Bitcoin has been in the news a lot lately. Have you wondered what bitcoin is? I admit it is actually quite confusing and mystifying to many, including to me So here we go.
Who created Bitcoin?
A software developer only known as Satoshi Nakamoto proposed bitcoin, which was an electronic payment system based on mathematical proof. The idea was to produce a currency independent of any central authority, transferable electronically, more or less instantly, with very low transaction fees.
Who Prints it?
No one. This currency isn’t physically printed.
Bitcoin is created digitally by a community of people that anyone can join. Bitcoins are ‘mined’, using computing power in a distributed network. This network also processes transactions made with the virtual currency, effectively making bitcoin its own payment network.
What Exactly is Bitcoin Based On?
Conventional currency has been based on gold or silver. Because of this you knew that if you handed over a dollar at the bank, you could get some gold back (although this does not really work today). However bitcoin is not based on gold; it’s based on mathematics (yes mathematics).
Around the world, people are using software programs that follow a mathematical formula to produce bitcoins. The mathematical formula is freely available, so that anyone can check it. The software is also open source, meaning that anyone can look at it to make sure that it does what it is supposed to.
What are Bitcoin’s characteristics?
Bitcoin has several important features that set it apart from normal currencies.
1. It Is decentralized
The bitcoin network isn’t controlled by one central authority. Every machine that mines bitcoin and processes transactions makes up a part of the network, and the machines work together. That means that, in theory, one central authority can’t tinker with monetary policy and cause a meltdown.
2. It Is easy to set up
Conventional banks make you jump through hoops simply to open a bank account. Setting up merchant accounts for payment is another complex task. However, you can set up a bitcoin address in seconds, no questions asked, and with no fees payable.
3. It Is anonymous
Well, kind of. Users can hold multiple bitcoin addresses, and they aren’t linked to names, addresses, or other personally identifying information.
4. It Is completely transparent
…bitcoin stores details of every single transaction that ever happened in the network in a huge version of a general ledger (pictured below), called the block chain. The block chain tells all. If you have a publicly used bitcoin address, anyone can tell how many bitcoins are stored at that address. They just don’t know that it’s yours.
5. Transaction fees are miniscule
Your bank may charge you a fee for transactions. Bitcoin does not.
6. It’s fast
You can send money anywhere and it will arrive minutes later, as soon as the bitcoin network processes the payment.
7. It’s non-refundable
When your bitcoins are sent, there’s no getting them back, unless the recipient voluntarily returns them to you.
So, bitcoin has a lot going for it, in theory however there are many questions and unknowns and adoption has been almost non-existent. The world has been using currency in one form or the other since the dawn of civilization and I really do not see that changing for quite some time. The idea of Bitcoins is exciting I get it, after all if you watch Star Trek you quickly find out currency has been retired “centuries ago” and something very close to the bitcoin system is described by the characters from time to time.
And no… I have no bitcoins myself and I do not intend to enter that system for the foreseeable future.