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What Is Bitcoin?

what is bitcoin

Bitcoin is the oldest and best-known cryptocurrency in the world working non-stop for more than ten years. But despite its popularity, many people still struggle to realize what it is, what does it mean, and how does it all work.

What is Bitcoin?

Bitcoin is a peer-to-peer cash protocol designed to operate without central authorities like governments and banks. Its open-source nature ensures that all its transactions, as well as the issuance of bitcoins, are collectively secured by genius math, cryptography, and network participants called miners. Such a design makes it the most sophisticated, accessible, and transparent money. Anyone with the right skills can participate in its development or build applications on top of it.

Even so, it is not easy to grasp Bitcoin and its implications. Here are some other definitions and analogies of bitcoin according to people who have studied Bitcoin for years.

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Things you should know about Bitcoin

The Bitcoin history starts from 3 January 2009 when Satoshi Nakamoto and other cypherpunks decided to make this idea a reality. As of today, the current price of one bitcoin revolves around $9,000. Its price is decided by simple market forces of supply and demand. The more demand for bitcoin there is, the higher its price is likely to go.

If you want to learn more about why do bitcoins have value, check out this brief guide.

Close to 18 million bitcoins are in circulation as of December 2019 with a total value of about $150 billion. That’s still almost nothing compared to fiat currencies like the US dollar, of which there are 3.7 trillion in circulation. The number is even smaller if we compare bitcoin to gold, which has a market cap of more than $7 trillion.

what is bitcoin supply
Source: Crypto Voices.

The creator of Bitcoin – a person or group using the pseudonym Satoshi Nakamoto – capped the coins that can ever be put into circulation at just under 21 million. It’s estimated that all those bitcoins will be produced (in cryptocurrency terminology, “mined”) by the year 2140.

The Bitcoin network is decentralized, meaning no one controls it. It’s based on so-called blockchain technology, also known as distributed ledger technology (DLT).

Bitcoin is ahead of other cryptocurrencies not only in terms of its price. It also enjoys the widest network of merchants that accept it. But growing popularity has complicated using Bitcoin for everyday purchases due to a sharp increase in fees and slower transaction confirmation. Thus, Bitcoin is sometimes seen more as an asset than a currency. However, such development has prompted an emergence of second layer solutions like The Lightning Network (LN), which enable users to trade with minimal fees.

Moreover, Bitcoin is popular among speculators, who aim to profit from its price fluctuations. Some even claim the Bitcoin price is manipulated, which is a likely scenario because it is still unregulated. Wealthy industry players (so-called whales) can have more impact on bitcoin price than others. However, the price fluctuations are likely to end once Bitcoin is widely adopted and has sufficient liquidity.

Getting started with Bitcoin

Getting started with Bitcoin is getting easier by the day. All you need to do is to set up a cryptocurrency exchange account, install a Bitcoin wallet app and you’re good to go.

If you want to learn more about how to buy bitcoin, click here. You can sell your bitcoins anytime, too. Here’s how you can go about it.

Keep in mind that the price of it is highly volatile, with percentage swings up and down that can reach double digits. In 2017 the price of Bitcoin skyrocketed from less than $1,000 per coin to over $14,000, at one point reaching $19,000. Some forecast the value of the currency will reach tens or even hundreds of thousands of US dollars, while other market players believe it has no value and calls the price rise a bubble. However, it wasn’t the first time when bitcoin has radically increased in price and then dropped. Since 2011, it had experienced three similar explosions in price, which were followed by 80% retracements. All these “bubbles” have led to a net increase in value every time.

bitcoin bubble
Bitcoin historical bubbles. Source: ChartsBTC / Twitter.

In any case, Bitcoin is attracting more and more users and merchants around the world since it permits bypassing banks and other financial institutions and so can make international transactions cheaper and quicker. It’d cost the same, for example, to transfer $1 worth of bitcoins or $100 million worth.

If you’re interested, here is a complete list of merchants and major retailers who accept Bitcoin (BTC) payments.

Also, Bitcoin also provides more anonymity than traditional banking (though it isn’t 100% anonymous). And it gives people more control over their money since no government controls its supply and no bank can freeze your account. Some governments, though, have banned the use of Bitcoin (like Russia) or restricted it (like China). However, such a ban works only in theory, since there is nothing that can stop people from trading bitcoins. Here is the complete list of countries where bitcoin and cryptocurrencies are legal or banned.

So, what is Bitcoin?

There are too many things to learn about bitcoin in one simple guide. Some people are studying it for years and still don’t get it completely. Nevertheless, you don’t need to understand it entirely if you simply want to use it.

The bottom line is Bitcoin, like other cryptocurrencies, is still in development, and no one knows what opportunities or challenges it December bring in the future. That said, no one knows what December happen with our traditional money, either. It could lose its value or get frozen in a bank account, or the whole payment system could be hacked.

Everything you need to know about Bitcoin is covered in this and the rest of our Bitcoin guides.

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