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What is Bitcoin? | How Bitcoin Works

What is Bitcoin?

Bitcoin is a cryptocurrency. It is a decentralized digital currency without a central bank or single administrator that can be sent from user to user on the peer-to-peer bitcoin network without the need for intermediaries.

Wikipedia.org

Transactions with Bitcoin are registered and verified by network nodes through cryptography and recorded in a public distributed ledger called Blockchain.

The confirmations by the nodes of the Bitcoin blockchain ensure that transactions can only be completed once. The Bitcoin blockchain consists of all transfers of this cryptocurrency.

One of Bitcoin’s most important characteristics is that it is decentralized using peer-to-peer technology—meaning no single institution, government, bank, company or person can control or stop the Bitcoin network.

Bitcoin is a digital currency

Bitcoin is a digital currency and can be transferred or spend digitally only. It cannot be printed or produced physically like standard money. The amount of Bitcoin is very limited – only 21 million Bitcoins can ever be created.

Bitcoin is stored in digital wallets and partly anonymous. No one can check who owns a certain wallet, but everyone can see how much money was sent / received and to / from which wallet address. Everyone can also check how much money is deposited on a certain wallet. However, the identity of a person or entity owning a wallet is partly anonymous. Opening Bitcoin wallet doesn’t require any ID documents, passport or signatures – unlike bank accounts. You just need internet access.

The History of Bitcoin

Bitcoin was first introduced as open-source software by an anonymous programmer, or a group of programmers, under the alias Satoshi Nakamoto in 2009. Satoshi is one of the biggest mysteries our times. There are many rumors on the internet about the real identity of the Bitcoins creator(s). However, all people mentioned in the rumors have publicly denied being Satoshi Nakamoto. Those claiming to be Satoshi Nakamoto, could not prove this undoubtedly.

More about the history of Bitcoin can be found on Wikipedia (History of Bitcoin).
The original documentation about the history of Bitcoin can be found on the Website of the Nakamoto Institute.

How Bitcoin Works in very simple terms

You have Bitcoin -> you pay an amount of Bitcoin to a Bitcoin address -> the person receives the Bitcoin amount.

Example: You have 1.0 BTC -> you pay 0.25 BTC to an address -> the person receives the 0.25 BTC.
The Bitcoin network registers the transaction on the Blockchain in an immutable way and receives from the sender a very small BTC amount as a mining fee (network fee).

Why is Bitcoin special?

Bitcoin is decentralized

This means in a nutshell: Bitcoin’s network is distributed over thousands of computers worldwide. Therefore it is independent of central banks or any governing authorities. No central authority can control or shut down the Bitcoin network. Moreover, even if some part of the network goes down, for whatever reasons, Bitcoin will continue to exist and transactions will be executed. Bitcoin cannot be deleted like a file or a piece of regular software.

Bitcoin is partly anonymous

No personal data are required to register a Bitcoin Wallet. And while some people just simply don’t want to keep their finances private, other views might argue that illegal activities, drug trading, terrorism or other criminal activities could develop in this relative anonymity. This, however, is not correct. Bitcoin is only partly anonymous and not absolutely private. All transactions are registered on a publicly available ledger, the Bitcoin blockchain.

Bitcoin transactions are immutable

Transactions with Bitcoin can not be censored, can not be stoped, can not be withdrawn or rolled back.

Once you send your Bitcoins to an address, there is no way of getting them back, unless the owner / recipient would want to return them back to you. This ensures the reception of payment in Bitcoin is absolute. If you send Bitcoin to a wrong address by mistake or to a scammer, the transaction cannot be canceled.

Bitcoin is not a bank.