Bitcoin is a digital currency and based on a peer-to-peer payment system developed on an open-source platform. It was initially launched in 2009 by an anonymous entrepreneur/programmer named Satoshi Nakamoto. Bitcoin is synonymous with uncertainties, like any other cryptocurrency, and these fluctuations are expected.
Bitcoin is a decentralized payment system. This essentially means that it is not pegged on a central bank such as the Federal Reserve. This digital payment method only serves the peer-to-peer marketplaces, meaning that it is only transferable between users with Bitcoin addresses. Addresses are essentially a series of letters and numbers containing 27 to 34 characters.
How Bitcoin Works
A Bitcoin is essentially a computer file stored on a smartphone or computer. To comprehend its workings, it helps to understand the following terms and some bit of context:
- Blockchain: A public ledger containing a permanent record of every transaction, making it almost impossible to reverse and fake transactions.
- Bitcoin wallet: Synonymous with physical wallets, Bitcoin wallets are used to send and receive Bitcoins. Wallets can be either hot or cold. Hot wallets are connected to the internet, whereas cold wallets are not.
- Private and public keys: These keys are employed in digital wallets to allow users to initiate and authorize digital transactions.
- Mining: This is the act of validating Bitcoin transactions. Miners usually employ super-fast computers and are rewarded with Bitcoins for their efforts.
Bitcoin offers several standout benefits, key among them being that transactions are entirely free and have no intermediaries. Also, Bitcoin users do not need to have bank accounts. The only requirements are an active internet connection and an associated address on Bitcoin's blockchain.