Bitcoin (BTC) is a cryptocurrency that acts as a digital money which allows secure peer-to-peer transactions on the internet. It was first launched back in 2009 by an individual or a group of people known only as Satoshi Nakamoto. It has since become the most popular cryptocurrency globally as it remains the largest by market capitalization and trading volume.
How does bitcoin operate without a single central authority? It runs on a decentralised ledger system known as a blockchain and anyone can become part of that network. When someone sends a bitcoin to another person, the information from the previous blocks is copied to a new block with the new transaction data, which is verified by participants in the network called miners, then added to the shared ledger. When a transaction is verified, a new block is opened and a bitcoin is generated. Miners use specialised software and energy-intensive hardware to perform the equations required to verify and record a new transaction. For their hard work, miners are rewarded bitcoins where they are free to use it, sell it or hold it.
One thing to note is that Satoshi Nakamoto set the network up so that the number of bitcoins is limited, specifically, only 21 million bitcoins can ever be mined. The amount of awarded bitcoins is halved every 210,000 blocks, which follows a block reward schedule set by bitcoin’s creator at the beginning. Theoretically, the last blocks will be mined in the year 2140. Bitcoin’s value is ultimately determined by what people will pay for it. It has value the same way a traditional currency does because it’s proven itself to be a viable way to store value.
Most commonly, bitcoin is used for payment for goods and services at certain stores and merchants. Before that, you need to have a cryptocurrency wallet that holds the private keys to the bitcoin you own, which is required when performing a transaction. As cryptocurrency exchanges began to emerge in recent years, bitcoin can also now function as an investment vehicle.
You don’t have to mine bitcoin to own it as it can be bought using a cryptocurrency exchange. It isn’t necessary to buy an entire bitcoin, considering the price, you can just buy a fraction of one if that’s all you want. To start off, you will need to open an account with a cryptocurrency exchange of your choice.
In the same way we store our cash, bitcoins are also stored in a wallet—a digital wallet. The digital wallet can be hardware-based or web-based. This digital wallet automatically uses a private key to sign the outgoing transactions and generate wallet addresses for you. The device containing your bitcoin wallet stores the private key and not the coins themselves. Your coins are stored on the Bitcoin blockchain, and your private key is required to authorise transfers to another person’s wallet.
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