Bitcoin is experiencing another surge in popularity in 2021 — its value is updating historical records. Against the backdrop of the global economic downturn, cryptocurrencies are attracting more and more attention from investors, causing a rapid increase in the capitalization of bitcoin as the “flagship” of the cryptocurrency market. Payments in crypto are becoming commonplace; the largest countries (China, for example) have developed their own versions of such payment systems, and their digital currencies are already being traded on traditional stock exchanges.
In short, even conservative people are gaining an interest in bitcoin.
What Is Bitcoin?
Bitcoin is the most famous cryptocurrency in the world. Created in 2008, it is based on blockchain technology. Bitcoin’s main features include a decentralized management system, high data privacy, and its independence from government bodies and banks. The official abbreviation is BTC.
Other Important Terms
Satoshi – 0.00000001 bitcoin, the smallest independent amount that can be used for mutual payments. It is named after Satoshi Nakamoto, the nickname used to hide the creator or group of creators that established bitcoin.
Altcoin refers to digital assets that emerged after bitcoin, regardless of their “degree of technological affinity” with bitcoin.
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What Is the Purpose of Bitcoin?
Bitcoin is used for the same reason as other means of payment – it is an equivalent form of payment for the products and services that are necessary between participants of economic activity. Generally speaking, you could buy a pizza with bitcoins, just as Lazlo Hanesh did when he paid for two pizzas on May 22, 2010. At the time, they cost him 10,000 bitcoins. In late November 2021, that same amount is equivalent to more than $0.57 billion.
How Do Bitcoins Work?
The bitcoin payment network is decentralized – miners process all the data, and independent exchanges are responsible for exchanging bitcoins into fiat currency and vice versa. Additionally, Bitcoin wallets can often be created on these same exchanges. The bitcoin payment system thus exists without any single control point, making the stability of its operation virtually impossible to influence.
Terms to Know
A miner is a user, whose processing power (typically a computer) is connected through the appropriate software to a consensus mechanism.
Mining is the transaction processing procedure during which new blocks are formed. The information that these blocks contain is validated by several nodes that are independent of each other. This is the nature of the consensus mechanism. As a reward for participating in the process, and if the system’s request is successful, the user receives a certain remuneration – the system generates new money units. This is how the issue of bitcoin (an increase in its money supply) occurs.
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Bitcoin’s Main Features
Transactions in this system have several characteristics that are not inherent in any other means of payment (and this applies to almost all cryptocurrencies):
- Deregulation. No one can legally restrict or limit your usage of bitcoins. All you need is Internet access and special software.
- Privacy. The user is identified on the network in the form of an address of approximately three dozen characters. There is no additional user information.
- Security. Wallets are encrypted by means of cryptographic systems that use big numbers to make the system resistant to hacking attempts.
- Speed. Data processing doesn’t take place in a specific location, but on a global computer network. The algorithm itself chooses which part of this network to entrust the processing of a particular transaction.
- Commission. The amount of commission directly depends on the demand for bitcoin, but excludes traditional bank and tax fees. Moreover, during peak blockchain periods, users can offer miners a certain amount of commission to speed up the transaction transfer process. For example, in January 2020, a transaction of 124,946 BTC was made and the transfer fee was just $83. And in September of that year, 94,504 BTC were transferred, for which the sender paid about $700.
- Irreversibility. If the network confirms a transaction, it cannot be canceLed under any circumstances.