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What is Bitcoin

what is bitcoin bitcoin explained

The name behind the invention of Bitcoin is Satoshi Nakamoto. But who is this mysterious figure? There are many rumours around who invented Bitcoin. It could be a group of people, a single genius? Who do you think the inventor of Bitcoin is?

History of Bitcoin

Bitcoins is a cryptocurrency invented in 2008 by someone called Satoshi Nakamoto. Bitcoin is a decentralized digital currency that has gained a lot of trust and therefore value. The gain in trust comes from it being decentralized and it’s ledgers can’t be corrupted by people. It is greed-proof. Bitcoin is the antithesis of government printing large sums of money and paying off bankers and wall-street guys.

You can read more about the major players in the 2008 financial crisis here.

The money we are using today is called fiat money. It is simply government-issued money that is not backed by any commodity. The US dollar was taken off the gold standard in 1971 and fiat money was created instead.

Fiat money is centralized with an authority controlling it, either by governments or central banks. Since there is no actual commodity backing paper money, the trust lays with the government who gave the fiat money value in the first place.

Depending on where you live, banks can get bailouts, bail-ins or both. Whether the government chooses to bailout the banks or the banks take people’s own money to bail themselves out, what is left when the dust settles are a whole lot of resentment, personal tragedies, and distrust.

The problem with centralized money is that it can be manipulated by the controlling authority. Printing money is an example of this. By not limiting the amount that can enter the market, the value of the money can drop. This can lead to inflation.

Today, most people use digital money through their credit/debit cards and wire transfers. Online ledgers controlled by banks keep tracks of who owns what when it comes to digital money.

When bitcoin was invented in 2008, it successfully solved the problems seen with centralization.

Unlike with fiat money, Bitcoin cannot be printed. You can not add more Bitcoin to the system.

Unlike with fiat money, Bitcoin cannot be corrupted by a centralized authority.

Unlike with banks ledgers, Bitcoin ledgers are tranparent. You can look into all the transactions taking place, but you can’t see who the owners are.

How does Bitcoin do this? Bitcoin uses a universal ledger on the blockchain. The blockchain is a network of communication nodes that run the Bitcoin software. Every computer that participates in the Bitcoin system also keeps a copy of the ledger. The Bitcoin ledger and the Bitcoin blockchain are the same.

Bitcoin is not a physical product, but a ledger showing the transactions. When you buy Bitcoin, you buy a specific Bitcoin address in the ledger. You can use this address to send funds to another address on the blockchain.

With the help of cryptocurrency exchanges, you can purchase Bitcoin and also turn your Bitcoin into fiat money.

Bitcoin’s first transaction

The first Bitcoin transaction ever made was in 2010 when 10000 bitcoin was transferred to buy 2 pizzas. You can’t talk about Bitcoin withouth thinking about these 2 pizzas who would be worth close to 200 million dollars when this post is written.

How does Bitcoin avoid double spending?

Double spending is the risk of a digital currency being spent twice by copying the digital token and sending it to a receiver while keeping the original. Bitcoin solved this problem by timestamping transactions and then broadcasting them to all the nodes in the bitcoin blockchain network. It uses a hashing algorithm to write new transactions into the ledger. Each timestamp includes the previous timestamps in the hash creating a record that can’t be changed.

Bitcoin is a solution to the problems of fiat money. Let say for example inflation is on the horizon. How do you safeguard your money? In times of crisis, many buy Gold and store it in a safe place. This is why when the price of dollars goes down, the price of Gold goes up. The demand for Gold in bad times go up. In many ways, Bitcoin is the new Gold. Many Bitcoin enthusiasts see Bitcoin as insurance against financial crisis. When the value of fiat money goes down, the argument for Bitcoin becomes stronger. This is because people want to safeguard their money against inflation.

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