Introduction to Bitcoin — Beginner’s Guide
What is Bitcoin?
Bitcoin is a digital form of fiat currencies. However, Bitcoin is different from all fiat currencies in that it has no central financial body controlling it. The fascinating part about Bitcoin is that its financial system is run by myriads of computers located all over the world.
Then you wonder, where are all these computers located? They are actually not kept anywhere specific because anyone from anywhere can download the open-source software to participate in the ecosystem.
In 2008, the very first cryptocurrency, which is Bitcoin, was announced. It was launched in 2009. Bitcoins make it possible for users to transfer and receive digital money. Also called BTC which is the short form, it’s an interesting currency especially because it can’t be censored. Hence, implying that it is impossible to spend the same funds more than one time. Bitcoin is so convenient to use, even transactions can be done from anywhere, at any time.
What are the uses of Bitcoin?
There are many uses and applications of Bitcoin depending on the user. One fascinating nature of Bitcoin is the fact that it is permissionless. What does that mean? Bitcoin can be sent and received by anyone that has an internet connection. Just like fiat currencies, nobody can hinder you from using Bitcoin. Its digital presence makes it transferable to anywhere in the world.
Why is Bitcoin valuable?
Certain qualities are required before a currency can be accepted and used globally. Bitcoin meets all these requirements as it is secure, borderless, censorship-resistant, and decentralized. These qualities are quite appealing to make it useful for payments and international remittance. Compared to using a credit or debit card, your identity won’t be revealed when you use Bitcoin.
Most investors prefer holding bitcoins for the long term rather than spending them (this is termed hodling). It has been given a popular nickname as digital gold because of the limited supply of the coin. Because it is scarce, that makes it to be viewed as a store of value. It is hard to produce just like precious stones that are scarce and valuable such as silver or gold.
Investors have a belief that these characteristics, together with high liquidity and global presence make it perfect for holding wealth for a long period. It is believed that the value of Bitcoin keeps on increasing over time.
How does Bitcoin work?
Just like we stated that Bitcoin doesn’t have a centralized body for its transactions, it implies that Bitcoin works without a central bank. For instance, when Joe sends BTC to Sam, the transaction is not done conventionally. It’s different from handing Sam a $2 bill. But rather like Joe writing on a piece of paper that is open to all that he’s giving Sam $2. When Sam tries to send the same coins to Sarah, she can tell that Sam has the coins by checking the sheet.
That sheet is a specific type of database which is known as Blockchain. All network users have a similar copy on their devices. They connect to synchronize new information whenever they want.
When a payment has been made, it is broadcasted straight to the peer-to-peer network since Bitcoin is decentralized. No bank or financial institution is in charge of processing transfers.
If you need to add any new information, there’s a special mechanism known as mining that the Bitcoin Blockchain uses. This is the process used for recording new lists of transactions in the blockchain.