Bitcoin is the first decentralized digital currency, created and held electronically. No one controls it. Bitcoins aren’t printed, like Dollars or Euros or Pulas or Naira or Rands – they’re produced by people, and increasingly businesses, running computers all around the world, using software that solves mathematical problem.
It’s the first example of a growing category of money known as cryptocurrency.
*What makes it different from normal currencies?*
Bitcoin can be used to buy things electronically. In that sense, it’s like conventional dollars, euros, or yen, pulas or rands which are also traded digitally.
However, bitcoin’s most important characteristic, and the thing that makes it different to conventional money, is that it is decentralised. No single institution controls the bitcoin network. This puts some people at ease, because it means that a large bank can’t control their money.
*Who created it?*
A software developer called Satoshi Nakamoto proposed bitcoin, which was an electronic payment system based on mathematical proof. The idea was to produce a currency independent of any central authority, transferable electronically, more or less instantly, with very low transaction fees.
*Who prints it?*
No one. This currency isn’t physically printed in the shadows by a central bank, unaccountable to the population, and making its own rules. Those banks can simply produce more money to cover the national debt, thus devaluing their currency.
Instead, bitcoin is created digitally, by a community of people that anyone can join. Bitcoins are “mined”, using computing power in a distributed network. This network also processes transactions made with the virtual currency, effectively making bitcoin its own payment network.
So you can’t churn out unlimited bitcoins?
That’s right. The bitcoin protocol – the rules that make bitcoin work – say that only 21 million bitcoins can ever be created by miners. However, these coins can be divided into smaller parts (the smallest divisible amount is one hundred millionth of a bitcoin and is called a ‘Satoshi’, after the Founder of Bitcoin.
*What is bitcoin based on?*
Conventional currency has been based on gold or silver. Theoretically, you knew that if you handed over a dollar at the bank, you could get some gold back (although this didn’t actually work in practice). But bitcoin isn’t based on gold; it’s based on mathematics.
Around the world, people are using software programs that follow a mathematical formula to produce bitcoins. The mathematical formula is freely available, so that anyone can check it. The software is also open source, meaning that anyone can look at it to make sure that it does what it is supposed to.
*What are its characteristics?*
Bitcoin has several important features that set it apart from government-backed currencies.
1) It’s decentralised
The bitcoin network isn’t controlled by one central authority. Every machine that mines bitcoin and processes transactions makes up a part of the network, and the machines work together.
That means that, in theory, one central authority can’t tinker with monetary policy and cause a meltdown – or simply decide to take people’s bitcoins away from them, as the Central European Bank decided to do in Cyprus in early 2013 or in Greece in 2015.
If some part of the network goes offline for some reason, the money keeps on flowing.
2) It’s easy to set up
Conventional banks make you jump through hoops simply to open a bank account. Setting up merchant accounts for payment is another Kafkaesque task, covered by bureaucracy. However, you can set up a bitcoin address in seconds, no questions asked, and with no fees payable.
3) It’s anonymous
Users can hold multiple bitcoin addresses, and they aren’t linked to names, addresses, or other personally identifying information.
4) It’s completely transparent
Bitcoin stores details of every single transaction that ever happened in the network in a huge version of a general ledger...
5) It's inflation free
The value of Bitcoins keeps going up over time... in 2009 the year when it started it had close to Zero value... in 2016 it was $350 in value... in Aug 2017 it was $3500... guess what was the value 2 months later? Over $4000 and it's still growing!
6) It's cheap and low cost
Bitcoins transaction fees are many times cheaper compared to all fiat currencies like Dollars, Euros, Naira, Rands, Pulas, etc. This is because of the way the computer system is structured you don't need to pay enployee salaries and there are no oberhead costs like with banks
7) It's global
This crowns it all! You can buy anywhere and as stated earlier you can biy anything with bitcoins - cup of coffee, airtime, plane ticket, car, anywhere in the world and there are many sites where you can change your Bitcoins to fiat currencies. There's more than 1 million companies online that accept Bitcoins as a means of payment!
