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What Is Bitcoin? Basics Explained

2023-06-01 02:49:36

What is Bitcoin? It’s a famous question being asked by almost all newbies entering the cryptocurrency market. "Bitcoin has made people filthy rich". It’s another popular saying people. A lot of hidden things are behind this "filthy rich" word that is explained below. Bitcoin is not only the first cryptocurrency but also the most famous among 19,000+ cryptocurrencies. Considering the volatility of this token, it is still hardly the best choice for investors looking for a stable investment. Let’s take a look at bitcoin basics, mechanism of action, usage as a digital payment system, and much more to understand what is bitcoin.

What Is Bitcoin? Basics Explained

It is a digital currency that is not backed by the government or banks. It’s more like a digital asset nowadays that you can buy, sell, and exchange with other cryptocurrencies through Bitcoin exchanges. The creator, Satoshi Nakamoto, introduced this currency and it was intended to be used as a payment system that can be recorded on servers and can be viewed worldwide. This brief explanation can give a vague idea of what is bitcoin. 

What is Bitcoin decentralization? A simple explanation of this is that there is no central control of bitcoin and it is solely dependent on peer-to-peer transactions and cryptography. Coins are fixed and the transfer of control is shifted from companies to diverse networks. Simply, you can send Bitcoin to any person without involving any bank or 3rd party. Cryptographically, it is possible to check who owns how much Bitcoin. Anyone with a spare functional computer can set up a server to view the transactions all over the world that are made on a public ledger. Isn't it amazing that you can see worldwide Bitcoin transactions while sitting in your room? That is decentralization, the beauty of Bitcoin.

"Bitcoin will do to bank what email did to the postal industry"

Rick Falkvinge, Founder of the Swedish pirate party

Bitcoin Public Launch

To get information about the question of what is bitcoin, one may need to get knowledge about its launching and whitepaper published by developers. In 2008, when the Great Recession was on the doorstep and banks and financial institutions were losing trust, a group of developers launched a white paper that mainly addressed the centralized control of money and the "trusts" factor in handling cash. In 2009, the first block of blockchain was mined and this is considered the launching of bitcoin. 

"For the first few months of its launching, it was only accessible to miners that validates the bitcoin blockchain" 

Chetan chawla, a renowned researcher of cryptocurrencies and blockchain,

After its launch, it had no monetary value at the start. Miners back than mine, trade bitcoin and validate transactions from their powerful computers by solving mathematical problems. It was quite for fun and there were no intentions to make bucks out of it.

"It’s a saying that good things take time". The same happened with 1st digital economic transactions. It was after 1 whole year on May 22, 2010, when a guy named, Laszlo Hanyecz, from Florida, bought two papa john's pizzas for 10000 bitcoin. This is considered the start of digital currency transactions that set up the value of Bitcoin. Bitcoin Pizza Day came into birth in honor of the date.

Fast forward to today, the price of Bitcoin has dramatically increased. This huge increase in price can also give a brief idea about the famous newbie question "What is bitcoin"? The total supply of bitcoin is limited to 21 million; so many people expect the price of bitcoin keep increasing as this limited supply factor will add value. Also, mass institutional adoption of Bitcoin leads to an increment in its price.

What Is Bitcoin Mechanism of Working?

Now the question arises how is the Bitcoin mechanism working? It is actually based on blockchain, which is made up of linkages of data and blocks that contain the transaction including other sub details like date, time, buyer, seller, amount, and unique code for each crypto exchange. No one can own the blockchain but anyone can contribute to it.

The addition of a new block to the blockchain is actually the editing of the system and this sounds risky. But that is what exactly makes Bitcoin and digital currencies more trusted and secure. The addition of a new block requires the verification of unique codes by many Bitcoin holders. These codes have long random numbers which also makes it very difficult to be produced fraudulently. This type of randomness among the verification codes highly reduces the risk of fraudulent transactions.

What Are Bitcoin's Purpose and Its Usage?

The sole purpose of the creation of Bitcoin was to make it easy for people to send and receive money over the Internet. It was designed to provide an alternate payment system for people without involving any third party. Now it has become a great asset that can give immediate profit as compared to other stocks and investment opportunities. 

Understanding what Bitcoin usage as a payment method can be driven by the fact that it can be used to pay for goods and daily services. Now, there are ATM cards that can be linked to your crypto wallet and you can easily pay from that linked crypto wallet. The vendors and merchants accepting bitcoin are still limited but major companies like PAYPAL have started accepting crypto payments. TESLA, a Car Company has also started accepting bitcoin payments. 

What Is Bitcoin Mining? How Does It Work?

It is based on proof of work. People, who choose to mine Bitcoin, deploy their computers in the race of solving complex puzzles that verify the transactions and generate Bitcoin.

To keep the miners in the race of solving mathematical problems, every new block equals 6.25BTC. In plain English, you earn 6.25BTC for every new block.

It maintains the bitcoin network and new coins are brought into existence by mining. Earlier when it was launched, it was easy to mine bitcoin from a simple computer but now due to the limited hard supply of 21 million coins, it is hard to mine and the bitcoin software doubles the mining difficulty level after every 4 years. Today bitcoin mining requires powerful resources and easy access to cheap electricity to make mining profitable.

How to Buy/Sell Bitcoin? 

Just like a stock, you can keep Bitcoin in your digital wallets (hot wallet or cold wallet) as an investment. You can simply buy and sell Bitcoin through crypto exchanges by setting up your account. Nowadays many crypto exchanges offer cryptocurrency trading and charge a minimal fee. 

You can quickly sign up and buy the crypto of your choice. Individuals can also buy and hold the crypto of their choice like a stock. Some hold it for long terms for potential gains while others sell the stock when the price rises from their buying point.

An important note: Crypto-based funds diversify your portfolio but they also increase the risk of potential loss. Understanding fundamental and technical analysis can prove beneficial in minimizing the risk of loss. Investors looking to increase their wealth steadily may opt for Exchange-traded funds (ETFs).

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