What is Bitcoin? What is cryptocurrency? [Comprehensive Guide]

Home - Blockchain Academy - What is Bitcoin? What is cryptocurrency? [Comprehensive Guide]
what is bitcoin what is cryptocurrency coincasso

Do you want more about one of the most popular virtual currency? Bitcoin has many secrets! In this article, you’re going to learn all the basics that you need to know about this digital currency. If you’ve never heard of Bitcoin before this is going to be your number one resource to learn everything you need to know to get started.

What is Bitcoin?

Bitcoin, by definition, is a cryptocurrency or a regular currency. BTC is the Original cryptocurrency, basically, it’s a decentralized cryptocurrency without the control of a centralized bank or administrator. It can be sent and received from user to user, on the peer-to-peer network without any intermediaries.

centralized decentralized distributed network what is bitcoin

Source: Blockchain Engineer

So, what is Bitcoin? I want to break down cryptocurrency into the word itself, crypto stands for cryptography. Cryptography is a method of protecting information and communication through the use of codes. So that only those for whom the information is intended can read and process it.

When you buy, sell, give or trade your cryptocurrency to somebody else. You have a public key and a private key. The way these works is that your private key is only for you to know, don’t tell anybody about your private key. It’s your private key. Keep it in a safe place. Nobody should have access to this except for you, or somebody that you trust, a lot.

Now the public key, that is used for the nodes in the entire Bitcoin Network to verify and make sure the transactions are legitimate. So the private key is used by you to initiate a Bitcoin transaction and the public key is used by the servers to verify and validate the transactions. And just to clarify, your public and private key don’t have your name associated with it. It doesn’t have your social security number. It doesn’t have your passport number. It is 100% digital. It’s a number assigned to you.

So a number sends an amount of money to another number, and then these computers take all these numbers and process them into transactions. So technically you don’t even need to be human to make a transaction. You can have an artificially intelligent computer making transactions. Can this whole description give us the answer to the question “What is Bitcoin?” It is worth to take a closer look at Bitcoin’s functionality and history to understand how innovative it is.

History of currency

Currency has always been an abstract form of value. So if you think about cavemen, they used to trade a spear for a banana. It was a value associated with both of these things. One person had picked a banana. The other person had made a spear and they decided both of these things were of value. So they traded it with each other and that’s how a lot of the open market happened way back when. Before there was actual coin currency. People would trade goods and services for goods and services.

You could trade a sheep and get 500 pounds of grain. Then as our civilization developed. We started to use precious metals because of the amount of effort that it took to mine those precious metals like; titanium, gold, silver, and copper, those things were associated with value. Then over time, those precious metals were minted into coins that were smelted, then they were stamped and they made them shiny. So then the whole world associated these shiny coins with a way to transact to get the things that were actually of value, like a banana. Then civilization moved to paper money. And so the gold and silver coins were associated with banknotes and now you could use banknotes like a 5, 10, 20 and 50 to exchange for your groceries at your grocery store. Like a banana. Then came the advent of the debit card. So your cash was deposited into your bank, your bank gave you a little plastic card and said, don’t worry, you can use this anywhere you want to go buy a banana.

evolution of money what is bitcoin

Source: Publish0x

So as time has gone by we have less and less paper money in circulation and more and more plastic cards showing the digital proof of the money that we put into the bank. Now the main problem with actual fiat currencies controlled by governments and by banks, is that you can have situations like they had in Venezuela where they had massive massive hyperinflation due to government corruption. And so the hundred Venezuelan money (bolivar) got hyper-inflated to the point where it wasn’t worth anything.

Currently, the way that you use the money right now, whether it’s Dollars Pounds, Euros, or Yen. It’s controlled by a central bank and that Central Bank is controlled by your Government. So every transaction that you make to another person, or a company to you, or a company to a company, every single one of those transactions is tracked and verified and recorded by the bank or government. This way Governments and Banks can track how the money is moved, and who has how much money, and that’s how taxes are established because they know that you have this amount of money, and you have to pay this amount of taxes at the end of the year.

How does virtual currency work?

What is a cryptocurrency and why it is so innovative? The cool thing about crypto is that it’s a digital currency on a decentralized network, so we can send and receive from user to user without any intermediaries. As long as you have an internet connection. You can make a transaction to anyone on the planet.

So when you sign up to be on the Bitcoin Network you get what is called a private key and a public key. The private key is for yours to keep safe and secure so nobody knows about it. So the private key is for you to initiate a transaction to another user, whereas the public key goes out to the network to verify and validate all the transactions made.

When you log in for the first time. That’s when you are issued your private key. You also get a list of words. This is like a password reset for you. So you’re going to write these words down on a piece of paper. You’re not going to write it in a notepad on your phone. You’re not going to put it on your computer. You’re not going to email it to yourself. This has to be a hard copy because if somebody gets access to this, they can reset your passwords and they’ll have access to everything. So write these words down, keep it in a safe and private place and make sure nobody knows where it is. Preferably like a photo album or something.

When you sign up you’re given a digital signature. Your digital signature says that you own this account and when you transfer funds or buy funds, that digital signature is sent out that says “hey, I own one Bitcoin and I am transferring it to this person,” but it’s not a person it’s their digital signature. So all the computer sees is this long number, this Cipher, going out to another Cipher, and then that all gets tied into the blockchain. Essence the blockchain is a ledger, like when you write down in your journal things that you need to do, or things that you’ve done in your day. All that is, is a ledger of transactions that are made and verified by the network.

In that regard, cryptocurrencies like Bitcoin are much safer because they’re not mandated and monitored by Banks. They’re not mandated by a central government. It is all a supply and demand chain that is global. So it doesn’t matter the economic status of your country. Your currency is always the value of what the population Associates with it.

printing money what is bitcoin meme

So depending on how old you are. You should remember a company called Napster. Napster started out as a company that can share digital forms of media, whether it was music or a movie file.

Napster got very popular. But Napster was associated with pirating music, pirating movies. You can download these movies on the internet and have an illegal copy of it. They got shut down by the government because of copyright infringement laws. Then the next evolution of that was the BitTorrent Network, and that’s the way a majority of people find their digital media on the internet. The way that this hasn’t been taken down by the government yet is that it’s NOT centralized.

It’s not a central location that’s in control of all of these files. All the files are spread amongst all the users on the BitTorrent Network. So if you have an application like Vuze and you have the video or song or what have you, that file gets shared with the entire network. So, anybody that wants to access any of those files, they get access to the entire network, and they pull a little percentage from here, a little percentage from here, a little percentage from here until they get the full song or full video, and that way NOBODY is associated with the content. It is all just a free network of randomized numbers tied to IP addresses. And so not one person is responsible for it. It’s all the network working together.

Bitcoin works in the same way, except instead of music or videos. They use a virtual currency. This is the main key on how to keep it safe and how to keep it decentralized because there’s not one person in control, everybody that is on the Bitcoin Network works together. You can make transactions to anyone in the world as long as they have an internet connection.

The story of Bitcoin

In 2008 on an anonymous mailing list called cypherpunk. A group of users, or an individual user, or a guy, or a girl, named Satoshi Nakamoto. They or he announced the publication of a paper, and he states. “I think I have solved a problem in computer science” and said “I have found a way to create a system of electronic cash. It is direct from person to person on a peer to peer network.” On that day he had released a white paper describing the software that he had developed to create this peer-to-peer Network and create the digital solution for Global Currency.

It is worth describing how to send bitcoins and how to receive them. Once you download the Bitcoin application on your computer or on your mobile device and you sign up, and you purchase a Bitcoin, the entire system recognizes that you own that chunk of Bitcoin, either a Satoshi, which is a fraction of a Bitcoin, or an entire Bitcoin. So when you initiate a transaction the system recognizes that you the user are in possession of said Bitcoin, and are transferring said possession of said bitcoin to another person, it recognizes these transactions from your digital signature as well as the receivers digital signature. So everything is verified through your private key.

bitcoin transaction life cycle what is bitcoin

Source: Bitcoin Wiki

Now pretty much everybody working on the Bitcoin Network acts as a node. So if you think about an entire spread of everybody attached to the peer-to-peer network, so, this computer, talking with this computer, talking with that computer, talking with this computer, and all transactions are networked in between everyone. transactions that happen in a 10-minute time frame. All those transactions get grouped together and sent out to the nodes as an equation to basically verify and validate that all these transactions were legitimate. These equations are very difficult for computers to figure out. That’s why it takes 10 minutes to solve this equation.

When you hear the term miners, these are groups of GPU’s and CPU’s working incongruence to solve this massive math equation. Once a node thinks they have solved the equation. They send that signal out to all other nodes, their computers verify, and they say, yes! that is the correct answer to this equation. Then that single block, that single 10-minute block of transactions, gets locked in and added to the blockchain.

So every block is a 10-minute increment of all transactions made and the cool thing about blockchain is, once a transaction, or once a block, or group of transactions is locked in, it cannot be changed without changing the subsequent blocks because each block has a reference code to the previous block. So it ties in all together. So it would be impossible to alter the history of the blocks without altering every single block thereafter. That’s why the security in the blockchain is so incredible, again, I’m going to get into the details of the blockchain in a later article. This is just a brief description so that you can understand how Bitcoin works on the own Network.

So Bitcoin is not only a cryptocurrency, but it’s also a program, a peer-to-peer network. So just to touch back on the history of Bitcoin in 2009 when the United States was having an economic collapse. You all know the recession. It was a big deal at that time. Satoshi Nakamoto proposed a solution for currencies: a cryptocurrency. A currency, that’s Global, without restrictions without governance, and it’s decentralized.

How does Bitcoin make money?

The history of the Bitcoin price is very interesting. When it first started you could purchase a Bitcoin for less than a dollar. Up until about 2017. It didn’t have much movement. There was a little bit of play here and there but it really wasn’t catching on, and then it started to get in the public eye and at this point, you can see from 2017 to 2018 the price shot up from about a hundred dollars to over 14,000 dollars per Bitcoin.

This was a big bull run in the cryptocurrency world. This is what made it gained most of its popularity. This is what made it be in news articles, in newspapers, business journals, newscasters, everybody was talking about bitcoin price, and like anything in the world, supply and demand. When somebody thinks something is at its highest value, people start to sell. And that’s why the price of Bitcoin went down so dramatically because everybody thought it was the peak of the market. So everybody started to sell, therefore there were more Bitcoins on the network available to purchase. So the value of it was lower because there were more supply and less demand.

In 2019, it slumped down to about $500 per Bitcoin and now we’re starting to see a major pick up just as we did in 2017. It hit over 12,000 dollars recently and dropped down a little bit to about 9,000, and these fluctuations, I feel, are very normal, especially with a new currency. People are unsure of their stability. People are trading it to make quick cash. So there’s a lot of buying and selling but I feel like over time this is going to stabilize and it’s going to be way less volatile. Once it gains more stability. Once it gets adapted by the entire world. It’ll be a more stable currency. It’ll trade like the dollar, yen, pound and euro.

So as we adopt this new technology in our society, it’ll be just like every other currency, and we will be able to trade it and sell it and buy it globally, but the difference is there’s no restriction. There’s no centralized government mandating what you need to do. You don’t need to put your address. You don’t have to put your email. You don’t have to put your social security number. This is 100% private and is 100% secure, and it is one of the fastest ways to transfer funds internationally.

Recap of Bitcoin

Explaining what is Bitcoin, we can say it is a digital currency plays on a system called the blockchain, where groups of transactions are blocked together and verified by thousands upon thousands of computer simultaneously to verify the transactions, to make sure they’re valid, and to prevent double-spending on a Bitcoin so that not one coin is spent twice.

This new cryptocurrency is extremely secure because it works on this network that not one person controls. Each transaction is sent out into the peer-to-peer network to be verified to make sure that it’s safe. There is a public and private key. The private key is yours to keep safe. The public key goes out to the network to verify transactions, and all these transactions are not labelled with people, they are digital signatures. There’s no name associated with it. There’s no social security associated with it. It is 100% secure and it is 100% anonymous.

confirmed transactions per day all time bitcoin

Source: Blockchain.info

The next biggest thing you need to keep in mind is that it is extremely fast. There are no middlemen. So if you think about a banking system. A person needs to use their application on their phone to contact their bank, to withdraw funds, which those funds are sent to another bank, that bank receives the funds, then communicates with the other person’s application, and then that person receives the funds. All of these middle points are governed, monitored, and recorded, so that all currency, normal currency, like pounds, dollars, euros, and yen, are tracked globally, and at the same time, all these middlemen like to take their own cut. That’s why International transaction fees are extremely high. But, on the peer-to-peer Bitcoin Network.

A user initiates a transaction with their private key using their public key to get spread out across the network saying I send (X) amount of Bitcoins to this user, again, it’s not a person, it is a digital signature, that person receives the funds almost instantly. I’m talking about very fast transaction speeds, and the only fee that you need to pay is basically to cover the costs of the computers that run these programs to verify these transactions. So you’re basically paying a small percentage of somebody’s power bill to make all these transactions happen over the Internet.

Condition of the cryptocurrency market

Currently, the market can observe a big drop on traditional stock exchanges, which can be associated with the COVID-19, epidemic. However, the BTC price is still quite stable. Therefore, Bitcoin is not only safe, but it is also secure, it is fast, and it is global. We’ve seen the evolution of currency over time. We used to trade sticks and stones and fruits and vegetables, then it went to coin money, then it went to paper money, and now it’s more digital, in the fact that you have a debit card representing numbers on your computer screen. This is just another step in the evolution of currency. We have prepared more articles in which we will discuss issues such as bitcoin mining, a bitcoin wallet and much more. Cryptocurrencies are an area that is constantly changing, so keep up with all the information.

You can also listen to our podcast – Crypto Academy by CoinCasso:

… or you can watch our Video Explainer about “What is Bitcoin?“:

Magdalena Aleksander

About The Author

Magdalena Aleksander
Junior Marketing Specialist

Ready to buy crypto?

Create an account and start trading right now.

TAKE PART IN OUR TRADING CONTEST AND WIN IPHONE 11
REGISTER!