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Bitcoin – An introductory guide to world’s first decentralized currency

Bitcoin - An introductory guide to world’s first decentralized currency

BITCOIN, the world’s “first decentralized digital currency”, was launched in 2009 by a mysterious person known only by the pseudonym Satoshi Nakamoto, whose true identity is still unknown.  

Since then, the crypto-currency captivated us with its soaring highs and plunging lows in 2013, rising from $10 to $1,200 in the course of a year. It surpassed the value of gold at its peak before crashing down to $500. Today it flutters between $1750 and $1850 on different exchanges.

Bitcoin – Simplified

A million dollar question, What’s bitcoin? , so here is simplest possible explanation that will give you an idea about this digital currency.

Bitcoin is a currency just like other currencies dollars, pounds, yen etc, but the difference is that bitcoin is decentralized digital money, created, held and spend electronically around the world.

Now the question is what is decentralized currency, all the currencies in the world are controlled by their respective state’s bank and governments who actually control the minting and supply of money, on the contrary bitcoin is not centralized i.e. it’s not controlled by any government or bank or a single entity.

Bitcoin - An introductory guide to world’s first decentralized currency

Further, in a decentralized system one person or entity doesn’t have that much control on the currency, in case of Bitcoin, everyone can mine Bitcoin. Instead of putting trust in a government to back a currency and maintain its value, Bitcoin’s value comes from the network of people using it.

Every person in the network is connected to every other member, so there’s no central point of failure. If any one person, or a group of people, disappear tomorrow the value of bitcoin will be unaffected by their absence.

Bitcoin - An introductory guide to world’s first decentralized currency

Bitcoin vs Conventional Money

Here’s a simple explanation about how it differs from conventional money when it comes to value and dynamics of currency.

 

Conventional Money
BitCoin
Backed By
Products, services, and the economy of the issuing country
Products, services, and a sound consensus of users

Governed By
Central Banks
Mathematics and distributed computing
Time for International Transfers
Several days
A few minutes

Cost Of International Transfers
Usually 2-3% of a transaction
0 to $0.01
Once you have paid
A chargeback is possible
No chargebacks

 

How are Bitcoins created?

Bitcoins are generated using a process called mining.

Mining is the act of record keeping that verifies transactions in the blockchain. Miners collect newly broadcast transactions into a new group of transactions called the block.

Using powerful computers, miners take the information in the block and apply a mathematical formula to it, turning it into a seemingly random sequence of letters and numbers known as a hash. Every time someone successfully creates a hash, they get a reward in Bitcoin.

Bitcoin - An introductory guide to world’s first decentralized currency

What about Security?

As bitcoin is digital currency so all the rules of digital security applies to Bitcoin as well, while it’s more of technical stuff to explain how this security phenomenon works, i would simply explain it like this, that Bitcoin only keeps track of addresses where the money is. Each address has two important pieces of cryptographic information or keys, a public one and a private one.

A public key is like identification number or email id, if somebody wants to send you Bitcoin he or she will simply send it to your id, just like an email address.

A private key is similar to an email password; only with it can the owner send Bitcoins from it.

How can I acquire Bitcoin?

Bitcoins are acquired electronically, you first need to create your digital wallet on any of the digital platforms available on internet, you can easily find them by googling against ‘bitcoin wallets’, after creating a digital wallet connect your actual bank account with your digital wallet and here you go, pay money from your account to get bitcoins.

Where can I spend my Bitcoins?

Bitcoin is a digital currency used to pay for a variety of goods and services. Although physical forms of Bitcoin exist, the currency’s primary form is data so you trade it online, peer to peer, using wallet software or an online service

You can transact with any other person or merchant who accepts Bitcoin via digital wallets. A simple QR code can be captured using your phone and the money sent/received instantly.

Bitcoin - An introductory guide to world’s first decentralized currency

Final Thoughts:

Understanding Bitcoin is very different from believing in its viability or future. Despite how far the ecosystem has come, a flourishing crypto-currency is still unexplored territory.
 
Also bitcoins have a huge inflation rate (as of this writing 1 bitcoin = about 1829 USD = 191,724 PKR), will this hurt the Bitcoin? only time will tell but one thing is for sure that the bitcoin has already created a culture of people dedicated to this idea. With that i’m sure we will see some interesting things coming out of the world of Bitcoin.

For me it’s a whole new game of currency speculation. More on speculation will follow soon.