Bitcoin is a decentralized cryptocurrency. What does this mean?
Decentralized means no central authority controls it. In the United States we have the Federal Reserve Bank, which is the central banking authority responsible for the printing of all U.S. Dollars. Bitcoin does not have a central authority that creates and manages the supply bitcoins.
Why is decentralized better than centralized?
- The creation of bitcoins are done by individuals all across the world running specialized computers that solve complex mathematical problems.
- The supply is limited to 21 million bitcoins. No more than 21 million can ever exist.
- The storage of bitcoin is done by each individual owner who has a “bitcoin wallet”.
- Bitcoin is sent directly from the owner to the recipient with no 3rd party involved.
- The bitcoin miners solve a mathematical problem for every single transaction that ever occurs in order to verify that the bitcoins sent are real. This is why bitcoin can not be counterfeited.
What does the “crypto” in “cryptocurrency” mean?
Crypto means the currency is managed through encryption. In short, the encryption is a solution to fraud and privacy issues we face with fiat currencies (USD, EUR, AUD, etc.) today. Because of encryption it makes it impossible to send bitcoins you do not own. Additionally, with proper security habits, it’s incredibly difficult, if not impossible, for a hacker to access your bitcoin wallet.
Since bitcoin transactions are peer to peer and private, there is no way for a hacker to steal personal or bank info when you purchase something with bitcoin.
Who created it?
A software developer or group of people under the alias of Satoshi Nakamoto created bitcoin with the vision of a digital payment system based on mathematical proof.
Do I have to buy a full bitcoin?
No! While the bitcoin protocol allows only 21 million bitcoins to ever be created by miners. However, bitcoins can be sent into much smaller fractions. The smallest amount of bitcoin that can be sent is one Satoshi, or one one hundred millionth of a bitcoin (0.00000001 bitcoin). Many wallets and online store display bitcoin values in mBTC, or a milli-bitcoin. This is simple one one thousandth of a bitcoin (1 bitcoin = 1000 mBTC)
What are its advantages?
Bitcoin has several important features that are advantageous over government-backed, also known as fiat, currencies.
1. It’s decentralized
The bitcoin network isn’t controlled by one central authority. Every computer that mines bitcoin and verifies transactions makes up a small part of the network. That means that no government or authority can take bitcoins away from owners, and a hacker can’t “bring down the network” or “steal all the bitcoins”. The only way to “stop” bitcoin would be to convince every single person in the world to not use it.
2. It’s easy to set up
A bitcoin wallet can be set up in a minute or two, whereas a bank account is a lengthy and bureaucratic process in which you don’t even have full control of your money and are subject to all sorts of fees.
3. It’s private
A bank account is linked to a name and other personal information. A bitcoin address is simply a string of numbers and letters. For example,
4. It’s transparent
Every single bitcoin transaction that has ever happened is stored on what is called the blockchain.
If you have a publicly known bitcoin address, anyone can tell how many bitcoins are stored at that address. They just don’t know that it’s yours unless you have given up that information.
There are measures that people can take to make their transactions less transparent though. For example, one could use a different address for every transaction and not keep all bitcoins on a single address.
6. It’s fast
You can send money anywhere around the world and it will arrive minutes later- as soon as a bitcoin miner solves the math to prove that your bitcoins are real.