What is Bitcoin?
Bitcoin is a digital currency created in January 2009. It follows the ideas set out in a white paper by the mysterious Satoshi Nakamoto, whose true identity has yet to be verified. Bitcoin offers the promise of lower transaction fees than traditional online payment mechanisms and is operated by a decentralized authority, unlike government-issued currencies.
There are no physical bitcoins, only balances kept on a public ledger in the cloud, that – along with all Bitcoin transactions – is verified by a massive amount of computing power. Bitcoins are not issued or backed by any banks or governments, nor are individual bitcoins valuable as a commodity. Despite it not being legal tender, Bitcoin charts high on popularity, and has triggered the launch of other virtual currencies collectively referred to as Altcoins.
How Bitcoin Works
Bitcoin is the first successful digital currencies to use peer-to-peer technology to facilitate instant payments by using a blockchain. The independent individuals and companies who own the governing computing power and participate in the Bitcoin network, also known as “miners,” are motivated by rewards (the release of new bitcoin) and transaction fees paid in bitcoin. These miners can be thought of as the decentralized authority enforcing the credibility of the Bitcoin network. New bitcoin is being released to the miners at a fixed, but periodically declining rate, such that the total supply of bitcoins approaches 21 million. One bitcoin is divisible to eight decimal places (100 millionths of one bitcoin), and this smallest unit is referred to as a Satoshi. If necessary, and if the participating miners accept the change, Bitcoin could eventually be made divisible to even more decimal places.
Bitcoin mining is the process through which bitcoins are released to come into circulation. Basically, it involves solving a computationally difficult puzzle to discover a new block, which is added to the blockchain and receiving a reward in the form of a few bitcoins. The block reward was 50 new bitcoins in 2009; it decreases every four years. As more and more bitcoins are created, the difficulty of the mining process – that is, the amount of computing power involved – increases. The mining difficulty began at 1.0 with Bitcoin’s debut back in 2009; at the end of the year, it was only 1.18. As of February 2019, the mining difficulty is over 6.06 billion. Once, an ordinary desktop computer sufficed for the mining process; now, to combat the difficulty level, miners must use faster hardware like Application-Specific Integrated Circuits (ASIC).
Who Invented Bitcoin?
The simple answer is that nobody knows. Satoshi Nakamoto is the name associated with the person or group of people who released the original Bitcoin white paper in 2008 and worked on the original Bitcoin software that was released in 2009, a year after the US economy went into a recession due to the housing market crisis. He embedded a string of text into block number 0 of the first mined block of bitcoin: “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.”
Bitcoin vs Fiat Currency
Fiat Currency, which is a currency that is not backed by anything but a government promise (The US dollar, the Euro, etc). This allows governments to print as much of the currency as they please using an inflationary model, which in turn devalues the currency already in circulation. Take a US dollar bill for example. Every year, the dollar is worth less and less, meaning you have less buying power than the year before, which is why prices for various things tend to increase over time, like the housing market or food in general. This is not sustainable; It has been shown throughout history that Fiat currencies always fail, because if you continue to print money, eventually, it becomes worthless. This is where Bitcoin shines. It is based on a deflationary model, which means every year less and less are made, until no more are created. This increases the buying power you have over time and give you direct control of your money, rather than the banking industry and government.
Receiving Bitcoin As a Form of Payment
Bitcoins can be accepted as a means of payment for products sold or services provided. If you have a brick and mortar store, just display a sign saying “Bitcoin Accepted Here” and many of your customers may well take you up on it; the transactions can be handled with the requisite hardware terminal or wallet address through QR codes and touch screen apps. An online business can easily accept bitcoins by just adding this payment option to the others it offers, like credit cards, PayPal, etc. Online payments will require a Bitcoin merchant tool (an external processor like Coinbase, CryptoCurrencyCheckout or a variety of website plugins).
Bitcoin and Privacy
Bitcoin is a great store of value, but it’s privacy features leaves a lot to be desired. Although your public address for your Bitcoin wallet may seem like random numbers and letters in a list of millions of other Bitcoin wallets, it is far from anonymous and private. Think of it like a bank account without a name attached. All of your transactions are recorded; amounts, dates, times, etc. Thus, your entire history is easily shown for the world to see. It has been proven that in most cases, government agencies can easily find out what wallet belongs to which person by a variety of methods they use. Bitcoin is no longer like dealing in cash, which is untraceable when given from person to person in a private setting. This is where anonymous currencies like Pirate Chain come in.