What is Bitcoin?
Bitcoin is a cryptocurrency, which is to say a type of digital currency that was introduced in 2009 by an anonymous individual or group under the pseudonym Satoshi Nakamoto. It was the first cryptocurrency and remains the most well-known and widely used. Unlike traditional currencies – the dollar or pound, Bitcoin is not controlled by centralised financial institutions. This makes it popular for people who think decentralisation can bring financial freedom, but it also makes it extremely volatile – rising and falling in value at the whim of Bitcoin buyers and sellers.
Key Features of Bitcoin:
Decentralization: Bitcoin operates on a decentralized network of computers (nodes) that work together to validate and record transactions on a public ledger called the blockchain. There is no central authority or institution governing Bitcoin.
Blockchain Technology: The Bitcoin blockchain is a continuous chain of blocks, each containing a list of transactions. Once a block is added to the blockchain, the information it contains is considered immutable and permanent.
Proof of Work (PoW): Bitcoin uses a consensus mechanism called Proof of Work. Miners solve complex mathematical problems to validate transactions and add them to the blockchain. The first miner to solve the problem gets to add the block to the blockchain and is rewarded with new bitcoins.
Limited Supply: The total supply of Bitcoin is capped at 21 million coins. This scarcity is built into the Bitcoin protocol and is intended to mimic the deflationary characteristics of precious metals like gold.
Digital Currency: Bitcoin serves as a form of digital money that can be used for various purposes, including online transactions, investment, and as a store of value. It allows for peer-to-peer transactions without the need for intermediaries like banks.
Mining: New Bitcoins are created through a process called mining, which involves solving complex mathematical problems.
Private keys: Bitcoin users have private keys to control their transactions and secure their wallets.
Fast and global: Bitcoin transactions are fast and can be sent globally, regardless of borders or time zones.
Security: Bitcoin’s decentralized nature and cryptographic algorithms ensure a high level of security.
Wallets: To store and manage Bitcoin, you need a digital wallet. Wallets can be software-based (applications on computers or smartphones) or hardware-based (physical devices that store private keys offline).
Blockchain
Blockchain is the technology underpinning all cryptocurrencies, and many related products like non fungible tokens (NFTs). In essence, it is a virtual spreadsheet on which all the buying and selling of crypto is recorded. They are arranged in blocks linked together in a giant chain – hence the name. The incentive to do this for Bitcoin’s network is that the first person to validate transactions is rewarded in Bitcoin. This potentially lucrative process, known as mining, is also controversial because of the incredible amount of energy used as people the world over race to be the first to successfully update the blockchain.
A crypto wallet is a place where investors hold their cryptocurrency. It stores the virtual assets much like a traditional wallet holds cash. There are two types, a hot wallet and a cold wallet. Hot wallets are connected to the internet and thus more accessible for quick transfers and easy access. Cold wallets are physical devices like specially designed USBs that store crypto offline typically for safer and longer term storage.