• TennHedge

What Is Bitcoin?

It's a straightforward question: what is Bitcoin? As the price of Bitcoin continues to rise, many people who are learning about Bitcoin for the first time are asking that question, and to be fair, I'm sure some of those people are not satisfied with the answers they are receiving, leaving them wanting a more definitive answer to the question.


TennHedge's one sentence definition of Bitcoin:


Bitcoin is a digital money that is not issued by nor is under the jurisdiction of a government.


Bitcoin is a currency that lives on the Bitcoin network, a decentralized and peer-to-peer web of computers which host the Bitcoin Blockchain; the Bitcoin Blockchain is a decentralized public ledger which records the history of all Bitcoin transactions, acting as a bookkeeping system which accounts for every Bitcoin in existence, down to the last Satoshi (a Satoshi is the smallest unit into which Bitcoin can be divided, 0.00000001 BTC).


A decentralized, peer-to-peer network is not controlled by any one entity or central server, rather, the Bitcoin network is made up of thousands upon thousands of computers (people) around the globe running the Bitcoin open-source client software.


Every 10 minutes, another 'block' of Bitcoin transactions is added to the Bitcoin Blockchain by 'miners,' computers which run specialized hardware dedicated to solving complex mathematical puzzles that determine the next block to be added to the Blockchain. Miners are rewarded with Bitcoins (block reward), the amount of which is determined by a set schedule coded into the Bitcoin software, and also transaction fees from the senders of Bitcoins on the network.


Miners' 'proof-of-work,' the proof that a miner correctly solved the puzzle which determines the next Bitcoin block while playing by Bitcoin's rule set, is constantly being double-checked by Bitcoin 'nodes,' which are computers running the Bitcoin software that audit the network at all times, ensuring that all participants are adhering to Bitcoin's rules. If a miner tries to do anything nefarious, like allow someone to try to double-spend Bitcoin, nodes will reject that miner's proof-of work, and the miner's transactions will be ignored by the network. Think of nodes as Bitcoin's 'immune system.'


There will only ever be 21,000,000 Bitcoin to ever exist, as was determined by Bitcoin's creator Satoshi Nakamoto when Bitcoin's software was released. Bitcoins are issued by block rewards, the number of which is halved by the Bitcoin software every 210,000 blocks in a 'halving' event. The initial block reward was 50 Bitcoins, and is going to keep decreasing by 50% every four years until the year 2140, approximately; moreover, the current block reward is 12.5 BTC. After the block rewards are completed, network miners will be compensated via transaction fees alone.


Bitcoins are stored in digital and/or hardware wallets, which can be sourced from a variety of third party vendors or using the Bitcoin core client software directly. Bitcoin transactions consist of Bitcoins moving from one wallet to another, or in other words, from one Bitcoin public address to another public address, with the transfer of ownership consisting of a digital signature that signs over the private keys (ownership) of Bitcoins from one address to another. Bitcoin uses encryption during transactions, so no one knows who is sending or receiving Bitcoin (unless an identity can be definitively linked to a public address).


When a Bitcoin wallet is created, a backup 'seed phrase' is generated, a seed phrase consisting of a 12 or 24 ordered word list that can be used to recover a wallet if a person loses access to their sign-in to a particular wallet service. Seed phrases can be used to recover funds on many wallet services, not just the service which a person was originally using, thus meaning that you can memorize your seed phrase and carry your Bitcoin wallet with you in your brain.


I could write a 10,000 word article and still not cover every facet of Bitcoin, but I hope this helps some.


-TH


You should always consider seeking financial advice from a licensed advisor before making decisions with your money, and you should not consider anything I write as financial advice but merely my opinion. Getting your financial house in order is a prerequisite for Bitcoin saving, in my opinion.


Disclosure: nothing in this article should be considered financial advice and I am not a financial advisor. Do your own research as everything in finance carries risk.