What Is Bitcoin?

News/Global News/What Is Bitcoin?
27.04.2018 16:34
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Before diving into all the nuances of the world of crypto currencies, we should turn to its origins and try to understand where it all has started.

It is no secret that, in 2008, a global financial crisis occurred due to collapse of the US mortgage structure. It is difficult to find a person, a company or a state that didn’t suffer from the explosive wave of the global crisis. US dollar is an international currency that has been for years and still remains the standard-bearer of the world economy, but at that time, maybe for the first time ever, it led many to question its position as an efficient payment instrument.

Some were passively indignant or simply accepted such state of affairs, but there were also those who didn’t want to continue playing the role of chips on the gambling table of the largest states and banks. Thus, the first ever crypto currency, Bitcoin, has emerged. One can only speculate about true reasons for creating Bitcoin since all we know is the name of its creator, Satoshi Nakamoto. We may never know whether it was one person or a group of people because no one has seen a real person with that name.

Unlike the mysterious personality of Satoshi Nakamoto, the source code of his ingenious development (White Paper) is in open access, and anybody interested can study it.

The key features of Bitcoin that distinguish it from fiat or electronic money are described below:

Decentralization

Unlike most modern payment systems, Bitcoin doesn’t have a central server that could be hacked, which means, the history of transactions cannot be changed. The Bitcoin network is based on the Blockchain technology, which constitutes a continuous sequential chain of blocks containing information on all transactions. Simply put, each computer with a Bitcoin client (wallet) installed acts as a separate server (network node).

Security

The Bitcoin network structure is built in such a way that, after each created block, the algorithm for calculation of the entire chain plus the new block gets more complicated. Accordingly, the more blocks there are in the chain, the lower the probability is that the entire system could be hacked. Besides, in order to take control over the network, one must control 50% of the blocks, which is almost impossible due to the decentralized nature of Bitcoin.

Transparency

The history of all transactions with Bitcoin is in open access. Anyone with an access key can view each transaction, up to the first transactions conducted by the mysterious Satoshi Nakamoto.

Absence of Regulators

As already mentioned above, due to application of the Blockchain technology in the Bitcoin network, there is no central authority with the power to authorize or prohibit transactions, freeze accounts or increase the quantity of currency units within the system. Transaction fees are set by members themselves, and any financial transactions with Bitcoin are irrevocable, which can be both an advantage and a disadvantage.

Anonymity

An address in the system (account number) is not bound to its owner’s identity in any way since, to create an account, one simply has to download the Bitcoin client to his or her computer. A Bitcoin address is a string of 34 alphanumeric characters that, for convenience, can be presented as a QR code.

Reward for Network Maintenance

Members are rewarded with newly created Bitcoins for computations required to carry out transactions. With each new block, the calculation algorithms become more complicated; that is why the calculation process has become known as “mining”, and those who participate in this process as “miners”. The miners’ goal is to record in one block all transactions that took place since the previous block was issued (on average, each 10 minutes) and to “close” said block using a cryptographic key. The next block is calculated based on the previous one, which guarantees the irrevocability of transactions and prevents “false” currency units from getting into the system. This way, blocks are linked to each other and together create a blockchain.

Currently, Bitcoin is the most popular and demanded crypto currency, and its impact on the digital currency market is difficult to deny. However, Nakamoto’s idea of creating a transparent and universal digital instrument is still just an idea and, if we look closer, the way to make it reality is the Blockchain technology.