What is Bitcoin?

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July 18, 2018

What is Bitcoin?

In many ways Bitcoin is similar to traditional currencies: it is recognised and has a value, it can be used to buy things, and its value can change according to market variables. Increased demand for Bitcoin over the last few years has seen an increase in its circulation and its value.

Unlike most traditional currencies, however, Bitcoin is not bound to an institution or country. It is in a sense, international, and it is not subject to authorities like banks or governments that are typically associated with other currencies.

Despite being manufactured around complex technology, Bitcoin actually springs from a simple concept: that people all over the world, from any class or country, can exchange products, services and credits freely, instantly and easily – without the need for intermediary bodies like banks, merchant accounts or payment gateways. In a way it is a throwback to a purer form of trade, and it is for this reason that the potential and future of digital currencies has generated a lot of interest and investment. In today’s free, global and digital market, Bitcoin is standing up as a robust and recognised form of payment.

Bitcoin is based on some fundamental characteristics of currency (or any thing of worth for that matter). In fact, Bitcoin follows the characteristics of a common pillar of today’s traditional currency market: gold. Like gold, Bitcoin is bound by some real world principles. Firstly, it needs to be reasonably difficult to produce (or find). Secondly, it needs to have a limited supply. And thirdly, it needs to be recognised.

Like gold, Bitcoin is governed by principles that can’t now be changed. Bitcoin technology can only ever produce a certain amount of Bitcoins. The more Bitcoins that are produced, the harder it is to create new ones. In this way, the value of Bitcoins is being regulated. Because of its parallels with gold, the production of Bitcoins is referred to as “mining”. Computers can be purchased that evaluate the complex Bitcoin algorithm and produce Bitcoins. The speed at which a Bitcoin computer can produce Bitcoins is mostly determined by its processing speed. A computer designed to produce Bitcoins is known as a “Bitcoin miner”.

Historically, humanity has used a variety of methods to trade other than just traditional money. Payment has often been made in produce or in services, and in some societies people have less need for money. Currencies do, however, fix some problems associated with trading in products and services, but even traditional currencies have some disadvantages. For one, trading with people internationally often involves the management of one or several third-parties, for example, a bank and a credit card company. The provision of these facilities has created opportunity, but it is also making a simple exchange more complicated and regulated than it needs to be, especially given today’s connectivity.

Bitcoin’s purpose is to get around the disadvantages of trading in traditional currencies. It provides an instantaneous, free and reliable way of exchanging goods and services with people over the world. This, combined with the principles over which it has been built, has seen Bitcoin become one of the most exciting currency advancements over recent years and similar systems may evolve in conjunction with Bitcoin to facility easy, free, and fast exchange of goods and services.

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