What is bitcoin
By Mike Denton (Author of The Cryptocurrency 101 course)
In this article, we’ll cover some of the most common questions about cryptocurrencies. In particular, we’ll explain how they’re used and how we can get started with them.
Bitcoin vs. Monero?
Bitcoin and monero are two different types of digital currencies. As such, though they have many similarities, there are actually quite a few differences between they. For example, BTC is stored in a blockchain while BMR is a peer-to-peer network. There are also a few distinctions between these coins, including what type they can be used for, how secure they are, and more.
Before diving into specific terms, however, let’s talk about just one thing related to bitcoin. Unlike other cryptocurrencies like Ethereum or Litecoin that allow us to send transactions to real-world addresses, BTC offers no such permission. Instead, it uses a public ledger called “blockchain.”
Just as blockchains were invented so that people can share information securely, so do Bitcoin’s network of nodes called miners. A miner sends its computer power to verify certain transactions on the network and helps keep all the transactions private. Essentially, they create blocks upon which new transactions are recorded. Most of the time this process works without incident. Then, once it does, you find out why it took years to build. You do not want to read through every single transaction because someone you don’t know paid $100 to make sure it worked. That Bitcoin was created by smart people who made a huge pile of money doing something completely predictable.
How Bitcoin Works
Bitcoin takes a bit of explaining to understand. One of the main reasons it took years to develop is because it has a central authority tasked with overseeing all the transaction and verifying the validity of anyone using it. This authority is known as the Blockchain Authority (BCA). It oversees everything in the system, starting from mining and ending at transferring, editing, reviewing, sharing, and then finalizing the whole thing before locking it away. In a very simple way, it acts like an insurance company, protecting buyers of Bitcoin against fraud and theft. If you’re buying 100 Bitcoins, for instance, when that person gets robbed and the value drops, your crypto will still be worth the same amount and not drop, even if they bought 1 Bitcoin instead. I’ll explain further in my next section.
One interesting question, though, is, “How much paper?” And the answer is really simple. Satoshi Nakamoto (aka the father of Bitcoin) wrote down a set of rules for Bitcoin to follow when creating it. These rules include an upper limit on the total number of Bitcoins everyone can own. At first, only 21 million Bitcoins could be issued, now they’ve expanded to be printed and can hold up to 2.5 billion. They also require that bitcoins be created as a reward or payment for things like free services. Some important examples are Dogecoin, Litecoin, Ripple, etc.
So, what are those sets of rules? Well, they say Bitcoin users must abide by three laws of Bitcoin:
The Halvening Law. According to this law, once someone has reached a certain point in Bitcoin’s life cycle, they are required to stop selling the coin and accept a fixed rate of return. To put this in plain language, that means they needn’t worry about earning Bitcoin anymore. Only Bitcoin will continue being traded. No Lending. Nothing says Bitcoin can’t be lent out. All trades must be paid for with Bitcoin. This includes lending. But unlike some other cryptos that do not have any legal backing, Bitcoin can be borrowed. So yes, Bitcoin can be borrowed by another user. Or it can be lent to someone. This gives Bitcoin community members a great advantage over regular currencies, which may not be used directly. However, it should be noted that borrowing is still allowed. Transactions Involved in Mining. Once someone buys Bitcoin, Bitcoin will be transferred to their wallet where it will live until the owner decides to sell it again. While the Bitcoin market functions as it should, sometimes the chain gets corrupted and loses track of transactions. Thus, it’s okay for another person to buy and take Bitcoin, but not for you or me.
And finally, there is one last rule. Anyone can own Bitcoin, provided they have 21 million. Otherwise, they couldn’t use it. So, once someone wants to own Bitcoin, it’s theirs. Until they decide to sell it, but otherwise, it’s safe to use.
How Safe is Bitcoin Now?
Though there are still issues around security, with Bitcoin having a reputation, many people will trust each other online and make purchases, especially when it comes to financial items like loans or mortgages. Even before Bitcoin came along, banks and credit card companies would check to see what other coins they had stored at home. Because there is no way to prevent what happens after you start trading them, you would be able to access their accounts or withdraw cash. With Bitcoin, it simply isn’t possible. So, with that in mind, it is not safe to try making bank deposits. Why might you think so? Remember, Bitcoin allows the largest user base in cryptocurrency right now. With that said, it’s a very small percentage of the world. Therefore, even if you weren’t planning on trying to store anything, you’d still be able to trade Bitcoins.
Bitcoin is not currently the best digital currency to use. Though it’s easier and faster to use, compared to traditional currencies, it’s also less anonymous, meaning you can’t control whether or not a hacker can find your account or steal your funds because of your password. On top of that, your wallet can be hacked out too, leaving you exposed to potential hackers. Overall, Bitcoin won’t replace fiat currencies for the long term because it lacks privacy, doesn’t offer interest rates as easy as credit cards, and is a hard-to-use app. Even with so much potential in it, it can never beat the current standard of banking accounts in banks.