What Is Bitcoin (BTC) And How Does It Work?

Coding compiler – What is Bitcoin? Bitcoin (BTC for short) is a digital currency created and stored electronically. Unlike the euro or the dollar, bitcoins are not physically printed or generated by central banks but are calculated remotely by many people around the globe with computer power. Bitcoin, like other digital currencies, is not subject to any central or state control.

What is Bitcoin?

Bitcoin is a is a digital currency created and stored electronically. Bitcoin is the best-known example of a fast-growing cryptocurrency. The following tutorial explains the most important features and characteristics of the digital currency.

How does Bitcoin differ from other digital currencies?

Bitcoin can be used to purchase goods and services as well as conduct financial market transactions. Bitcoin fulfills the same functions as conventional currencies, the euro or the US dollar.

The most important characteristic of Bitcoin, however, is its decentralization. The Bitcoin network is not subject to any institutional control. This means that no central bank and no state can control the money supply and set the framework – the network controls itself.

Who created Bitcoin?

A software developer with the pseudonym Satoshi Nakamoto has allegedly created the Bitcoin. Nevertheless, it is still unclear whether this is a single person or a group. The unresolved identity of Satoshi Nakamoto, therefore, leaves room for speculation and conspiracy theories.

How many Bitcoins are there?

The Bitcoin protocol was developed for a maximum of 21 million bitcoins mined. These coins can be divided into smaller parts (the smallest part is one hundred millionth) and are called Satoshi – named after the Bitcoin inventor Satoshi Nakamoto.

What is Bitcoin based on?

Bitcoin is based solely on mathematics. There is no institutional fabric behind Bitcoin that stands for its intrinsic value. People around the world are using software that follows a mathematical formula to generate bitcoins (also called mining).

The software is a so-called open-source software, which means that it is possible for anyone to understand what this software does exactly and whether it serves its purpose. 

The technology underlying Bitcoin, known as Blockchain, is currently attracting much interest from many companies, institutions, and governments, as has Bitcoin. Decisions in the Bitcoin network are made by the network through a consensus mechanism defined in the program code, rather than by a single instance.

What are the key features of Bitcoin?

The key features of Bitcoin are:

  1. Bitcoin is decentralized
  2. Bitcoin is easy to handle
  3. Bitcoin is pseudonymous
  4. Bitcoin payments are 100% transparent
  5. Transaction costs are low
  6. Bitcoin is fast (peer-to-peer)

Here we’ll discuss each key feature of Bitcoin. Let’s read now.

1. Bitcoin is decentralized

The network is not controlled by any central institution. Every computer that calculates and transfers bitcoins is part of the network. This means that no central institution can make monetary policy decisions for the Bitcoin network, or even have the power to take bitcoins away from users. Should the system go offline for some reason, the bitcoins will still be preserved. The entire protocol of the Bitcoin network can theoretically be stored on a hard disk or even printed on paper.

2. Bitcoin is easy to handle

Opening a bank account or business account is often associated with bureaucratic hurdles. A Bitcoin account (Wallet), however, anyone can open without having to provide any evidence.

3. Bitcoin is pseudonymous

Users can have multiple BTC (Wallets) accounts. No names, residential addresses or other personal information are assigned to these.

4. Bitcoin payments are 100% transparent

The network stores every single transaction in the blockchain. The blockchain resembles a huge register. If someone has a public BTC address, everyone can see how many Bitcoins are in this account. However, it is not possible to see who owns this BTC address. Nevertheless, many users used changing addresses and transferred only parts of Bitcoins to one address.

5. Transaction costs are low

An international bank transfer at a conventional bank quickly costs a lot of money. At Bitcoin it does not matter if the recipient of the transfer is one kilometer away or several thousand kilometers.

6. Bitcoin is fast (peer-to-peer)

Bitcoin can be sent anywhere and it only takes a few minutes for the network to confirm payment. A Bitcoin transfer takes place peer-to-peer, ie no middleman or intermediary intervenes. In contrast to bank transfers, the transaction thus takes place directly and without detours from A to B.

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