What Is Bitcoin
I follow a very interesting technology innovation since some time. It’s a payment technology called Bitcoin. What is Bitcoin? Well, it is basically a digital currency, a new way to send and receive money over the internet. The currency is called Bitcoin and you can use it worldwide and the transactions are secure, fast and processed every day and hour of a week. You could now say that we can already send and receive any country currency via bank or any online payment provider, but to understand the advantage of Bitcoin over the commonly known payment variant, we must take a look closer.
The Bitcoin transactions are processed and verified by a payment network. What makes the network so special, is the fact that it is a decentralized network, a network that isn’t owned by any central authority like banks or online payment providers. It is a peer-to-peer network that consists of a lot systems and anybody can be a part of the network to help process and verify transactions. There is no central infrastructure and no central owner. The infrastructure and processing power is distributed and everything happens decentralized.
Everyone could offer computing power to help the network with the processing and there is the chance to get rewarded in the Bitcoin currency by participating. However, talking about the rewards, you would need very fast hardware that is specially made for this job. Today, the chance is very little that you get rewarded with a normal computer. To get rewarded you would need that special hardware and there are all kind of solutions for it and a lot of people participate already in the processing. They are called “miners” and “maintainers”. You could still join the network with a standard computer and you would participate too, it’s just that you wouldn’t profit with normal hardware.
As you can see, the protocol allows everyone to join and that is what makes it decentralized. It doesn’t matter where you are in the world, if you would want to help the network, you could join. This explains why it is decentralized and why decentralized is good. To destroy the network, you would basically need to damage all the systems that work in the network and that are distributed world-wide. It means not even a government could shut down the network and not any institution controls it, it is controlled by the people.
So, how is the Bitcoin currency created? Talking about paper and metal money, our governments and central banks do print and stamp it. They decide how much they want to print and distribute it then. Bitcoin however is not centrally created. The Bitcoin protocol works on the way that it allows the earlier mentioned “miners” to create, secure and process them. The whole process is called “mining”. The protocol however only allows to create Bitcoins at a fixed rate. This makes the process competitive because the protocol works also on the way that if more “miners” join the network, the difficulty to generate new Bitcoins will increase as well. The amount of Bitcoins that can be created will be halved every four years. This also means Bitcoins are generated in a decreasing rate. The protocol also only allows the network to create 21 million Bitcoins. This means, at some point every single Bitcoin will be created and the “miners” don’t have to create them anymore, then they will only process transactions alone and get a small network fee for the computing power.
Talking about the maximum Bitcoin cap of 21 million, it means that Bitcoin would be subject to severe deflation if the technology and currency would fully go mainstream. But how could all people get a Bitcoin if mainstream adoption would come true? It’s easy, Bitcoin can be divided into fractions and there are already several alternate denominations for smaller fractions of the currency. Mainstream adoption could mean that more people demand Bitcoin than there are available due to the cap. Thus the value of one Bitcoin would heavily climb and people would simply get used to the smaller fraction. This is the idea, however, it is also the reason why many people started to invest in it. People often call it an asymmetric investment as Bitcoin either can go viral and increase in value or it will flop. So, if you have an investment soul and if you could imagine that this technology becomes popular, don’t go all in, only invest what you can afford to lose.
Giving the answer if Bitcoin will be adopted by the mainstream or not, that is for sure not possible and people speculate about it. But what if it would go mainstream and how could it look like? The Bitcoin technology could really create a new way how we pay for services and products. Even here there is already a flood of ideas and many start-ups create already services. It goes from ideas that you can pay products and services with your smartphone to instant payments over the internet in general. It’s very interesting to follow and there is a real flood of new services. It looks like the technology creates a whole new industry. It’s definitely interesting to follow. It means that Bitcoin might be very speculative at the moment but it could also become the future payment method.
At the time I write this article, the value of Bitcoin is still very volatile. It means the value of Bitcoin is still under heavy fluctuation but in the case of full adoption, this would change and it would become more stable. You see, all this is a whole new approach and some also call it experiment but it is a very interesting experiment but also a complex topic too, so that I probably didn’t mention everything. You can explain it roughly but you could also go into full technical details about the technology, about security, about markets and what not. It’s not easy to mention every aspect of it in one article but as I follow and support Bitcoin, I might write more articles about Bitcoin. Until then, I can also suggest several resources that offer further details about the Bitcoin currency as well…
The frequently asked question section of Bitcoin.org is my favorite resource because they explain a lot there. The Bitcoin wiki is extremely detailed about the Bitcoin topic as well. But Wikipedia.org does offer a lot of information’s about Bitcoin too. We Use Coins is a very easy to understand resource about Bitcoin. You can find more out with Google for sure. Several big magazines and news sites wrote about it quite often over the past. There are positive and negative articles about it and you can pick up all kind of information’s if you find it interesting as well.
I am very curious where the Bitcoin technology will go. I am not hooked up with the topic but I follow it with interest and I also made already several purchases with the Bitcoin currency. I hold a small amount of it, it’s an amount that wouldn’t hurt me if Bitcoin would go nowhere and if the value would drop. It’s out of interest and it wouldn’t matter to me if I lose it. If it goes the other direction and if the technology becomes popular resulting with an increasing value of the currency, it would be for sure pretty fun to see my holdings gain value. But I don’t see it much as a speculative subject, I rather support it out of ideology. I simply like the idea of a currency that is created and processed decentralized and that is accessible every second and that with a mouse click.
Let’s see if this technology has a future. For some it is already the future. At the end and if we talk about the big future, the mainstream will decide if they want to adopt this technology fully. Let’s see.
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