transparency and distributed nature of the network.
2 – Limited supply
Fiat currencies (dollars, euros, yen, etc.) have an unlimited supply. Central banks can issue an unlimited amount, while attempting to manipulate their value relative to others.
A small number of new bitcoins generate every hour; and will do so at a diminishing rate until the current cap of 21 million coins is reached.
3 – Pseudonymity
Traditional electronic transactions consist of;
- legal compliance (anti-terrorism, regulatory)
Due to the decentralized network, users operate in semi-anonymity, as they do not need to identify themselves when buying or selling coins.
- Transactions consist of;
- checking previous transactions to confirm that the sender has the necessary bitcoin. (request)
- checking the authority to send them. (transfer)
- ensuring everyone has an up-to-date copy of the entire blockchain. (commit)
The system does not need to know his or her identity. Users are identifiable by the address of their wallet.
4 – Divisibility
The smallest unit of a bitcoin is called a satoshi. It is one hundred millionth of a bitcoin (0.00000001). This could conceivably enable micro transactions that traditional electronic money cannot.
Further Reading about Bitcoin
If you would like to explore further Bitcoin opportunities please take a look at our other article about trading bitcoins.