What is Bitcoin?

If you are reading this article – it is easy to guess that your interest in the most high-profile innovation of the financial world in recent years – cryptocurrencies, especially bitcoin – led you here. Let’s find out what bitcoin is and why there is so much talk about it. Not only in social networks and forums, but also in central banks, special committees and governments in many countries around the world. It’s easy to join the community and start using the new digital money.

The term “cryptocurrency” is a direct translation of the English “cryptocurrency,” that is, a virtual currency protected by cryptography. First of all, cryptocurrency is a fast and reliable payment and money transfer system based on the latest technology and not controlled by any government.

.
Bitcoin, Bitcoin, Bitcoin, BTC

The word “Bitcoin” is derived in English from “bit”, a minimal unit of information, and “coin”, a coin.. Following the rules of English-Russian transcription, this term should be translated into Russian as “Bitcoin. This is the spelling used by the official website bitcoin.org, BitcoinWikipedia, the Central Bank of Russia, and other resources. The hitherto widespread variant of “Bitcoin” came from the first translation of the wallet interface based on direct transliteration.

The most common abbreviation for Bitcoin – BTC – is usually used in exchange trading and financial articles. The Cyrillic acronym, BTK, has not caught on in the community.

.

What is Bitcoin? It is the first and most famous of many cryptocurrencies, the symbol and flagship of the cryptocurrency world, as well as the monetary unit of the same name that circulates within the system. Next in this article we will explain how cryptocurrency works, using Bitcoin as an example.

What is the most significant feature of Bitcoin in terms of economics? It is a digital commodity with a limited supply, and its algorithm is designed so that there can be a maximum of 21 million units in the system, each of which is also called a “bitcoin”.. The emission schedule is software-defined and known in advance. After the last coins are generated, their number will not change. The Bitcoin economy is built on a deflationary model, which many economists fear. But they find no practical justification.

In fact, such a relatively small number of coins is quite enough for everyday calculations, because 1 bitcoin is divided into 100,000,000 pieces, which are called “satoshi”, after the creator of the system. The terms “millibitcoin” (mBTC, one thousandth) and “microbitcoin” (uBTC, one millionth) are sometimes used.

Bitcoin started with a concept, a document published on October 31, 2008, by a mysterious person who worked under the pseudonym Satoshi Nakamoto. Who the real developer is, whether it is one person or a group, is still unknown, despite numerous journalistic investigations. Since January 3, 2009 the practical implementation of this concept in the program code begins. At 18:45 GMT (22:45 MSK) on 03.01.2009 the first block in the network, the so-called genesis block, was generated. This day is considered the birthday of Bitcoin and is celebrated by the community around the world.

What’s the difference?

Features of Bitcoin that distinguish it from other types of electronic and paper money:

1. Decentralization and accessibility. The Bitcoin network is a combination of all client programs (wallets) and a distributed blockchain database, which is stored on each computer where a full client is installed. Blockchain is a fully open-for-view registry of all transactions in the system. It is possible to connect to this registry with your own wallet or web interface of special monitoring services from anywhere in the world, without passwords or any other authorization.

.

2. Full transparency of calculations. The history of any payment can (theoretically) be traced back to the very moment of coin generation and it will never be deleted from the database. Knowing only the Bitcoin address, you can know at any time all the transactions accepted by or sent from that address.
3. Free choice of degree of participation. You can install the official Bitcoin Core client, which stores all transaction history. If you don’t need offline operation and blockchain analysis, you can install one of the lightweight or mobile wallets that require significantly fewer resources. If you are only going to pay for small purchases on the road or just try the technology – a mobile or online wallet will be enough. For maximum security, there are hardware wallets with additional degrees of protection.
4. Lack of control over the network. Because blockchain is a distributed base based on peer-to-peer nodes, the Bitcoin network has no control center that can freeze an account, change the number of units in the system, or block or cancel a payment. There are small commissions, the amount of which in practice is almost insensible and does not depend on the amount of transfer. Transactions in the system are irrevocable in the same way as cash transactions.

.

5. Possibility of anonymous payments. Bitcoin provides a convenient and, if desired, anonymous means of settlement, the address – an account number in the system – is not linked to its owner, and no documents are required to open it. This is a string of about 34 characters long of numbers and letters of the Latin alphabet in different registers. The address looks like this: 1BQ9qza7fn9snSCyJQB3ZcN46biBtkt4ee for example. It can be translated into the form of a QR code or other two-dimensional code for easy calculation, as well as passed as is.
6. Reward for supporting the network. New bitcoins come into circulation as a reward for those who perform the computational transactions that enable the transfer of transactions. The calculations are called “mining,” from the English word “mining” – mining. Those who engage in these calculations are called “miners”. Their task is to record in one block all the transactions that occurred in the network since the release of the previous one (on average 10 minutes), and “seal” it with a complex cryptographic signature. The next block is calculated based on the signature of the previous one, which guarantees irrevocability of transactions and prevents “fake” banknotes from entering the system. This is how the blocks are interconnected to form a chain – a blockchain.
7. Unparalleled protection. With each new block, the processing power required for miners to calculate the entire chain from scratch grows, and the longer the chain, the harder it is to “hack” the network.. Today Bitcoin is a decentralized computing network with a performance of more than 8 times (in terms of SHA-256 hash rate) than the total computing power of all supercomputers in the world. To seize even limited control over it requires enormous resources and spending hundreds of millions of dollars.

Cryptocurrencies in life

Initially, bitcoins were only in demand among mathematicians, cryptographers, and people who were very much into computer and network technology. Bitcoins then served simply as proof that electronic money with no guaranteed collateral was possible. Rather, they can be called the electronic equivalent of gold – just like gold, bitcoin is difficult to mine, its quantity is limited, and the labor intensity of mining only increases over time. In the fall of 2009, you could buy 1 BTC for 0.8 cents. This is how the history of stock trading began, with many ups and downs, high-profile bankruptcies and successful projects. Transactions for bitcoins were rare and sporadic at first. The first and most famous was the purchase of two pizzas for 10,000 BTC, which took place in May 2010 (the equivalent of $25 at the time). Since then, the exchange rate has risen above $1,000 and fallen back to $150, but that’s another story…

In the early stage of Bitcoin’s development, its popularity was created by the Japanese exchange MtGox and the illegal online market Silk Road. Now Bitcoin does not depend on a single exchange or pool, and law enforcement officials have learned to deal with illegal activity in cryptocurrencies in the same way as with other economic crimes.

Today, Bitcoin is a modern digital currency that is perfect for online payments. More and more stores accept Bitcoin as a payment option. The ease and convenience of opening a Bitcoin account is attracting more and more people from developing countries to this digital currency. In many Asian and African nations, the Bitcoin network is replacing hard-to-get and expensive banking services for people. In developed countries POS-terminals for bitcoin payments in stores, ATMs for cryptocurrencies, hardware wallets for Bitcoin are widespread. There has been a boom in startups using Bitcoin. It turned out that blockchain technology is not only suitable for financial settlements, but also for the distributed storage of data on various assets. There are already several thousand other cryptocurrencies based on Bitcoin or from scratch.

A little bit about politics

The attitude of states to cryptocurrencies is very different. There are both explicit encouragement – in Japan, Australia, Germany, the Netherlands, New Zealand, Singapore, some U.S. states, various offshore companies, and serious restrictions that could outgrow prohibition measures – Indonesia, China, Russia, Ukraine. Only the hot Latin Americans in Bolivia and Ecuador have decided on outright bans.

Many governments have chosen the line of observation with cautious optimism – most of the European Union, Britain and Switzerland, the U.S. federal government, Canada and Southeast Asian countries. In most developed countries, financial laws are being adapted to regulate cryptocurrencies, and the issue will soon be resolved.