What is Bitcoin?

What is Bitcoin?

Bitcoin is a protocol for sending value over a peer-to-peer network. Currency is one application built on top of Bitcoin, so let’s start there!

Simply put, Bitcoin is a digital currency. It can be used just like the U.S. dollar to buy and sell goods from an expanding list of retailers, including Microsoft, Expedia, and Overstock.

bitcoin, newegg, payment, checkout

Bitcoin checkout on Newegg

But Bitcoin’s applications go far beyond “regular” currency. Here’s why:

  1. Bitcoin is decentralized. No single entity controls or issues Bitcoin
  2. Like gold, Bitcoin is limited. Unlike the Venezuelan Bolivar or U.S. dollar,  Bitcoin cannot be devalued by printing more currency. This makes it immune to hyperinflation.
  3. Bitcoin transactions are immutable – No one can stop your transactions, or say they aren’t valid.

Bitcoin is separation of money and state.

How does Bitcoin work?

Bitcoin pioneered a powerful new technology called blockchain. A blockchain is a continuously growing chain of blocks which contain transactions. It can be thought of as a bank ledger, however instead of a single bank keeping track of transactions, a peer-to-peer (P2P) network of users verifies the accuracy of the ledger. This technology removes the need to rely on a company to keep truthful records.

Bitcoin, Blockchain, timestamp

Simplified Bitcoin Blockchain

How does Bitcoin have value?

Just like the U.S. Dollar, Bitcoin has value because people think it has value. And these days, people agree that Bitcoin has a lot of value. As of November 2017, Bitcoin has a market capitalization (# of coins * value of each coin) of $122 Billion.  That’s over $7,300 per coin, with 16.5 million Bitcoin (or BTC) in existence.

Bitcoin is not backed by the full faith and credit of any government, but that’s kind of the point. Bitcoin does not diminish in value due to political instability. In fact, some view Bitcoin as a hedge to political and global market turmoil. Bitcoin saw a significant increase in value when the banking system in Cyprus collapsed in 2013. Bitcoin surged during Brexit as the Pound-Sterling collapsed. Bitcoin is surging again as countries like Venezuela experience hyper-inflation. In fact, many Venezuelans have turned to Bitcoin as their nation’s currency becomes worth less and less every day.

Next: How Do You Buy Bitcoin?

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