What is Bitcoin?

The simplest way to describe Bitcoin to someone who has never heard of it before is that it is a new-generation digital currency. One virtual coin is incredibly expensive, which makes it unfortunate that by some estimations, 60% of all BTC addresses are ghosts. This means that millions of people have lost their addresses and can’t access their funds. 

But don’t stop at the basic definition. Read on to learn how it works, where it came from, and what makes it valuable.

What is Bitcoin and how does it work?

At its core, the system for mining, storing, and exchanging Bitcoins works like a regular computer program. But the difference is that while most programs are located on one computer or server, the Bitcoin network is stored on millions of devices worldwide. 

Bitcoin doesn’t require powerful servers to exchange and store data. Instead, the transfer of Bitcoin from one address to another is processed through a series of nodes. And when a transaction receives the required number of confirmations (i.e., validations from the nodes), it gets included in a block, and, therefore, is included in the blockchain. The ownership of transferred coins is then proven by a public key and a private key; the latter should only be known by the holder.

Where do Bitcoins come from?

When you answer the question “what is cryptocurrency and Bitcoin?” it’s impossible to leave out the name Satoshi Nakamoto. This is a pseudonym of a person or a group of people who created the new type of electronic payment system. The idea came from the aftermath of the 2008 Great Recession. The creators wanted to build an independent system with minimal transaction costs and high transaction speeds.

Bitcoins are not issued by governments and banks. Blocks in the Bitcoin blockchain are created digitally with the help of the computing power of participating nodes. The total number of coins in circulation is programmed to have a maximum limit of 21 million. If you’re curious about how the system is designed, all documentation is available online.

What is Bitcoin mining?

The complex system of Bitcoin transactions is maintained by millions of miners. Their devices provide computing power for validating, recording, and storing transactions. Mining can be done using a commercially available, relatively inexpensive CPU/GPU or huge mining farms generating an incredibly high hash rate.

The purpose of commuting devices is to process numerous mathematical operations. In turn, the miner receives a reward in Bitcoins. Unfortunately, as more miners compete to solve these mathematical equations, especially when individual miners go up against industrial mining rigs, it becomes harder to get rewards. 

Why is Bitcoin so expensive?

The price of Bitcoin depends primarily on two factors: supply and demand. If the supply can’t keep pace with the demand, the value goes up. What keeps the price of Bitcoin high is that there is a higher number of people willing to buy it than people willing to sell it. Besides, the total possible supply of 21 million coins is meant to ensure the value holds steady for years. Theoretically, Bitcoin will always be deflationary, meaning its buying power will increase over time.

Bitcoin is and has always been a highly volatile instrument. But this is the price investors pay for the limited supply and the lack of an intermediary to control that supply.

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