What is Bitcoin? How are Bitcoins created?
Last updated
Last updated
What is Bitcoin? - Bitcoin was first introduced as an open source algorithm invented by an anonymous programmer, or possibly a group of programmers under the alias Satoshi Nakamoto, in 2009. There are many rumors surrounding the identity. The truth of the founder of BTC, however, the main characters in the rumors about Nakamoto were denied by the community.
What is Bitcoin?
Bitcoin is a cryptocurrency, which is used and distributed electronically.
Bitcoin is also a decentralized and peer-to-peer (P2P) system. That is, no organization or individual has control.
Bitcoin only has a limited supply – only a maximum of 21 million Bitcoins can be created in the system.
Who is the author of Bitcoin?
Bitcoin was first introduced as an open source algorithm invented by an anonymous programmer, or possibly a group of programmers under the alias Satoshi Nakamoto, in 2009. There are many rumors surrounding the true identity. of the founder of BTC, however, the main characters in the rumors about Nakamoto were denied by the community.
Satoshi Nakamoto once identified himself as a 37-year-old man living in Japan. However, because of his fairly standard English and the fact that his software is not labeled in Japanese, people still have doubts about Satoshi's origins. Around mid-2010, Nakamoto decided to "take off his shirt", leaving his masterpiece Bitcoin to some famous members of the community. Gavin Adressen was assigned to Satoshi as the lead developer.
It is estimated that Nakamoto owns nearly 1 million Bitcoins, or about $3.6 billion at September 2017 market prices.
Who controls Bitcoin?
According to Gavin Andressen, the first thing he focused on after Nakamoto left the project was deeper decentralization. Andersen wants Bitcoin to continue to exist autonomously, even if he "catches death".
For many people, the main benefit of Bitcoin is its independence from the world of politics, banking institutions, and corporations. No one can interfere with BTC transactions, impose transaction fees or take away other people's money. In addition, Bitcoin movements are extremely transparent – each transaction is stored in a distributed public ledger called the Blockchain network.
Basically, although Bitcoin is not controlled in a systematic way, users are still in complete control of their finances.
How does Bitcoin work?
A user can only see the amount of Bitcoin on his wallet along with the transaction results.
As for the underlying technology, the Bitcoin network also shares a public ledger called the “blockchain”. This ledger contains every transaction that has ever been made. The ledger that stores this number is placed in “blocks”.
If anyone tries to change a single letter or number in a block of transactions, it will affect all the blocks that follow. Due to the publicity of the ledger, errors or frauds can be detected and remedied by anyone.
The user's wallet can validate each transaction. The authenticity of each transaction is protected by a digital signature corresponding to the sending address.
Thanks to the secure transaction platform and verification process, it can take up to several minutes to complete a BTC transaction. The Bitcoin protocol is designed so that each block can take up to 10 minutes to mine.
Features of Bitcoin
Decentralized
One of Satoshi Nakamoto's main goals when creating Bitcoin was to create independence from third-party control. This network is designed so that each person, each business as well as the equipment used in mining and transaction confirmation will be the main components of the vast network. In addition, even if part of the system is closed, money continues to circulate.
Incognito
Today, banks know almost everything about their customers: credit history, addresses, phone numbers, spending habits and so on. Bitcoin is the exact opposite, as digital wallets are not linked to any personal information. And while advocating for BTC's untraceable anonymity, some others argue that this type of transaction could be exploited by drug criminals, terrorists, or money-launderers.
Transparency
The anonymity of Bitcoin is only relative, every BTC transaction is stored in the Blockchain. Theoretically, if your wallet address is in public use, anyone can find out the balance if you carefully study the blockchain ledger. However, tracing a single user's Bitcoin address is virtually impossible.
Those who want to transact anonymously can use a variety of methods. There are certain types of wallets that are focused on security you can count on, but the simplest method is to use multiple addresses combined with risk sharing across many different wallets.
High speed
The Bitcoin network makes many payments almost instantaneously, it only takes a few minutes for someone on the other side of the world to receive your money while it takes days for the current international interbank system. in.
No repudiation
Once you have sent Bitcoin, there is no way to get it back unless the recipient agrees to refund you. This can serve as proof of payment, meaning anyone you're dealing with can't fool you by saying they haven't received the money.
What can be bought with Bitcoin?
In 2009, when Bitcoin was first introduced, we still couldn't use it for anything. But now, you can buy almost anything. For example, giants like Microsoft and Dell accept BTC payments for many of their product lines and digital content. You can buy tickets at AirBaltic or Air Lithuania.
Some of the other options include booking a hotel or making a purchase, paying restaurant or bar bills, going on a date, buying a gift card, placing a bet at a casino or making a charitable donation. There is also a wide range of online marketplaces that sell everything from banned chemicals to high-end luxury items.
Bitcoin is still a relatively new and complicated form of payment, so spending in this currency is quite limited. However, more and more businesses from small coffee shops to large industries are accepting BTC payments.
In addition, due to the constantly fluctuating exchange rate, Bitcoin is one of the lucrative investment options. Although still unstable and still not widely recognized, the value of this coin has increased more than 7 times compared to 3 years ago.
How to buy Bitcoin?
Bitcoin is currently being traded on many different exchanges, but you can also buy it directly from a variety of markets. You can pay with cash, transfer by credit or debit, or even buy with another cryptocurrency in circulation. But first, you need a Bitcoin wallet.
There are many to choose from, but the main types of wallets include online wallets and software wallets on the hard disk of a personal computer. Neither option is completely secure, hard drives can still fail and online wallets can still be hacked. There are also a number of simplified mobile wallets, cold wallets that are not affected by bugs or attacks.
And of course, Bitcoin also has a mining industry. Just a few years ago, anyone with a powerful computer could mine Bitcoin, but now the situation has changed. Bitcoin is growing in popularity, and the profitability has led many big players to join with powerful mining equipment. That is the reason why the difficulty of the Bitcoin blockchain is increasing, the power consumed to mine one BTC skyrocketed. In addition, the amount of Bitcoin mined is also decreasing steadily.
What are the benefits of Bitcoin?
Freedom
BTC was designed with a free mind in mind. Most important is independence from centralized third-party control in transactions. When it comes to buying something, cryptocurrencies have now become as convenient as fiat currencies in recent years. Especially if you are buying stuff from some deep web market then BTC is absolutely ideal form of payment compared to other currencies.
High convenience
One of the characteristics of money is convenience, that is, it must be easy to carry and use. Since Bitcoin is completely digital, all funds are kept in an app or hardware wallet.
Cryptocurrencies give people the freedom to send and receive money just by scanning a QR code or through a few steps of accessing an online wallet. It takes almost no time, transaction fees are not exorbitant, and money goes directly from one person to another without any cumbersome intermediaries. All you need is just an Internet connection.
Selected transaction fee
An undisputed benefit in the Bitcoin network is the freedom to choose a transaction fee or even pay nothing. Transaction fees are reserved for miners, only after a new block number is formed. Usually the sender will pay the full fee, deducting this fee from the receiver could be considered an incomplete transaction.
Transaction fees are completely voluntary and are an incentive for miners to keep working. This mechanism is also a major source of income in the cryptocurrency mining industry, bringing in more money for them than in the traditional mining industry. Bitcoin mining operations will stop at some point in the future when all Bitcoins have been mined.
Therefore, the cryptocurrency market will have another kind of trade-off that is choosing between transaction costs or waiting times. High transaction fees mean fast transaction times, while some users may wait to save money.
Not included in PCI
PCI stands for Payment Card Industry. The products of this industry are ATMs, debit cards, credit cards, POS networks and related services. It includes all organizations that store and issue payment data cards. There are some strict security regulations at the moment, and most payment card carriers are involved.
While uniform rules may be good for large companies, the system does not specifically consider individual needs. When using Bitcoin, you do not need to follow the PCI standards. This allows users to participate in markets where credit cards are unavailable or where the risk of fraud is very high.
Thus, users lower transaction fees, opportunities to expand markets and reduce operating costs will open.
Security and control
Bitcoin users can control their transactions, no one can withdraw money from your account without getting authorization. In the case of payments, no one can easily steal payment information from a business like a traditional credit card.
BTC users can also protect their funds by backing up their private keys. In addition, personal information or identity is also protected, not disclosed through the transaction process.
Bitcoin Transparent and Neutral
Every transaction as well as information about BTC is public on the Blockchain. You can check and use them in real time. The BTC protocol is encrypted, so no human or organization can interfere, control and govern. This network is completely decentralized, no one is in complete control. So Bitcoin is arguably one of the most transparent, neutral technologies ever.
Bitcoin can't be faked
One of the most common ways to counterfeit in the digital world is to use the same coin twice, making both transactions fraudulent. This phenomenon is called “double spend”. To solve this problem, Bitcoin, unlike other cryptocurrencies, uses Blockchain technology and many other consensus mechanisms to build a complete protocol.
What is the disadvantage of Bitcoin?
Legal doubts
The legal status of Bitcoin in various countries is still really unclear. Some governments support the use and trading of BTC while many other countries ban and outlaw BTC because of the above points.
There are many concerns surrounding Bitcoin being exploited by criminal organizations. Some newspapers believe that the popularity of Bitcoin lies in illegal transactions. In fact, when the black market website Silk Road went down, the value of Bitcoin immediately dropped.
Degree of recognition
Bitcoin is recognized and fully legal in many countries, however some governments still do not have a specific regulatory framework for this asset class, while others have chosen to issue a ban while considering it. relevant bills.
Most businesses, big or small, are familiar with BTC. It is almost impossible to ban all cryptocurrencies.
Risk of losing key
Key is a mixed numeric and alphanumeric password used to access the Bitcoin wallet. Losing this key means losing your wallet. However, most current wallets have a backup mechanism, and it is clear that users should do so before using the wallet.
Volatility
The price of Bitcoin is constantly rising and falling, going through many cycles and many classic price bubble bursts. After the peak price peaks, the market capitalization of Bitcoin was blown away very quickly. The value of Bitcoin is unpredictable, the price increases rapidly and also decreases rapidly. This will be a huge minus point in the eyes of investors.
Continuous development
The future of Bitcoin is currently unclear. Currently, the government and banks cannot control BTC so it is almost impossible to regulate. However, the more it develops, the more governments try to bring it into legal orbit. Then a Bitcoin will lose its inherent identity and will become a regular currency.
Is Bitcoin a "trick"?
Billionaire investor Howard Marks recently opined that cryptocurrencies are nothing but multi-level scams. He explained that the current successes of digital currencies have no real value other than the value of investors' intangible beliefs.
Those who invest in a multi-level scam model will easily collect money from the difference of second- and third-tier investors, rather than profiting from the individuals who run the business. However, when it comes to Bitcoin, he believes that the core value lies in the definite money supply. As more people have more and more coins, the supply will become scarcer and that helps the value of each coin increase significantly. Finally, Bitcoin does not have the characteristics of a multi-level scam model.
Is Bitcoin an Economic Bubble?
Robert Shiller, the Nobel Prize-winning economist, proposed a list of criteria that help define a typical economic bubble. This list includes: The strong rallies of the asset class, public excitement, media coverage, stories of getting rich and successful from these assets circulating in public opinion. Bitcoin has all of the above signs.
So in a way, maybe Bitcoin is a bubble and it has burst before. After the massive closure of Mt. Gox, a Chinese exchange that handles more than 70% of the global Bitcoin trading volume, the price of BTC has been falling continuously for a year and a half. It took exactly 3 years for the market to start to recover. And of course, it's hard to predict what's going to happen in the future.
Difference of Bitcoin with traditional currencies
Decentralized Every currency in the world is governed by a form of power. All transactions must go through a bank, where the fees are sometimes unreasonable and the transaction time is long between the two parties.
Bitcoin, in contrast, is not controlled by any one party, it is a decentralized network and is designed based on the cooperation and consensus of the participants. So even when part of the network is shut down, the transaction is still recorded.
Can't fake
Bitcoin is designed to resist counterfeiting. The legitimacy of a Bitcoin will be ensured by blockchain technology, as well as various protection mechanisms established in the protocol.
Most traditional currencies can be forged. However, the individual controlling organizations do little to prevent this problem completely.
Sustainability
Bitcoin does not exist in a specific physical form, which means it cannot be destroyed. Each Bitcoin is intrinsically permanent, unlike paper money or coins.
"Pen sa, dead chicken"
If someone makes a mistake and sends money to the wrong wallet, they can only pray. Like many other features of Bitcoin, irreversibility is made to prevent fraud. But, unfortunately, if it's fiat currency, all you need to do is pick up the phone to complain.
Calculate conversion
While there are a few fiat currencies such as dollars and euros that are widely accepted around the globe, most other countries' currencies can only be used within their own geographic boundaries. In contrast, BTC is an online currency, which means that the operating environment will be global.
How to tax Bitcoin?
Bitcoin currently does not have official legal status in most countries, but a few tax authorities have recognized the importance and have proposed specific bills. These bills vary depending on the conditions of each country.
For example, the US Taxation Office views Bitcoin and other digital currencies as an asset class rather than a monetary recognition. Miners are also eligible to file a tax return in the US if their mining operation is proven successful.
According to the European Supreme Court, Bitcoin is a currency, not an asset class. Despite being exempt from value-added tax, Bitcoin may still be subject to some other taxes. The UK tax authority considers Bitcoin a foreign currency. Bitcoin is also exempt from consumption tax in Japan, where the authorities also recognize it as a legal payment method.
Since Bitcoin is a relatively new currency, regulatory frameworks for tax administration will differ significantly depending on the country.
Should I buy Bitcoin or not?
Bitcoin is quite famous for its unpredictable volatility. It is not unusual for the market to rise or fall suddenly. In mid-December 2017, BTC reached an all-time high, surpassing $19,850 a BTC and then rapidly dropping to $12,000 shortly and currently trading just under $5,000.
It is impossible to say exactly where the Bitcoin price will go in the coming years. Maybe according to one hypothesis, all will return to the starting line. It is also possible that the market will stabilize at current prices, possibly doubling, tripling, quadrupling or even tenfold. No one can predict exactly what will happen no matter how well we understand this technology or how market analysis has shown it.
John McAfee used to be very confident in the bright future of Bitcoin when he repeatedly tweeted that he would eat his “private part” on national television if BTC did not reach $500,000 in the next three years. Warren Buffett, by contrast, predicts that the future of Bitcoin will be “outrageous”.
In the crypto community, the most popular investment strategy is called hodling (i.e. long-term speculation). This language comes from a December 2013 Bitcoin forum post by a group of users who may have been "dull". The content is “I AM HODLING”. This confusion has been embraced by the community and has become a slang term for a speculative strategy.
After all, you may have heard many different sources of information, but be aware: Bitcoin is an extremely risky investment, so never invest more than you can afford. Coin68 recommends you sincerely.
What is a Bitcoin Whale?
Whales are the largest animals in the world and Bitcoin Whales refer to the big players in the Bitcoin market. These are not just individuals but also organizations like Trusts, Investment Funds, etc. For example Pantera Capital, Bitcoins Reserve, Bitcoin Investment Trust and so on.
Institutions own hundreds of thousands of Bitcoins and often transact in huge amounts. So they often have special arrangements with exchanges to be able to move such large amounts of money out of the eyes of individual investors.
According to a recent Bloomberg report, only about 1,000 people own 40% of the market. In fact, these people have balances so large that even a few of their small trades make the market sneeze.
There are more than 25 million people in the world who own Bitcoin, according to research paper by Bloomberg. More interestingly, you only need 0.153 BTC to be in the top 30 Bitcoin holders. And to get into the top 1%, you only need to own 15 BTC.
According to Cointelegraph
