What is Bitcoin?

Over the years, Bitcoin has gotten so large that it has become an umbrella term for cryptocurrency. But what is Bitcoin? You might have come across articles or videos about Bitcoin that just left you puzzled. Bitcoin is quite easier than many people imagine. In this article, Bitcoin will be explained easily and comprehensively.

Understanding Bitcoin

Bitcoin is a decentralized virtual currency for which transactions are stored and recorded. Nobody truly knows the identity of the founder of Bitcoin. What we do know is that they hide under the pseudonymous identity of ‘Satoshi Nakamoto’. In 2008, Satoshi Nakomoto published a white paper titled, Bitcoin: A Peer-to-Peer Electronic Cash System. This was followed by the creation of the Bitcoin network in 2009. The rise of Bitcoin has led to an unprecedented change in financial transactions. Bitcoin aimed to eliminate the need for a central authority to carry out transactions. It was built on a decentralized technology that enables transactions to be carried out without the need for a third party. What do we mean by: “Bitcoin is decentralized?” Suppose you want to carry out a transaction using a bank. The bank records and stores information about said transaction. The transaction is also verified and approved by the bank. These actions prove that the bank has authority over the transactions that are made provided that they are the medium you use. In shorter terms, the bank is a centralized authority. Bitcoin on the other hand does not require a third party for transactions. It offers a means to send “tokens” in this case to different people around the world directly. Transaction fees are also lower and the process of transaction is less cumbersome. The existence of Blockchain, a technology that Bitcoin is built on has made these processes possible.

Blockchain Technology

Bitcoin was built on Blockchain technology. Blockchain is a decentralized system containing a series of transactions recorded and distributed around the whole network of a computer. Blockchain stores transactions and keeps them secure. This is done after authenticating and validating these transactions. Blockchain validates transactions through a process known as ‘Bitcoin mining’. Bitcoin mining is the process of putting more coins into circulation by using high-powered computers to solve complex computational mathematical problems. This process enables for more Bitcoin to be in circulation as well as checking the validity of transactions. Finding solutions to these mathematical problems means that miners can put transactions in a block. Each block contains multiple transactions. Before a new block can be created, the puzzle from the old block must first be solved. After which it is added to a chain of other blocks. Hence the term, Blockchain. The first block ever mined is known as Genesis Block. It was created alongside Bitcoin. Genesis Block is the foundation for all other blocks created in Bitcoin.

Bitcoin Wallet

To fully understand Bitcoin, you have to be aware of where its keys are stored. A crypto wallet is a software that stores public keys, private keys, and records of transactions. Cryptocurrency makes use of public and private keys. Public keys can easily be given out. They are provided when you want to receive transactions from someone else. Private keys on the other hand are to be kept secret. This is a code that allows access to your cryptocurrency. It must be kept safe so your wallet cannot be compromised by hackers. Note that if you lose your private keys, it won’t be possible to regain your coins. A digital wallet is required for transactions to be made on cryptocurrency. The first Bitcoin wallet was created in 2009 as an open-source software. It is sometimes referred to as ‘Satoshi client’. Wallets do not only accept one cryptocurrency but many. Different types of wallets can be created. It is important to choose a safe and trusted one.

Adoption of Bitcoin

With the speedy rate that Bitcoin is going, experts argue that Bitcoin is set for mass adoption very soon. There is a drastic change in the value of Bitcoin now from when it was first created. If you had invested $1 worth of Bitcoin in 2009, by 2021, you would have had about $1 million worth of Bitcoin. We can see Bitcoin is gradually getting adopted right before our eyes. Bitcoin is at the stage where it is getting accepted by the public. El Salvador has already accepted Bitcoin as a legal tender. What this means is that it must be accepted by businesses and organizations for the payment of goods and services. In 2021, Paraguay proposed a bill to make Bitcoin a legal tender. This fast-growing currency has garnered so many users that there are over 100 million Bitcoin wallets in existence. Bitcoin also has the highest market cap. Market capitalization is the total value of all the Bitcoin that has been mined. In cryptocurrency, a market cap can be calculated by multiplying the unit price of a coin by its supply. The market cap of Bitcoin was about $600 billion in July, 2021. Experts predict that Bitcoin will attain a seven-digit figure in 2040.

Pros and Cons

With all that has been mentioned, it is a no-brainer that users of Bitcoin enjoy many privileges. But this is not to say that this cryptocurrency does not have its downside. This section will be dissecting the benefits one could gain from using Bitcoin as well as the risks that come with it. The following are pros of Bitcoin:

• Greater Liquidity: Liquidity is the ability of a cryptocurrency to be easily converted to cash. Bitcoin is the most liquid cryptocurrency because it has many buyers and sellers. When a seller is ready to sell their coins, there are many buyers available to buy from them.
• Transparency: Transactions on Bitcoin are made public. Because of the technology it is built on, mischievous activities are very hard to carry out. There are tons of nodes verifying transactions making it hard for bad actors to thrive.
• High Returns: This is where the volatility of Bitcoin works in the favor of many. When the value of Bitcoin rises, investors that might have invested at a lower value in the past will yield greater returns.

Conversely, Bitcoin comes with its fair share of disadvantages. The following are disadvantages of Bitcoin:

• Price volatility: It is no news that Bitcoin is very volatile. This means that its value can change very quickly. Bitcoin can go from an all-time high in one day to an all-time low in the next.
• Illegal activities: Bitcoin has a tainted record of being used for illegal activities. This is owed to the fact that Bitcoin provides anonymity. Over the years, it has become a hub for black markets and illicit activities.
• Lack of customer service: Because there is no centralized authority, if anything goes wrong there is nobody to complain to. If your wallet or private keys get compromised, there is nothing much you can do.

The ins and outs of Bitcoin have been discussed. Before delving into any cryptocurrency, proper research is required. This article contained well-detailed and important things to know about Bitcoin. Bitcoin has proven to be a trend-setter for other cryptocurrencies. It grows sparingly as time passes. Proper knowledge of Bitcoin must be spread as it follows the route to mass adoption.