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Bitcoin (BTC): A Comprehensive Guide
Bitcoin (BTC) is a decentralized digital asset that has revolutionized the way people store and transfer value. It is often compared to gold, as it shares some of its features, such as rarity, durability and divisibility. However, Bitcoin also has some unique advantages over gold, such as its programmability, portability and censorship-resistance.
In this article, we will explain what Bitcoin is, how it works, what gives it value, and how you can use it to buy, sell, trade and manage your cryptocurrencies.
What is Bitcoin?
Bitcoin is a peer-to-peer online currency, meaning that all transactions happen directly between equal, independent network participants, without the need for any intermediary to permit or facilitate them. Bitcoin was created in 2009 by an anonymous person or group using the pseudonym Satoshi Nakamoto, who published a whitepaper describing the technical details of the system.
Bitcoin uses a distributed ledger of transactions called the blockchain, which is secured by cryptographic algorithms and maintained by a network of nodes (computers) that validate and record new blocks. Each block contains a batch of transactions and a reference to the previous block, forming a chain of blocks that goes back to the genesis block, the first block ever mined.
Bitcoin has a fixed supply of 21 million units, which are divided into smaller units called satoshis. The smallest unit of Bitcoin is one satoshi, which is equal to 0.00000001 BTC. New bitcoins are created through a process called mining, which involves solving complex mathematical problems that require a lot of computing power. The difficulty of these problems adjusts every 2016 blocks (about two weeks) to ensure that the average time between blocks is 10 minutes. The miners who solve these problems are rewarded with newly minted bitcoins and transaction fees.
Bitcoin transactions are broadcasted to the network and confirmed by the nodes in an average time of 10 minutes. Each transaction has an input and an output, which specify the sender and the receiver of the bitcoins, respectively. Transactions also have a fee, which is paid to the miners for including them in a block. Transactions can be simple or complex, depending on the number and type of inputs and outputs. For example, a transaction can have multiple inputs from different addresses or multiple outputs to different addresses. Transactions can also include scripts that specify certain conditions for spending the bitcoins, such as requiring a signature from more than one party or a certain amount of time to pass.
Bitcoin transactions are irreversible, meaning that once they are confirmed by the network, they cannot be undone or modified. This makes Bitcoin resistant to fraud and censorship, but also requires users to be careful with their private keys, which are needed to sign and authorize transactions. If a user loses their private key or sends bitcoins to a wrong address, they cannot recover them.
What gives Bitcoin value?
The value of Bitcoin comes from two connected aspects that support and reinforce each other: its features and its network effects.
Features
Bitcoin has several features that make it useful as a method for storing and exchanging value. Some of these features are:
- Rarity: Bitcoin has a fixed supply of 21 million units, which makes it scarce and deflationary. Unlike fiat currencies that can be printed at will by central banks, Bitcoin cannot be inflated or debased by anyone.
- Durability: Bitcoin is digital and does not degrade over time or with use. It can be stored securely in various devices or platforms, such as hardware wallets, software wallets or exchanges.
- Divisibility: Bitcoin can be divided into smaller units called satoshis, which can accommodate any amount of value or granularity. This makes Bitcoin suitable for microtransactions or large purchases alike.
- Portability: Bitcoin can be transferred easily and cheaply across borders and distances, without intermediaries or restrictions. It only requires an internet connection and a compatible device to send and receive bitcoins anywhere in the world.
- Censorship-resistance: Bitcoin transactions are validated by a decentralized network of nodes that follow a set of rules called the protocol. No one can censor, alter or stop Bitcoin transactions without controlling more than 50% of the network's computing power, which is very unlikely and costly.
- Programmability: Bitcoin transactions can include scripts that specify certain conditions for spending the bitcoins, such as requiring a signature from more than one party or a certain amount of time to pass. This allows for the creation of smart contracts, which are self-executing agreements that can enable various applications and use cases on top of Bitcoin.
Network effects
When a network grows, its utility grows also. The classic example is a telephone network. When there are only a few people on the network, it’s hardly valuable. But when you can call anyone, the network is more valuable. The same is true of money networks.
Bitcoin is the first and largest cryptocurrency network, with millions of users and thousands of nodes around the world. It also has the highest market capitalization and liquidity among all cryptocurrencies, making it the most dominant and influential one. Bitcoin's network effects can be summarized as follows:
- Adoption: The more people use Bitcoin, the more demand and value it has. As Bitcoin becomes more widely accepted and adopted, it becomes easier and cheaper to use, creating a positive feedback loop.
- Innovation: The more people develop and improve Bitcoin, the more features and functionality it has. As Bitcoin becomes more innovative and versatile, it attracts more users and developers, creating a positive feedback loop.
- Security: The more people secure and protect Bitcoin, the more resilient and robust it is. As Bitcoin becomes more secure and reliable, it gains more trust and confidence, creating a positive feedback loop.
How to use Bitcoin?
To use Bitcoin, you need a wallet, which is a software or hardware device that allows you to store, send and receive bitcoins. There are many types of wallets, such as web wallets, mobile wallets, desktop wallets or hardware wallets. Each wallet has a public key, which is like an account number or address that you can share with others to receive bitcoins, and a private key, which is like a password or PIN that you need to keep secret and use to sign and authorize transactions.
To buy bitcoins, you can use an exchange, which is a platform that allows you to trade fiat currencies (such as US dollars or euros) or other cryptocurrencies (such as Ethereum or Litecoin) for bitcoins. There are many types of exchanges, such as centralized exchanges, decentralized exchanges or peer-to-peer exchanges. Each exchange has its own advantages and disadvantages, such as fees, liquidity, security or privacy.
To spend bitcoins, you can use a merchant, which is a business or service that accepts bitcoins as a form of payment. There are many types of merchants, such as online shops, physical stores, restaurants or hotels. You can find merchants that accept bitcoins by using directories, such as Bitcoin.com or Coinmap.
To manage bitcoins, you can use a wallet app, such as the multichain Bitcoin.com Wallet app, which is trusted by millions to safely and easily buy, sell, trade and manage bitcoin and the most popular cryptocurrencies.
Conclusion
Bitcoin is a decentralized digital asset that offers a new way of storing and transferring value. It has several features that make it useful as a method for storing and exchanging value, such as rarity, durability, divisibility, portability, censorship-resistance and programmability. It also has network effects that increase its utility, adoption, innovation and security. To use Bitcoin, you need a wallet, an exchange, a merchant and a wallet app. Bitcoin is the first and largest cryptocurrency network, with millions of users and thousands of nodes around the world.