What Is Bitcoin? Explain in simple words.

 Most of us have heard of Bitcoin by now, and leading thinkers and experts have weighed in with their views on cryptocurrency. Attitudes toward Bitcoin run the gamut from "it's nothing but gambling” to "what are you waiting for!”. Whatever your point of view, there's no denying that Bitcoin has forever upended the ways we think about money. Even though some of us have no interest in using Bitcoin, the underlying technology is truly revolutionary.

 

What is Bitcoin?

 

Bitcoin is one of the most interesting—some would say revolutionary—developments of the past two decades. Bitcoin is much more than just digital money. Calling Bitcoin is a digital currency is like calling the Internet a delivery system for email; it barely scratches the surface. Bitcoin is not simply a medium of exchange; it’s a technology that can be used as both a currency and a global payments network. 

 

Bitcoin first appeared in 2009, created by a person or persons unknown, using the name "Satoshi Nakamoto.” The concept of blockchain technology had been around for a while, but this was the first time it was conceptualized using Bitcoin. The main intention for creating Bitcoin was to reward the consensus nodes (aka, "miners”) and remove the verification process from financial intermediaries. Using blockchain technology, every Bitcoin transaction is recorded on a public ledger, providing full information on all transactions to everyone.

 

Rather than simply experience the run-of-the-mill meaning of bitcoin, on the off chance that we attempt to comprehend what issue it could illuminate, we'll have a clear idea - why individuals are speaking progressively about bitcoin.

 

To understand how bitcoin is different, first, we need to understand the current payment system. Assume that Alice wants to transfer some amount to Bob. How would they do that? The easiest way to transfer funds is banking; Alice will ask for Bob’s bank account number, then visit the online baking site or an app, and will transfer money to Bob’s account.

 

 

 

But if you notice here, the third party, a bank or other payment processors are actively involved during this transfer. They have full control of your account and that is dangerous! Also, there are some other issues with this type of transfer.

 

Trust

 

Banks have total control of your account, and they can do whatever they want to do with your money. There are several examples in the history of bank corruption with private banks and state-owned banks. After becoming a victim of a few incidents in the past, it's difficult to confide in banks now.

 

More significantly, you are providing confidential information to them, but there is a chance they can share your information - either purposefully, accidentally, or even through a Cyber-attack.

 

Transaction Speed

 

Transferring money take days/weeks to be settled; in the case of banking, it’s because of the batch processing system. And Payment processors take time to reduce the risk.

 

Transaction Charges

 

Banks and payment processors are profit-making institutions, they are making a tremendous profit by charging you with services. With banks, you have to maintain your account limit, daily withdrawal limit, service charges, credit score, and whatnot. All the restrictions are for making more and more money.

 

Furthermore, these companies are making more expensive transactions much more expensive based on the destination country, instead of the size of data being transferred. And that is a huge amount you’re paying - just for transferring money!

 

PayPal transfers (international), for example, take a huge fee,

 

 

Identity and Verification

 

This issue is with many developing countries, people from an urban area don’t have enough identity proof finalized by their government; and just because of that, they are not able to use common facilities such as banking, insurance, payments. According to the World Bank’s report in 2018, 1.7 billion adults worldwide didn't have access to a bank account.

 

How does Bitcoin solve these problems? 

Trust  

Bitcoin runs on a peer-to-peer network, which means there is no third party or middlemen that you need to trust. Instead, you trust software that is completely open-source, meaning anyone can review the code. The Bitcoin network is secured by individuals called miners; they verify each transaction. However, miners don’t have access as a bank has; they cannot charge you or freeze your account.

 

 

  

The trust is distributed among the nodes of the network instead of only one central authority, so even if a single node tried to change the information, the whole network wouldn’t accept it.

 

Transaction Speed

 

Bitcoin transactions are accomplished in real time and take only a few minutes to verify. Yes, it is slower than a payment processor like Visa or PayPal – however, through Lightning Network, this problem can be solved by creating payment channels and doing off-chain transactions. In this case, you do not need to worry about speed.

 

Transaction Charges

 

Unlike other payment systems/processors, the transaction fees of the network are very minimal. Also, the fees depend on the size of the data, instead of the amount that is transferred, meaning that you can send a very large amount or a tiny amount like a millionth of a part of a bitcoin. Also, it doesn’t matter what the destination country is if you’re sending bitcoin to your neighbor or overseas; in all cases, the fees remain the same. Additionally, there is no chance of charge-back or reverting back the transaction.

 

Identity and Verification

 

To create a bitcoin account (wallet), proof of identity is not required so anyone can start using the bitcoin network by just downloading a wallet on their computer or smartphone. No central authority verifies user identity and then allows them to use it. Everyone can join any time in the world; the only thing required is an internet connection. You can just think of the level of financial integration we can achieve with bitcoin.

 

Neutrality

 

The best part about bitcoin is its neutrality – the same as the internet. The internet doesn’t distinguish between large companies or a group of people; it doesn’t know about what/who you are; it gives you the same power of speaking to the world as CNN has. Similarly, Bitcoin allows every single user to operate and create new ways of payment and banking regardless of who you are; you can operate on the same level as Citibank.

 

How does Bitcoin work?
 

 

How to buy bitcoin!

 

There are multiple ways to buy bitcoin. One way is the same as buying any foreign currency; transfer any fiat currency to the exchange and use them to buy bitcoin with the current exchange rate. The second way is to provide a service that offers payment in bitcoin, and you can start earning bitcoins. 

 

In this article, we have seen what are the issues with the current payment system and how bitcoin solves them.