What is bitcoin?

Crypto for Beginners
> 3 min. read
What is bitcoin?

Bitcoin is a decentralized digital cryptocurrency that was first introduced in January of 2009, and it is the biggest and most valuable crypto today. It is based on ideas presented in a white paper by Satoshi Nakamoto, a mysterious and pseudonymous figure. The name of the individual or people who invented the technique remains unknown. Bitcoin promises reduced transaction fees than existing online payment methods, and it is run by a decentralized authority, unlike government-issued currencies. Bitcoin is classified as a cryptocurrency since it is protected by encryption. There are no real bitcoins; instead, balances are recorded on a public ledger that anyone can see (although each record is encrypted). A large amount of computational power is used to verify all Bitcoin transactions, a process known as "mining." Bitcoin has 8 decimals.

Bitcoin is not issued or backed by any banks or governments, and a single bitcoin has no monetary value. Even though Bitcoin is not legal cash in most parts of the world, it is extremely popular and has sparked the creation of hundreds of rival cryptocurrencies known as altcoins. When Bitcoin is exchanged, it is typically abbreviated as BTC. Many companies are already offering an option to pay for their products or services with Bitcoin or other cryptocurrencies.

The most famous Bitcoin transaction is from 22nd of May 2010, when Laszlo Hanyecz paid 10.000 Bitcoins for the delivery of two pizzas. In 2010 the value of it was around 40 dollars, but if he would hold the coins until today, he would have around 378 million dollars in his account.

How Bitcoin works

With the help of its underlying technology, blockchain, Bitcoin can eliminate intermediaries. If you need to send money to someone right now, one option is to give them cash, or you can utilize a reputable middleman (example, a bank). Both techniques, whether actual currency (guaranteed by the country's central bank) or electronic transfer, require an intermediary (in the latter case, a bank, or another financial institution). There are transaction expenses when intermediaries are engaged. By replacing the confidence that middlemen bring to the table with cryptographic proof using CPU computing power, blockchain technology aids in the elimination of intermediaries.

By downloading or registering to required exchange, anyone may build a Bitcoin wallet for free. A public key and a private key are stored in each wallet. The public key functions similarly to an address or account number, allowing anybody to receive Bitcoins. A private key function similarly to a digital signature in that it allows a person to send Bitcoins. The name implies that private keys should be kept and known only by the owner, but public keys can be shared with anybody for the purpose of receiving Bitcoins. You may have heard of Bitcoins being lost in the press owing to a private key not being accessible or being stolen by hackers. The owners of Bitcoin addresses aren't revealed, but all transactions on the blockchain are open to the public.

Every transaction that has occurred since the creation of Bitcoin in 2009 has been recorded in a ledger that is regarded immutable, non-tamperable, and irreversible. Bitcoin transactions are confirmed using cryptography by telecommunication network nodes and then stored in a decentralized distributed ledger known as blockchain. This is one of the features that distinguishes Bitcoin from other crypto assets, which require all transactions to be routed or approved through a centralized exchange (like a stock market).

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