What Is Bitcoin?

Bitcoin

is known as a type of cryptocurrency because it uses cryptography to keep it secure. There are no physical bitcoins, only balances kept on a public ledger that everyone has transparent access to (although each record is encrypted). All bitcoin transactions are verified by a massive amount of computing power via a process known as “mining.”

Bitcoin is not issued or backed by any banks or governments, nor is an individual bitcoin / cryptocurrency valuable as a commodity. Despite it not being legal tender in most parts of the world, bitcoin is very popular and has triggered the launch of hundreds of other cryptocurrencies, collectively referred to as altcoins.

Bitcoin is commonly abbreviated as “BTC” when traded.
Bitcoin is a decentralized digital currency created in January 2009. It follows the ideas set out in a whitepaper by the mysterious and pseudonymous Satoshi Nakamoto.1

The identity of the person or persons who created the technology is still a mystery. Bitcoin offers the promise of lower transaction fees than traditional online payment mechanisms and, unlike government-issued currencies, it is operated by a decentralized authority.

Understanding Bitcoin

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 have the same list of blocks and transactions & can transparently see these new blocks being filled with new bitcoin /cryptocurrency transactions, no one can cheat the system.

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Anyone—whether they run a bitcoin “node” or not—can see these transactions occurring in real-time. To achieve a nefarious act, a bad actor would need to operate 51% of the computing power that makes up bitcoin. Bitcoin has around 11,300 full nodes, as of September 2021, and this number is growing, making such an attack quite unlikely.2

But if an attack were to happen, bitcoin miners—the people who take part in the bitcoin network with their computers—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 published to the world and to which others may send bitcoin.

The private key (comparable to an ATM PIN) is meant to be a guarded secret and only used to authorize bitcoin transmissions. Bitcoin keys should not be confused with a bitcoin /cryptocurrency wallet, which is a physical or digital device that facilitates the trading of bitcoin and allows users to track ownership of coins. The term “wallet” is a bit misleading, as bitcoin’s decentralized nature means it is never stored “in” a wallet, but rather distributed on a blockchain.

Peer-to-Peer Technology

Bitcoin is one of the first digital currencies to use peer-to-peer (P2P) 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 prediksi bitcoin.

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These miners can be thought of as the decentralized authority enforcing the credibility of the bitcoin network. New bitcoins are released to the miners at a fixed, but periodically declining rate. There are only 21 million bitcoins that can be mined in total. As of September 2021, there are over 18.8 million bitcoin in existence and less than 2.25 million bitcoin left to be mined.3

In this way, bitcoin and 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 / cryptocurrency , sets the release rate ahead of time and according to an algorithm.

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