Tired of keeping a lot of hard cash? Or are you worried about the safety of your money in banks? You can consider cryptocurrencies. These are currencies that you cannot see or touch, they are digitally scored. Yet, you can use them just as you use your money. Imagine owning money without actually having to store it somewhere safe.
Bitcoin is one of the most popular cryptocurrencies in the world. In this article, let’s talk in depth about what is bitcoin? And how is it relevant for you?
What is Bitcoin?
Bitcoin uses cryptography to create and regulate units of this digital currency. It is also decentralized, which means that no government or regulatory body has any control over this virtual currency.
Bitcoin, to simplify is a bit like your money stored digitally, that you can use to transact with anyone who accepts it as well. You can transact as little as 0.00000001 bitcoins (up to 8 decimal places). Naturally, you cannot use Bitcoins to make payments where it is not accepted. It is not a coin as its name suggests. Analogically speaking, it is like a gold coin that you can trade online. It is a currency that can be traded safely using blockchain technology (aka giant ledger) and runs on a peer to peer network.
When was Bitcoin invented?
Bitcoin was invented in 2009 by Satoshi Nakamoto, who revealed little about himself until 2010. It is the world’s first cryptocurrency. Bitcoin was essentially created to combat inflationary pressures and empower common people to own currency that is outside the regulatory framework. Ever since bitcoin was founded the bitcoin community has grown exponentially.
How does Bitcoin work?
Bitcoins are traded from one personal wallet to another. Each person has a unique wallet ID. The authenticity of each transaction is protected using digital signatures. Just like no one owns the internet or the world wide web, no one really owns the bitcoin network.
Once some transaction is done over the network, it is verified by bitcoin miners. These are the hardware that solves complex mathematical problems using high-end processing systems to authorize the transactions.
Bitcoin has its own Application Programming Interface (API), exchange rate and price index. The prices of Bitcoin fluctuate a lot and it is quite volatile.
What is Bitcoin Mining and Who are Bitcoin miners?
Mining is a process of keeping Bitcoins secure. It does so by adding new blocks (or transactions) to the queue. These blocks are removed once the transaction has been completed. Even if one block is corrupted, the entire block does not get corrupted. This is due to blockchain technology.
Bitcoin miners are hardware which use heavy computing processing to authorize transactions done using Bitcoin. They also generate new Bitcoins as rewards by solving cryptographic problems. This is in fact, a very smart way to generate new currency. A potential to make profit incentivizes miners to take up Bitcoin mining.
However, this process may sometimes not be very cost effective, due to the heavy costs involved. First of all, this cannot be handled by the normal processing power of computers. Hence, special mining hardware called ASICS (Application-Specific Integrated Circuits) may need to be installed. These hardware consume a lot of energy, hence turning mining into a profitable business can be really tough.
Advantages of using Bitcoin
1. Decentralization - Bitcoin technology is not controlled by any government authority or a regulatory body. Hence, you will control your funds and know what to do with them.
2. Safe and Secure - Bitcoin transactions are safely encoded using blockchain technology. Cryptography is almost impossible to break and usage of big numbers makes it really hard to break into this system. It is essentially unhackable.
3. Fast - Bitcoin enables you to transfer the funds globally to anyone within a few minutes. There is no distinction if you are sending money to your neighbour or to another part of the world. However, sometimes you may have to wait for transaction approval for a longer time.
4. Easily Accessible - Usage of cryptocurrencies is very easy and accessible. There are no cumbersome procedures. You just have to download free software and you are free to start using it.
5. Low Transaction Fee - Private companies and banks can charge a transaction fee of up to 2.5%. The transaction fee for a Bitcoin transfer is only a fraction of that.
Disadvantages of using Bitcoin
1. Irreversible Transactions - There is no safety net to transactions once they are done. Unlike bank transactions, which can be reversed in some cases, once you do a transaction using Bitcoin, it is irreversible.
2. Anonymity - None of the bitcoin accounts or transactions is related to any person in this world. Which means all transactions are done from one wallet ID to another. This is one of the reasons why many governments consider this unsafe and many governments have made it illegal.
3. Bitcoins Protection - If you forget the password, your Bitcoins can forever be lost. So you need to remember your password, backup your wallet on a continual basis and also encrypt your smartphone to protect data.
4. Software Complexity and Volatility - Bitcoins software initially can be a bit complex to use. The currency is also quite volatile and exchange rates fluctuate a lot. This dissuades a lot of people from using it.
Where can you store Bitcoins?
1. Exchange Platforms - On exchange platforms money is traded for cryptocurrencies even cryptocurrencies can be traded for one another.
2. Wallet Platforms - It is like a bank account where cryptocurrencies are kept
3. Hard Wallet - This is an offline wallet which is not linked to a network.
4. Private Cryptographic Key - This is like your account number. This is the information you give to someone to receive cryptocurrency.
5. Public Cryptographic Key - This is also like your account number. It is a key that allows you to spend your cryptocurrency.
Bitcoin over the last few years has disrupted the technology and financial systems in the world. Although, the Bitcoin community has grown exponentially, yet there is much furore and surprise about what this system can bring in the next few years.
We have seen headlines of early adopters of Bitcoins, who have become millionaires. And there are many who are yet to adopt this new way of living financially if I can say so.
There are millions of Bitcoins in circulation today. However, there is a cap for this. Only 21 million Bitcoins can be in circulation or mined. Once this number has been reached, the earth’s supply of bitcoins will be tapped out. For a larger supply, the protocol will need to be tweaked.
What happens when Bitcoins reach its limit? This subject still remains under much debate.
What we know for sure is that Bitcoins are here to stay.
- Tanya Kathpal
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Want to get published on EMN and join the community? Here is an opportunity to join the Board of Young Leaders Program by Eat My News. Click here to know more: bit.ly/boardofyoungleaders
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