Bitcoin is a cryptocurrency. It is a decentralized digital currency without a central bank or single administrator that can be sent from user to user on the peer-to-peer bitcoin network without the need for intermediaries.
What Is Bitcoin?
Bitcoin is the world’s first digital currency in the world. Before Bitcoin, there was no such currency. It is not tied to anything and its price is regulated by market supply and demand. Bitcoin is a worldwide payment system through which transactions can be conducted. Its main feature is that the Bitcoin system does not have a control center and all operations take place in a network by equal customers. Bitcoins aren’t printed like dollars — they are issued by the participants of the system all over the world, who use freely available software to solve complex mathematical problems.
Who invented Bitcoin?
The developer of the Bitcoin idea is Satoshi Nakamoto. In 2008, he published a scientific article that proposed a new digital payment system based on cryptography and provided a mathematical description of its functionality. The idea was to create an independent currency of any central authority that provides making transfers in digital form only almost instantly with a very low cost of translation. The inventor of Bitcoin published the article anonymously, and for a long time doesn’t take any part in the development of a system whose fully open code is developing and validating by a large group of developers on a non-commercial basis since the launch.
What the difference between Bitcoin and other digital currencies?
Bitcoin can be easily used for online shopping. In this sense, it is similar to dollars or euros that are also often traded digitally. The most important characteristic of Bitcoin that distinguishes it from ordinary money is that it is fully decentralized. In simple terms, it is the absence of intermediaries between you and your funds. In order to use fiat money digitally, you need to “create an account” and give the money to an intermediary such as a Bank, WebMoney or PayPal. All further operations are carried out through this intermediary, and it dictates the rules to whom, how and how much you can pay. Intermediary takes a commission for the service and for translations. It also has the right to freeze your account or just disappear with your money at one point.
No company or organization controls the Bitcoin network. Unlike ordinary money on a Bank account, your bitcoins are yours only, and no one can forbid you to use them, block the transfer, “freeze” the account or “roll back” the transactions that already made.
What is Bitcoin based on?
Once used in the world currencies were based on reference to real assets, such as gold or silver. Theoretically, you could bring dollars to the Bank and get some gold in return (although in practice, it did not always work).
But for a long time, all the world’s currencies have abandoned any collateral. The only thing that the dollars, euros or other currency is based on now is trust in banks. People hope that Central banks will not print too much new money, and will not allow inflation to devalue their currency too much. Unfortunately, all the world’s leading Central banks are currently deceiving this trust and printing new money in huge and increasing amount. In the long run, this can end in nothing but increasing hyperinflation is why many people are thinking about alternatives to “official” currencies.
Bitcoin is not based on gold or trust in Central banks. Instead, it is based on mathematics. There are absolutely clear and understandable mathematical formulas by which bitcoin is supplied. These formulas cannot be changed either by a decree of governments or by a decision of Central banks. All over the world, people use client programs that follow these formulas and simply reject anything that deviates from them. All formulas and program code are freely available, so anyone can check them and make sure that they work this way, and not otherwise. Moreover, anyone can write their own client program, and if it works according to Bitcoin mathematics, this program can be successfully used for all operations.
Pros and Cons of Bitcoin
- It is easy-to-use
To simply open a Bank account, sometimes you need to make a lot of effort, especially entrepreneurs. Connecting to the payment system to receive payments for goods and services is also not an easy task. Instead of, you can install a Bitcoin client in minutes, make yourself a Bitcoin address, and all of you are ready to receive payments in BTC. No one needs to ask for permission, no forms and negotiations, no connection fees, and all markets in the world are open to you through Bitcoin payments. It is just as easy-to-pay for goods and services in BTC around the world.
- It’s anonymous
Well, almost anonymous. Users can have an unlimited number of Bitcoin addresses and they are not associated with any name, address, or other personally identifiable information.
- All transactions are public
Details of each individual Bitcoin transaction are visible throughout the network, everyone can see how many Bitcoins and from what to what address the transaction was made. The history of all Bitcoin transactions, called blockchain, is stored on all nodes of the network. So, if you yourself have declared that some address belongs to you, everyone will know how many bitcoins you have on this address, and all operations related to this address.
- It is fully decentralized
The Bitcoin network is not controlled by any company or organization. Each machine with running on it Bitcoin program in accordance with the mathematics of Bitcoin, is part of the network and conducts Bitcoin transactions, and altogether these machines and make up the Bitcoin network. Removing any of these machines, or even most of them from the network, will not affect the operation of the system. There is no center that can be turned off to make Bitcoin stop working. This means that no one can manage monetary policy, block payments, freeze accounts or, for example, just take money from people’s accounts.
- Unable to cancel or “block” payment
When a payment is sent, there is no way to roll it back. In this sense, Bitcoins are exactly like digital fiat money — once you give them away, they are not yours. On the other hand, as in the case of cash payment in the store. If you are not satisfied, you can apply for a refund and the seller will refund your money if they’re interested in their good name.
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