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What is Bitcoin?

Updated 2 weeks ago by Ana

Throughout 2017, the words bitcoin and cryptocurrency dominated the headlines, and although many discussed it, few really understood its uses. We have written this guide to help beginners get a grasp on what is bitcoin and how it can benefit them.

What is it exactly?

Bitcoin was the first decentralised digital currency. Bitcoin was created by someone called Satoshi Nakamoto. The identity of Satoshi Nakamoto is not identified and is a subject of speculation. The Bitcoin network allows transactions to be made directly between users without a central authority.

Transactions are verified by network nodes (a node is a connection point, such as a computer) through the use of cryptography, hence the name: cryptocurrency. All transactions are recorded in a publicly distributed ledger called the blockchain.

As the name implies, blockchain consists of a chain of blocks: each block contains a timestamp for when it was altered, transaction data and data from the previous block encoded into a small, fixed size. This data is called a “hash”. It is impossible to alter the ledger data, without breaking the hash links. Altering the past records requires most users of the blockchain to agree to that change making it very hard to cheat anyone on the public ledger.

The blockchain is maintained by a network of communicating nodes running bitcoin software. Network nodes can validate transactions, add them to their copy of the ledger, and then transfer the new information in the ledger to other nodes.

Approximately every 10 minutes, a new group of accepted transactions, a block, is created, added to the blockchain, and shared with all nodes.

Each transaction consists of at least one input and one output, the input being the address of the sender and output the address of the receiver. When a user sends bitcoins, they designate each address and the number of coins they want to send to that address in an output.

It's important to note, that unlike traditional fiat transactions, bitcoin transactions can’t be reversed by methods such as chargebacks.

Is it anonymous?

The Bitcoin network is considered anonymous since transactions and funds are not tied to real names or addresses but only bitcoin addresses. While the identity of the address owners is not published, all transactions on the blockchain are public.

In reality, the anonymity of the Bitcoin network is debatable - by matching data from blockchain one can possibly track the real person conducting transactions. At the same time, exchanges, where BTC are traded for traditional currencies, may be required by law to collect personal information.

What are the distinctive characteristics of Bitcoin?

-It’s the grandfather of all other cryptocurrencies: it all started with Bitcoin, and, as of today, it is the best-known cryptocurrency.

-it’s finite: Bitcoin's inventor Nakamoto set a monetary policy based on artificial scarcity at bitcoin's inception that there would only ever be 21 million BTC in total.

-it can be mined: Bitcoin is a cryptocurrency that is generated by mining, the process in which computers with the ability to process high levels of complex data work to solve mathematical problems.

How can it be used?

Traditional merchants can accept bitcoins as payment using Bitcoin payment service providers. When a customer pays in Bitcoin, the payment service provider accepts the payment on behalf of the merchant and converts it to fiat currency, and sends the corresponding amount to the merchant's bank account, charging a fee for the service.

This process can be complex and long-winded, so we found another solution: a card that allows you to spend your bitcoins as fiat currency. Find out more here.

Bitcoin is seen by many as a solid investment for the future, with rapid rises and overall growth of over 6000%, everyone wants a piece of the bitcoin cake.

How do I get more information?

This article, surely, does not cover all the questions that can possibly arise concerning Bitcoin. Luckily, there are lots of resources you can use to find more information. We recommend starting with

How do I get Bitcoins?

There are of course many ways to obtain bitcoins, but we offer a very easy one. Buy bitcoins using your debit or credit card using Cryptopay.

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