Bitcoin, as explained by Wikipedia, is a worldwide cryptocurrency and digital payment system called the first decentralised digital currency, since the system works without a central repository or single administrator. It was invented by an unknown programmer, or a group of programmers, under the name Satoshi Nakamoto and released as open-source software in 2009. The system is peer-to-peer, and transactions take place between users directly, without an intermediary. These transactions are verified by network nodes and recorded in a public distributed ledger called a blockchain.
A Blockchain is a digitized, decentralized, public ledger of all cryptocurrency transactions. … Originally developed as the accounting method for the virtual currency Bitcoin, blockchains – which use what’s known as distributed ledger technology (DLT) – are appearing in a variety of commercial applications today.
Besides being created as a reward for mining, bitcoin can be exchanged for other currencies, products, and services. As of February 2015, over 100 000 merchants and vendors accepted Bitcoin as payment. Bitcoin can also be held as an investment. According to research produced by Cambridge University in 2017, there are 2.9 to 5.8 million unique users using a cryptocurrency wallet, most of them using bitcoin. On 1 August 2017 bitcoin split into two derivative digital currencies, the classic bitcoin (BTC) and the Bitcoin Cash (BCH).
Going to fast? Bang the Book’s Bitcoin 101 simplifies the explanation: Let’s start with how a physical exchange goes. Let’s say I have a dollar in my hand. I can hold, feel, and see it.
Now, I gave the dollar to you. The money left my hand, and it’s now yours and yours alone. You can spend the dollar, add it to your savings, or give it to someone else. And I can’t spend it because the dollar is no longer in my possession.
The transaction was as easy as it could get. We didn’t need a third party to prove that I gave you my dollar. But when you transact online, things aren’t as easy and clear-cut:
This is a real problem when spending money digitally and happens when someone conceals or misrepresents information about the recipient of digital cash. This loophole allows the culprit to spend the same money twice, and the chances of getting caught are low. And when a currency is spent twice or more times, it loses value.
What if the dollar sent to you online was copied?
What if it was sent to someone else first?
To solve the double spending problem, we have banks and payment processors in place.
The problem with this approach, however, is that it doesn’t bring us any closer to the ease and seamlessness of physical transactions.
Yes, banks and payment processors can verify transactions on your behalf. But they’re also in control of your money. If you want to send or receive money from sanctioned countries, banks can refuse your transaction. The same goes if you want to buy goods and services that are frowned upon.
And lastly: Banks and payment processors are third parties. They’re not the recipient nor the receiver, but the middlemen who verify transactions and charge fees for it.
So how can we transact digitally, eliminate the risk of double spending, and do away with third party verification?
With Bitcoin, a virtual currency with real-world value, and it even reached an exchange rate of over $1,300 at one point. Transacting with BTC is similar to using online funds in, say, a PayPal account. You input how much you want to send, add the recipient’s details, and that’s it.
However, the way BTC works is better in more ways than one:
• You don’t need a third party to verify transactions. Instead, Bitcoin has an open-source code and ledger to keep track of everything. The digital ledger is maintained, secured, and improved by smart people around the world.
• Everyone can download the ledger in its latest version.
• The open-source setup brings many advantages. First, it eliminates the need for third party verification transactions. And just as important, all transactions within the system are provable, solving the double-spending problem.
• Bitcoin behaves like a physical currency while staying digital!
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You can read more Bitcoin 101 on Bang the Book for everything you want to know about the cryptocurrency!