What is Bitcoin?

To start off we need to separate bitcoin into two different components. First, you have Bitcoin the token, some code that represents ownership of a digital coin, kind of like a virtual IOU. Secondly, we have the protocol, a distributed network that keeps track of a ledger of balances of the Bitcoin tokens in circulation. Both of these components are today referred to as “Bitcoin“.

These two components together enable payments and transactions to be sent between users without passing through a centralized authority, such as a major bank or a payment gateway (Visa, Mastercard). Bitcoins aren’t printed like traditional currency either, they are “mined” by computers and users all over the world using free software.

Bitcoin was the first cryptocurrency and is leading the way for a growing asset class that shares similarities with standardized currencies with verification based on cryptographic hashes.

Who created Bitcoin?

The term Bitcoin was first introduced by the internet pseudonym Satoshi Nakamoto in 2008. “Satoshi” proposed bitcoin as a mathematically based electronic payment system.

How is it different from traditional currencies?

Bitcoins biggest trait is that it is decentralized- No single company or institution owns and controls the bitcoin network. Instead, the network is maintained by a large group of volunteers and run by an open source network spread all around the world.

Decentralization

Bitcoin solves the famous “double spending issue” of electronic currencies through a genius combination of cryptography and economic mining incentives. In the traditional fiat world, this problem is solved by the banks and the centralized institutions which gives them the control over the system. With bitcoin, the integrity of all transactions is handled by the open network and owned by no-one.

Limited supply

Traditional currencies (USD, GBP, EUR, etc) have an unlimited supply, meaning central banks can issue as many as they wish and can try to manipulate the currency value in relation to others.

With Bitcoin, however, the supply is controlled by the underlying algorithm. A fair portion of new bitcoins are being created every hour and will do so at a decreasing rate until 21 million has been distributed. This limited supply makes Bitcoin very attractive as an asset. If demand grows in the future the value will naturally increase since the supply remains the same.

Anonymity

Every user of Bitcoin is anonymous to one another. Since there is no central validating party users of the bitcoin network do not have to. identify themselves to send bitcoin to another user. Instead, when a transaction is submitted to the network the bitcoin protocol checks the blockchain of all the previous transactions to see that the sender has enough bitcoins in its wallet.

Immutability

Transactions sent through the bitcoin network cannot be reversed. Unlike with traditional fiat currency transactions.

Sinc there is no central authority that can decide if money should be returned. As soon as a transaction is recorded on the network and if it has been verified (usually takes one hour) it is impossible to change.

This may sound scary, but this concept is also what makes bitcoin impossible to tamper with.