What is Bitcoin?

So, what exactly IS a Bitcoin?

Bitcoin is a cryptocurrency and a peer-to-peer, digital payment system that ensures trust without a 3rd party (central banks, governments, etc.). It’s also the first ever implementation of a blockchain technology. By design, there are a finite number of Bitcoin that will ever be in existence; it’s capped at 21 Million BTC.  As of 7/8/2017, there are ~16.5 Million BTC in circulation. It trades under the symbol BTC on cryptocurrency exchanges.

How does Bitcoin work?

All cryptocurrencies rely on a peer-to-peer network of computers to calculate the algorithms required for encrypting the transactions it’s tracking. The network isn’t owned by a single entity, rather it is distributed among all those who choose to participate. Since ownership is dispersed throughout the network, blockchain technologies are commonly referred to as “de-centralized” ledgers. To incentivize people to use their CPU for encrypting, tracking, and storing the blockchain that Bitcoin runs on, Bitcoin are awarded to people who “mine” for them.

“Mining” is the act of computing the answer needed to encrypt and record transactions to the blockchain–i.e. adding a new block to the blockchain. Mining has become a big business in and of itself with server farms of graphic processing units (GPUs) set up to run these computations and earn Bitcoin. Although there will be a finite number of Bitcoin created, transaction fees will provide the continued incentive to calculate and continue the formation of new blocks to the blockchain.

Anatomy of a Bitcoin Transaction:

  1. Install a Bitcoin wallet
  2. Your wallet generates a Bitcoin address (like an email address)
  3. Initiate a Transaction (A transfer of value between Bitcoin wallets)
  4. Sign the Transaction with your Private Key
  5. The Transaction is recorded on the Blockchain
  6. It’s now set in stone, unalterable by design

How To Get Started

There are a few ways to get involved with Bitcoin. You can purchase Bitcoins with fiat currency (USD, Euros, etc.) via a cryptocurrency exchange such as Coinbase. As described above, you could become a miner by setting up the software on your computer or server farm(s). If you’re a merchant, you can set up a wallet to begin accepting Bitcoin transactions.

Common Uses for Bitcoin

  • As an investment asset
  • As a digital currency to purchase goods or pay for services rendered

The Bitcoin platform is limited to making transactions. So even though it was the first-ever Blockchain, the most widely used blockchain application of the future will allow for more functionality. That honor will go to a cryptocurrency that has a built-in scripting language such as Ethereum, the 2nd most popular cryptocurency by market cap at the time of writing.

 

 


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