What is Bitcoin and why is it Important?

Bitcoin importance

Bitcoin is a digital asset and a payment system invented by Satoshi Nakamoto. Transactions are verified by network nodes through cryptography and recorded in a public dispersed ledger called a blockchain. Bitcoin is unique in that there are a finite number of them: 21 million.  For further information explore the bitcoin loophole.

Bitcoins are created as a reward for a process known as mining. They can be exchanged for other currencies, products, and services. As of February 2015, over 100,000 merchants and vendors accepted bitcoin as payment.[4] Research produced by the University of Cambridge estimates that in 2017, there were 2.9 to 5.8 million unique users using a cryptocurrency wallet, most of them using bitcoin.

What is Blockchain?

A blockchain is a digital ledger of all cryptocurrency transactions. It is constantly growing as “completed” blocks are added to it with a new set of recordings. Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data. Bitcoin nodes use the blockchain to differentiate legitimate Bitcoin transactions from attempts to re-spend coins that have already been spent elsewhere.

What is Mining?

Mining is how new Bitcoin is created. Miners are rewarded with Bitcoin for verifying and committing transactions to the blockchain. Ethereum miners are rewarded based on their share of work done, rather than their share of the total number of blocks mined.

Importance of Bitcoin

Bitcoin is often referred to as ‘digital gold, and for a good reason. Just like gold, Bitcoin is scarce, durable, and divisible. But unlike gold, Bitcoin is also decentralized, borderless, and accessible to everyone.

Bitcoin’s scarcity is artificial and predetermined by its protocol. There can only ever be 21 million Bitcoins in existence. This makes it a deflationary asset, which means that its purchasing power increases over time.

Durability is another key characteristic of Bitcoin. Unlike fiat currencies or even precious metals, Bitcoin cannot be destroyed. Once a Bitcoin is created, it will exist forever on the network. This makes it an ideal store of value.

Divisibility is also important for an asset to function as a currency. After all, if an asset is not divisible, it cannot be used for small transactions. Bitcoin is divisible down to 8 decimal places, or 0.00000001 BTC. This means that it can be used for transactions of any size.

Finally, Bitcoin is also accessible to everyone. Unlike gold, which is physically difficult to obtain and store, Bitcoin can be bought and stored easily on the internet. Anyone with an internet connection can own Bitcoin.

These characteristics make Bitcoin a unique asset with a lot of potential. While it is still early days for the asset, its popularity is growing rapidly and it has the potential to become a major force in the global economy.

Benefits of Bitcoin Blockchain

Bitcoin’s blockchain is a decentralized ledger that keeps track of all Bitcoin transactions. This means that no central authority, such as a government or bank, can control or manipulate the Bitcoin network. The decentralization of the Bitcoin network provides several advantages, including:

-Increased security: With no central point of control, the Bitcoin network is much more difficult to hack or attack than a traditional centralized system.

– Greater transparency: All Bitcoin transactions are publicly visible on the blockchain, which makes it impossible for anyone to commit fraud or hide illegal activity.

– Increased efficiency: Because there is no need for a central authority to approve or manage transactions, the Bitcoin network can operate much more quickly and efficiently than traditional financial systems.

Drawbacks of Bitcoin Blockchain

Bitcoin’s blockchain is often lauded as a breakthrough in computer science and cryptography, but it also has its fair share of drawbacks.

For one, the blockchain is incredibly resource-intensive. The Bitcoin network currently uses more electricity than the country of Ireland, and if it keeps growing at its current rate, it will use more electricity than the entire world by 2020. This is not sustainable in the long run.

Furthermore, the blockchain is very slow. It can take up to an hour for a transaction to be fully confirmed, and even then there is always a risk that it could be reversed (double-spending).

Lastly, Bitcoin’s blockchain is not private. While transactions are pseudonymous, meaning that they are not tied to real-world identities, it is possible to trace them back to their origin. This could have serious implications for users who value their privacy.

All in all, while the blockchain is a revolutionary technology, it is not without its flaws. These need to be addressed if Bitcoin is to become a mainstream payment system.