What is Bitcoin?
Bitcoin is a form of digital currency, created and held electronically. No one controls it. Bitcoins aren’t printed, like dollars or euros – they’re produced by people, and increasingly businesses, running computers all around the world, using software that solves mathematical problems.
Bitcoin can be used to buy things electronically but it is decentralized and not controlled by any single institution.
Bitcoin is created by a software developer called Satoshi Nakamoto which was an electronic payment system based on mathematical proof. The idea was to produce a currency independent of any central authority, transferable electronically, more or less instantly, with very low transaction fees. Bitcoin is created digitally, by a community of people that anyone can join. Bitcoins are ‘mined’, using computing power in a distributed network. This network also processes transactions made with the virtual currency, effectively making bitcoin its own payment network.
The bitcoin protocol – say that only 21 million bitcoins can ever be created by miners. However, these coins can be divided into smaller parts (the smallest divisible amount is one hundred millionth of a bitcoin and is called a ‘Satoshi’, after the founder of bitcoin).
Characteristics of Bitcoin:
- It is decentralized. Every machine that mines bitcoin and processes transactions makes up part of the network, and the machines work together. And if some part of the network goes offline for some reason, the money keeps on flowing.
- It is easy to set up. You can set up a bitcoin address in seconds, with no fees payable and no questions asked. This is unlike conventional banks requiring lots of form filling and checking to set up bank accounts.
- Transaction fees are miniscule. Banks might charge a premium for international transfers. However, Bitcoin does not.
- It is fast. You can send money anywhere and it will arrive minutes later, as soon as the bitcoin network processes the payment.
- It is non-repudiable. There is no getting back your sent bitcoins unless the recipient returns them to you.
- It is anonymous. Users can hold multiple bitcoin address which are not linked to names, addresses or other personally identifying information. However, bitcoin stores details of every single transaction that ever happened in the network called the blockchain. If you have a publicly used bitcoin address, anyone can tell how many bitcoins are stored at that address. They just don’t know that it’s yours.
This article is for general reference only.