What is bitcoin

Public interest in cryptocurrencies is growing every day, and today it is difficult to find a person who would not hear the word ” bitcoin “. Appearing ten years ago, Bitcoin laid the foundation for a great financial revolution, the onset of which is predicted by well-known personalities of the crypto world in 10-15 years. But you need to prepare for this event now.

This guide will introduce you to the basics of the main cryptocurrency in simple words , tell you what bitcoin is , and how to take the first steps in buying and selling BTC, as well as how to earn your first coins.

What is bitcoin

Bitcoin ( bitcoin , BTC) is a digital payment system that operates on a peer-to -peer network and allows parties to directly exchange cryptocurrency , which is called the same name on the Bitcoin network. Unlike the usual electronic systems (for example, WebMoney , PayPal , Yandex.Dengi , etc.), in which fiat money functions , such as the euro, dollar, etc., bitcoin does not have a physical form.

The most important difference Bitcoin from traditional currencies is its decentralization, i.e. no bank and no state controls the issuance and conduct of transactions. This is done by independent nodes ( nodes ) – each user can run his own node by purchasing the necessary equipment and downloading the blockchain bitcoin .

What is bitcoin

Bitcoin ( bitcoin , BTC) is a digital payment system that operates on a peer-to -peer network and allows parties to directly exchange cryptocurrency , which is called the same name on the Bitcoin network. Unlike the usual electronic systems (for example, WebMoney , PayPal , Yandex.Dengi , etc.), in which fiat money functions , such as the euro, dollar, etc., bitcoin does not have a physical form.

The most important difference Bitcoin from traditional currencies is its decentralization, i.e. no bank and no state controls the issuance and conduct of transactions. This is done by independent nodes ( nodes ) – each user can run his own node by purchasing the necessary equipment and downloading the blockchain bitcoin .

History of occurrence

The history of bitcoin dates back to the date of publication on the Internet in mid-autumn 2008 of a document called “ Bitcoin : A Peer-to-Peer Electronic Cash System ”, in which the creator described the principle of operation and the purpose of the first cryptocurrency . This document is also considered a kind of “? WhitePaper is a true public blockchain .

Satoshi ‘s vision Nakamoto , “father”? the first cryptocurrency , the real blockchain , which is bitcoin , must have the following properties:

Decentralization. Transactions are made directly from the sender to the recipient without the involvement of intermediaries. Confirmation of payments occurs with the help of the computing power of billions of computers scattered around the globe. 1 computing power = 1 network member (it is important that the node is bound to the CPU, not to IP), and all participants are equal. The transaction is not verified until the majority of nodes confirm it. This is one of the main advantages of bitcoin , because no one can freeze or reject a payment, as happens with banks or electronic payment services;

Anonymity. In order to start a bitcoin wallet , you do not need to provide your personal data. Each participant receives a unique public key (address), as well as a private key, which gives access to the management of funds. All confirmed transactions are recorded in the blockchain , and anyone can get information about the sender and recipient addresses, the payment amount and the date of sending. Previously, this data did not allow a transaction to be linked to a real person, but now special tools have been developed to identify the sender and recipient, and entire companies are doing this (for example, Chainanalysis ). Therefore, at the moment, Bitcoin is considered pseudo-anonymous. cryptocurrency ;

Transparency. Bitcoin is a transparent network, i.e. everyone will be able to get information about any of the transactions. Therefore, the recipient can easily check whether the payment was made by the sender, because each transfer is recorded in the “log” of the blockchain ;

Security. Thanks to the algorithm that underlies the blockchain , the data in the transaction cannot be changed, deleted or corrected. All blocks are inextricably linked, and in order to change the information of one, you need to change the information of the previous one, etc., i.e. it is necessary to make changes to the information of all blocks ever created in order to correct the data of the last one, and this is technically impossible. Theoretically, it is possible to change transaction data in a still open block, but this requires more than 51% of the world’s computing power, and this is also very difficult.

Bitcoin has another feature that is not typical for all modern cryptocurrencies – limited emission. In total , 21 million BTC are pledged in the genesis block , the last of which will be mined around 2140. Because of this feature , the nickname “digital gold” has stuck to Bitcoin .

Another similarity between bitcoin and gold. If a few years ago, due to high volatility Bitcoin was mainly used for trading speculation on exchanges, but now the first cryptocurrency is beginning to be considered by more and more people as a store of value asset. Comparisons are often made between bitcoin and the dollar, however , despite the fact that today bitcoin can buy some goods and services, it is not well suited for this due to its low scalability .

How Bitcoin works

Bitcoin works on the basis of a peer-to-peer system (a decentralized computer network in which all participants are equal). All transactions take place on the blockchain network .

The transfer of bitcoins occurs directly from the sender to the recipient, and the payment is irreversible, i.e. it cannot be withdrawn or amended. To make payments, computing power is used, and information is processed through a client program running on many computers scattered around the world. To ensure security, cryptographic methods of data transfer are used.

But along with this, all information about transactions is in the public domain. Any user can get the public addresses of the sender and recipient, the amount and date of the transfer.

To explain in simple terms how bitcoin works , you can use the example of a book. Each page of the book is a transaction. To understand the meaning of the work, the pages need to be read in a certain order – each next page is connected with the previous meaning, and the transactions in the block are connected with each other.

Just as pages from a book cannot be torn out or replaced without distorting the meaning, so transactions cannot be canceled or corrected. A certain set of pages form a ledger, and all transactions sent in the last 10 minutes form a block. If each book is a volume and all together they are parts of one work, then all blocks form a blockchain , with each next block containing information about the previous one. This is what makes the blockchain network so reliable.

Bitcoin exchange rate

At the time of the birth of the first bitcoins , they had no value. The first bitcoin rate was fixed on the first exchange called New Liberty Standard in early October 2009: then $1 could buy more than 1300 BTC.

The first serious interest in bitcoin and cryptocurrencies in general appeared in 2010, after the historic purchase of pizza for 10,000 BTC took place. Then bitcoin experienced ups and downs. The big blow to the reputation of cryptocurrencies was the hack of the Mt exchange Gox when users lost thousands of bitcoins from their accounts. However, the first cryptocurrency survived all the blows, and 2017 brought a real “ hype ”, and bitcoin hit its all-time high of $20,000. However, the meteoric rise was followed by an equally meteoric fall in 2018, which was dubbed the ” crypto winter ” by the crypto community .

2020 in the history of the Bitcoin exchange rate began another bullrun when the price in the middle of the year exceeded $11,000. At that time, the most modest forecasts for bitcoin in the crypto industry of people predicted the growth of bitcoin until the end of 2020, at least to the level of a historical maximum.

In December 2020, the price of bitcoin exceeded the psychological mark of $20,000, setting a new all-time high. As of February 2021, the maximum price of the first cryptocurrency was almost $42,000.

Storage methods

Previously, storing cryptocurrency was very inconvenient and required special knowledge from the user (for example, when sending BTC, “change” had to be returned manually). Today, with the development of the sphere, there are different ways to store bitcoin :

    Online wallets are the simplest, but at the same time the most insecure method due to possible hacks and phishing attacks. Suitable for storing a small amount of BTC and making regular microtransactions ;

Mobile wallets – similar to the first option, they are convenient for making frequent payments, but dangerous for storing large amounts of cryptocurrency (the exception is if the wallet has a “cold” storage function, and the device itself never connects to the Internet);

    Desktop wallets – their advantages are ease of use and rich functionality, but for reliable storage of bitcoins , you need to take care of a reliable antivirus, and it is better to use it offline ;

Paper wallets are one of the most reliable and cheap cold bitcoin wallets , but there is a risk of losing this wallet with a private key, in addition, someone can see it, or the paper can simply suffer from mechanical stress or “grow old” with time. It is also worth considering that such a wallet is suitable only for storage, but not for transactions;

    bitcoin Core is perhaps the most reliable wallet, as its installation involves running a full node bitcoin . However, a simple user does not need it, because the software is designed for advanced users , and also requires a huge amount of hard disk space (at the time of this writing, more than 200 GB of data);

Hardware wallets are the only option if you need to store large amounts of Bitcoin and make regular payments. The only drawback is the price (the average cost is about $30). Please note that in no case should you buy used devices, as well as wallets from unknown brands – preference should be given to trusted Ledger , Trezor or KeepPay .