Bitcoin Mastery - What is Bitcoin

Bitcoin is a digital currency (or cryptocurrency) that was first proposed in 2008 and created in 2009 by Satoshi Nakamoto. Satoshi’s identity is still unknown, many theories exist trying to figure out who he really is. Bitcoin was not the first attempt at making digital money , but it was the first to use a “Blockchain” to keep tally of who-owns-what with Proof of Work to verify transactions.

Bitcoins are created by computers and exist on the blockchain. In the early days, a single bitcoin was worth less than one tenth of a US cent, and they could be easily “mined” by a laptop or home computer. Bitcoin quickly became popular with people who disagreed with the power governments had to devalue their savings by recklessly printing money and the irresponsible behaviour of the financial sector. It gained media attention early on for its use on the “Deepweb” and the online drug marketplace Silk Road but has since been adopted by businessmen, entrepreneurs and charities around the world for its unique features. Bitcoin is changing the way we look at money, in ways similar to how the Internet changed communication 20 years ago.

Download the Satoshi Nakamoto Whitepaper on Bitcoin 

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One of our experts Tony  De Gouveia: "Bitcoin is many things. It is decentralised, digital, frictionless, volatile, pseudonymous (not anonymous, the difference is important), highly divisible, irrevocable once sent, and very confusing if not explained well." Lets clarify these buzzwords:

 

Decentralised - This is a key property of the Bitcoin network. Decentralisation means no single entity has control over Bitcoin. It also increases the network’s security by eliminating points of vulnerability. The network is a peer-to-peer (p2p) network, much like BitTorrent.

Centralised Decentralised - Digital - Imagine Bitcoin as an email application that allows you to send money. Payments can be sent and received on any computing device with an internet connection, instantly, anywhere. Just like you can access your email account on any computer in the world with an internet connection, the Bitcoin network allows you to access your money wherever you are if you wish to.

Cash - Highly Divisible - People often ask “if one bitcoin is worth so much money, how can I possibly pay for small things?” The answer lies in the fact that a bitcoin is highly divisible. Like a dollar can be divided into 100 cents, a single bitcoin can be divided into 100,000,000 satoshis - that's a hundred millionth of a bitcoin! This allows payments to be extremely precise, and means bitcoin can function flawlessly with prices much higher than today. (In fact, an individual bitcoin would need to be worth $1 million dollars for a satoshi to equal one cent).

Frictionless - As said before, a bitcoin can be sent to anyone, anywhere, at any time, for free. Transaction fees are drastically lowered for both consumers and merchants using bitcoin. This feature, combined with bitcoin’s divisibility, allows you to pay one tenth of a cent or a million dollars without transaction fees.

Volatile - Bitcoin’s price volatility has been a major cause for concern amongst people new to the currency. Whilst this is an issue, bitcoin’s volatility is a product of it being a new, young, and illiquid market. This dangerous volatility will pass as bitcoin becomes more established. In addition to this, there are easy ways for merchants accepting bitcoin to overcome these volatility problems.

Pseudonymous - Pseudonymous - Media sources report bitcoin as being an “anonymous”currency like cash, this is incorrect. Bitcoin is not anonymous. Since every transaction that ever takes place in the Bitcoin network is recorded in the blockchain, the identity of any person involved in a transaction is only protected by their ability to deny their association with that bitcoin address. Once your identity is linked to a bitcoin address, everything you do through that address can be tracked.

Users can protect their privacy by generating a new address every time they make a payment, but this has not proven to be a foolproof answer to maintaining financial privacy. This is because once one address is known, a little bit of snooping around can reveal all other addresses associated with it (and you).This association between addresses is called “taint” and by analysing it, stolen bitcoins can be tracked.

Irrevocable once sent - Like cash, once you pay someone, there is no way to get that money back without the recipient’s approval. For merchants accepting bitcoin payments, this is useful, since credit card payments can be revoked up to a week after payment.

What can I buy with Bitcoin?

The answer? Many things. Already, your bitcoins can buy a huge selection of goods and services.

Buy almost anything online: There are many online retailers that accept bitcoin for everything from patio furniture to flowers.

Food & drink: Bitcoins can also be used in bars, restaurants and cafes that accept them. Its easy to buy coffee with bitcoin.

Real Estate: Property has been put up for sale across the world in bitcoin. (BitPremier).

Send money cheaply: Remittances can be sent to anyone anywhere for much lower transaction fees than current money transmitters such as Western Union.

Crowdfunding: Since it is so easy to use bitcoin online, it can easily be used for crowd funding. People can choose to donate anonymously, donate micro amounts, or set a condition on their donation, allowing the money to remain in their wallet until a certain threshold has been reached to the cause.

Provably fair gambling: Online gambling and betting is also made much easier using bitcoin. No credit card details are needed, and users can check that the site that they are on is using provably fair odds. 

What affects the price of a Bitcoin?

Much like any fiat currency, Bitcoin’s price is expressed as an exchange rate: at the moment one Bitcoin will cost roughly R100,200,00. Since 2013, when the digital currency first gained public notice, its price has risen and fallen a number of times. And much like a normal currency, the price of a Bitcoin is also affected by ‘external’ factors. Following an astronomical 10 000% increase in the price of a Bitcoin, the collapse of Mt Gox, one of the biggest online Bitcoin exchanges, sent the cryptocurrency crashing.The currency has since recovered and has yet again enjoyed a growth spurt as regulators warm to digital currencies. Another key factor that determines the price of a single Bitcoin is the previously mentioned upper limit of around 21 million Bitcoins. Embedded in the Bitcoin code is a timed release of new Bitcoins which ensures that the upper limit will only be reached over a period of 100 years.