What is Bitcoin?

Released on

Apr 21, 2020

What is Bitcoin? How does it work? How do you store it, and can you pay with it? We answer all your burning questions on the world’s first and the most popular cryptocurrency on the market today. Without further ado...

What is Bitcoin?

“It is the first decentralized peer-to-peer payment network that is powered by its users with no central authority or middlemen. From a user perspective, Bitcoin is pretty much like cash for the Internet.”

Who created Bitcoin?

It was created anonymously by a person going by the pseudonym of Satoshi Nakamoto, who first published a whitepaper titled Bitcoin: A Peer-to-Peer Electronic Cash System in 2008. Not much is known about him (or her!), as intentionally kept that way by the mysterious Bitcoin founder.

Who owns Bitcoin?

The answer is that nobody and everybody! Bitcoin is open-source: by that, we mean that the code and design are public, and nobody can own or control Bitcoin—not even a government body or central authority. Yet, at the same time, anybody can participate in owning and using bitcoin.

Just like emails, nobody owns the email network. Nobody owns mathematics either, it is impossible to own.

However, we are free to use the email network and send emails to each other, and we are free to use mathematical equations in our daily lives. Similarly, we are encouraged to be a part of the Bitcoin community and own bitcoin, if we are interested in doing so.

Why was Bitcoin created?

Bitcoin was created with the intention of solving the problems of modern money, including the problem of double-spending. Satoshi stated that the main reason for creating Bitcoin was to remove the need for third-parties that are typically required to conduct traditional digital monetary transfers.

How much bitcoin (BTC) exists?

There will only be a maximum supply of 21,000,000 BTC. Unlike the US dollar or any other existing fiat currencies, it is not possible to ‘print out’ or essentially create any additional bitcoin beyond the 21 million supply limit.

How does Bitcoin work?

There are a few core components that make up Bitcoin as we know it:

Bitcoin addresses

Technically, bitcoin is not a physical coin that a user can hold or feel. Instead, ownership of bitcoin really means that there is a public record showing that a bitcoin address owns a certain amount of bitcoin.

To the user, this is experienced in the form of a bitcoin wallet. A user can receive bitcoin in their wallet by sharing the wallet’s address with someone else. A user can also send bitcoin to another wallet (belonging to themselves or to someone else) by sending it to the wallet address. Essentially, sending bitcoin is pointing ownership of bitcoin to a different bitcoin address.

Blockchain

We mentioned a public record that shows clearly which bitcoin address owns bitcoin in various amounts. This public record is called a blockchain. What this really is, is a ledger that contains every single transaction ever processed. It also allows for users’ computers to verify that each of the transactions is indeed valid.

Now, you may ask...

How is this public blockchain maintained?

Anyone can help to maintain the blockchain by running a bitcoin mining software on their computer, and this is called mining.

Mining is an important aspect of making bitcoin secure and verifiable, as it is how new transactions are added to the non-editable blockchain.

As a reward for the work and so as to continue to incentivize miners to keep maintaining the blockchain, they are rewarded with bitcoin on these conditions:

  1. A miner has to verify a block’s worth of bitcoin transactions
  2. The same miner has to be the first to get the right answer to a complex mathematical problem (this concept is known as proof of work)

How can I buy bitcoin?

Mining is tough work, thankfully, there are easier ways to obtain bitcoin. One method is simply to buy it.

Generally, you can buy bitcoin on what we call exchanges, most of which operate online. Exchanges enable users to trade assets such as fiat money (such as US dollar or euros) for bitcoin, and vice versa.

When buying bitcoin, always make sure that you are doing so on a legitimate and trustworthy exchange platform. You can verify this by looking up online reviews, and by checking for official business licenses.

If you are a resident of Europe, you can buy bitcoin directly from the TenX app in a few simple taps. With the E-Money License granted by the Financial Market Authority of Liechtenstein in 2019, TenX is able to operate in a regulated and compliant manner across Europe.

How to store bitcoin?

You would store bitcoin in a bitcoin wallet, which is essentially an interface that lets you transact using bitcoin.

There are various types of wallets, most commonly known as hot wallets and cold wallets. It is recommended that you store bitcoin in both types of wallets, depending on your needs.

Store a ‘spending’ amount of bitcoin in a hot wallet

For convenience and ease of use, you can store some bitcoin in a hot wallet such as the TenX Wallet, so that you can spend it easily when needed.

Note that your cryptocurrency balance on exchanges is also stored in hot wallets, and according to best practices should not be stored there long-term.

Store majority of your bitcoin in a cold wallet

A cold wallet is the safest way to store bitcoin as you are the only person who has full control of the wallet. If you own a lot of bitcoin, we recommend that you store most of it in a cold wallet.

If you are serious about owning and trading bitcoin, it is worth learning about the various types of wallets and their features so that you can make the best decision for yourself.

How can I pay with bitcoin?

A bitcoin card is the simplest way to pay for goods and services using bitcoin. This is because it typically uses an existing payment network such as Visa or Mastercard to process your payment, with the bitcoin card company acting as the middleman and helping you convert from cryptocurrency to cash.

The TenX Visa Card, for example, makes it possible for you to spend bitcoin at more than 54 million Visa merchant locations in over 200 countries.

Paying using bitcoin is not limited to just merchants, you can also pay individuals by sending the amount of bitcoin to their bitcoin wallet.

To do this, you will need to get their bitcoin wallet address. As the payment is irreversible, make sure to check that:

  • You have gotten the complete and accurate bitcoin wallet address
  • The wallet you are sending to supports bitcoin

How secure is bitcoin?

The Bitcoin technology is hardy enough to withstand even the most sophisticated attacks, and is safe as evidenced by the last 10 years. Although there is a lot of bad news surrounding bitcoin, they are due to factors not related to Bitcoin’s technology at all.

Instead, most of the security issues are caused by third-party service providers such as bitcoin exchanges, wallet developers, or the user’s personal mismanagement of their private key.

Long story short, the truth is that bitcoin itself is secure as can be, but lots of precautions are needed when it comes to keeping your cryptocurrency safe:

  • Make sure that you send bitcoin to the correct wallet address
  • Check that you are always on legitimate websites when keying in any login credentials
  • Do not store bitcoin on an exchange
  • Learn about the different bitcoin wallets and how to use them
  • Do not share your private key with anyone, ever
  • Complete backup instructions by your cold wallet provider

Pros and Cons of Bitcoin

Pros:

  • You truly and completely own bitcoin, no one can confiscate it from you or limit your access to bitcoin
  • Bitcoin gives you freedom from banks and unnecessary fees
  • Bitcoin is not subject to inflation because there is a fixed maximum supply of 21,000,000 bitcoin
  • You do not need to trust a third-party when transacting using bitcoin
  • It is cheaper to do international transactions using bitcoin than traditional bank transfers
  • Bitcoin has no borders, and can be seen as an international currency

Cons:

  • Because you own bitcoin yourself, you need to take full responsibility for taking care of your own money
  • There is a learning curve at the start when it comes to bitcoin
  • There is high risk and high volatility
  • It is not regulated in every country yet

What is the future of Bitcoin?

Speculation aside, bitcoin has an exciting future, and we are still in the early stages of its prime. If the 2019 Chappuis Halder study is true, it means that roughly 1.3% of the world currently owns bitcoin.

Despite this small percentage, the market capitalization sits at $123,097,050,353, roughly 123 billion USD as of April 2020.

With bitcoin being the easiest cryptocurrency to adopt and spend as an alternate currency, we can look forward to more people getting into and using bitcoin.