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Cryptocurrencies

What is Bitcoin (BTC)?

Bitcoin is a revolutionary asset class where value is represented not as a physical or digital object, but as a record of ownership on the Bitcoin blockchain.

Bitcoin is often referred to as “digital gold” or “cash for the internet” but those descriptions don’t really describe and explain this new digital asset. Bitcoin is an invention that, for the first time in history, enabled a group of software users to create and manage a digital money supply outside the control of any government or bank. 

Bitcoin is not a physical or digital object. Rather, bitcoin is a representation of value in the form of a record of ownership on the Bitcoin blockchain. To begin, it helps to think of Bitcoin as a software protocol like those you interact with everyday – think SMTP (which helps route your emails) and HTTP (which ensures the web content you request from your browser is delivered to you by servers). The Bitcoin protocol enables computers running its software to manage a data set (the blockchain) and enforce a set of rules that make this data (bitcoins) scarce and valuable. Because bitcoins are scarce, divisible and transferable, bitcoins are used as money.

Who Created Bitcoin?

The first block of Bitcoin was mined in January 2009. Bitcoin was based on a whitepaper published by a mysterious Satoshi Nakamoto. This whitepaper was first introduced to the world when an announcement was made by a person or a group of people on Cryptography Mailing at metzdowd.com:”I’ve been working on a new electronic cash system that’s fully peer-to-peer, with no trusted third party. This now-famous whitepaper published on bitcoin.org, entitled “Bitcoin: A Peer-to-Peer Electronic Cash System.” 

How Does Bitcoin Work?

Each bitcoin is essentially just a computer file that is held in special ‘digital wallet’ applications on a smartphone or computer. People make Bitcoin transactions with other digital wallets to send and receive multiple, one whole or part of one Bitcoin. 

Every Bitcoin transaction ever made is recorded permanently in a public ledger called the blockchain. This enables the tracing of transaction history of every bitcoin ever mined allowing the authorities to stop people from spending stolen bitcoins, duplicating them or undo-ing any transaction. 

To get a bitcoin, people usually choose one of these three options: 

  • Purchase Bitcoins using ‘real’ money.
  • Accept Bitcoin as a mode of payment for any service or product that they offer.
  • Mine or create new ones by solving computations using a computer. 

The Bitcoin system is heavily dependent on people processing transactions for everybody on their computers. These people are called miners and the computers used by them are known as nodes. These nodes are used by miners to compute extremely difficult syms for which they are rewarded with a Bitcoin. 

People around the globe have invested in setting up powerful computers in order to try and earn Bitcoins. This process is known as mining. It is not easy to mine Bitcoins as the sums are becoming increasingly difficult to slow down the generation of too many Bitcoins. Earlier miners used to earn several Bitcoins by putting in minimal effort. However, at present, if you start mining today, it’ll be years before you mine your first Bitcoin. In fact, you might end up spending far more on electricity than you’ll ever earn by selling those Bitcoin. 

Benefits of Bitcoin

The value of anything is derived from the willingness of the society to accept the particular thing in exchange for goods and services. Earlier, the Aztecs even used cocoa beans as money. Presently, there are other items other than money that hold a lot of value like gold and diamonds. 

Bitcoins also derive its value from the willingness of people to exchange them for goods, services and even cash. 

The popularity of bitcoin can be a result of its decentralized nature and the fact that it is not controlled by any central government or banks. Bitcoin transactions also offer a certain level of anonymity as although the transactions are recorded, there is no guaranteed way of knowing which ‘account number’ belongs to whom. However, the changing scenarios in the crypto market and the introduction of regulations in the crypto world has made it mandatory for customers to complete KYC before signing up for any digital wallet. 

Bitcoin recently garnered more attention when Elon Musk, the third richest person in the world announced his support for Bitcoin in an online chat with social media users in January 2021. To show the extent of his support, he even changed his Twitter bio to ‘#bitcoin’. In recent years, Elon Musk has time and again exhibited his support to digital currencies which caused major fluctuations in their values as a result of his personal wealth and influence. The above mentioned chat in particular caused a significant rise in the value of Bitcoin. 

Bitcoin (BTC) is also available at LCX Exchange. 

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