There is always a confusion surrounding bitcoin. In the world of Cryptocurrencies, there are several terminologies which may even seem difficult to speak are clubbed together into one word, in this case, it Bitcoin. Bitcoin has to be separated into two components. The two components are Token and Protocol. Bitcoin is a Token, a code snippet that represents the ownership of the digital concept. On the other hand, we have the Bitcoin Protocol, a distributed ledger that maintains the records of the Bitcoin-the-token, most importantly, they both are referred to as Bitcoin.
If someone talks about bitcoin in front of you, you know the Question to ask.
The most important concept of Bitcoin when it came into existence is that money can be sent independently of the central authorities, such as banks or payment gateway. This money is created and stored electronically. Dollars get printed but the Bitcoin-the-token doesn’t. Bitcoins are produced by computers all around the world using a free software called “Mining Softwares”.
It was the first example of Decentralised money, and today we call is cryptocurrency, it’s a growing class which shares the characteristics with that of money with the verification based on Cryptography.
Who Created it?
A Pseudonymous software developer named Satoshi Nakamoto proposed bitcoin in 2018. Is it a person or a group of people, nobody knows, but the proposed concept is what makes the foundation of Cryptocurrencies today. It was an electronic payment based system based on mathematical proof. A means of exchange that could be independent of Central Authority, that could be transferred electronically in a secure viable and immutable way.
What ways is it different from traditional currencies?
Bitcoin can be used to pay electronically if both the parties are agreeing to it. If that’s the case then it works similar to Euros and dollars, which are also traded digitally.
But it differs from the Fiat Currencies in Various ways:
Bitcoin’s most important characteristic is the decentralization it holds due to the blockchain, which means it cannot be controlled by any central authority. The System is maintained by the decentralized community of coders and run by an open network of dedicated computers spread across the globe. This attracts the individuals to this system, the individuals who are frustrated by the way the banks treat them, thus giving them the overall control over their money.
Bitcoin Maintains the integrity of the transactions by the open and distributed network owned by no-one.
2. Limited Supply
Fiat currencies have an unlimited supply and its scary to know that the US dollar is backed by nothing, central banks can issue as many currencies they want and can attempt to manipulate the value of other currencies through that. The Holders of these currencies with a very little resource bear this change in the cost.
With Bitcoin, on the other hand, the currencies are limited, the supply is tightly controlled by the underlying algorithm. A number of bitcoin are supplied every hour till the time it doesn’t reach at the maximum rate of 21 Million. This makes Bitcoin a very attractive asset. In theory, if the demand grows, supply remains the same, and the value per bitcoin increases.
3. Pseudo – Anonymity
The senders of traditional money are usually identified (for the purpose of AML and other legislation), the users of Bitcoin work in semi-anonymity. Since there is no central validator, a user does not need to verify themselves when sending bitcoin to other users. when a transaction request is submitted, the protocol checks all the transactions to confirm that the actual transaction has been made. The system does not need to know the name of the sender of the receiver.
The AML and CTF legislations are being formulated for the Cryptocurrencies which will make them valuable for the real-time use.
Bitcoin Transactions cannot be reversed, unlike other fiat transactions.
This is because there is no central “adjudicator” that can say “please return the money”. if the transaction has been recorded and more than an hour has been passed then its impossible to modify. which means that the transaction of bitcoin cannot be tampered with.
The smallest unit of a bitcoin is called a Satoshi, just like cents. its one hundred millionths of a bitcoin (0.00000001). this would conceivable enable micro-transactions which traditional currencies can’t.