What Is Bitcoin: Simple Explanation (2019)

We live in an amazing time when what doesn’t exist is worth more than gold – bitcoin. It is a cryptocurrency, a phenomenon that has turned the traditional financial system upside down.

The first cryptocurrency in the history of mankind was Bitcoin: from “bit” – the unit of measurement of information and “coin” – a coin.

Its creator – Satoshi Nakamoto – forever changed the understanding of money, launching the currency that became the first application of blockchain technology.

Blockchain – the “blockchain” is a rules-based, continuous sequential blockchain, where each subsequent block stores data from the very first blockchain.

All the blocks in the network are in strict chronological order and are linked by a cryptographic signature created with the help of complex mathematical algorithms.

One of the main reasons for the introduction of blockchains into the financial sphere is security.

With the launch of Bitcoin, a new era of the economy has begun – a digital era, with electronic bills in circulation instead of traditional paper notes. Thanks to blockchain technology, Bitcoin has become the first currency that solves the problem of double expenditure: electronic files, unlike paper notes, can be duplicated and spent twice. And all this without the use of any central server or other third party body

. Like everything revolutionary, at first Bitcoin was interesting only to a small group of people who were ready for the new digital stage of the world economy and saw the prospects of digital money. For others, it was an unknown and frightening world.

Therefore, at the moment of launch in 2009, 1 Bitcoin cost 1 cent. But when the cryptocurrency began to speak loudly, when the price of Bitcoin began to rise and reached several thousand dollars, everyone began to take “non-existent” digital money more seriously and began to study it in depth.

People began to look for answers to their many questions: What is Bitcoin in simple terms? Why is it needed? How many Bitcoins were released and how many of them were left? How many Satoshi in one Bitcoin? What does mining mean and what is hashreit? And so on and so forth.

At some point, Bitcoin wanted everyone, and at some point (in December 2017) the cost of one Bitcoin reached almost $20,000.

And such a success of digital money is quite justified: it is more perfect than traditional money. Their owners are independent of any financial institutions and manage their own cash flow. All transactions are cryptographically protected and transparent. The advantages of cryptocurrency can be discussed for a long time. But we need to speak a simple language, even for dummies, so that everyone can understand how digital money functions and why they are needed at all.

Let’s start from the beginning: who invented the first cryptocurrency and when?

The Bitcoin Story and Price

Bitcoin is the very beginning of a new generation of decentralised digital currency, created and operated only in the Internet. But who was the first one to come up with the idea of using money that cannot be physically touched, held in hand, or rattled with paper? When does a currency that exists only in the virtual world begin, but is more reliable and perfect than traditional rubles, dollars and euros?

The creator of Bitcoin calls himself Satoshi Nakamoto. This is an anonymous character, probably from Japan.

Before launching the world’s first cryptocurrency, he spent ten years researching cryptography and distributed networks. Bitcoin’s creation was preceded by a 2008 civil protest in the financial center of New York City. Occupy Wall Street activists accused America’s largest banks of currency speculation, money abuse, uneven income distribution, inadequate fees and taxes, and blamed them for the lack of adequate response to the beginning of the global financial crisis.

In short, people demanded economic justice. Therefore, the birth of absolutely new money, capable of ensuring fair financial regulation, was very opportune.

The idea of the founder of the first cryptocurrency was to exchange money without centralized control, electronically, anonymously, more or less instantly and at the lowest cost.

How many years has the world been using cryptocurrency? Ten years have passed since the first BTC coins were created, and Bitcoin in 2019 is the most expensive and popular cryptocurrency.

It is the first line in the world ranking of cryptocurrencies and the total capitalization of more than $196 billion. The first block and the first 50 BTC cryptocurrencies were generated on January 3, 2009. The first transaction with cryptocurrency took place on January 12, 2009: on this day Satoshi Nakamoto sent 10 bitcoins to Hal Finney.

Bitcoin has a limited emission: a total of 21 million BTC coins will be issued. When the 21 millionth coin is produced, the network will simply stop producing new tokens.

How many Bitcoins have already been produced? How many of them are there now?

The sum of all existing Bitcoins is 17,799,141 BTC. Bitcoin production is expected to end in 2140.

Thus, 2009 went down in human history as the year of the birth of Bitcoin, the appearance of which forever changed the understanding of what money can be.

What Are Bitcoins and How Does Bitcoin Actually Work?

There is an opinion that it is not easy for an average user to understand where digital money comes from. Many people are still wary of the cryptocurrency, believing that it is not for dummies. In fact, the algorithm of Bitcoin can be understood without knowing the profile knowledge. In simple words, we tell you how bitcoins work.

Ordinary currency is issued by the state, and this money supply is not limited by anything. Printed as much money as necessary, which leads to their depreciation. The cryptocurrency is not linked to any state, bank or other body. Nothing affects the functioning of the network. Satoshi Nakamoto has managed to create an electronic payment system without centralized control.

The network is serviced by its members themselves, and new coins are emerging through the operation of many interconnected computers around the world. In the process of mining, users extract new blocks and receive an award in the form of cryptocoins.

In 2019, the Bitcoin Block Award is 12.5 BTC.

The difficulty in understanding Bitcoin is that it does not physically exist. There are only special registries that keep strict records of how many Bitcoins they have and who/who/who transfers them to. These data are combined into blocks, information recording units in the network, and form a blockchain or blockchain. Blockchain is never an end-of-life book, with its pages arranged in strict chronological order.

Blocks in a blockchain are interconnected through the records they contain, and each block stores information from the entire chain. The content of blockchain is constantly increasing by adding new blocks at the very end of the chain. Read: What blockchain is in simple words. All blocks are in strict sequence and linked by a cryptographic signature generated by complex mathematical algorithms.

The cryptographic signature accompanies each change in the network, and all participants are notified. In-network operations provide hundreds of thousands of computers around the world, which are called “nodes” or “nodes”. A node is a stand-alone computer that stores the full version of blockchain. When a new block appears on the network, all nodes (computers) update their blockchain.

Blockchain’s algorithm for verifying Bitcoin payments Thus, Blockchain technology makes it possible to refuse intermediary services and make faster and cheaper transactions. A Bitcoin transaction can be compared to sending a letter. The sender writes the text of the letter (specifies the amount of bitcoins), confirms it with a signature (the key of the bitcoin purse), specifies the address of the recipient and the address of the sender, chooses an envelope (the service of bitcoins) and lowers it into the mailbox (clicks “Send”).

However, if delivery of the letter by usual mail occupies some days Bitcoin can be sent for few minutes. Bitcoin transaction speed depends on the total network load, the number of sent bitcoins and the commission that the sender is ready to pay for fast delivery of his money message.

Where do Bitcoins come from?

How do you make Bitcoins? Who prints them? How are Bitcoins mined? How to grow Bitcoins? Where do they come from?

Unlike traditional currencies, Bitcoin is not printed by the central bank and does not work according to its rules. Moreover, the maximum amount of BTC coins is known from the beginning, while paper money is printed in unlimited quantities. Bitcoin mining only takes place in a digital form, and everyone can create or, as they say, mine bitcoins. Bitcoin mining occurs through the use of computer computing power in a distributed network. Mining is the process of extracting new blocks and adding them to blockchain.

New blocks create miners. They try to solve the mystery of the system, which is to find a single key – the hash. The hash is a mathematical conversion that produces a unique alphanumeric string. The difficulty of solving the problem and finding the correct hash is that each block consists of: The hash of the previous block + Hash sums of all included transactions + Random number, which is constantly changing. Many miners around the world are simultaneously trying to figure out the cipher and get an award.

The whole process is regulated by the system so that a new block is not created more than every 10 minutes. So, we almost got the answer to the question “How do you get bitcoins? When one of the miners finds the right solution, he adds the blockchain to the blockchain. The information about adding a new block is communicated to all the computers on the network, and the miner receives an award.

Then they move on to the next block, and the competition begins anew. In this way, the award encourages users to mine and at the same time ensures smooth operation of the entire network.

The higher the total capacity of the equipment, the better the chances of finding the unit. An important indicator when mining is hashreit – the computing power of computers. High power indicators allow you to quickly find the right key to the hash block. The speed of the network is also affected by the difficulty of getting bitcoins, which is constantly increasing. The complexity of mining occurs with a certain periodicity – once in 2016 blocks.

Thus, to get the next element of blockchain, you need to perform more and more mathematical actions, so it becomes more and more difficult to solve the hash. To increase their chances, miners combine the power of their computers and form pools. When the right solution is found, the reward is distributed among all members of the group. For more efficient extraction, mining farms are created, which consist of many computers performing calculations.

But the construction of such farms requires serious investment. Thus, in theory, Bitcoin can be extracted by anyone anywhere in the world at any time. To do this, it is necessary to have equipment with the appropriate computing power. However, the complexity of computing is constantly increasing, and equipment requirements are also increasing. Whereas it used to be possible to mint Bitcoin on your computer with a few powerful graphics cards, it is now inefficient. Bitcoin mining has taken on an industrial scale, and home mining is no longer relevant.

What happens when all Bitcoins are mined?

Is it possible to extract bitcoins indefinitely? No. Bitcoin emission is strictly limited to 21 000 000 coins, which is specified in the original code. It is expected that the Bitcoin issue will be completed in 2140, when after 21 million coins the network will stop creating new ones.

The limited emission protects the cryptocurrency from unavoidable inflation in case of market saturation. The superpower of digital money is that it can be divided into smaller parts. The smallest unit of Bitcoin is called Satoshi (after Satoshi Nakamoto).

Each cryptocoon is divided by up to 8 decimal places, i.e. 1 BTC is 100,000,000,000 Satoshi.

It is important to note that there is a direct link between how many Bitcoins are already in circulation and the complexity of their mining.

The number of mined coins increases → the difficulty of calculating new blocks increases, and the reward for each found block decreases. Thus, compared to 2009, the reward for the found block has decreased from 50 to 12.5 BTC, and the difficulty has increased from 1 to more than 2600 billion hashes per second.

Why Do You Need Bitcoin And Why would I use Bitcoin?

Bitcoin is just as much money as any other currency we use on a daily basis, paying for supermarket purchases, buying movie tickets, paying a restaurant bill. Bitcoin can be used to pay for any purchases online. Bitcoin, like other currencies, is traded on stock exchanges. After all, Bitcoin can be easily exchanged for paper money and vice versa.

On May 18, 2010, the first and most famous purchase of goods for Bitcoin took place. And it was a pizza. A user with a nickname laszlo created the theme “Pizza for bitcoins? He asked who could order him two pizzas for 10,000 BTC (the equivalent of $30 at the time of purchase). As a result, the laszlo pizza went to a user in England.

Now almost every day there is information about opening a shop, bar or restaurant with support of payments in cryptocurrency. In some countries, even taxi drivers take Bitcoin. The easiest way to spend your cryptocurrencies is in Japan: about 260,000 retail stores are ready to accept payment at BTC.

The cryptocurrency is replacement of the Debit card

The opportunities offered by Bitcoin and other e-currencies are similar to banking services. Moreover, some parts of the world already have Bitcoin ATMs that perform the same functions as traditional ATMs. Therefore, Bitcoin cards in an account can easily become an alternative to debit cards. If you wish, you can even buy a material Bitcoin coin. But it should be considered as an expensive souvenir, because such a coin can contain only a seed phrase necessary for the activation of a real wallet. The uniqueness of the Bitcoin network is that it can be used to exchange information and values that are not related to it.

Blockchain records all transactions in this cryptocurrency and, more importantly, it can record absolutely any data. In January 2009, Satoshi Nakamoto majored a Bitcoin genesis block and left the following entry: “The Times of January 3, 2009: The Chancellor is on the verge of another bank rescue. This mechanism is much better implemented in altrcoins, for example, in the Efirium, but for the first time the concept would be implemented in Bitcoin. Replacing the Bitcoin Fiat Values is a solution for those who have lost faith in central banks and no longer want to use fiat currency. Or for the people of degraded economies and unstable national currencies. Bitcoin is already capable of creating healthy competition with fiat currency or being a full-fledged alternative to it. Yes, the future of digital money is rather shaky, because it is unknown. But now there are so many options for using Bitcoin in real life that it is easy to do without “imperfect and vulnerable” paper money.

Bitcoin is popular, spoken and written about. And without reference to any one geographical point: it is the currency of the world, available to all.

Bitcoin has become an international payment instrument, which has power anywhere in the world. Bitcoin is accepted by companies all over the world: from such giants as Dell, Expedia, PayPal and Microsoft to private clinics in Warsaw and Burger King franchisees. Due to decentralization and high security of the Bitcoin network, Bitcoin is considered a reliable channel for receiving or transferring money, including when it comes to international transfers. In the case of freelancers and remote employees, Bitcoin fees are commonplace. This is cheap, reliable and anonymous.

Permanent transaction register of the Bitcoin

The uniqueness of the Bitcoin network is that it can be used to exchange information and values that are not related to it. Blockchain records all transactions in this cryptocurrency and, more importantly, it can record absolutely any data. In January 2009, Satoshi Nakamoto majored a Bitcoin genesis block and left the following entry: “The Times of January 3, 2009: The Chancellor is on the verge of another bank rescue. This mechanism is much better implemented in altrcoins, for example, in the Efirium, but for the first time the concept would be implemented in Bitcoin.

Replacing the Bitcoin Fiat Values is a solution for those who have lost faith in central banks and no longer want to use fiat currency. Or for the people of degraded economies and unstable national currencies. Bitcoin is already capable of creating healthy competition with fiat currency or being a full-fledged alternative to it. Yes, the future of digital money is rather shaky, because it is unknown. But now there are so many options for using Bitcoin in real life that it is easy to do without “imperfect and vulnerable” paper money.

Can I use Bitcoin to make international money transfers?

advertise websites, news is regularly published in thematic media, large online forums 24/7 discuss the topic of cryptocurrencies and issue their own coins. Bitcoin is popular, spoken and written about. And without reference to any one geographical point: it is the currency of the world, available to all. Bitcoin has become an international payment instrument, which has power anywhere in the world.

Bitcoin is accepted by companies all over the world: from such giants as Dell, Expedia, PayPal and Microsoft to private clinics in Warsaw and Burger King franchisees. Due to decentralization and high security of the Bitcoin network, Bitcoin is considered a reliable channel for receiving or transferring money, including when it comes to international transfers. In the case of freelancers and remote employees, Bitcoin fees are commonplace. This is cheap, reliable and anonymous.

Is It Safe to Invest in Bitcoin in 2019?

The Foundation for Interwallet Operability (FIO) Consortium of operators of cryptocurrency wallets, exchanges and payment systems conducted a survey among more than 200 digital money holders. According to the survey, 73% of users have never paid with cryptocurrency during the year. This leads to the conclusion that most people buy digital money for profit rather than for practical use. The investment interest of investing in cryptocurrency is in its advantages over traditional currencies: decentralization, limited emission, security.

Thus, due to limited emissions and growing demand for cryptocurrency, the price of Bitcoin will only increase in the future. Investing in Bitcoin is an opportunity to earn a lot in a short period of time with minimal effort (yield from 20 to 1000% per annum), protection against inflation, security, and the ability to carry out anonymous money transactions. On the other hand, it is the unpredictability of the market and high risks, complete absence of guarantees and regulatory mechanisms, fraud.

The media often write about happy and, conversely, bad stories about investing in Bitcoin. A Norwegian once bought 5,000 Bitcoins for $27 and successfully forgot about his purchase. When the media began to actively write about the growth of the Bitcoin exchange rate, the Norwegian learned that his 5,000 coins had turned into $886,000. And the reverse story. British man James Howells in 2009 got 7500 bitcoins, then they cost $675,000. But after a while he threw the hard drive to which they were tied up in a landfill. If he hadn’t done such a reckless thing, now he would have had $7.5 million.

And you can imagine the annoyance of a man who in 2010 ordered a pizza for bitcoins, without assuming that in three years the value of these coins will be several million dollars. By the way, no one is insured against losses during investments. The world-famous scientist Isaac Newton has lost almost all his fortune in the financial bubble, which in history has been preserved under the name of the “South Sea Company”. But he was not a stupid man…

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