In 2008, shortly after the big economic crisis of the time, a new concept of money and assets called Bitcoin was presented, which, according to many economists, could transform the future of the world economy, or at least the beginning of this trend. Bellow we will show you how Bitcoin works and how to buy Bitcoin.
In simple terms, Bitcoin is a digital currency and a network for direct payments without intermediaries.
The thing that distinguishes Bitcoin from other moneys is decentralization. Decentralization means that no one can control the network alone and nobody owns it. No bank, institution or government controls Bitcoin. In fact, Bitcoin control is at the hands of all its users.
In traditional ways to transfer money, you need to trust intermediaries and institutions like the bank, but with Bitcoin you can send the entire world, directly and peer to peer without having to trust any institution.
Note that Bitcoin does not have any physical form, and is only digitally transmitted.
Bitcoin can be used as a common currency to buy goods, exchange and transfer money, and also can be used for investment as gold. BTC is the Bitcoin Exchange Abbreviation.
A few key features of Bitcoin that distinguish it with fiat currencies
The most important feature of Bitcoin is its decentralization. As we said, there is no real person or legal person controlling Bitcoin network. Bitcoin is controlled by anyone connected to the network. Anyone anywhere in the world can connect to Bitcoin network with his computer with the right to control the network. This feature has made people who do not trust financial institutions attract Bitcoin.
In a traditional way, a bank or financial institution is responsible for verifying transactions. This means that it is possible to prevent and control transactions by that entity, but in Bitcoin, no valid transaction will be prevented.
Bitcoin solved the “double-spend” problem (where digital assets could be copied and re-spent) using sophisticated cryptographic techniques. In traditional electronic systems, the problem of double spending has been solved by banks, but in Bitcoin, which is a completely open network, transactions are performed by all users who are connected to this network.
Bitcoin’s total supply limited
Contrary to popular currencies (Fiat – without backing), such as Dollars and Euros, which will be issued to unlimited quantities by governments, the number of Bitcoin units is limited. The Bitcoin protocol specifies that Bitcoins are limited, and their number is only 21 million units. Since anyone who connects the Bitcoin network accepts the protocol and the rules, after reaching Bitcoins to 21 million units, no other Bitcoins will be mined. This issue has been proven mathematically.
Who issues Bitcoin units?
Bitcoin units are not produced by any specialist organization. Some people called the miner can use their computing power to maintain Bitcoin network security. During this process, Bitcoin is produced and awarded to miners as rewards.
Limited Bitcoin units will scarcity, non-inflation, and value over time. Because of this Bitcoin feature, many people buy and retain Bitcoin as a tool for investing and saving value (like gold).
In traditional e-payment systems, customers usually need to register or open an account with their identification. But in Bitcoin, users are somehow semi-anonymous. To send Bitcoin you do not need to provide user details or even email. The Bitcoin protocol is designed to not require user identity information to verify transactions. In Bitcoin, each user is identified with his wallet.
Bitcoin transactions are transparent, that is, anyone who wants to track a transaction, but not the meaning of revealing the identity of users, and can only see the wallet addresses.
Bitcoin exchanges, however, are attempting to do KYC of their users to prevent criminal activity, so that they can be prosecuted if they commit any crime with Bitcoins. That’s why Bitcoin will not be a good way to commit crimes or money laundering.
When a Bitcoin transaction is performed, it can not be reverted. Transactions can be manipulated in traditional systems, but when a transaction is confirmed in Bitcoin, that transaction is sent to all members of the network as a confirmed transaction. Hence, no one else can turn that transaction back.
- Bitcoin (BTC) is a cryptocurrency that is electronically transmitted and used. Bitcoin is not a physical and tangible currency.
- Bitcoin is a peer-to-peer network that is not controlled by any central authority or organization.
- The number of Bitcoin units is limited to 21 million, therefor only 21 million units of Bitcoin will finally exist.
How Bitcoin works: infrastructure and mining
Bitcoin works on a decentralized database called blockchain. In simple, it is a digital notebook that can be distributed and unaltered.
This information can be anything, but in Bitcoin, information is stored on the blockchain, the history of transactions.
The history of all Bitcoin transactions is recorded on a digital ledger called the blockchain. Anyone who connects to the Bitcoin network (known as the node) receives a full copy of the blockchain. Each transaction sent to Bitcoin is checked by these computers connected to the network, and each computer validates that transaction. A group verifies the transaction and other group considers it to be invalid. Finally, the majority will determine if the transaction is valid.
If the transaction is confirmed by computers connected to the network, it will be logged on a piece of ledger called block. Then, after a certain time, a block will be interconnected to the last confirmed block, so they form the blockchain.
Because Bitcoin is a decentralized currency and requires decentralized distribution and approval of transactions to survive. Mining is a kind of competitive process that has been designed in Bitcoin protocol to motivate the network’s sustainability and new Bitcoin production. In this operation, in order to record a block on the blockchain, the miners must solve a mathematical problem which needs massive computations and anyone who responds sooner can get the block reward. Mining requires huge computing power.
In order to secure the network and delay in production of new Bitcoin units, mining will become harder over time, with less rewarding. At the moment, 12.5 Bitcoin is generated every 10 minutes. This reward is halved every 4 years. So far, more than 17 million units have been mined. It is anticipated that the mining of all
Who invented Bitcoin?
In late 2008, Bitcoin’s whitepaper was first introduced and then officially Bitcoin network launched in 2009. Bitcoin’s whitepaper featured the nickname Satoshi Nakamoto as the prototype builder. However, now that more than 10 years have passed since the birth of Bitcoin, the true identity of Satoshi Nakamoto is still unclear, and there are only a few uncertainties about it.
Satoshi Nakamoto can be a real person, a programming group, a government, or anything else. At the time of making Bitcoin, Satoshi Nakamoto has taken about 1 million units of Bitcoin, a huge amount of value at the current price. With that amount of assets, if his identity was clear, today he would be considered one of the richest people in the world.
What determines Bitcoin value?
Bitcoin prices are up and down like any other product according to supply and demand. By increasing the demand for Bitcoin, the price increases, and as demand declines, the price falls. Bitcoins will be available in a limited number of 21 million units, which is why scarcity has a significant role in increasing demand, which is associated with a lack of supply.
What is Bitcoin backing?
The beginnings of the Bitcoin market and the lack of proper regulatory up to this time have made the market extremely volatile and overwhelming. Fluctuations that take place in the stock market over a one-year period can be done for Bitcoin. There is also the possibility of artificial manipulation in Bitcoin market, which doubles the risk of investment.
Where to store our Bitcoins?
In cryptocurrency space to save money, you do not need to open accounts in banks or centralized companies. In this space you are your own bank. A cryptocurrency wallet is a tool for storing, sending and receiving cryptocurrencies. Bitcoin users can use different types of wallets.
For Bitcoin, there are different types of wallets for the needs of users. Mobile wallets, desktop wallets, web wallets, paper wallets, and hardware wallets are the most important wallet types.
Mobile wallets, desktops, web and paper are free and users can download and install them easily. However, hardware wallets have to be purchased because of being physical.
Bitcoin Core is the official client and wallet that connects users directly to the Bitcoin blockchain. Using this wallet requires downloading more than hundreds of Gigabytes of information (whole blockchain) and powerful hardware specifications that are not recommended for newbie users.
Instead, there are simpler and much less expansive options for beginners who are advised to use them. You can download and install the most reliable Bitcoin wallets for free on your device (mobile, desktop, or web) by visiting the official Bitcoin site.
Some wallets can simultaneously store multiple cryptocurrencies. Note that Bitcoin transactions are non-reversible and Bitcoin network is not under control of any organization. For this reason, be sure to back up your wallet so that in case of any problem for the device where the wallet is installed, you can retrieve your money back on another device. Also, do not give your wallet to anyone else in any way.
You can buy Bitcoin from Bitcoin seller sites or directly through other people. You can buy Bitcoin from sites or individuals in a variety of ways, such as credit cards, online accounts, or even with other cryptocurrencies.
To buy Bitcoin, consider the following process:
- Set up a Bitcoin wallet
- Find a valid Bitcoin seller (website or individual)
- Transferring money to the vendor and giving the wallet address to receive purchased Bitcoins (some websites have wallets themselves)
- Transferring Bitcoin from vendor to your wallet
Valid vendors require KYC when you buy with fiats, to decrease the risk of potential fraud.
Can Bitcoin be hacked? What is the security of Bitcoin?
In theory any network has an influential way so that that bitcoin is not an exception. On paper, any kind of encryption is breakable. But it can be said that hacking the network and double spending in Bitcoin is almost impossible due to its current extent. Bitcoin’s main network has not been hacked so far and there has not been a double spending so far in Bitcoin, and it will probably not happen forever.
Bitcoins wallets and exchanges can be hacked, and so far there have been several major hacks in the field, but the Bitcoin network itself has not had any security problems so far. This can be compared to the Internet. Hacking a website on the Internet does not mean hacking the Internet itself.
There are a number of ways to hack the Bitcoin network. 51% attack is the most important attack. This attack requires very much massive computing power, so that you can take over 50% of network processing power. Due to the breadth of the Bitcoin network and the high cost of attacking, there is no incentive to do this, and it can be almost impossible.