As of the evening of March 11th, a Bitcoin is valued at just over $1175 dollars. But what is Bitcoin?
In simple terms, a Bitcoin is a form of digital currency. It is not represented by sheets of green cotton and linen, but by ones and zeros. Bitcoins are created and held electronically, unlike printed currency. Bitcoin is similar to regular currency where it can be used to buy things online, but the defining characteristic of Bitcoin is that it is decentralized. It isn’t controlled by a singular institution or agency. This puts many Bitcoin users at ease because they control their money, not a mainstream bank.
When Satoshi Nakamoto invented Bitcoin, he envisioned a currency independent of any central authority, transferable electronically, more or less instantly, with very low or zero transaction fees. But where do Bitcoins come from, if they aren’t generated by a central authority? Bitcoins are created digitally by a community of people that anyone can join.
Bitcoins are ‘mined’ by this community using computing power in a distributed network. With the help of the donated computing power, this network also processes transactions made with Bitcoins, turning Bitcoin into a payment network on top of a currency. However, a Bitcoin doesn’t have one set value. Just like every currency, its value fluctuates based on supply and demand. Over the years, the price of a Bitcoin has been rising, but it isn’t the most stable investment on the market, as the price can rise and fall in a matter of minutes. Bitcoin’s defining characteristics are that:
- It’s easy to set up – Creating a Bitcoin wallet, tied to a Bitcoin address, is super simple. It takes a few seconds. No questions are asked, and no fees are charged. Conventional banks are a different story, making you jump through hoops just to open an account.
- It’s anonymous – This is a tricky one. While there is no personal identifying factor associated with your Bitcoin wallet, all transactions are stored in a huge system called Blockchain. Blockchain is completely transparent. Every single detail of every single transaction is stored in the network. If you have a publicly used Bitcoin address, anyone can see how many Bitcoins you have stored at that address, but this doesn’t really matter as they don’t know that the Bitcoins are yours.
- There are no transaction fees with Bitcoin. Banks often charge hefty fees for international transfers, but that problem just doesn’t exist with Bitcoin.
- It’s fast – Bitcoins can be sent anywhere in minutes. They arrive as soon as payments are processed by the Bitcoin network.
- It’s non-repudiable – As soon as the “send” button is hit, Bitcoins are transferred permanently. Unless the recipient returns them, they are gone from the user’s wallet forever.