Bitcoin is a decentralized digital currency created in January 2009. It follows the ideas set out in a white paper by the mysterious and pseudonymous Satoshi Nakamoto.
The identity of the person or persons who created the technology is still a mystery. Bitcoin offers the promise of lower transaction fees than traditional online payment mechanisms do, and unlike government-issued currencies, it is operated by a decentralized authority.
Bitcoin is known as a type of cryptocurrency because it uses cryptography to keep it secure. There are no physical bitcoins, only balances kept on a public ledger that everyone has transparent access to (although each record is encrypted). All Bitcoin transactions are verified by a massive amount of computing power via a process known as “mining.” Bitcoin is not issued or backed by any banks or governments, nor is individual bitcoins valuable as a commodity. Despite it not being legal tender in most parts of the world, Bitcoin is very popular and has triggered the launch of hundreds of other cryptocurrencies, collectively referred to as altcoins. Bitcoin is commonly abbreviated as BTC when traded.
What is Peer-to-Peer Technology?
Bitcoin is one of the first digital currencies to use peer-to-peer (P2P) technology to facilitate instant payments. The independent individuals and companies who own the governing computing power and participate in the Bitcoin network—Bitcoin “miners”—are in charge of processing the transactions on the blockchain and are motivated by rewards (the release of new Bitcoin) and transaction fees paid in Bitcoin.
Bitcoin is a decentralized digital currency that you can buy, sell and exchange directly, without an intermediary like a bank. Bitcoin’s creator, Satoshi Nakamoto, originally described the need for “an electronic payment system based on cryptographic proof instead of trust.”
Each and every Bitcoin transaction that’s ever been made exists on a public ledger accessible to everyone, making transactions hard to reverse and difficult to fake. That’s by design: Core to their decentralized nature, Bitcoins aren’t backed by the government or any issuing institution, and there’s nothing to guarantee their value besides the proof baked in the heart of the system.
Bitcoin is built on a distributed digital record called a blockchain. As the name implies, blockchain is a linked body of data, made up of units called blocks that contain information about each and every transaction, including date and time, total value, buyer and seller, and a unique identifying code for each exchange. Entries are strung together in chronological order, creating a digital chain of blocks.
Thus, bitcoin and other cryptocurrencies work differently than fiat currencies; in centralized banking systems, money is issued at a rate corresponding to the growth of goods; this system is designed to maintain price stability. The vast majority of bitcoin transactions take place on a cryptocurrency exchange and not in transactions with merchants. Rather, they buy and sell bitcoins and other digital currencies in any of the many popular online markets known as bitcoin exchanges.
Each bitcoin is essentially a computer file, stored in a digital wallet application on a smartphone or computer. People can send Bitcoins (or part of them) to your digital wallet, and you can send bitcoins to other people. This transaction log is maintained between computers connected to the distributed network.
The Financial Crimes Enforcement Network of the United States (FinCEN) has formulated regulatory rules for “decentralized virtual currencies” such as Bitcoin, and classifies Bitcoin miners in the United States who sell their generated Bitcoins as a money service business (MSB) and must comply with them Registration or other legal obligations. The decree caused a chill in global cryptocurrency exchanges around the world, and fear caused Bitcoin to quickly depreciate.
People can send bitcoins to each other using mobile apps or their computers. It’s similar to sending cash digitally.
People compete to “mine” bitcoins using computers to solve complex math puzzles. This is how bitcoins are created. Currently, a winner is rewarded with 12.5 bitcoins roughly every 10 minutes.
Because of its status as the most popular digital currency in the world, the Bitcoin community itself has become a standard, just like the exchanges announced by Wall Street, London, and Japan. The cryptocurrency known as Bitcoin has spread all over the world, and many people see it as the future of the currency as we know it. Others hold a stricter view of virtual currencies and are skeptical of their lasting value and environmental impact. However, the influence of this digital currency is undeniable, and it has triggered a cryptocurrency boom around the world.