What is Bitcoin?

Overview of Bitcoin
Bitcoin is digital money on the internet. This is a way to transfer value. Transactions are stored in public digital ledgers called blockchain.

Using Bitcoin
It is a common misconception that bitcoin is too complicated to be understood by non-technical people. While subjects can be complex, the basics can be accessed by anyone who wants to learn them.

Quick Technical Explanation about Bitcoin
More fully:
  • Bitcoin is a digital peer-to-peer decentralized cryptocurrency that uses encryption to make and transfer funds.
  • Transactions are recorded in a public ledger called the blockchain through a process known as "mining."
  • Bitcoin is stored in a digital wallet in the "Bitcoin address" which is a series of public numbers with an encrypted private key that is used to verify ownership.
  • Bitcoin wallets can also allow you to send and receive Bitcoin.
  • There are a number of different wallets that you can use, exchanges that you can exchange, and other digital currencies that you can buy with Bitcoin.
What is Bitcoin for?

Bitcoin can be used as an alternative [often] cheaper and faster than traditional electronic payment systems such as PayPal, credit cards, and online banking money transfers. It can also be collected and traded as a commodity or investment.
One way to understand bitcoin is to see what is used for it. Although there are many uses of bitcoin, the most common use of bitcoin is as a decentralized electronic payment system. That way, bitcoin systems like PayPal - you can send or receive payments digitally to others via the internet.

The big difference between bitcoin and other electronic payment systems (such as PayPal or Credit Card Payments) is decentralized bitcoin. That is, there is no central agent that facilitates each payment.

Instead, all bitcoin payments are included in a giant public ledger (also called the Transaction Block Chain), which is available to and verified by everyone on the network. In this way, everyone can see who owns what bitcoin, and you can both prove that you are the owner of a number of bitcoins and legally transfer ownership to someone else in return for goods and services. Best of all, you don't need a large credit card company or third-party company to verify this transaction for you - you don't need an intermediary.

UPDATE ON COSTS AND SPEED OF TRANSACTIONS: Above we say that Bitcoin is an alternative that is cheaper and faster than traditional electronic payment systems. However, that is not always true. The cost of Bitcoin transactions is rather low when we first wrote this article in 2015, and also the transaction speed was rather fast. However, over time with Bitcoin, sometimes it suffers from high costs and transaction speeds that are slow at times when many users try to use the network at once. These problems have been overcome by software updates such as Segwit and Lightening Network. It is important to remember that Bitcoin is software and can be updated.

Why Bitcoin?

People have found that bitcoin has various advantages over traditional electronic payment systems. Here we will only mention a few:
  • Privacy - Because systems use public-private key cryptography, individuals can send and receive transactions without attaching their real-world identity. Third parties will find it difficult to track your purchases and payments. This is not the case with other Electronic Payment Systems. However, keep in mind that bitcoin is not entirely anonymous. For more information, visit our page about anonymity on the bitcoin network.
  • Can be accessed by everyone - Anyone who has internet access can use bitcoin. You are not required to pass a background check, have credit, live in a certain area, or pay high fees. Bitcoin is a leveling system. Also, modern bitcoin client software makes the technical aspects of Bitcoin transparent to users; contrary to popular belief, you don't need any technological skills to use bitcoin.
  • Low Cost - Credit cards and third party transaction companies such as Paypal both have large transaction costs. Banks often charge a very high percentage fee for sending money. Bitcoin transaction fees are determined by you and are usually a fraction of what you pay for the same transfer through different media. NOTE: This becomes less true from time to time, this article is written when Bitcoin is $ 225 and the transaction volume is much lower
For a more comprehensive view of why people choose bitcoin, make sure to visit our page on Using Bitcoin.

How the Blockchain Works
To truly understand how Bitcoin transactions work, you must understand how the Bitcoin blockchain works.

The Blockchain Bitcoin is the big book of all Bitcoin transactions.

Transactions are carried out between Bitcoin addresses.

Each address is associated with a cryptographic key set called the public and private key (a public key that anyone can know, but the private key must be kept private).

To move the balance, you must have knowledge of the private key associated with transactions carried out by Bitcoin addresses on the blockchain. That's where the balance can be lowered.

Wallet is software that lets you store keys / addresses and calculate balances. The wallet also allows you to move around Bitcoin associated with the given key / address.

So, having Bitcoin actually only has a private key associated with transactions and a wallet is only software to help you calculate balances, store keys, and make transactions.

In addition to all the technical details, in practice no one has to deal with all that and can only use prison services such as Coinbase (Coinbase really is a user-friendly all-in-one solution for all Bitcoin)

What is a bitcoin address? Bitcoin addresses are public "keys" (strings 34 - 36 characters) that can accept Bitcoin. Each public key has a private key that is only known by the owner who proves ownership of the coin. Both the public key and their matching private keys are created by and stored in the bitcoin wallet.

NOTE: Technical details are only slightly more detailed than those described above. If you really want to dive, see the page about how blockchain works.

Quick History of Bitcoin

Bitcoin was discovered in 2008 by an unknown programmer or group under the pseudonym Satoshi Nakamoto. The bitcoin system was first documented in the Nakamoto paper "Bitcoin: Peer-to-Peer Electronic Money System".

Bitcoin was later released for public use in 2009. The coin continued to grow in value until it attracted massive media attention in 2014.

During its peak in 2014, Bitcoin sold more than $ 1,000 USD per coin.

The peak was followed by a collision and then a long bear market. Of course, in 2017, Bitcoin saw record growth as mentioned above.

Although still a baby and initial volatility (and today often), cryptocurrency has grown in popularity, usability, and profitability.

At present, there are many people who can benefit from knowing about and using bitcoin and other cryptocurrency.

While the coin itself may not be there for the long term, the basic principles behind Bitcoin tend to be relevant and important for a long time.

You can see the visual history of Bitcoin at historyofbitcoin.org

Quick History of Bitcoin Prices

To add a story about the rise and fall of Bitcoin above, here is a brief history of Bitcoin prices.
  • Bitcoin was created by Satoshi Nakamoto (an anonymous group / person) in 2008 and was officially released in 2009.
  • Bitcoin began trading in 2010.
  • In the early days, Bitcoin traded for one cent, but was very difficult to access.
  • Between 2010 and 2015 there were many ups and downs (for example Bitcoin changed from $ 0.70 to $ 30 to $ 2 in the span of a few months in 2011). There is usually a large price increase every time a new wave of people can access Bitcoin (for example when an exchange is opened or when publicity spreads).
  • At the end of 2013, Bitcoin reached a peak of more than $ 1,200 when the wave of adoption occurred. However, the excitement was short-lived and the next two years experienced a steady decline.
  • In June 2015, when we started this site, one Bitcoin was worth around $ 225 USD. The next most valuable cryptocurrency comparison at the time, Litecoin, had a value of around $ 1.50.
  • From 2016 to 2017 the price of Bitcoin continues to rise.
  • In June 2017, one Bitcoin was worth $ 2,700 on August 1, then on August 13, $ 4,300. Meanwhile, Litecoin is worth around $ 30.
  • Fast forward again to November 2017 and we see $ 8,000 Bitcoin and $ 70 Litecoin.
  • Fast forward to winter 2017 - 2018 and we see $ 19,000 Bitcoin and $ 400 Litecoin.
  • Quickly go to 2018 and we have seen a slight correction back to 2017 prices.
In other words, even though the price of Bitcoin tends to go up and down in cycles, from time to time Bitcoin has generated greater profits than most investments. In fact, Bitcoin has a better return than any investment in modern history in a short age.

This impressive growth is very good for long-term investors, but it has provided a challenge for those who enter the market at the wrong time (like today as in 2010) or for those who try to use Bitcoin as a currency (as we want currency we have a rather consistent value).

TIP: See how Bitcoin prices have risen and fallen since the beginning before investing in cryptocurrency. Bitcoin always works well as a payment system if you return to cash, but if you will save value in Bitcoin, it is important to know historical price fluctuations.

What is the Value of Bitcoin?

Many people who are new to bitcoin are confused about how bitcoin has value at all. Here are some ways you can see the reasons behind the value of Bitcoin:
  • Bitcoin has the value that people give - when traders accept bitcoin in return for goods and services, they basically express trust in the bitcoin system and set the value of their services in terms of bitcoin. Furthermore, when people buy and sell bitcoin on exchanges for more traditional currencies, they give bitcoin "traditional value prices". In other words, the value of bitcoin is not derived from gold or fiat currency; the dollar value of bitcoin is controlled by the open market.
  • Bitcoin gets its value from computing power - because the bitcoin mining process requires significant computing power, you can see mining costs as a source of bitcoin value. The more computational effort that goes into the system, the harder it is for a miner to try to get a new bitcoin from mining, and thus the more value the bitcoin has.
  • The Bitcoin Blockchain has value - the Bitcoin system runs alone (other than computing power and user transactions). This is a safe digital ledger, this precedes the work of accountants and banks. It has value. In other words, the underlying Bitcoin blockchain (safe transaction ledger) has value.
  • Scarcity - like Gold, there is a limited supply of true Bitcoin. Of course, other cryptos can be made. And of course, Bitcoin can be used to make new coins. However, there is only one Bitcoin and the supply is limited.
The point is about Bitcoin

In addition to technical jargon and concepts, bitcoin is only digital money. You can save it in a digital wallet and use it to buy goods, services, or other currencies from anyone who wants to receive it.

For ordinary users, the learning curve for using and storing Bitcoin is no more complicated than online banking, Paypal, or other known digital currencies.

The concept around Bitcoin is usually quite easy to understand, most of the difficulties come from wrapping a number of new concepts at once.
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