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WHAT IS BITCOIN?

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WHAT IS BITCOIN?

In order to explain clearly what Bitcoin means, we have to distinguish between two things that are both known by this term. First, there is the digital currency Bitcoin (BTC), which allows users to transact without the intervention of a central authority (such as a bank, for example).

Second, there is the Bitcoin network that enables and tracks these transactions, through so-called blockchain technology. Bitcoin is the first and most widely used cryptocurrency, and has been the basis for the development of thousands of blockchains and digital currencies in recent years.

In this article you will read what all these concepts mean and learn about the history and future of the Bitcoin project. The video below gives a brief introduction to Bitcoin and how it differs from current payment methods.

What is Bitcoin?

Bitcoin (BTC) is a digital currency based on a peer-to-peer network. That is, users can complete transactions without the intervention of a central authority. Bitcoin is the first and best-known cryptocurrency – a currency whose issuance and transactions are regulated by encryption technology, rather than by a central authority.

One can transfer BTC to another user, or pay with it in stores and on digital platforms. In addition, they are also used as a means of storing value, similar to a savings account. Bitcoins have no physical equivalent – ​​that is, users can only own, store and spend Bitcoins digitally. BTC can be stored in so-called wallets, which require a passkey to gain access. To pay with BTC, or to send them to someone else, the user needs this key.

Transactions with BTC are partially anonymous: while all transactions are visible on the public ledger, the user’s personal identity is not tied to the unique passkey. For that reason, Bitcoin is also popular among people who have an interest in keeping their transactions invisible to authorities. But if no one is in charge of Bitcoin, who decides which transactions are approved and which are not? And how is it decided when new Bitcoins are created? And who actually made it?


Who is the inventor of Bitcoin?

The inventor of Bitcoin is unknown to this day. The document describing the network and digital currency came online in October 2008 and is published under the name Satoshi Nakamoto . However, this is not an actual person, but an alias for a developer or group of developers who are still anonymous.

Although the Bitcoin inventor has never come forward with conclusive evidence, there are several people who are seen as possible Satoshi. One of them is Craig Wright , an Australian computer programmer who claims to be the person behind the invention.

However, he has not been able to substantiate his claims so far and so many people are questioning his sincerity. Other computer experts (including Nick Szabo and Dorian Nakamoto) have also been identified as Satoshi, but they all deny their involvement in the Bitcoin project. More than ten years after the first transaction on the network, it is therefore still a mystery who invented Bitcoin (and therefore cryptocurrencies).


Wat is Bitcoin mining en Proof-of-Work?

Because the network works on a decentralized basis, there is no central server that powers the Bitcoin network. The creator of Bitcoin came up with a solution for this through which the network provides itself with energy. This is done through a process called ‘mining’ – described by Satoshi as a ‘Proof-of-Work’ (PoW) protocol.

Mining is the provision of computer power for solving complex mathematical equations. In fact, it is a race between many computers all trying to solve the same equation. Those comparisons are data from transactions to be verified, which are encrypted by the network’s algorithm. In the process, the transactions made are verified and added to the public ledger (literally: ledger). In order to verify the transactions, miners try to decrypt that data.

The computer that succeeds first creates a new block and receives Bitcoins as a reward. In this way, miners are encouraged to continue investing their computing power, and transactions can proceed without needing a central energy source. How successful a computer is in the mining process depends on two things. First, it depends on the difficulty of the equation. The more computers participate in the mining ‘race’, the more difficult the calculation becomes. This is because the network balances itself so that a new block is created by the miners on average every 10 minutes (which keeps the transaction time stable). Second, a computer is dependent on its maximum computing capacity.

In the early years of the Bitcoin network, standard computers could be used to mine new blocks. However, as the price per Bitcoin started to rise and interest increased, the comparisons became longer and more difficult. Nowadays, it is mainly professional miners who provide the Bitcoin network with energy. They operate with special mining computers and usually own large facilities full of such equipment: the so-called mining farms. The total computing power dedicated to the Bitcoin blockchain is known as the hash rate.

Why use Bitcoin?

We have already briefly discussed the advantages of Bitcoin over traditional money: it is relatively anonymous, transactions cannot be influenced by a central authority, and the transaction costs are low. In addition, transactions cannot be reversed and blocks created cannot be modified.

However, there are also drawbacks to the Bitcoin network. At times when many transactions take place at the same time, the price per transaction goes up. In addition, the energy consumption of the network is also one of the disadvantages of the PoW protocol.

Although the Bitcoin inventor described it in his white paper as a revolutionary means of payment, BTC is currently mainly used for price speculation. While the price of a BTC was well below $500 five years ago, you are now paying more than $50,000 each. This is one of the attractive features of Bitcoin for many traders and speculators.


How do I get Bitcoins?

There are two ways to own Bitcoins yourself. We’ve already talked about mining: making your computing power available for verifying Bitcoin transactions. As a reward, miners receive a certain amount of BTC. However, nowadays it is no longer possible to use an ordinary computer for this: to mine you will have to invest in professional equipment to measure yourself with the gigantic mining companies that dominate the market.

There is also a much easier way to get Bitcoins: buy. There are now countless marketplaces and websites where you can buy Bitcoin with different payment methods. Most providers also have a wallet service where you can store your Bitcoin and keep an eye on your balance.

On exchanges such as Bitvavo you can create an account within minutes and easily add credit with iDEAL or credit card.

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