What is Bitcoin?

Bitcoin is a digital or virtual currency created through a sophisticated decentralized process. It can be traded and exchanged without the intervention of banks or financial institutions.

A decentralized creation process means that Bitcoin can be created by private individuals and companies with technical capacity through the process called mining. Bitcoin is untracked and largely unregulated by a central authority or institution.

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Not all blockchain networks support staking, neither can all coins be staked. Blockchains that support staking are based on the Proof-of-Stake consensus mechanism. What does Proof-of-Stake mean, then, and why is it special?

Key Takeways

  • Bitcoin is a digital or virtual currency created by private individuals or companies through blockchain technology.
  • The bitcoin can be traded and exchanged without the interference of banks and any central authority.
  • The bitcoin was conceived as an alternative to fiat currency, but its low transaction volume and environmental unsustainability make that highly impossible.
  • Bitcoin is created through a highly decentralized process. 
what is Bitcoin

Who created Bitcoin?

Bitcoin’s whitepaper, its first blockchain database, was created and developed by a person(s) using the “Satoshi Nakamoto” pseudonym.

While Satoshi Nakamoto is widely regarded as the creator of Bitcoin, his identity remains a mystery. 

Attempts at uncovering the identity of Satoshi Nakamoto have been unsuccessful. Several individuals, including Adam Back, Hal Finney, Craig Wright, Dorian Nakamoto, Nick Szabo, have been speculated to be the founder of Bitcoin, but none have been proven beyond doubt.

Why was Bitcoin created?

Bitcoin was created as a virtual alternative to the traditional fiat currencies controlled by the central banks. The central banks control the amount of fiat currency in circulation, determine interest rates, regulate its value, and control countries’ monetary policies and cannot always be trusted to act right. 

A bad monetary policy can stifle economic growth, cause inflation and drastically reduce a currency’s purchasing power.

Using Bitcoin as an alternative to fiat currency protects against bad monetary policies that can affect fiat currencies by placing its control in a decentralized public ledger called the blockchain. 

The decentralized public ledger records transactions, hence it is based on transparency to instill trust in its users.

Other reasons for the creation of Bitcoin are fast transaction speed and low transaction charges. Bitcoin was essentially created to quash the monopoly enjoyed by the central banks by decentralizing banking.

what is bitcoin

How does Bitcoin work

Bitcoin is a computer file created in a process called mining. Bitcoin is created by using powerful computers to solve mathematical problems. 

Bitcoins are stored on the blockchain and can be accessed via a digital wallet, which can be a smartphone app or computer application.

Before a Bitcoin transaction can be completed, it needs to be verified through a digital signature generated by a private encryption key in possession of its owners. Think of this digital signature as the digital equivalent of your signature used to verify your traditional banking transactions. The digital signature also prevents the alteration of the Bitcoin transaction.

Are Bitcoins safe?

Bitcoin is secured by blockchain technology, allowing every transaction to be automatically recorded on a public ledger. Advanced cryptography ensures that the public ledger cannot be hacked. 

One of the major strengths of Bitcoin as a revolutionary invention is its lack of a central authority. Therefore, no government or financial institution has control over it. Thus, if you forget or lose your digital wallet password, there is no central authority to retrieve it.

If you plan to hold your Bitcoin, there is no risk because there is no centralized entity to harm the value of Bitcoin, and the value of 1 Bitcoin will stay 1 Bitcoin

What is Bitcoin Mining?

Bitcoin mining is simply the process of creating Bitcoin through the use of advanced computers to solve mathematical problems. Bitcoin mining also refers to confirming bitcoin transactions and ascertaining their trustworthiness.

Why are Bitcoins valuable?

Bitcoins are valuable for the following reasons:

  1. Bitcoin can be used as a medium of exchange to buy goods and services.
  2. With a maximum supply of 21,000,000 BTC, Bitcoin is finite and limited in supply.
  3. Bitcoin cannot be counterfeited.
  4. Bitcoin can easily be traded across geographical boundaries with low transaction fees.
  5. Bitcoin can be used as a store of value.

How do people get Bitcoin?

There are four major ways to get Bitcoin:

  • Through crypto exchange platforms
  • Through investment brokerages
  • Through a Bitcoin ATM or cryptocurrency retail store
  1. Crypto exchange platform

The crypto exchange platform is perhaps the easiest and the most convenient way to purchase Bitcoin and other cryptocurrencies. There are various crypto exchange platforms online to choose from. It is best to choose one with a simple user interface that allows your bitcoin to be withdrawn to your wallet for safety.

Most crypto exchange platforms:

  • First they require identity verification by requesting personal documents 
  • The next step after identity confirmation is to buy your bitcoin through your preferred payment method. You can either buy through your credit or debit card or connect directly to your bank account.

Bitcoin price volatility may, however, render buying through your credit card cost-inefficient as it may inflate the price. Some crypto exchange platforms also support peer-peer Bitcoin exchange. 

Peer-to-peer exchange allows you to exchange your money for bitcoin from other users in a crypto exchange platform.

2. Investment brokerage

Buying through investment brokerage is popular among investors as it allows them to negotiate for a better deal than a crypto exchange platform can offer. Some investment brokerages even allow investors to invest and trade bitcoin without commission. You may want to consider an investment brokerage if you are investing a substantial amount in Bitcoin.

3. Bitcoin ATM or Cryptocurrency retail store

Specialized ATMs allow you to purchase Bitcoin through your fiat currency or debit card directly. Some Bitcoin ATMs also support the sale of Bitcoin. A bitcoin ATM is just like a regular ATM, just that it doesn’t dispense cash.

Just as you can walk up to a retail store to change your wardrobe, you can walk to a crypto retail store to purchase bitcoin.

What can people do with Bitcoin?

There are several things you can do with bitcoin. In fact, as the crypto technology increases in adoption and continually goes mainstream, more use cases are bound to arise. Here are some things people use bitcoin for:

  • It can be used to purchase a wide range of goods and services.
  • It can be donated to charity or worthy causes.
  • It can be traded in exchange for fiat currency.
  • It is used as an investment