Bitcoin works like money. In essence, that is exactly what it is: a new kind of digital money. A digital money that makes it possible to send payments securely, cheaply, quickly and freely anywhere on the planet.
To set the scene:
- Bitcoin is at once a protocol, a payment network and a currency.
- It was originally proposed as a concept in 2008, but was launched in January 2009 by Satoshi Nakamoto.
- At the end of 2019 there were at least 45 million active Bitcoin wallets. Of these, around 34% (some 15 million) are active users.
- The number of merchants that now accept Bitcoin has grown exponentially. In the United States, around 36% of small businesses accept Bitcoin, and 56% use it in some way to their advantage.
- Currently, more than one million new users join Bitcoin every month.
- The Bitcoin network is the most secure network in the world and by the end of 2019 it was already processing more than 400,000 transactions a day.
The revolution Bitcoin is causing lies in its design and in how it works
Bitcoin is made up of a consensus network that enables a new payment system with a fully digital currency. It is the first P2P (peer-to-peer) payment network, decentralised and powered by its users without a central authority or intermediaries. From a user’s point of view, Bitcoin is like money. Bitcoin may be the only existing triple-entry bookkeeping system.
A revolutionary money
Its design is so revolutionary that, in just a few years, it is turning the financial system we all know upside down, completely displacing banks, credit cards, SEPA, SWIFT and even institutions such as central banks.
It is free, it is open, but above all it is decentralised and it protects your privacy. It is not controlled by any bank, government or company. It relies on a network made up of people’s computers. A decentralised network run by its users. In other words: there is no central bank printing money at will.
Bitcoin is not anonymous, yet, but it offers a high degree of privacy in times of Big Data and constant leaks of people’s private information. Just as e-mail was an incredible leap forward in the way we communicate, Bitcoin represents a giant step in terms of payment systems. The analogy that best illustrates the nature and potential of Bitcoin is that “Bitcoin is to money what the Internet is to information”. Bitcoin democratises money, gives it to the people, takes it away from those in power.
How is the price of Bitcoin determined?
The price of Bitcoin is determined by supply and demand (see How the price of Bitcoin is determined). In addition, bitcoins work through programs called wallets (see How bitcoins are stored).
What makes Bitcoin special is not that it is a digital currency. The euro, the dollar and other currencies are also largely digital, and digital money has existed for decades. Almost all the money in existence is digital. Nor is it special because it has low transaction costs or processes transactions quickly.
Banks will eventually end up offering these and other features too. The main difference, what truly makes Bitcoin magical, is that it is a P2P network: nobody issues the money. It separates politics from money. And once you understand how money and central banks work, this makes you understand how Bitcoin sets humanity free.
Understanding some basic concepts
Your bitcoins are not files; there is no specific thing that represents a bitcoin. The approach to how bitcoin works is different. Bitcoin is the unit of account for the balances managed by the blockchain. What each user holds is a key (a password) that controls an address (or account number) on the blockchain (the core of Bitcoin, its distributed ledger).
Bitcoin – refers to the transaction network; it can be used for all kinds of applications; bitcoins are sent in transactions; all transactions are recorded pseudonymously in a ledger called the blockchain.
bitcoin – (BTC) unit of account of the Bitcoin network; there will never be more than 21 million and they will be created over the next 100 years; each bitcoin is divisible into 100 million units; its price fluctuates according to supply and demand.
blockchain – public, distributed ledger where all bitcoin transactions (and their balances) are stored permanently. Thanks to “mining”, the blockchain is known as the most secure and truthful database in existence.
mining – process by which transactions on the Bitcoin network are verified; it uses advanced cryptographic techniques and specialised hardware (“miners”): a fixed amount of bitcoins is created (“mined”) during the process (See What is bitcoin mining).
A radical change to benefit everyone
As you will begin to understand, Bitcoin is also a cultural shift. Bitcoin is a clear example of how, in a coordinated way, humanity can solve global-scale problems without relying on third parties.
Bitcoin removes barriers. As in other cases, building walls is pointless, whether in Melilla or in Mexico… We need to build bridges. In money, too. Bitcoin is not about hiding money or avoiding taxes that improve society. Bitcoin breaks down borders, builds bridges, brings people together. All equal on this planet.
But to understand what Bitcoin is in detail and determine why it is the best money in existence, stopping here is not enough. There is much more you need to know, and we have split it into different chapters so that, in an enjoyable way, you can become a true expert.
Throughout the Bit2Me Guide you will see everything mentioned above in detail and you will discover the advantages of Bitcoin.
Keep learning to understand the most important revolution since the invention of the Internet, which is happening right now.
