What is Bitcoin (BTC)?
Commonly abbreviated as BTC, Bitcoin is a digital currency. Unlike the traditional currencies like dollar, euro, etc. Bitcoin is not backed or controlled by any central bank, institution or government. Thanks to its peer-to-peer technology, the transaction management and the distribution of the Bitcoins is carried out by the network itself.
Due to its unique structure Bitcoin cannot be copied, changed or destroyed. Being a decentralized currency, Bitcoin is neither owned by nor under the control or management of any person, institution, company or government. Its design is open to the public and anyone who wants can participate in this network.
Bitcoin does not physically exist in the real world, instead there are Bitcoin balances which are kept on an open-to-all virtual ledger. These balances are kept secure with public and private keys of long strings of numbers and letters. Every single transaction made on the network is verified by a massive amount of computing power. Considered as the currency of the future, Bitcoin is getting more and more popular due its speed and lower transaction fees compared to the traditional payment options.
The First Bitcoin
To be able to understand the birth of Bitcoin, one should look back at the last few decades leading up to the emergence of the cryptocurrencies. The technological developments around the world has led us to exchange data at record levels by copying data in a fast and easy way and for free. This universal data share has played a great role in the development of numerous computers and networks.
With these developments, some further questions were raised. What would happen if the data could not be copied? What if there would be unique data which can only be shared by transferring? In such an atmosphere Bitcoin was created in 2009 by Satoshi Nakamoto. Though the identity of the said person or persons who created this technology still remains its mystery, we know the answers of above questions today. Besides knowing, we are now able to use this unique data as digital currency and trade with it.
Today Bitcoin and the other following altcoins are a part of our lives. Looking at the trends around the world, it will continue to take part of our lives for a longer period.
What Kind of Currency is Bitcoin?
Bitcoin is the first cryptocurrency created ever. It is a kind of digital currency used in a fraud-resistant and decentralized financial system. This digital currency is protected with thousands of code lines. It is based on an open sourced software regularly developed by a large developer community.
Bitcoin cannot be regulated or controlled by any single authority or institution, instead it is maintained by many computers (nodes) around the world. The Bitcoin network is based on a distributed book known as blockchain which is responsible for keeping the registry of all transactions in an organized way. These transactions are grouped into linked blocks to form a blockchain.
How Bitcoin Works? What is Blockchain?
Before detailing the way Bitcoin works, we should look at what blockchain is. Basically, a blockchain is a batch of records that looks very much like a general ledger or a plain database. However, its uniqueness comes from the mechanism it uses to verify and protect these records.
After the spread of the data sharing, the structure of data which can be easily duplicated and changed bothered the developers for a long period in that it was not possible to determine which version is the original one. Yet still, the idea of a unique and unchangeable data has stayed as an idea until the early 1990’s when Stuart Haber and W. Scott Stornetta created the first blockchain model.
As a way of preventing the data change, firstly cryptographic proofs were used to secure Blockchain. Haber and Stornetta’s studies inspired Hal Finney and many other computer scientists and paved the way for the creation of Bitcoin in the end. The Bitcoin white paper was written in 2008 by Satoshi Nakamoto, and later the very first block was created on January 3, 2019.
The Technology Behind Bitcoin
The technology behind Bitcoin has been developed to protect the data and transaction integrity. First of all, every transaction is signed and verified digitally by using cryptography techniques in order to prevent the use of funds more than once. If its validity is verified, the transaction is recorded to Blockchain permanently by mining. This may seem to be a process which requires an additional effort, yet it has a huge effect on the system security. To be able to change the blockchain of Bitcoin, the whole structure should be solved and this is not possible practically even with the most powerful computers.
The other security layer is that the data has been distributed over numerous network nodes around the world each of which stores a copy of the data. Since one copy of the data is changed it will not match with the other copies, changing or destroying the data is not possible.
This process is managed by a consensus algorithm known as Proof of Work. Taking dozens, hundreds or thousands of copies of the same data simultaneously is a much bigger order than a single copy. This is how the data can be stored securely. Since it is not based on a single data center as other traditional systems, a distributed system is much stronger against any system failures or cyber-attack as well.
How to Buy Bitcoin?
There are numerous ways of buying Bitcoin, the easiest of which is to sign up to a cryptocurrency exchange of your choice. Many of the approved Bitcoin platforms ask for your credentials and photo in order to make sure that the investors do not infringe the money laundering laws or make any tax fraud.
After signing up, you have to create a wallet to buy Bitcoin. The cryptocurrency exchange you signed up will provide you with a wallet. You can store your Bitcoins or other cryptocurrencies in this wallet.
To deposit money to your wallets you can use traditional payment methods like credit or bank cards or wire transfer. After depositing money to your wallet you can buy, sell or transfer Bitcoins. Using Bitcoin as a payment option is also allowed in many countries.
Investors should keep in mind that Bitcoin, as a relatively new asset class, is still very volatile.