What Is Bitcoin? Understanding Digital Currency
Bitcoin is an online or digital currency, created in 2009 by an anonymous person using the alias Satoshi Nakamoto. Since then, Bitcoin currency has quickly gained popularity, as it can be used to buy merchandise anonymously, there are no related fees, and it simplifies international payments, since bitcoins are not tied to any country or subject to regulation. There are several important characteristics that set apart Bitcoin from normal currencies. Here are some essential features that are key to understanding Bitcoin and digital currency in general.
- Bitcoin is based on software, not government. While government central banks like the US Federal Reserve create conventional money, Bitcoin is created by “open source” software. Anyone can download the software, and by using it, help to operate the Bitcoin system and earn bitcoins–that’s called “mining.” However, bitcoins can be bought or exchanged for conventional currency.
- The currency is decentralized. This means that no single institution or central authority controls bitcoins. Rather, the currency runs on a network, whereby every machine that mines bitcoin and processes transactions works together. Since the network is decentralized, if some part of the network goes offline for some reason, the money will keep on flowing.
- Bitcoin currency is created digitally. Rather than being printed physically, bitcoin is created digitally by a community of people that anyone can join. The bitcoins are essentially mined using a distributed network.
- It’s simple to get started. Unlike with conventional banks and merchant accounts, which can take some time and effort to open, you can set up a bitcoin address in seconds. The information you need to supply is minimal and there are no associated fees with bit coin. Instead of a bank account, you’ll get a “wallet” to send and receive bitcoins.
- The currency can be anonymous (to a point). Users are able to hold multiple bitcoin addresses that aren’t linked to names, addresses, or other personal information. However, it’s important to note that a general ledger of all bitcoin transactions is kept.
- The bitcoin network is completely transparent. Basically, the bitcoin network stores details of every single transaction in a huge general ledger, called the blockchain. However, if privacy is a priority, there are measures that people can take to make their activities more opaque on the network, such as using multiple addresses.
- Transactions are fast with minimal fees (if any). It typically takes minutes for the bitcoin network to process a payment. In addition, you will rarely encounter any transaction fees, even for international transfers.
While the bitcoin network is versatile and convenient, it isn’t a free-for-all. There is actually a bitcoin protocol in place, which governs all bitcoin interactions and keeps the network reliable and sustainable.