Bitcoin (BTC) is a form of digital currency that runs on a distributed network of computers. You can’t hold bitcoins n your hand as you would with traditional currency.
Instead, bitcoin is created and held in digital form and relies on cryptography for security. Because it is a digital currency, bitcoin is pretty much like email for money.
Just like how you can create an email address to send, store, and receive messages, you can also create a bitcoin wallet to send, store, and receive money. And just like with email, all you need is a smartphone and an internet connection.
Bitcoin is a decentralized currency, meaning it is not controlled by a single entity (like a central bank). Nobody controls it.
It was the world’s first cryptocurrency with the first BTC block, known as the genesis block (or block 0), being mined on January 3, 2009.
The digital currency is referred to as bitcoin (with lower “b”) or simply BTC. It was created by a person (or group) under the pseudonym Satoshi Nakamoto.
The idea was to create a unique digital payment system that would permit borderless financial transactions to occur without the need for mediators like banks or governments.
The promise of Bitcoin is that it can become a global payment platform that is not in the control of any company, government, or special interest (other than the developers and miners of the Bitcoin community).
The bitcoin system is a collection of computers (also referred to as “nodes” or “miners”) that all run bitcoin’s code and store its blockchain. Metaphorically, a blockchain can be thought of as a collection of blocks. In each block is a collection of transactions. Because all the computers running the blockchain has the same list of blocks and transactions, and can transparently see these new blocks being filled with new bitcoin transactions, no one can cheat the system.
Anyone, whether they run a bitcoin “node” or not, can see these transactions occurring live. In order to achieve a nefarious act, a bad actor would need to operate 51% of the computing power that makes up bitcoin. Bitcoin has around 12,000 nodes, as of February 2021, and this number is growing, making such an attack quite unlikely.
But in the event that an attack was to happen, the bitcoin miners the people who take part in the bitcoin network with their computer would likely fork to a new blockchain making the effort the bad actor put forth to achieve the attack a waste.
Balances of bitcoin tokens are kept using public and private “keys,” which are long strings of numbers and letters linked through the mathematical encryption algorithm that was used to create them. The public key (comparable to a bank account number) serves as the address which is published to the world and to which others may send bitcoins.
The private key (comparable to an ATM PIN) is meant to be a guarded secret and only used to authorize BTC transmissions. Bitcoin keys should not be confused with a bitcoin wallet, which is a physical or digital device that facilitates the trading of bitcoin and allows users to track ownership of coins.
Bitcoin is one of the first digital currencies to use peer-to-peer technology to facilitate instant payments. The independent individuals and companies who own the governing computing power and participate in the bitcoin network bitcoin “miners” are in charge of processing the transactions on the blockchain and are motivated by rewards (the release of new bitcoin) and transaction fees paid in bitcoin.
These miners can be thought of as the decentralized authority enforcing the credibility of the bitcoin network. New bitcoin is released to the miners at a fixed, but periodically declining rate. There is only 21 million bitcoin that can be mined in total. As of February 30, 2021, there are approximately 18,614,806 bitcoin in existence and 2,385,193 bitcoin left to be mined.
In this way, bitcoin other cryptocurrencies operate differently from fiat currency; in centralized banking systems, the currency is released at a rate matching the growth in goods; this system is intended to maintain price stability. A decentralized system, like bitcoin, sets the release rate ahead of time and according to an algorithm.