What is Bitcoin?
Bitcoin is the first decentralized digital currency. So what does that mean? Well to put it simply, the network that maintains and processes the trading of Bitcoin is distributed across thousands of machines located all over the world so that there is no single point of failure.
With traditional banking, if the bank’s computer network fails or is overloaded you can’t get you money out. Bitcoin however has so many nodes processing payments, that even if a hundred of those nodes went offline at the same time it wouldn’t make any difference to the time it takes to make a transaction.
How does it work?
Ok, so I’ll try and break this down into the simplest explanation I can.
Bitcoin all starts with the ‚ÄòMiners'; computers setup to process Bitcoin transactions. Every 10 or so minutes one of these miners will generate what is referred to as a block. Any pending transactions at the time a block is generated will be selected by the miner and placed within the said block. This block is then added to the ‚ÄòBlockchain’ which is a sort of record that contains a giant list of every Bitcoin transaction ever made.
Every Wallet, node and miner has a copy of the Blockchain. Whenever a new block is added, they download it, add it to their current version of the blockchain and verify that the transactions within the block are legitimate and have not been faked in anyway.
So what makes Bitcoin better than my local currency?
There are a few things about Bitcoin that make it a far better alternative than the current monetary system:
- Near instant transactions - A transaction with Bitcoin can be received within 10 minutes of sending, regardless of who you are sending it to. No more waiting for outdated banking software that takes 24 hours to send out your money.
- Low fees - compared to the current banking system, Bitcoin has very low transaction fees.
- Send money to anyone - With Bitcoin you can send your money to anyone anywhere in the world without having to wait and without having to pay outrageous wire transaction fees.
- No limits - there are no arbitrary limits to how much or how little Bitcoin you can send someone, unlike the current banking system that imposes a maximum transaction sizes.
- Bitcoin can’t be inflated - due to the way Bitcoin has been set up, there will only ever be 21,000,000 Bitcoins in existence. There is no way for the government to print more and devalue the currency.
- You are in control - there is no way someone can freeze your account or charge your money on your behalf.
- Anyone can use it - there are no prerequisites for using/owning Bitcoin, all you need to do is download a wallet program and you are good to go.
Still not convinced that Bitcoin is the way to go?
Well there is one other reason to get into Bitcoin that I have not yet mentioned, and that of course is that the value of it keeps going up. In just over a year the value has risen from about $13 USD to over $400 USD and who knows when it will stop.
Jumping on board now might mean that in another year’s time you may be able to sell it for a lot more than what you paid for it! If that’s not a good enough incentive, then I don’t know what is.
Want to learn more about Bitcoin?
Now that you’ve learnt what Bitcoin is, you might be interested in reading Why should I accept Bitcoin as payment method?
Can’t wait to get your hands on your first Bitcoin? Check out our article on How to obtain your first Bitcoin