Lesson 2 – What Is Bitcoin?
How Bitcoin Works? (Please Watch)
What is Bitcoin?
Bitcoin is the worlds FIRST most famous decentralized digital/cryptocurrency It was created by a person or persons who go by the alias of Satoshi Nakamoto in 2009. We do not know if Satoshi is a man, a woman, or a group of people.
On January 3, 2009, the world changed.
Decentralization is “The transfer of power and control away from a central authority – such as a bank, which is a central authority – to individual entities. In the case of Bitcoin (and all cryptocurrencies), that power and control are shared EQUALLY between a vast worldwide mesh computer network known as the Blockchain. (An entire lesson is devoted to the Blockchain).
Bitcoin is the King of all Cryptocurrencies. Bitcoin is software. Bitcoin is an application. Like all cryptocurrencies, it is a piece of data. That data says that “YOU” have x-number of units in this currency.
Bitcoin transactions are encoded as such that no one can forge or steal it. Ownership of your Bitcoin is distributed to an elaborate computer network all over the world called a Blockchain (I’ll devote an entire lesson to the Blockchain)
Every user (and participant) in Bitcoin are equal. There is no special computer on the Bitcoin network, they call just to talk to one another. Bitcoin transactions are conducted on this Bitcoin network.
It is important to understand that you will hear the expression used in two different contexts. In one context, bitcoin (lowercase “b” is the actual digital cryptocurrency and in another context, Bitcoin (upper case “B”), is the computer network it runs on and the payment system. Known also as the “Bitcoin network.” (Blockchain) There are over 700,000 of these computers on the Bitcoin network worldwide and growing. You will see the two expressions used interchangeably in discussions and in print.
- bitcoin (with a lowercase “b” is the digital currency
- Bitcoin (with an uppercase “B” is the Bitcoin payment system
Bitcoin is really much more than a new digital currency. It is also …
- A new technology
- A transfer of value between the participants (many people call it digital gold)
Why Is Bitcoin So Special?
- Bitcoin is digital money. Does not exist in physical form.
- It has value because the people who use it decide it has value, not banks.
- It’s decentralized (No banks)
- It’s Independent of institutions
- Bitcoin transactions are direct from person “A” to person “B”
- It’s a system of trust as the result of collaboration, communication, and computation through cryptography
- No one controls the Bitcoin network
- No individual computer controls the Bitcoin network
- Knows no geographical borders
- Transactions are not maintained and recorded by any bank
- It is not a currency that is issued by a government or a sovereign, a nation, or a King
- Bitcoin is issued through complex, energy-intensive computations on the Internet
- Bitcoin transactions are recorded simultaneously on each computer on its network (The Blockchain)
- Each computer on the Bitcoin network validates independently Bitcoin transaction
- Bitcoin cannot be forged
- Bitcoin cannot be counterfeited
- Bitcoin cannot be censored
- Bitcoin cannot be seized or frozen
- Bitcoin cannot be inflated
- Bitcoin can be transmitted anywhere in the world
- It’s easy to use and set up
- Can be used to buy goods and services
- Can be converted to FIAT (USD, Euro, British Pound, etc)
- It’s anonymous
- Anyone in the world with Internet access or a mobile device can exchange Bitcoin. No banks.
- It’s completely transparent (All transactions are on a public ledger called the Blockchain)
- No secret transaction fees
- It’s fast It’s non-repudiable
- It is not a physical coin. It is a piece of data.
- Cannot be inflated because it is “mathematically” limited to 21,000,000 units.
Why Was Bitcoin Created?
- To solve the problems inherent in physical currencies. These are …
- Physical currency is controlled by banks. Banks are “Centralized” entities.
- Physical currency is stored in vaults.
- Physical currency, silver, and gold are difficult to transport.
- Paper money was created to claim gold held in a bank vault.
- Banks control our money
- History of irresponsibility and corruption in the banking system
- Powerful men and women decide how the money will be used and handled.
- If banks get into trouble, the government bails them out. Out tax dollars pay for the banking systems greed, handling, and irresponsibility with our money.
- In 1971, President Nixon decided that the USD would no longer be exchangeable for a fixed amount of gold. This created a problem because there was no limit to a number of paper money banks could create. (Banks being empowered)
- All money became a “credit.” No longer supported by an asset (such as gold)
- When you apply for a loan, more money was created and lent to you. The banks charge you interest on those loans.
- Bank account holders became slaves of the Central Banking System.
- The “credit system” kept many enslaved and locked out of the pursuit of financial independence.
- The banks have the world held hostage. No privacy.
How Are Bitcoin Transactions Conducted?
- Via an elaborate computer network known as the Blockchain.
- All computers in the Blockchain will hold a copy of your transaction.
- All computers in the Blockchain will have an identical copy of your transaction
- Computers on the Blockchain MUST agree that you own that currency.
- Once you are “confirmed” by the Blockchain, your transaction is sent.
- No risk of individual computer failure bringing down the Blockchain.
- Transactions are secure
- Double spending is eliminated
- No humans are involved
- No banks are involved
- You are anonymous
The Next Lesson (Lesson 3): What Are Altcoins? (Check your email tomorrow)