It’s difficult to talk to anyone about cryptocurrency without Bitcoin being mentioned – and for good reason. Here’s why.
What is Bitcoin?
Bitcoin is a decentralized digital currency that can be used to send peer-to-peer transactions of value. In layman’s terms, Bitcoin is a new type of currency that allows anyone to send cash online.
Bitcoin is best compared to cash because the transaction process is equivalent. When you hand cash to your friend it’s a fast process and no third party is involved in the transaction, it’s just you and your friend. A Bitcoin transaction is the same. There are no intermediaries involved. This is part of the reason that Bitcoin is so popular.
Benefits of Bitcoin
Bitcoin is loved by many. Most crypto enthusiasts are big believers in Bitcoin and if they’re not, there is usually a respect for the legacy.
Besides being the first cryptocurrency, the one that started it all, Bitcoin has a huge number of powerful characteristics that keep Bitcoin fans satisfied.
Fast transaction times and low fees are a staple of Bitcoin and an integral part of what makes the cryptocurrency so special.
Beyond this, the Bitcoin network is immutable and highly secure. This means your money is safe, providing you store it safely. The risk of a network hijak is extremely low.
By holding Bitcoin you are not exposed to inflation risk like you are when holding fiat currency. The supply of a government issued currency can increase at any time which decreases the purchasing power of the money you own. With Bitcoin, the total supply is known and will never be surpassed.
The rise of Bitcoin was partly due to the peer-to-peer nature of the currency. To many this feature may seem average, but it’s actually very powerful. It means no third parties have any input into how you control your money. Your money cannot be frozen, blocked, stolen or anything else of the like.
How does Bitcoin work?
The Bitcoin network can get very complex. Let’s run through it simply.
Bitcoin is decentralized. There is no central computer system that controls the network. Instead, the transactions are processed by a network of computers spread out across the globe. In return, these computers earn financial rewards paid in Bitcoin. This process is called mining.
Bitcoin uses what’s known as a Proof of Work consensus mechanism. This means that ‘work’ must be completed to process a transaction. Miners use their computers to carry out work in order to earn their financial reward.
Who created it?
Bitcoin was created by an unknown person, known only by the name Satoshi Nakamoto. It is not known whether Satoshi is one person or a group of people. All we know for sure is that Satoshi developed Bitcoin.
What drives the value?
The value of Bitcoin is driven by supply and demand. It’s a tradable asset with huge benefits, but due to it’s nascent nature and ambitious speculation on the potential, the price of Bitcoin is highly volatile driven by speculative trading.
Bitcoin has completed a number of market cycles which involve a huge, fairly rapid price increase followed by a prolonged period of decline.
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