What is the Purpose Of Bitcoin?
Bitcoin uses cryptography to ensure the security of online peer to peer transactions. A safe and secure way to store value, pay for goods and services while not being controlled by a single entity
Bitcoin has grown its use case and is considered the gold of the internet and is believed to be the ultimate digital store of value available.
Bitcoin is decentralized, so the value or worth of it is not up to some authority to decide.
Traditional currencies are controlled by central authorities who can manage its value at any given moment.
What Is Bitcoin
Bitcoin is a digital form of cash that is used for online transactions. It is an innovative and unique kind of payment network. Bitcoin uses peer-to-peer technology to operate; this technology is managed by the people who collectively run the network. Users are responsible for the transactions made on the system. The entire process is decentralized and operates on nodes or systems attached within the system.
The overall concept of the word Bitcoin could be divided into two components.
On one side, Bitcoin is a token, a snippet of code that represents you as the owner of this token like a virtual signed document IOU.
If you are the owner of a bitcoin, that means you are the owner of whatever value that’s attached to it. You could use this bitcoin for online transactions or could sell it if you want.
On the other side, Bitcoin is a distributed decentralized protocol designed to be operated on a network or blockchain. This network or protocol is responsible for safe and secure transactions.
This network also holds the transactions records and updates the record on the ledger accordingly.
Bitcoin was first released into the market by an anonymous developer. This anonymity and the fact that bitcoin was open source in nature raised many concerns. Software and protocol used by bitcoin is open source and is prone to changes by developers who have access to it.
This led to a lot of misunderstanding, and few started considering it as a scam. Now the community has grown very much, and various developers are working on Bitcoin. Currently, the system accepts worldwide payments with a low processing fee.
It’s considered as the most secure cryptocurrency as the system has never been compromised since its release in 2009.
How Does Bitcoin Work?
Instead of getting into all the complexities here I’ll describe it like this, It’s just like a mobile application or software. On the backend, there is a smartly coded algorithm that’s making all the changes in the system.
Fortunately, for us, we don’t have to understand the algorithm to use Bitcoin. It’s a simple five-step process to use bitcoin:
- Open your Bitcoin wallet.
- Add the public address of the person you’re are sending BTC too.
- Enter the amount of Bitcoin (BTC) you want to send.
- Click Send
- Confirm your transaction, typically a code you create when setting up your wallet and Done.
Shortly after, the person receiving Bitcoin will see the transferred Bitcoin in their wallet.
A large part of getting involved and understanding Bitcoin is understanding all the lingo used in explaining it all. If you are new and having a difficult time understanding all the terminology we create this helpful A-Z Glossary difining all the major terms you need to know. See Crypto Terminology | A Helpful Crypto Glossary to see them all.
What Is the Purpose of Bitcoin?
The main idea behind the creation of Bitcoin was to develop a decentralized system for peer to peer transactions.
The goal was to introduce a decentralized currency that is valuable and whose worth is not decided by the central authorities or banks.
Bitcoin was developed to introduce a new and advanced form of cryptography-based digital currencies. These currencies as we call them cryptocurrencies are fast, safe, and secure.
What makes Bitcoin Different and Valuable?
Like you can make a purchase using your dollars or pounds online, Bitcoin could also be used in online transactions. But there are undoubtedly significant factors that make bitcoin unique, valuable, and different from traditional or fiat currencies.
Like discussed earlier, bitcoin is based entirely on the concept of decentralization. A single institution does not run it, but a group of people participating in the network runs it. People who don’t trust banks or central authorities feel safe to invest in bitcoins as they like the idea of decentralization and having more control over your money.
The governments control central banks and the production of fiat currencies. This means that they have an unlimited supply that can quickly lose value if they create enough over some time.
The value can be manipulated over time, depending on the economic factors. The supply of bitcoins, on the other hand, is decreasing over time, and this cannot be changed.
Every hours or so, the production of bitcoins is declining. This will continue until the maximum number of bitcoins available, i.e., 21 million, is produced by the system. This concept of basic supply and demand determines the worth of bitcoins.
If you perform transactions through a bank, the transaction record is saved with all your personal information. These transactions came under laws and restrictions and identified for verification purposes.
In Bitcoin, there is no central “validator” for the transactions. You don’t need to identify yourself personally. Although the system is safe and secure and checks the transaction carefully in the end, it doesn’t require the identity of the person performing the transactions.
There is a chance to reverse your traditional currencies, in Bitcoin when a transaction is made; it is not possible to modify it. Again as there is no central judge to decide or make a decision about reversing of the transaction, it is impossible to do so.
If a transaction is recorded on the system and around an hour has passed. It is virtually not possible to reverse the transactions.
Everyone might not like this concept, but this also ensures that transactions are not tampered with.
If you been in Crypto any amount of time I’m sure you heard the saying that, “Bitcoin is A Buble.” This term has kept many from getting involved in Bitcoin with the fear of a crash coming to the market. We created an article called, Is Bitcoin A Bubble | A Look At Both Opinions to help you understand what a Bubble is and if you feel that Bitcoin will one day pop!
What Is the Benefit of Using Bitcoin?
Bitcoin was invented to create a digital transaction system that is different from traditional currencies in terms of overall expenses and taxation.
It was a low-cost and efficient solution for online transactions. Also, the fact that they are irreversible saved merchants from issues of expensive chargebacks.
Over time, domestic payment methods also improved, and they even tried to lessen the costs of online transactions. This rapid development decreased the advantage of bitcoin somehow in this regard.
Also, the increasing fees attached to bitcoin transactions resulted in losing one of the significant advantages.
The oversight on avoiding money laundering and illegal transactions also resulted in bitcoin coming under some restrictions or even ban in few countries.
The main benefit that comes with bitcoin is people feel safe to have some digital cash asset on hand. They take it as an investment that might prove fruitful in the future. As they know that some central authorities could not block their assets, they feel safe.
Slowly bitcoin is taking the form of an investment asset as traders and investors have started to realize the potential gains attached with the bitcoins.
What Can I Buy With Bitcoin
Over time as people understood the concept of cryptocurrencies and its use, they started accepting it as legitimate payment method. Now there are many online stores where buying or selling is done in bitcoins.
You can buy goods or services as per your choice.
You can perform international transactions with bitcoins.
If you want to purchase gift cards, you could use bitcoins.
Big industries like hotel industry and flight companies now also accept bitcoin as payment method.
If you want to download apps, movies, games, or services, Microsoft allows you to do so by using bitcoins.
Some prominent musicians allow you to download their music using bitcoins.
Are you looking to furnish your house? Some furnishing retailers are accepting bitcoins in exchange for furniture.
Who doesn’t loves a good pizza? Pizza could be delivered to your place in exchange for bitcoins.
Some schools and educational institutes are also accepting bitcoins now.
Bitcoin could also be used for hiring services from legal and accounting firms.
One of the best ways cryptocurrencies, especially bitcoin, is playing its role positively in the online world is the use of Bitcoins as donations. Many startups and noble causes are funded with bitcoins. The concept of anonymity is liked by anonymous holders of bitcoins who want to donate to a particular cause.
The online world did not welcome Bitcoin in the start, but over time, it made its place in the online world, and now it is used quite frequently in online and digital transactions.
If you are thinking about investing or want to earn more Bitcoins we created an in-depth article on the topic called, How To Earn Bitcoins | Little to No Investment Required. This could be your way into digital currencies without having to put up your own money.
How Blockchain Supports Bitcoin
The system operates on a public ledger shared by all the systems participating in the system.
This whole network is known as the blockchain. Blockchain is the digital ledger on which all the transactions take place and are securely stored. It is responsible for recording all the transactions taking place on the network.
A single entity does not control the blockchain, and it is programmed to operate with a network of systems.
Blockchain is a transparent system that is equal for everyone. Information is available to be seen by everyone on the ledger. This is the fundamental principle that gains people trust that and plays a significant part in the popularity of Bitcoin and other cryptocurrencies.
How Blockchain Works?
As the name suggests, blockchain is a chain of blocks that are present in the network. Each block is verified by several computers that are available on the distributed network. The verified block is added in the system that contains a unique record and history of the transaction.
The blockchain is still in the early stages, but this opens the door to many possibilities. The blockchain is an open ledger that requires multiple verifications that can not be changed once added to the block.
The blockchain is the backbone of digital currencies thanks to all the miners who keep the system healthy.
If you are not familiar with miners and how valuable they are to the decentralization of the blockchain, we created this articles that explain what miners do, why they are beneficial and how they are rewarded in Bitcoin for maintaining the network. Read our article called, What is Bitcoin Mining Actually Doing | The Heart Of Decentralization.
Final Thoughts on Bitcoin
All of the use cases are just the beginning to the potential positive impact Bitcoin can have on the world.
Even skeptics are beginning to come around not solely because they are believers in the digital currency, but believers as in they realize Bitcoin is not going anywhere any time soon. For this reason, many are opening their minds to the concept of digital currency, even allocating a percentage of their portfolio to accumulating the digital asset.
Bitcoin – the digital gold of the internet, is helping change the world and the way we exchange currency with the world.