Bitcoin (BTC) like most cryptocurrencies is a difficult and vague concept. The creation of cryptocurrencies is single handedly the greatest invention since the internet itself. In the future, as this system becomes more refined, we will see its true power. Below is a condensed synopsis of what Bitcoin is as opposed to how it works. Let’s get right to it:
- Bitcoin is a digital currency which may be used to purchase goods, be kept as an asset, or can be converted to your local currency.
- Bitcoin is P2P, meaning it can be sent from any person to any person. No bank or middleman is involved. Exchanges and apps charge a transaction fee to buy/sell BTC.
- BTC can be purchased on many exchanges, or through a mobile app like Coinbase (the fees are substantial)
- The maximum number of Bitcoins that can be mined has been preset to a maximum of 21 million. Nearly 17 million have been mined as of March 2018.
- Every Bitcoin user is in possession of a public and private key.
- Public keys allow Bitcoin to be sent to a person. It’s like their public mailbox.
- Private keys allow people to spend Bitcoin and should be stored in an extremely safe place.
- Blockchain is the technology that allows users to buy, sell, and trade Bitcoins.
- The blockchain is made up of blocks. Each block contains a timestamp and transaction data within it. Each block is a hash of the previous block.
- Bitcoin mining is the act of adding validated transactions to Bitcoin’s public ledger.
- Miners earn Bitcoins when they support the system by solving proof of work problems
- Each miners computer contains the entire copy of the virtual ledger (all BTC transactions in the world).
Remember, buying Bitcoin or other cryptocurrency is extremely risky due to its recent volatile nature. Some risks to Bitcoin include: Government banning or imposing regulations, countries banning Initial Coin Offerings/Exchanges, high transaction fees, or simply longer calculation times for proof of work to be validated. Also, Bitcoin is being treated as an asset not as a currency which is against its whole purpose. The short term looks negative, while the very long term could pay off tremendously. I am confident that crypto currencies will be the long term solution, of which Bitcoin may not be a part of.