What is Bitcoin?
Bitcoin is a virtual currency and payment system that exists only on the internet. There is not a central government or authority that can create or control Bitcoins or any Bitcoin transactions. It is a currency and payment system that is completely open source and the software can be reviewed by anyone. All transactions are recorded by the software and viewable by anyone who downloads the blockchain.
All of this might be a little confusing at first, so let’s take a closer look at some of the details of Bitcoin and see if we can make a little more sense of this.
Bitcoin Only Exists on the Internet?
Correct! Bitcoins cannot be taken off the internet and held in your hand for spending. Bitcoin revolves around the Bitcoin software that connects with other computers running the Bitcoin software. When a computer starts running the Bitcoin software for the first time it downloads a file called the Bitcoin Blockchain.
The Bitcoin Blockchain is essentially a ledger that records every Bitcoin balance as well as every transaction. When the Blockchain has been downloaded completely, the software creates a wallet.
What is a Bitcoin Wallet?
The Bitcoin wallet has two parts, and address and a private key. The address is a long string of letters and numbers used to give each Bitcoin user a unique identification. While using Bitcoin, you do not have to reveal any personal information to get an address.
The address and private key are stored together on your computer and they allow you to spend and receive Bitcoins with other people that are using Bitcoin. Because the wallet has a private key, only the person that has that wallet file can spend Bitcoins from that account.
What is the Bitcoin Blockchain?
The Bitcoin Blockchain is what makes Bitcoin so unique. Every Bitcoin Wallet in existence is tracked on the Bitcoin Blockchain as well as every transaction ever made. That means you cannot make a purchase or transaction without having enough Bitcoin in your account to fulfill the transaction because everyone else on the network can see the balance of every other wallet in existence.
The Bitcoin Blockchain makes Bitcoin the most transparent currency in existence.
What is Bitcoin Mining?
You may be wondering how Bitcoins are issued without a central company or government to issue them. Bitcoins are created by a process called mining. Bitcoin mining could best be explained like a raffle that has one winner and the amount of tickets are determined by how many people enter the raffle.
In the case of Bitcoin, people use computer hardware that is specifically designed to mathematical operations, hoping that one of solutions is the correct answer. Some of the new hardware being released as of June, 2014 are capable of trillions of operations per second. The Bitcoin software automatically rewards a miner every 10 minutes and the winner is awarded 25 Bitcoins.
Mining is not only about minting new Bitcoins. Mining also increases the difficulty to disrupt the network. This creates an extremely secure network and is essentially hacker-proof. This is the process that allows Bitcoin to work without centralization or government involvement.
In summary, Bitcoin is made of software that runs on thousands of computers worldwide. It uses computer encryption to protect the user’s currency and keep all transactions honest. All transactions and balances are recorded in a virtual ledger called the Bitcoin Blockchain that everyone has access to. The entire process in decentralized so no person or entity can issue new Bitcoins or take other people’s Bitcoins away.