What is Bitcoin?
Bitcoin is a digital form of cash. But unlike the fiat currencies
Bitcoin was the first cryptocurrency, announced in 2008 (and launched in 2009). It provides users with the ability to send and receive digital money (bitcoins, with a lower-case b, or BTC). What makes it so attractive is that it can’t be censored, funds can’t be spent more than once, and transactions can be made at any time, from anywhere.
What is Bitcoin used for?
People use Bitcoin for a number of reasons. Many appreciate it for its permissionless nature – anyone with an Internet connection can send and receive it. It’s a bit like cash in that no one can stop you from using it, but its digital presence means that it can be transferred globally.
What makes Bitcoin valuable?
Bitcoin is decentralized, censorship-resistant, secure, and borderless.
This quality has made it appealing for use cases such as international remittance and payments where individuals don’t want to reveal their identities (as they would with a debit or credit card).
Many don’t spend their bitcoins, instead choosing to hold them for the long-term (also known as hodling). Bitcoin has been nicknamed digital gold, due to a finite supply of coins available. Some investors view Bitcoin as a store of value
Holders believe that these traits – combined with global availability and high liquidity – make it an ideal medium for storing wealth in for long periods. They believe that Bitcoin’s value will continue to appreciate over time.
Is Bitcoin legal?
Bitcoin is perfectly legal in most countries. There are a handful of exceptions, though – be sure to read up on the laws of your jurisdiction before investing in cryptocurrency.
In countries where it’s legal, government entities take varying approaches to it where taxation and compliance are concerned. The regulatory landscape is still highly underdeveloped overall and will likely change considerably in the coming years.
Who created Bitcoin?
Nobody knows! Bitcoin’s creator used the pseudonym Satoshi Nakamoto, but we don’t know anything about their identity. Satoshi could be one person or a group of developers anywhere in the world. The name is of Japanese origin, but Satoshi’s mastery of English has led many to believe that he/she/they originate from an English-speaking country.
Satoshi published the Bitcoin white paper as well as the software. However, the mysterious creator disappeared in 2010.
Did Satoshi invent blockchain technology?
Bitcoin actually combines a number of existing technologies that had been around for some time. This concept of a chain of blocks wasn’t born with Bitcoin. The use of unalterable data structures like this can be traced back to the early 90s when Stuart Haber and W. Scott Stornetta proposed a system for timestamping documents. Much like the blockchains of today, it relied on cryptographic techniques to secure data and to prevent it from being tampered with.
Interestingly, at no point does Satoshi’s white paper make use of the term “blockchain.”
How are new bitcoins created?
Bitcoin has a finite supply, but not all units are in circulation yet. The only way to create new coins is through a process called mining – the special mechanism for adding data to the blockchain.
How many bitcoins are there?
The protocol fixes Bitcoin’s max supply at twenty-one million coins. As of 2020, just under 90% of these have been generated, but it will take over one-hundred years to produce the remaining ones. This is due to periodic events known as halvings, which gradually reduce the mining reward.
How does Bitcoin mining work?
By mining, participants add blocks to the blockchain. To do so, they must dedicate computing power to solving a cryptographic puzzle. As an incentive, there is a reward available to whoever proposes a valid block.
It’s expensive to generate a block, but cheap to check if it’s valid. If someone tries to cheat with an invalid block, the network immediately rejects it, and the miner will be unable to recoup the mining costs.
The reward – often labeled the block reward – is made up of two components: fees attached to the transactions and the block subsidy. The block subsidy is the only source of “fresh” bitcoins. With every block mined, it adds a set amount of coins to the total supply.
How long does it take to mine a block?
The protocol adjusts the difficulty of mining so that it takes approximately ten minutes to find a new block. Blocks aren’t always found exactly ten minutes after the previous one – the time taken merely fluctuates around this target.
What if I lose my bitcoins?
Because there’s no bank involved, you’re responsible for keeping your coins secure. Some prefer to store them on exchanges, while others take custody with a variety of wallets. If you use a wallet, it’s crucial that you write down your seed phrase so that you can restore it.
Can I revert Bitcoin transactions?
Once data is added to the blockchain, it’s not easy to remove it (in practice, it’s virtually impossible). This means that when you make a transaction, it can’t be undone. You should always double- and triple-check that you’re sending your funds to the right address.
Is Bitcoin anonymous?
Not really. Bitcoin might seem anonymous initially, but this isn’t correct. The Bitcoin blockchain is public and anyone can see the transactions. Your identity isn’t tied to your wallet addresses on the blockchain, but an observer with the right resources could potentially link the two together. It’s more accurate to describe Bitcoin as pseudonymous. Bitcoin addresses are viewable to everybody, but the names of their owners are not.
That said, the system is relatively private, and there are methods to make it even harder for observers to figure out what you’re doing with your bitcoins. Freely available technologies can create plausible deniability to “break the link” between addresses.
Is Bitcoin a scam?
No. Just like fiat money, Bitcoin may also be used for illegal activities. But, this doesn’t make Bitcoin a scam in and of itself.
Bitcoin is a digital currency that isn’t controlled by anyone. Detractors have branded it a pyramid scheme, but it doesn’t fit the definition. As digital money, it functions just as well at $20 per coin as it does at $20,000 per coin. It’s over a decade old, and the technology has proven to be very secure and reliable.
Unfortunately, Bitcoin is used in many scams that you should be aware of. These might include phishing and other social engineering schemes, such as fake giveaways and airdrops. As a general rule: if something sounds too good to be true, it’s probably a scam. Never give your private keys or seed phrase to anyone, and be cautious of schemes that offer to multiply your money with little risk on your behalf. If you send your coins to a scammer or to a fake giveaway, they will be lost forever.
Is Bitcoin a bubble?
Throughout the many parabolic rises in Bitcoin price, it was common to see people referring to it as a speculative bubble. Many economists have compared Bitcoin to periods like the Tulip Mania or the dot-com boom.
Due to Bitcoin’s unique nature as a decentralized digital commodity, its price is entirely dictated by speculation in the free market. So, while there are many factors driving the Bitcoin price, they ultimately affect market supply and demand. And since Bitcoin is scarce and follows a strict issuance schedule, it’s thought that long-term demand will exceed supply.
The cryptocurrency markets are also relatively small when compared to traditional markets. This means that Bitcoin and other crypto assets tend to be more volatile, and it’s quite common to see short-term market imbalances between supply and demand.
In other words, Bitcoin can be a volatile asset at times. But volatility is part of the financial markets, especially ones with relatively lower volume and liquidity.
Does Bitcoin use encryption?
No. This is a common misconception, but Bitcoin’s blockchain doesn’t use encryption. Every peer on the network needs to be able to read transactions to ensure that they’re valid. Instead, it uses digital signatures and hash functions. While some digital signature algorithms do use encryption, that’s not the case for Bitcoin.
It’s worth noting, though, that many applications and crypto wallets make use of encryption to protect users’ wallets with passwords. Still, these encryption methods have nothing to do with the blockchain – they’re just incorporated into other technologies that tap into it.
Source : What Is Bitcoin? / Binance Academy
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