what is bitcoin

What is Bitcoin and how does it Works In May 2021

Bitcoin is a digital currency or cryptocurrency that can be used to exchange goods and services like any other currency in places where it is accepted. Bitcoin, with the symbol ฿ and abbreviation BTC or XBT,
Bitcoin is a digital currency or cryptocurrency that can be used to exchange goods and services like any other currency in places where it is accepted. Bitcoin, with the symbol ฿ and abbreviation BTC or XBT,

Bitcoin is a digital currency or cryptocurrency that can be used to exchange goods and services like any other currency in places where it is accepted. Bitcoin, with the symbol ฿ and abbreviation BTC or XBT, is a free and decentralized electronic currency that allows direct transaction without any intermediary.

Bitcoin was created by Satoshi Nakamoto in 2009, along with the software that supports it. To this day it remains a mystery who is behind that name, a person or an institution. Bitcoins are created through a process known as bitcoin mining, which we will explain below.

history of Bitcoin

The origin of Bitcoin as a cryptocurrency dates back to 2009. History indicates that its creator operated under the pseudonym Satoshi Nakamoto.

Although it is true that the domain bitcoin.org was registered in 2008. In October of that same year, Satoshi Nakamoto wrote an article entitled “Bitcoin: An electronic cash system among equals.”

In this document, he detailed how the network works, how bitcoins were generated, and what its advantages were. After that, already in 2009, the origin of the first open-source Bitcoin client emerged and the network began to progressively become popular.

What is and how does a Bitcoin work?

Although Bitcoin does not exist in a physical way, it has the same functions as the rest of the money, but unlike a bill or a non-virtual currency, bitcoins do not have a serial number or other type of mechanism to be able to trace to buyers and sellers who use this virtual currency. This makes it attractive to those who want or need privacy in their transactions.

what is bitcoin

Unlike any other currency, Bitcoin is not fiat money.  In other words, it is not backed by the confidence of a central bank, by a government, or by a material (for example, the gold standard ). Instead, they do use a proof-of-work system to avoid double-spending and reach a consensus among all the nodes that operate on the network. This consensus is known as the blockchain.

The chain of blocks in the blockchain

The blockchain is a fundamental piece for the operation of Bitcoin, since in order to falsify a transaction, it would not be enough to change one or more computers. Being a public registry, there can be millions of copies and the registries of all the computers that keep a copy would have to be changed, which is practically unfeasible, since it is an open and public database.

In addition, bitcoin transactions are open source for their operation and do not need any intermediary to carry out the transactions. Therefore, it promises to have lower transaction costs.

It should be remembered that the rest of the currencies (such as the dollar, the euro, the pesos, or the yen among others) do exist physically, but even so (in 2016) only 8% of the money that exists in the world denominated in Those currencies are physical money, the rest is electronic money in the balance sheets of the banks.

Characteristics of Bitcoin

To avoid the problems derived from a currency that is not backed by an entity or a third party, but by a working system, the BTC has several fundamental principles:

  • 21 million limits: The number of units can never exceed 21 million bitcoins. Therefore the money supply is limited, unlike fiat currencies, where the central bank can issue as many as it wants.
  • Can’t censor: No one can ban or censor transactions that have been validated.
  • It is open-source: The source code used must always be accessible to everyone.
  • Access to all:  Everyone can make transactions in bitcoins without the need for a permit. No one can prevent participation in the network.
  • It uses pseudonyms: The real identity of its owner is not reflected and it is not necessary to identify yourself to participate in the Bitcoin network, although unlike an anonymous network, it allows the possibility of generating a reputation and trust between the different users.
  • It is expendable:  All units are interchangeable.
  • Payments are irreversible: Transactions that have been confirmed cannot be modified or deleted.

How are bitcoins created?

Bitcoin is a cryptocurrency that is created and distributed by peer networks, commonly known as P2P (peer to peer). These networks allow the direct exchange of information without the need for fixed servers. The BTC generation process is through cryptocurrency mining. It consists of solving highly difficult mathematical problems thanks to computer processors.

The person who solves a problem receives a reward in BTC in return. Incentive that makes more people join this process. Each participant is connected to each other through the P2P system and they validate each movement in the system. 

Therefore, the more participants there are, the more secure the process will be. On the other hand, as problems are solved, their difficulty increases. In this way, the speed of BTC generation is controlled.

Bitcoin, as we have already explained, is not regulated by any body, however, it is programmed in such a way that the generation rate is reduced by 50% every 4 years until it reaches 21 million BTC in circulation.

To give us an idea, as of January 25, 2021, the total of BTC in circulation was 18,844,750. In 2014 it was just over 12 million bitcoins. Every 10 minutes it increases, but each time at a slower pace.

Over time we are approaching the limit of 21 million. So if the demand for bitcoins continues to increase and the supply does not compensate for that increase in demand (it does not do so because it is limited), the most likely thing is that the price of Bitcoin will increase. Of course, as long as the demand is maintained.

How are bitcoins used?

The time has come to see how one can deal with these coins that are there but are not. Bitcoin is money, it has certain characteristics that differentiate it from other currencies. However, as a currency, it fulfills the properties of money:

  • Serves as the unit of account
  • Exchange medium
  • Preservation of value medium

The latter is the one that is creating the most controversy around Bitcoin due to its fluctuating nature. See volatility

On its usefulness as an accounting unit, little more or nothing needs to be added. The same does not happen with its properties to facilitate the exchange. The appearance of Bitcoin meant the breakdown of electronic commerce as it was known until then. Transactions no longer have to be channeled through banks or other trusted financial entities. Which means breaking with the corresponding service fees to which the transactions were subjected.

How to buy with bitcoins?

To pay with bitcoins we must follow the following steps:

  1. Convert your money into bitcoins.
  2. Save them in our virtual wallet created in one of the many free servers that exist. For example, blockchain. The wallet is a random combination of 33 alphanumeric characters similar to this: 1VtU9rMsQ47rCqsGAvMtw89TA5XT2dB7f9
  3. You can now pay and collect in BTC! To pay, you will only have to access your electronic wallet with your username and password. Enter the code of the recipient’s wallet and the corresponding amount. To collect, all you need is to provide your code to the person who must make the payment.
vSport Staff
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