Bitcoin or BTC ( from “bit” and “coin”), is a decentralized digital currency and a peer-to-peer payment system that uses cryptographic methods for increased safety and reduced fraud factor. All transaction information is recorded in the blockchain with entirely unrestricted access. Therefore anybody can see information about any Bitcoin transaction ever made.

Table of contents:

  1. Creator of Bitcoin
  2. Transactions
  3. Economy
  4. Wallets
    1. Address
    2. Private key
    3. Buying and withdrawing
  5. Evolution of Bitcoin
  6. Weaknesses

 

Creator of Bitcoin

Satoshi Nakamoto is an alias for a person or a group of people who created Bitcoin. He is thought to live in Japan. Several attempts to unveil Satoshi’s identity were made, but none of them were successful.

The smallest unit of Bitcoin is also called Satoshi. It acts as an analog of a cent and is used in the source code to make calculations. There are 100,000,000 Satoshis in one BTC.

Transactions

Bitcoins transactions can be performed with specialized software named wallets. To make a transfer, the sender must know the correct address of a wallet of the recipient. All operations are subject to a transaction fee, the amount of which is controlled by the sender. It is possible to make a trade without paying the fee, but processing time in this case usually takes unreasonably long, causing the system to drop the transaction eventually. Every transaction is permanently stored in the network.

New Bitcoins are created in a process called Bitcoin emission, often as a result of mining operations. Bitcoin Emission is pre-calculated, and the number of coins can be precisely forecasted. Emission process is decentralized, and it’s not influenced by any governing body.

Economy

In Bitcoin economy, the value is formed solely by the balance of supply and demand and is not tied to any currency or another asset. Bitcoins are not debt obligations of any issuer, which distinguishes them from electronic money and non-cash settlements. Unlike fiat money, BTC does not belong to the administrative body.

Bitcoins can be used in trade and exchanged for other currencies, goods, and services, given that a service provider or goods manufacturer agreed to receive Bitcoin as payment.

Online exchanges allow trading BTC for other cryptocurrencies or even fiat.

Wallets

A bitcoin wallet is a piece of hardware or software or that allows to receive, send and store Bitcoins. Transactions are sent to and identified by so-called Bitcoin addresses.

Addresses

Each wallet has its own Bitcoin address that is used to receive transactions. It is a string of text usually 33 units long that is readable for humans. Addresses are also used to withdraw BTC from exchanges.

Private key

Every wallet has a unique private key that is generated each time a new wallet is created. It is the main proof of ownership in Bitcoin network. If a private key is lost, it is no longer possible to confirm ownership and regain access to the wallet. Private keys are also required by exchanges to authorize transactions.

Buying and withdrawing

Withdrawal of Bitcoins to the wallet is made through online cryptocurrency exchanges.

Exchanges also allow buying Bitcoin. Each exchange might have a different exchange rate. Therefore the value of BTC against USD might fluctuate in the hundreds from one exchange to another. Some exchanges require a scan of an ID document which may compromise anonymity and security.

After withdrawal or receiving a transfer, wallets are suitable for Bitcoin storage. Coins can be stored in software and hardware wallets. Arguably the safest storage method is a so-called “cold storage” when the private key is stored in a computer that is never connected to the web, while Bitcoins are stored in a computer that is connected to the internet.

Evolution of Bitcoin

All bitcoin transactions are saved in blocks. These blocks can be altered to create an alternative information structure called a fork. Each fork of Bitcoin then acts as a separate currency that shares a lot of similarities in the source code and is often backward compatible. Forks are usually created to introduce a certain improvement to the network. One notable example is Bitcoin Cash – a hard fork of Bitcoin that was released on the 1st of August 2017.

Bitcoin community

The rise of cryptocurrencies spawned a large and active community. Through the history of Bitcoin over 31,000,000 transactions were authorized, and 25,000,000 different addresses were used.

There are a plethora of large web platforms dedicated to Bitcoin news. Some websites offer original texts and studies while others include market graphs and forecasts.

Weaknesses

Bitcoin has several weaknesses. Bitcoin might be considered an investment and fall under the category of fraud under a so-called Ponzi scheme. Bitcoins are also widely used in the dark-net to fund illegal activity and gambling. Bitcoin uses open cryptographic keys in the source code, which in turn might make it vulnerable to hacks by quantum computers. However, it’s worth noting that with present-day technology such machines cannot be created.