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  • What is Bitcoin? A Quick Outline

    Bitcoin

    What is Bitcoin? A Quick Outline

    What is Bitcoin? Everybody has heard of Bitcoin but not many people can tell you exactly what it is. It’s a very simple but complex protocol and network, but basically it’s a decentralized network of trust that needs no third party verification.

    It is an open ledger, that anybody can participate in, that thousands of distributed computers work together to validate transactions and secure the network.

    The transactions are immutable and every Bitcoin is divisible by 100 million.

    Who created Bitcoin?

    BTC Satoshi Nakamoto

    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.

    Bitcoin The Network

    The Bitcoin network enables payments to be sent between users without the need of a central authority, such as a bank, and it’s all done by predetermined code and the power of a decentralized network.

    Decentralization

    Decentralization is Bitcoin’s most important characteristic. No single institution controls the Bitcoin 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. These are known as miners and nodes and they work together to verify every single transaction that goes through the Bitcoin blockchain and is verifiable on the open ledger.

    Immutability

    Bitcoin 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.


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    Pseudonymous Transactions

    Many people believe Bitcoin transactions are anonymous, but they’re not, it’s actually semi-anonymous. As there is no central validator, users do not need to identify themselves when using the Bitcoin network.

    When a transaction request is submitted, the Bitcoin protocol automatically checks to make sure the sender has enough bitcoin, 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 identity checks on their customers, and anyone who sends bitcoin from their address to an exchange, they can easily be tracked this way if necessary.

    This makes Bitcoin one of the least favourable currencies for anyone wanting to get around law enforcement.

    This makes Bitcoin one of the least favourable currencies for anyone wanting to get around law enforcement.

    BTC

    Bitcoin The Currency

    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 bitcoin sent or spent cannot possibly be spent or duplicated by anybody else.

    With fiat currencies, this is done by banks, but this gives banks a lot of control over our finances. With Bitcoin, the integrity of the transactions is maintained by a distributed and open network, owned by nobody but one which anybody can participate.

    It’s all predetermined, through an ingenious combination of cryptography and a network of computers that follow the strict protocol.

    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 machine working overtime, as the world economy is closing down.

    This can’t be done with Bitcoin, because Satoshi Nakamoto coded a limited supply of just short of 21 million bitcoins, and because of the decentralized network that no central authority can control, nobody can change the code, and so we know exactly how many bitcoins there are or will be at any given time.

    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 of Bitcoin is minted.

    btc is sound money

    Bitcoin is Divisible and Programmable

    The smallest unit of a bitcoin is called a satoshi. It 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 Bitcoin 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.

    Satoshi actually added a reference to the 2008/9 economic crash in the genesis block, and because of the immutability of Bitcoin, it has led many to suggest that only now do we have a platform of trust in which we can record and store history.

    Also, bitcoins and satoshis are programmable, and many developers are building on it now. The possibilities of a currency built on and for the Internet is mind-blowing, especially when you can eradicate the need of human intervention.

    Summary

    Bitcoin is a money that is controlled by no single entity but in which anyone can take part in. It’s creator Satoshi Nakamoto realised the problems government money and financial system was doing and created what could quite easily become the most important innovation in history.

    This is just a short guide to the fundamentals of Bitcoin. It is so much more complex and takes a lot more research. If you’re interested in knowing how mining bitcoin works, check this out, or if you would like to know why decentralization matters, check this out.

    Author: Tommy Limpitlaw

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