What is Bitcoin?

Bitcoin is a decentralized digital currency enabling instant payments to anyone, anywhere in the world using peer-to-peer technology. It is one of the first implementations of a concept called crypto-currency, first described by Wei Dai in 1998. Given that money can be any object or record accepted as payment for goods, services, and debts, Dai proposed the possibility of a network system that uses cryptography to manage the creation and transfer of digital money, rather than relying on central authorities. Ten years later, software developer Satoshi Nakamoto created Bitcoin.

How does Bitcoin work?

Bitcoin is a currency system based not on gold or silver but on a mathematical proof and a software program, both of which are open source. Bitcoins are mined, using computing power in a distributed network, and then traded for goods and services. Public-key cryptography, peer-to-peer networking, and proof-of-work are used to process and verify all payments. Bitcoins are signed over from one address to another, and every transaction is broadcast to the network and included in a ledger, called the block chain. Bitcoin provides an incredibly fast and extremely reliable payment network that anyone can use.

Why Bitcoin?

  • It’s fast – When you deposit a check conventionally, banks will hold the money for several days to verify that the funds really exist. International wire transfers can take a relatively long time as well. With Bitcoin, you can send zero-confirmation transactions anywhere in the world instantaneously, or you can send confirmed transactions which still only take about ten minutes to process.
  • It’s cheap – Conventional banks and online merchants often charge fees for credit/debit transactions and international transfers. Bitcoin transaction fees are either minimal or non-existent.
  • It’s easy – Conventional banks and online merchants force you to jump through hoops to open account. You can set up a Bitcoin address in seconds, no fees and no questions asked.
  • It’s decentralized – In March of 2013, the distressed Central Bank in Cyprus decided to take back uninsured deposits larger than $100,000 to help recapitalize itself, causing massive unrest in the local population.Without a central authority, no one can take your bitcoins away from you, and no one can tinker with monetary policy and cause a meltdown in the first place.
  • It’s anonymous – Online merchants require you to enter your credit card number, expiration date, and CSV number into an insecure web form, leading to fraud. On the other hand, Bitcoin transactions don’t require you to give up any secret information. Furthermore, users can hold multiple bitcoin addresses, and none are connected to any personal information.
  • But it’s also transparent – At the same time, Bitcoin stores all account and transaction details on the block chain. This means that, while no one knows which addresses and bitcoins are yours, everyone can see every time bitcoins change hands and help to keep the system accountable.
  • It’s not inflationary – If the US doesn’t have enough money to pay off the national debt, the Federal Reserve can simply print more, causing inflation. According to the mathematical proof upon which the Bitcoin system is based, only 21 million bitcoins will ever be created, thus eliminating the inflation problem.
  • It’s yours – In conventional banking systems, you have to trust the banks, merchants, and third-party payment processors with your money and your personal information. Your accounts are subject to the whims of the companies who own them. With Bitcoin, you own the keys to your own bitcoin address, and only you can access and use your own funds.