What is Bitcoin?

What is Bitcoin?

Bitcoin (bit – a basic unit of information + coin) is a payment system based on P2P (peer-to-peer) technology. Its operation principle is based on an open data transfer protocol. The system utilizes the payment unit of the same name “Bitcoin” – the first and most renowned cryptocurrency. Bitcoin is completely decentralized and that is its main feature.

 

What does it mean?

Bitcoin operates with no regulation from any supervisory agency or central bank. Network participants produce coins and process transactions collectively. Therefore, no one can own or control Bitcoin, block or cancel any transaction, and anyone is free to join the network at any time.

What is the difference between Bitcoin from Yandex.Money, WebMoney, or Qiwi?

Yandex.Money, WebMoney, and Qiwi are all payment systems used to carry out transactions with various “traditional” currencies like roubles, hryvnias, dollars, euros, and so on. Technically, these are electronic money equivalents to their denomination in one or another currency.

Bitcoin is generated by users employing their available computer power. Its price has a certain market value. Bitcoin owners do not need to pass a cumbersome and often lengthy authentication procedures connected with uploading personal identification papers. Besides, transactions in the cryptocurrency are notable for low commission fee levels.

 

How can Bitcoins be used?

Bitcoin is a relatively young phenomenon. Nonetheless, there are lots of opportunities for using it as a payment means when buying real commodities or services.

This includes almost free money transfer services between users, and it does not matter how far the sender and the recipient are located from each other. You can pay with Bitcoins in some catering establishments and hotels, buy air tickets, digital content, website hosting and domains, pay for training courses, software, taxi services, and things purchased in online stores. There are also specialized service providers allowing you to top up your cell phone accounts, using Bitcoin. A growing number of online casinos also allow you to make a deposit in this cryptocurrency.

It is also possible to find examples when expensive acquisitions like real estate property, cars, and yachts were made using the digital currency.

Finally, many enthusiasts regard Bitcoin as an attractive long-term investment and trading asset.

 

Who invented Bitcoin?

The concept of Bitcoin was initially described in a technical paper published on October 31 in 2008. Satoshi Nakamoto was its author, but it is still uncertain who exactly goes by this name: one person or a group of developers. The existing development community is now responsible for further development and the network functioning coordination. Nonetheless, it does not mean only the developers can make decisions about which direction Bitcoin will follow. Any significant changes in the protocol are possible exclusively after they are agreed among the majority of the mining pools which are associations of computer facilities owners being Bitcoin producers.

 

How are new Bitcoins produced?

New Bitcoins production can be compared with the physical currency issue. It is just that instead of government institutions printing new bank bills, the cryptocurrency is generated by the network users themselves. This production is called “mining”. It is based upon solving complex mathematical problems by computers. At the same time, the computers are located in various parts of the world, and the miners are pooled to achieve greater efficiency. They receive a certain reward for their work, of course.

 

Anecdotal evidence suggests Bitcoin is a financial pyramid…

It is not true. A financial pyramid, which promises unrealistically high profits, anticipates that the income of its partakers is provided by the constant money raising. First financial pyramid participants receive income at the expense of the subsequent participants’ investments, and as soon as the money inflow interrupts, the entire structure falls apart, leaving a small part of the “chosen ones” with the “gain”.

Bitcoin does not make any promises about benefits to investors. There is only one assurance – a complete control over internal financial assets. Early network participants do not receive any dividends from newcomers even if you agree with the assumption that the demand for the cryptocurrency, caused by beginners or professional investors, can lead to a substantial increase in its rate. Finally, the fully distributed nature of Bitcoin itself means there is no single central institution which could make financial gains.

 

What is the Bitcoin’s value based on?

Some people have an opinion that the Bitcoin’s value is not backed up with anything. According to James Rickards, bestselling author of “Currency wars”, any currency which has existed throughout history is supported by the confidence. The same applies to a cryptocurrency. In the Bitcoin community, this confidence is called consensus.

The Bitcoin’s value is also derived from its network effect: the more users take part, the higher its price is. Still remaining an experimental technology, Bitcoin is subject to significant fluctuations in the rate of exchange, and this feature is actively used by traders and ordinary currency holders.

The Bitcoin limited emission and the fact that it is necessary for the functioning of the blockchain – the distributed registry technology with rapidly growing popularity – also add to its value.

 

To what extent Bitcoin emission is limited?

A new Bitcoin is generated each time a new transaction block is found. Each such block is created periodically: 6 units per hour. The number of Bitcoins in the block decreases geometrically – every four years, a so-called “halving”, i.e. reward reduction, occurs. Therefore, a precisely set up schedule of Bitcoin emissions is available, and the total amount of Bitcoins, which will ever be produced, is also known: 21 million. The last issue is due in 2140.

 

They say that Bitcoin is anonymous. Is it really so?

It is one more widespread misconception. We can rather talk about pseudo-anonymity. In fact, the relationship between the sender or the recipient identity in the transaction and the Bitcoin address that belongs to it is anonymous. Any person can see the flow of funds and the current Bitcoin address balance, but it is often impossible to pinpoint whom they really belong to.

However, with ample desire, it is possible to track the sender’s IP address even if it is not stored in the blockchain. For instance, some Bitcoin wallet providers, who own dedicated servers, have access to this data. Theoretically, this peculiarity provides the possibility of establishing the sender’s identity too, which may well be used by law enforcement staff or specialized government agencies combating online crime.

 

Where to buy Bitcoin

There are several quite reliable and quick ways to buy Bitcoins. First of all, it can be done using dedicated currency exchange platforms. To start with, it is necessary to replenish your account balance with one of the available methods and purchase the cryptocurrency after that.

Then, it can also be done via various exchange services. On these websites, you can buy Bitcoin for traditional currencies (dollar, rouble, or hryvnia) and using various payment systems like WebMoney, Perfect Money, OKPay, or Payeer.

Some services offer to buy cryptocurrency using bank cards. It mainly applies to North America and Western Europe. Bitcoin can as well be bought during a previously arranged in-person meeting with a party interested in the transaction. However, this approach poses a threat of encountering fraudsters. Therefore, it is better to use it exclusively as a last resort measure.

Read more on Bitcoin:

How Do Bitcoin Transaction Work?

How Does Bitcoin Mining Work?

How to Buy Bitcoins?

How to Sell Bitcoin?

What is Bitcoin?