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Bitcoin? What is it?

Updated: Nov 30, 2021

Let’s break it down into simple terms so anyone can understand it.


By AmezTrader on November 20, 2021
 


We all know that one person who won't shut up talking about a specific cryptocurrency. Perhaps they have tried to explain it, but it doesn’t seem easy to understand.


“Risk comes from not knowing what you are doing.” - Warren Buffet

We can reduce our risk by not knowing and learning precisely what Bitcoin is. At the basic level, Bitcoin is simply a currency used to buy services or a product. Just like any other fiat currency, its purpose is to solve problems while also creating new ones.


The beginning of Bitcoin


Bitcoin was first introduced in 2009 by Satoshi Nakamoto, who remains a mystery to this day. Nothing is currently known about this person or perhaps if it’s a group of people. Satoshi is also the first to develop a blockchain. Don’t worry; I’ll explain what a blockchain is in a different post, but essentially a blockchain is a network used with bitcoin to transfer information. Satoshi started by releasing what’s called the white paper. The white paper is the technical information about the specific cryptocurrency, in this case, bitcoin. The white paper explains the foundation of how it’s supposed to work and its purpose in the future.


Quick History lesson on the Gold Standard


Several hundred years ago, we used to use gold as a currency. When needing to buy anything required a heavy amount of gold, it was impracticable to keep carrying it around. So, the US Govt developed what was called the “Gold Standard.” Its goal was to issue paper backed by the gold the article stated to help make it easier to buy products without needing a massive box carrying gold. It was also thought it would help fight against inflation. Unfortunately, that didn’t last long as the gold standard was later removed in 1933.


Where does Bitcoin come in this?

Bitcoin has grown more than any other investment in the last decade. It is outperforming an asset in history while raising some questions on regulations from the government. Bitcoin is attempting to change the way we use any currency by removing the middleman. In this situation, it’s the banks. A more decentralized society where anyone can buy anything without needing a specific card carrier such as Mastercard or Visa. Without worrying about what the bank sees with our transactions and where are we shopping.


Nothing is good without its own problems


A huge hurdle that bitcoin must overcome is first its volatility. Imagine buying a drink for 3 dollars with bitcoin only to realize that you could have purchased the entire store had you waited for one more minute. While that is a bit of an exaggeration, it is most definitely in the realm of possibilities. The second biggest issue it currently has is its transaction time and fees. When there is a lot traffic on the blockchain, it can cause congestion like a freeway. And just like a freeway, those on the toll road get easier passage. Those who are willing to pay higher fees will get their transaction processed faster.


What about cryptocurrency?


Cryptocurrency is a digital currency. It’s described as the crypto to reference cryptography. This is all processed on the blockchain also known as the public ledger. In short, imagine a word document that is updated in real-time. Every time someone buys or sells bitcoin, the receipt of that transaction is put on that word document. While no one knows who is buying or selling, the transaction itself has been listed for public view.


Where does Bitcoin come from?


Bitcoin comes from the blockchain that is mined from Miners. Miners use extreme computer power to solve mathematical equations simply by guessing the correct numbers. Upon solving the equation, they get awarded fractions of fractions of bitcoin. If you can imagine a massive rubric cube the size of a skyscraper. A miner takes out a standard-size rubric cube to solve until the entire building is complete. Except for every four years, the tower reshapes itself into a smaller building while making the cubes even more difficult.

 

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