Technology

Bitcoin for Dummies: The basics of the world’s largest cryptocurrency

What is Bitcoin?

Bitcoin is digital money as well as the network that the currency is stored on and transferred through. The word “Bitcoin” is capitalized when referring to the platform while the lower case term “bitcoin” stands for the currency. Bitcoin has grown in popularity because it is the first digital monetary service that is completely powered by its users. This means bitcoin is a currency that does not depend on the services of a third-party overseer such as a bank. Instead, transactions are made on a “proof-of-work” data system where transactions are verified through other users. Balances are kept through public and private “keys,” which are long sequences of numbers and letters. A public key is similar to a bank account number, others can see the number and use it to make transactions. A private key is similar to an Personal Identification Number (PIN). Private keys are supposed to be kept private and are used to authorize transactions. Transactions are connected to a user’s Bitcoin address.

Why is it unique?

Bitcoin does not require banks, central authority or middlemen. Bitcoin works based on “blockchain technology” which is a shared public ledger that serves a similar purpose as records of bank transactions, but also protects against fraudulent transactions. The ledger contains a record of all transactions which are arranged in sequential “blocks.” Bitcoin transactions cannot be reversed, and every transaction is stored on the Bitcoin network through the ledger. Only 21 million bitcoins will ever be made, although they can be split into smaller sub-units called “bits.” Users can conduct local and international transactions quickly and with lower transaction fees than traditional online payment methods.

Is it anonymous?

Bitcoin addresses and all transactions are public information, but the identity of a person or organization behind a Bitcoin address is protected so long as the user follows certain privacy practices. Bitcoin’s main recommendation to protect privacy is to use each address just once. Bitcoin recommends that users create a new address for each transaction because users commonly have to reveal their identity in order to receive services or goods. Using a new address for each transaction helps protect user’s identities by making it difficult to connect transactions to one individual or group.

Where did it come from?

Satoshi Nakamoto is credited with creation of Bitcoin, although the name may be a pseudonym. Nakamoto released the first Bitcoin software in 2009. He never revealed much information about himself and disappeared from the Bitcoin world in 2010, saying he had “moved on to other things.” While Bitcoin is still considered experimental, it has been in operation for eight years, and millions of dollars in bitcoin are exchanged daily.  

Where do you get Bitcoin? 

Users can acquire bitcoin by purchasing them from a Bitcoin exchange, receiving them in exchange for goods or services, or by earning them through competitive mining. Mining is a process where people or groups process and record transactions made through Bitcoin. Miners are rewarded with bitcoin for this service. Many other digital currency systems similar to Bitcoin have been created and are refereed to as Altcoins. 

 

Information from this article gathered from: https://bitcoin.org/en/, https://www.weusecoins.com, http://www.coindesk.com/information/who-is-satoshi-nakamoto/, https://www.nytimes.com/2015/11/05/business/bitcoin-basics.html, https://www.buybitcoinworldwide.com, https://bitcoinmagazine.com/guides/what-bitcoin/, http://www.investopedia.com/terms/p/proof-work.asp

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