Bitcoin

What is Bitcoin?

Bitcoin can be described in several ways. Bitcoin is the first successful digital currency, it is a blockchain acting as a public ledger (like a public database of information), it is a crypto currency (owing to its use of encryption); as well as a commodity or store of value- according to who you ask and what their use is for Bitcoin. It exists however as a file of information, stored on computers, shared and updated every few moments across all its participants through the internet.

Bitcoin serves different purposes for different people:

Some see Bitcoin as digital gold, owing to its use as a store of value and being classified by certain state authorities as a commodity and traded on a mercantile exchange, the same as gold. For people in some countries with unstable economies, Bitcoin, despite its huge volatility, is still more stable and a better store of wealth than national currencies.

Some see Bitcoin primarily as a currency, especially those living in regions with hyper-inflation and weak central governments. It also functions without needing access to a bank account, or being dependant on a third party. Bitcoin can be sent across borders, to anyone with access to the internet. All one needs to receive Bitcoin is a Bitcoin address – which can be generated on virtually any computer.

Bitcoin can be sent to anyone with a Bitcoin address anywhere in the world, in minutes, for a small fee (the equivalent of a few US dollars.) As a result, Bitcoin has become very popular as a payment method and is now accepted by an increasing number of companies around the world.

Facts about Bitcoin

There will only ever be 21 million Bitcoins released. There are currently just over 17 million Bitcoins. Of these, it is estimated that around 4-5 million have been lost- by people losing the private keys to them, or throwing away the computers that they were stored on. This is a little bit like people throwing away a piggy back, or losing change down the sofa, but you can’t just print more Bitcoins, so they are lost forever!

Bitcoins are created by a process called mining (this is not physical mining, but rather, is done by special computers called mining nodes.)

The mining processes are what powers all the sending and receiving transactions carried out by participants, and occurs every 10 minutes. The mining process generates block of new data that are cryptographically linked to each one that came before and each one that will come after, forming an uninterrupted chain of blocks of data, hence the name “blockchain.”

What are Satoshis?

You don’t have to buy a whole Bitcoin.

Similar to how a dollar is comprised of 100 cents, a Bitcoin is comprised of 100 million Satoshis. Theoretically that means you can make transactions for as little as 0.00000001 Bitcoin. Which, theoretically, means that Bitcoin could be used for micro transactions as well as large transactions.

Who Created Bitcoin- Satoshi Nakamoto

Bitcoin was first mentioned in 2008 by its anonymous creator under the pseudonym Satoshi Nakamoto, who released Bitcoin to the general public in 2009. Satoshi Nakamoto has remained anonymous to this day. To see more about the theories of who is Satoshi, see here

Who controls Bitcoin now?

Bitcoin is in principal decentralised, meaning that it is managed and controlled by the users of the “Bitcoin network” and wherever they happen to be located in the world.

The Bitcoin network is maintained by a series of computers called nodes, which are run on computers spread around the world. These nodes (i.e. miners) process the transactions and make sure there are no problems in the network. Because there are so many of these nodes and they are all spread out on different computers, it is very difficult to hack the Bitcoin network, and currently there are no known computers powerful enough to disrupt Bitcoin.

In practice, there are 6 Bitcoin mining firms who control over half of all of the Bitcoin hashrate (mining) and approximately 10 other smaller mining firms, who together account for about 95% of all Bitcoin mining. These mining firms have thus held a lot of power when it comes to making decisions about the future of Bitcoin. As such, there are claims that Bitcoin isn’t as decentralised as it was intended to be by Satoshi Nakamoto.

Why is Bitcoin safe?

Bitcoin is built upon its own blockchain. Blockchain technology means that transactions can’t be undone or changed- and all information – about how many Bitcoins you have and where you send them etc – can be seen by anyone else on the blockchain. So if you are sending Bitcoins, you will know exactly when they have arrived.

To send or receive Bitcoin, you need your own Bitcoin address. This is a series of numbers and letters- and so is safer and more anonymous than sending money via email address or using your real name.

You can also store your own Bitcoins yourself- in hard wallets offline. This means that you are responsible for them – unless you give away your wallet or lose your key- they are much safer than storing money in a bank. Banks lend out and leverage money and have been known to run out- meaning that anyone storing money with them has been left unable to access their savings. At least with Bitcoin you are in control.