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What Is Bitcoin and How Does It Work?

In fact, Bitcoin is an electronic payment system (currency), which does not have a single information center, so the system does not have a single owner. You can say that the bitcoins belong to those who use them.

Electronic cryptocurrency Bitcoin was created in 2009 (development started in 2007), a programmer or a team of programmers with the pseudonym of Satoshi Nakamoto (apparently the Japanese name). In 2009, Satoshi published the source code of the system and this event can be called the beginning of the electronic payment system.

At the moment, there are many electronic currencies with a similar mechanism of operation, they are also called forks. Let’s list the most promising forks in terms of earnings and investments:

  • Bitcoin Cash
  • Litecoin
  • Bitcoin Gold
  • Bitcoin Diamond
  • Super Bitcoin

The cost and stability of the rates of all existing cryptocurrencies is directly dependent on bitcoins, so in this article I will only talk about bitcoins.

Bitcoin for Dummies

In order to fully understand what bitcoin is, I’ll list the main differences between bitcoins from the usual money:

  • Bitcoins are not provided with anything

Bitcoins are not debt obligations (as usual money). The price of bitcoins directly depends on supply and demand, i.ะต. how much currency people need. You can draw a parallel with gold, the price of which depends directly on demand. If demand for gold fall, the price will collapse, however, the price will not fall to zero, because it is still metal and something can be done from it. Of bitcoin, if there is no demand, nothing will be done, therefore, the price for it can theoretically fall down to zero.

  • There is no single center

As I said above, all the data of the payment system is stored in the open source code on the users of the system. There is no regulator of the system (as, for example, the central bank), who could influence the price of the currency, the quantity of the issue of new units, and other factors.

  • Limited amount of currency

The source code of the system is programmed in such a way that the maximum number of coins in the system is known initially (21 million coins). Not only the maximum quantity is programmed, but also the emission dynamics (release of new coins), which now amounts to 25 coins every 10 minutes. Coins are distributed among the so-called miners. Every 4 years, emissions are halved.

Thus, the payment system has a deflationary structure that promotes a constant rise in the price of bitcoins. This is the graph of the increase in the emission of bitcoins, according to which the issue will end already in 2033, although it seems to me that this moment will come sooner.

Assuming that the governments of large countries will not prohibit bitcoin, then proceeding from the deflationary model, the rate will only grow. When the total amount of coins is 21 000 000, coins can technically be divided to the eighth decimal place, so the end of the issue does not mean the end of the development of the payment system.

  • Complete anonymity of bitcoins

Despite the fact that the system has open source code, and anyone can follow any operation with btc, the system of wallets is absolutely anonymous. Any user of the system can have an unlimited number of wallets on his computer, and they will have completely different numbers.

The wallet address is a line of long, order, 34 characters (letters and numbers). The wallet itself can be stored on a computer, portable media or online service.

The main disadvantages of Bitcoin

  • There is no single regulator

Since there is no single center, there is no way to cancel the operation with bitcoins.

  • Complexity of use

For most people, far from Internet technologies, the electronic system of Bitcoin is too complicated and confusing, this inhibits the distribution of cues to the masses.

  • The risk of becoming a prohibited currency

Now that all governments are seeking total control over their citizens, any anonymous money is doomed to a ban. The reason for banning is already there, on the Internet there are several stores that openly sell illegal products for bitcoins. After the banning of Bitcoin, most likely the price will fall dramatically, but the development of the system will not stop there, just the bitcoins will go underground, where they will also be popular among users who are interested in complete anonymity.

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