Here to begin our introduction to some of the fundamentals of cryptocurrency on the WolfpackBLOG, we have the godfather of cryptocurrencies, the big cheese – BITCOIN!
There are basically two main components you need to understand about what Bitcoin actually is. Bitcoin is a digital token, but it is also the technology or network that it resides on. Bitcoin is a distributed network protocol that maintains a ledger of balances and transactions of the bitcoin token.
It is essentially a peer-to-peer system that allows payments to be sent between users without the need for a central authority such as a bank or payment gateway. Everything is held electronically. Bitcoin is not printed like dollars and euros.
So where did Bitcoin come from?
A software developer known only these days as Satoshi Nakamoto created bitcoin in 2008 to be an electronic payment system that would exist outside of standard central banking authorities. It would also be a store of value, that would deflate instead of inflate over time, due to the fact that there will always be a limited supply. Once it was created, there was no means to alter the code or change the rate that it was created.
Bitcoin has limited supply
In fact, this is the main concept that people talk about in terms of Bitcoin that makes it so different from other currencies. Dollars and Euros have an unlimited supply due to the fact that central banks can issue as many as they want. Of course, there are negative implications for this, such as inflation and other fiscal outcomes, and it also means there is a potential for manipulation.
With Bitcoin however, the supply is tightly controlled by the algorithm that powers it. A small number of bitcoins are created every hour to incentivise the network of computers maintaining the ledger. These are essentially volunteers who are rewarded for helping to keep the system decentralised and secure. These rewards will slowly decrease over time until only 21 million Bitcoin have ever been produced.
This also makes bitcoin more attractive as an asset – in theory, if demand grows and the supply remains the same, the value will increase.
Bitcoin is secure
Furthermore, Bitcoin transactions cannot be reversed. This is due to the decentralised nature of the network, and that at all times, millions of computers all around the world are recording those transactions. Although this may provide some small inconveniences at times, it also means transactions cannot be tampered with.
So there you go. Bitcoin in a nutshell. It’s digital. Its anonymous. It’s decentralised. And its secure.
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