BasicsBitcoin

A Brief Guide to Bitcoin

The Bitcoin frenzy was at an all-time high last December spurred by a growing user base and the rapidly evolving Cryptocurrency startups. There have been big investments in mining equipment, which in a way reminds us of the gold rush. While it’s difficult to justify if the excitement is warranted, it’s equally hard to deny Bitcoin’s rising popularity. We shall be briefly discussing the history of Bitcoin and its nuances.

What is Bitcoin?

Bitcoin is a cryptocurrency, a digital alternative to the fiat currency system that we currently use. It’s a decentralized electronic cash payment network that enables peer to peer value transfer. It bypassed the need for a centralized control. This is done using a shared ledger called the blockchain. The blockchain is a public shared ledger which contains all the transactions and account balances since the beginning.

Who is behind Bitcoin?

The first Bitcoin whitepaper was published by Satoshi Nakamoto in 2009. Very little is known about Satoshi and he left the project in 2010. A popular legend is that Satoshi is a pseudonym for a group of hackers. It is believed that a global collaborative effort gave rise to Bitcoin and Blockchain. All this is speculation, and Bitcoin carries on now as open source project with a nonprofit known as Bitcoin Foundation overseeing its development.

How does it work?

To send or receive Bitcoins, a user must first create a Bitcoin ‘wallet’. This facilitates transactions across the network. Let’s X sends his wallet address to A for a bitcoin payment. A would now transfer Bitcoins from her wallet to X’s address. A then signs the transaction digitally binding her details to the transaction.

The transaction is now broadcast to all nodes running the network. Pending transactions are now grouped into blocks, which are verified by ‘miner’ nodes. These miners play the important role of auditing and adding the blocks to the public ledger. They compete with each other spending computing resources and electricity to solve a complex math puzzle to arrive at a solution called Proof-of-Work. The first miner to solve broadcasts his solution to the network which is then verified by the rest. The block is now appended to the official records. The miner is now compensated with newly minted Bitcoins. The balance of X’s wallet would now reflect the payment sent by A.

Why Bitcoin?

Traditional wire transfers are slow and riddled with fees. Fees associated with Bitcoins are negligible to fees of established banks, credit unions, and even PayPal. Bitcoin system’s advantage is that it has no central authority; A completely trustless, immutable, and decentralized system.

The absence of a central authority also means no holidays, no borders and no restrictions. You are free to use your Bitcoin as you please. This also leads to lower risk for Merchants as transactions recorded on the blockchain cannot be reversed. This mechanism inhibits fraud as the network is cryptographically secure making it difficult to manipulate the network.

Bitcoin isn’t inflationary as Bitcoin is capped at a maximum of 21 million Bitcoins. Bitcoin also helps unbanked people worldwide to participate in global markets. It is a robust system that’s accessible by everyone on the Internet.

What can I buy with Bitcoin?

You can virtually buy everything with Bitcoin. Tech giants like Microsoft and Dell accept payments in Bitcoins for a plethora of products and digital services. You can fly airlines like Air Lithuania, buy theater tickets in London or get a few bottles of craft beer.

There are also a lot of online marketplaces trading in illegal substances to high-end luxury items. However, with Bitcoin being a new concept, your spending powers are restricted. With recent fluctuations in the rates of Bitcoin, it has become a great opportunity for investment. Despite being highly volatile, it has seen its valuation increase by 7x over the last one year.

How to get Bitcoin?

The easiest way is to buy them. Bitcoins are traded on various exchanges across the planet. You could also buy them from local marketplaces. They can be paid for in cash, debit or credit. But it’s advisable to buy from authorized exchanges only.

Is Bitcoin a Ponzi Scheme?

Bitcoin doesn’t promise any kind of return on investment. Its value proposition was never driven by profits. It is a completely open technology with no hidden secrets behind it. Its open source, meaning anyone can review the code, anyone can run the software and anyone can use the network too. The entire history of all Bitcoin transactions is available for your perusal. Considering all these points it’s hard to justify Bitcoin as a Ponzi scheme.

Is Bitcoin a bubble?

Bitcoin is considered as a bubble, and rightly so. It has seen its share of highs and lows, with the bubble getting popped quite a few times. But checking its track record, it has always bounced back. While it is hard to predict the future prices of Bitcoin, it must be noted that Bitcoin is currently stronger than it ever was. The prices might plummet in the future but a strong recovery can be expected.

Looking Ahead

Bitcoin isn’t perfect and has its share of troubles. However, it has the backing of an incredible, dedicated developer community that slogs tirelessly to tackle these issues. Bitcoin offers a sweeping vista of opportunity to re-imagine the financial system as we know. It can act as a catalyst to reshape the way individuals and businesses work in the Internet era.

 

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Anshul Mohan

Anshul Mohan

CEO, Editor in Chief
CEO at CoinFrenzy, Mechanical Engineer, Blockchain enthusiast, Writer.