What is Bitcoin?
Bitcoin is a currency or electronic cash just like the dollar, the euro, and the yuan. Where it differs from these currencies is its functions and how Bitcoin was designed.
A decentralized currency
Before going any further, it is important to know that the cryptocurrency was created in the wake of the financial crisis in 2009 by Satoshi Nakamoto (whose identity is still unknown). Satoshi developed the first decentralized, peer-to-peer payment network, that requires no single central authority to oversee transactions. Whether you are sending BTC to your neighbor or your uncle in Asia, no intermediary is present in the transaction.
Transparent, Immutable, Permissionless
Every transaction is recorded publicly in a distributed ledger utilizing blockchain technology where transactions are verified. This makes the Bitcoin blockchain transparent in that it solves double-spending problem and everyone can verify and see the transaction between addresses. Given that all transactions are recorded in the blockchain, no transactions can be reversed and that shows the immutability and authenticity of the Bitcoin network. On top of the transparency that Bitcoin offers, it is also permissionless in that you do not need anyone’s permission to use or transfer Bitcoin. There is no bank or government that can block your transaction or stop you from participating in the Bitcoin network.
Bitcoin is a scarce currency in that the total supply of Bitcoin will always be 21 million Bitcoins.
Currently, only 17.89 million Bitcoins have been mined and are in existence. This means that about 3 million Bitcoins are yet to be created. But how are these created? Bitcoins are created through a decentralized process called ‘mining’. Without going into technicalities, I’ll try to explain this in a very quick summary.
First of all, it is important to note that everyone, and I mean everyone can be a Bitcoin miner. All you need is a computer which allows the miner to secure the Bitcoin network by verifying and processing transactions. For their service in the network, miners are rewarded with newly-mined Bitcoins. As stated before, Bitcoin has a hard-cap meaning that no-one, including the miners can print more than 21 million. An intriguing aspect about Bitcoin is that the protocol creates Bitcoins at a decreasing and predictable fixed-rate. Unlike the current inflationary system we live in where central banks print fiat currencies at will, Bitcoin offers a deflationary system where every four years rewards for mining are cut in half.
Cryptocurrencies with a hard-cap like Bitcoin contrast all other fiat currencies worldwide. As its been seen over the years, central banks across the world increase the money supply and have printed money out of thin air devaluing your savings and purchasing power. For the first time we have the opportunity to seek another way – a way that frees us from the current monetary policy.
This is where cryptocurrencies offer an alternative.
To wrap it up, Bitcoin is basically a digital asset or electronic cash designed to work as a peer-to-peer medium of exchange that uses cryptography to secure financial transactions.