What Is Bitcoin?
Bitcoin is a decentralized digital currency that, when mined from the original source code, can be used to make friction-less payments. It uses the double-ledger system and operates independent of any central bank.
Or at least that’s the technical definition of Bitcoin. It might as well be written in Greek. To simplify it, we must understand that Bitcoin is not just one thing; it serves two purposes. The first is centered around the idea of blockchain technology, and the second around the idea of money.
1. What is Bitcoin? (v2)
Bitcoin as a Platform
The first thing to know is that Bitcoin is powered by computers around the world. There is no central authority. People join the network to solve math puzzles that unlock, or rather “mine,” Bitcoins from the original code. Once the Bitcoin has been released, it can be transferred from one place to another in an instant. No transaction costs, no wait times.
This where blockchain comes into the picture. Every Bitcoin transaction is recorded publicly and listed simultaneously on the network’s servers. No one has the power to change the numbers or rig the system in terms of Bitcoin price prediction, because the system is decentralized. What makes Bitcoin so easy to move across borders is that your funds are spread across the network.
The Blockchain explained
Bitcoin as a Currency
Traditional money—be it the pound sterling, the U.S. dollar, or the Chinese renminbi—is governed by a central bank, a central authority. These central banks issue money whenever they feel it is necessary to stimulate the economy, but doing so can have consequences. Namely, hyper-inflation and the loss of purchasing power.
Imagine this: there are 100,000 notes in circulation, each worth $20.00. The central bank is facing an “economic crisis” so it prints another 100,000 notes to boost the money supply. Is your $20.00 note still worth the same amount? Economics says no.
This sleight of hand by central bankers is how prices spiral out of control in the real world. Bitcoin is immune from such manipulations, because no one can change the original supply—there are a fixed number of units being unlocked at a steady pace. Investors should be relieved that this safe haven exists, because fiat money is a ticking time bomb.