Bitcoin (BTC) is a digital currency that can be used like cash as a form of payment for goods and services. It is the first and largest cryptocurrency among thousands of others. Bitcoin is sent back and forth between people through mobile devices and digital wallets instead of traditional methods like swiping a card or using a bank.
Bitcoin is different from traditional currency like dollars or Euros because no central bank or government controls it. Instead, it operates on a technology called blockchain. A blockchain is a database that keeps records of account balances and the movement of transactions from one account to another.
Transaction data such as the amounts of Bitcoin sent between accounts on the blockchain are permanent and cannot be changed. This record of transactions is public, stored, and duplicated across many computers.
Anyone can view the records, but cannot identify who made a transaction because Bitcoin “accounts” are represented by a unique address made of random numbers and letters rather than a person’s name. This unique address is called a public key. It is similar to that of an email address: those that know it can send you an email, whereas those that know your public key address can send you Bitcoin.
Bitcoin and blockchain technology provide a new way to send money from person to person without an intermediary. Funds can be sent directly to others and as easy as sending an email halfway around the world.
Who Created Bitcoin?
Bitcoin was created by an unknown person or group under the name of Satoshi Nakamoto in 2008 as a new form of payment system that is not controlled by any government or central bank. This new system aims to create a new financial infrastructure where money and value can move between people, instead of through institutions.
What Makes Bitcoin Different from Cash?
It is Decentralized
No single group, government, or entity controls Bitcoin. It is decentralized in the sense that the Bitcoin blockchain is distributed across the globe. The rules of how Bitcoin works and operates are based on publicly available computer code that is transparent to everyone.
Traditional currencies like dollars are centralized because a central bank maintains the control and issuance of its nation’s currency.
There is No Middleman
Bitcoin can be held in exchanges, a hardware wallet, or in a mobile wallet. A wallet gives you 100% control over your Bitcoin because it is not stored with a central authority like a bank. However, holding Bitcoin in a wallet requires you to manage a private key.
A private key is a unique “password” in the form of a 12-24 word passphrase. With a private key, you gain access to a unique public key address where your Bitcoin is stored. Similar to how sending an email requires you to have an email address and password, a private key (the password), and a public key address (like an email address) lets you send and receive Bitcoin.
Example Public Key: 1A1zP1eP5QGefi2DMPTfTL5SLmv7DivfNa
Example Private Key: dog collapse road cat fire again egg banana alligator apple lake close
DO NOT share your Private Key to anyone as they will have full access to your Bitcoin. DO NOT lose your Private Key as you will lose all access to your Bitcoin.
By being in control of your private keys, there are no middlemen like banks or institutions that hold your currency. Your funds will never be confiscated or locked up.
Bitcoin Transactions are Public
Although Bitcoin transactions are public between addresses, they are still anonymous to some degree because of the randomized public addresses. We are able to see how the cryptocurrency moves using a Blockchain Explorer but we do not know who owns each address.
Bitcoin is Scarce
The supply of Bitcoin is 21 million and no more can be created as this rule is built into its code.
The fixed supply of Bitcoin can be compared to that of gold. There is only a fixed amount of gold on the planet, either in the ground or already mined. With Bitcoin, 19 million of the 21 million supply is currently mined with the remainder to be mined by the year 2140.
Mining gold requires the use of heavy equipment to extract the rock out of the Earth. With Bitcoin mining, computers and electricity are used to “mine” the cryptocurrency. These computers are spread out across the world and solve complex mathematical problems to mine the next amount of Bitcoin. As of 2021, a predictable amount of 6.25 Bitcoin is mined every 10 minutes. This amount is halved every 4 years, decreasing the rate at which Bitcoin is made available.
The predictable creation and fixed supply provide a new monetary system that is transparent, where money cannot be printed out of thin air.
You are Your Own Bank
Permission is not required to use Bitcoin. Anyone can buy and use cryptocurrency either through an exchange or from someone that is willing to sell theirs. Bitcoin is not limited by borders, nations, or countries.
As a global currency, Bitcoin can be exchanged for goods and services to those who accept it. You do not need to convert it when crossing borders.
With the use of a wallet, your funds are never restricted. As long as you own your private keys, you are your own bank.
What Makes Bitcoin Risky?
Volatile Price
There are always risks with new technology and Bitcoin is no different. One of the biggest risks is the price. Volatile day-to-day price movements make it difficult to correctly price goods and services in Bitcion.
High Transaction Fees
When Bitcoin is sent from one person to another, a fee is incurred that is paid to the miners for validating the transaction. If the blockchain network is congested with many transactions occurring at once, these fees can be large.
Loss of Private Keys
Another risk of holding cryptocurrency in your own wallet is losing your private keys. Always make a few copies in pen and paper and securely store them in multiple locations.
Government Regulation
The potential for the government to ban cryptocurrency and impose heavy regulations is probable as it threatens the traditional monetary system. However, the growth and anonymity of Bitcoin and blockchain technology has made it difficult for nations to put limits on digital currency.
Telling People you Own Bitcoin
By telling people you own cryptocurrency, you put yourself at risk of becoming a target. Keep your assets safe by not telling anyone what or how much you own.
