Most of you reading this article for sure must have encountered the word ‘Bitcoin’ before and other than being an electronic currency you may not know much about it. This post is going to clear up most of the misconceptions about it and give a more general idea as to what it is and what it does.
Bitcoin (BTC) is an internet currency available to everyone in the world who has installed the Bitcoin program. It is designed to retain value over time and protect you during an economic crisis like the one the world is headed right now. It has a limited supply of 21 million Bitcoins in existence. This makes Bitcoin scarce, and you know, rare things are usually expensive.
In theory, if the demand for Bitcoin doesn’t stop its value should increase over time. However the traditional currencies like the US Dollar drop in purchasing power because of printing money when the market is in a crisis like the one that we are right now. This leads to undesirable results in the global economy and may have a worse impact than before printing them. Remember that 10 years ago, you could have bought more things for the same amount of money, right? This is the exact reason why the anonymous Satoshi Nakamoto created Bitcoin. To provide a form of currency that doesn’t lose value over time and is available to all people in the world.
Bitcoin compared to traditional currencies used in the world
No financial institutions, such as banks or governments, are involved. Direct, person-to-person transactions. Banks and governments can’t stop or put limits on your payments.
Transactions always must go through financial institutions. Multiple financial institutions mediate transactions. Each of them can stop the transaction or put limitations.
| Bitcoin international payments|
You can transfer Bitcoins of any amount to any country without any restrictions. Also it’s available 24/7 with a 99.98% uptime since 2009.
| Fiat international payments |
High fees, limits on maximum transfer amounts, limits on receiving countries, possible delay or stop of transfer. Banks usually operate only during working hours. Not on weekends or nights.
| Increases its value over time|
Only 21 million Bitcoins will ever exist for 7+ billion people. No printing of additional Bitcoins is planned. This makes them very rare, and if there is a constant demand, the price should theoretically increase over time.
| Decreases its value over time|
Central banks are printing more money, which increases the total amount in circulation. There is more money for the same availability of goods and services. As a result, prices rise, and you can buy less with the same amount of currency.
But How does Bitcoin work?
Bitcoin works in a decentralized way. People who have installed the Bitcoin program are connected directly to each other. Everyone keeps the full record of all BTC transactions. This way, the power to control Bitcoin is distributed evenly between all users. All transactions are open and visible by everyone, unlike with banks, where your balance is private.
Let’s see it visually with this experiment.
- Alice sends Bob 1.2 Bitcoins. This transaction is recorded in the blockchain and has a password.
2. All miners individually verify that Alice has enough balance to send. And after they compete to guess the block password.
3. After the block is found Bob receives the 1.2 BTC.
4. The transaction is permanently recorded on the blockchain and cannot be reverted.
P.S Here we are not explaining the logic behind miners and blocks just a general idea of how it works.
How to store Bitcoin?
There are different ways that you can receive and store your Bitcoins and there are called Wallets. A Bitcoin wallet can store, send, and receive Bitcoins. It creates a Bitcoin or other cryptocurrency address. Wallets allow you to store and manage your coins. A Bitcoin wallet consists of a wallet address and private key (password). You can freely share your wallet address, but you have to keep your private key safe otherwise, others can spend your Bitcoins.
How to buy Bitcoin?
You have to be careful with this step because there are a lot of scams going around the web. But the methods used more commonly are through PayPal, Credit/Debit Card with Cash or even Bank transfers. We recommend buying Bitcoin from Coinbase or Binance, as they are the most beginner-friendly exchanges.
To answer what everyone first question is Yes, you can buy Bitcoin for any amount, small or big. The smallest part of Bitcoin you can have is 0.000 000 01 BTC. This is 8 zeros behind the decimal point.
The smallest amount of Bitcoin is also called 1 satoshi, named after the anonymous creator of Bitcoin – Satoshi Nakamoto.
How are Bitcoins Created?
Bitcoin is designed to bring new coins into circulation when a new block is added to the blockchain. These newly created coins are given to the miners, who add blocks to the blockchain. The first coins were created with the “genesis” or first block by Satoshi Nakamoto, the creator of Bitcoin. Now, the Bitcoin blockchain has around 600,000+ blocks and 18+ million Bitcoins in circulation.
What is the Blockchain?
The blockchain is a way of storing a record of all Bitcoin transactions. Blockchain allows all users in the world to see the same history of transactions. This makes it possible to collectively verify and secure the network. No central institution, such as a bank, is needed.
All Bitcoin transactions are written in one place called a block. There is a new block of transactions every 10 minutes. When those 10 minutes pass this “new block” is attached to the last block forming a chain of blocks or blockchain. This chain of blocks cannot be modified and remains permanently visible. Everyone sees the same list of transactions using block explorers.
But all this said is it Secure? The Bitcoin network has never been breached. Only services on top of Bitcoin, like cryptocurrency exchanges, have been breached. This is a result of their poor security practices. We advise storing your coins on a hardware or paper wallets as the most secure ways.