What is Bitcoin? A Quick Outline
What is Bitcoin? What’s it used for? Everybody has heard of Bitcoin (BTC) but trying to understand it takes time and a lot of research.
Bitcoin is more than just a peer-to-peer money, and means something different to a variety of people from different backgrounds and geo-locations.
In short, Bitcoin is a complex protocol and network, but basically it’s a decentralized network of trust that needs no third party verification.
It is an open ledger, which thousands of distributed computers work together to validate and secure. And a payment network that no single entity can control or manipulate, but anybody can participate in.
It takes a long time to fully understand it, and the more you understand it, the more you realize you don’t really understand it. But for a deeper look and a basic understanding of what Bitcoin is, read on…
A pseudonymous software developer known as Satoshi Nakamoto created and launched Bitcoin on January 3rd 2009. It was initially proposed as an electronic payment system based on math.
Satoshi’s vision was to produce a means of exchange, that could be transferred electronically in a secure, verifiable and immutable way, all without the need of a central authority.
To this day, nobody knows who Satoshi Nakamoto is.
Check out our Bitcoin for Beginners library for more…
Who Created Bitcoin?
Bitcoin is a Decentralized Network
Decentralization is arguably Bitcoin’s most important characteristic. No single institution controls the network, and the program is maintained by a group of volunteer software developers.
The network is run by thousands of dedicated computers spread around the world, which are known as miners and nodes. They work together to verify every single transaction that goes onto the blockchain. Each and every transaction is verifiable on the open ledger.
BTC transactions cannot be reversed, unlike fiat transactions, in which VISA or your bank can reverse. This is because there is no central authority that can define what’s right or wrong. Basically, if a transaction is recorded on the ledger, and if more than an hour has passed, it is impossible to modify.
While this may be a concern to some, it does mean that any transaction on the Bitcoin network cannot be tampered with. It is absolutely immutable, and because data can be added to any transaction it brings about the possibility of provable history being recorded for the first time ever.
Many people believe BTC transactions are anonymous, but they’re not. It’s actually semi-anonymous.
When a transaction request is submitted, the Bitcoin protocol automatically checks to make sure the sender has enough BTC, as well as the authority to send them.
Each user is identified by the address of his or her wallet, which is a string of letters and numbers. Although there are no names, these transactions can be tracked.
What’s more, most cryptocurrency exchanges are required by law to perform KYC identity checks on their customers, and anyone who sends BTC from their address to an exchange, they can easily be tracked this way if necessary.
This makes it one of the least favourable currencies for anyone wanting to get around law enforcement.
Bitcoin is Divisible and Programmable
The smallest unit of a BTC is called a satoshi. Each satoshi is one hundred millionth of a bitcoin (0.00000001), and at today’s price that is $0.000068, or to make it easier, $1 is worth 14,773 satoshis.
Because BTC is divisible and it is money created on the Internet, it is also programmable. Every single byte can be programmed, and this facilitates so many possibilities, it’s impossible to quantify.
Many developers are building on it now. We have games where you can earn free Bitcoin, payment layers, such as Lightning Network, which is making BTC transactions much faster and cheaper.
As we know, with BTC transactions it eradicates the need of human intervention. Therefore, we can imagine a future where all smart meters will be able to communicate with each other, and pay our bills without having to think about it.
This will all become a thing as 5G and the Internet of Things rolls out in the coming years. Companies will be able to use the security of the Bitcoin network to build payment networks and won’t even need to use BTC if they choose not to.
The possibilities are unfathomable at the moment, but the future is very exciting.
Bitcoin Has a Limited Supply
Dollars, euros, and pounds etc. have an unlimited supply – central banks can issue as many as they want, as we are seeing with the printing press in every country.
This can’t be done with Bitcoin, because Satoshi Nakamoto coded a limited supply of just short of 21 million BTC.
It’s a computer program, surely it can be edited, I hear you say…?
Bitcoin is a decentralized network that no central authority can control, remember. That means nobody can change the code, unless there is a majority consensus from everyone.
And because everyone working on the network wants what’s best for it, no edit to the program can easily be carried out. Therefore, we know exactly how many bitcoins there are now or will be at any given time in the future.
The supply grows by 12.5 BTC every block, which is roughly every 10 minutes. But this block reward will be halved in little over a month, so the inflation will be cut by 50%. This will happen every 210,000 blocks until the last fraction is minted.
What is Bitcoin Used For?
Many people wonder what is its used for. As stated, the Bitcoin network is a decentralized layer of trust, and its main application is the currency which we all think of as Bitcoin.
Bitcoin can be used to pay for things electronically if both parties are willing. In that sense, it’s like just like conventional dollars, euros, or pounds, but that’s where the similarities end.
Bitcoin is the first digital currency that solves the double-spend problem. This means it guarantees that any BTC sent or spent cannot possibly be spent or duplicated by anybody else.
Banks oversee this with fiat currencies, but this gives banks too much control over our finances. With Bitcoin, the integrity of the transactions is maintained by the distributed and open network.
It’s all predetermined, through an ingenious combination of cryptography and a network of computers that follow the strict protocol.
Bitcoin is now being used as a reserve asset with leading public and private funds, who are choosing to keep Bitcoin reserves in their portfolio.
It’s also recently been announced that PayPal will start offering the option to buy, sell and spend Bitcoin within its network.
Bitcoin is a network of trust. A network that is decentralized with each device running the protocol.
It’s main application is money, which is controlled by no single entity but a money in which anyone can take part in.
It’s creator Satoshi Nakamoto realized the corruption of governments and the financial system and how it was rigged against the people.
He duly created a platform for money that cannot be manipulated by governments or anybody. A money that can be programmed. And most importantly a financial system that anybody can take part in, no matter which continent they live in.
Bitcoin is already used for many things today. As it grows and developers keep building on it, however, it could turn out to be the most important innovation in history.
What is the point of Bitcoin?
Bitcoin is a decentralized money. A money that nobody can control or manipulate, and a money that nobody can print and devalue. It’s also not necessary for any third party to verify transactions, so it makes it much faster and cheaper to send value. It’s also money built on the Internet: a society of almost 5 billion people.
Can you buy less than 1 Bitcoin?
Yes. Every single coin can broken down into 100 million bits. They are known as satoshis, after the pseudonymous creator Satoshi Nakamoto. And some companies will let you buy as little as $1 worth of Bitcoin, which at time of writing is worth about 11,000 satoshis. There are many companies that have a system for dollar cost averaging (DCA). This is a great way to buy Bitcoin, and is known in the space as ‘Stacking Sats’. Basically, what you do is set up small automatic, recurring payments to buy Bitcoin (or sats), and you DCA over time.
Why should I buy Bitcoin?
People who understand Bitcoin buy Bitcoin because it is a peer-to-peer money that nobody can manipulate. It’s all set in the Bitcoin codebase which is secured by hundreds of thousands of computers all around the world. Bitcoins can be sent by anybody and no third party is need to verify the transactions, and nobody can stop them being sent. There are many more reasons why people buy Bitcoin, and a deeper dive before doing so is recommended.
Can you lose money on Bitcoin?
You certainly can lose money on Bitcoin. Many new investors see the gains Bitcoin has made and expect it to always be so. But the truth is, Bitcoin’s gains have come from buying Bitcoin and holding on long term and riding the market. People expecting only gains, quickly lose faith when it crashes and lose money. The best way to avoid losing money is buy Bitcoin and hodl.
A Bitcoiner since 2017 and a Bitcoin Maximalist since 2018, Tommy is our main writer and editor at Bitcoin Maximalist. Other than researching and writing about Bitcoin, Tommy loves spending time with his family and supporting his beloved Leeds United.