What is Bitcoin?

What is Bitcoin

What Is a Bitcoin?

On a superficial level, you can think of bitcoin as a token.

The previous page’s image depicts the most widely accepted symbol, created as a mix between a capital letter B and the $ sign.

That symbol didn’t exist in the Unicode standard used by computers when it was created, so an abbreviation is used instead: BTC.

A single bitcoin is denoted as 1 BTC.

It’s digital, so it can be broken down into tiny numerical values-all the way down to eight decimal places.

That means the smallest fraction of a bitcoin is 0.00000001, or one-hundred-millionth of a bitcoin (also known as a “satoshi).

Just as dollars are divided into pennies, nickels, dimes, and quarters, bitcoins are divided as well.

Each portion has a different name:

Bitcoin

Just like a physical token, bitcoins can be in someone’s possession.

That owner can move them around, switching them to different personal wallets or handing them to someone else.

Spending a bitcoin means you put it in someone else’s possession.

Now let’s apply this thinking to the digital realm.

A bitcoin can be understood as part of a larger software system.

Think of it as a computer file that is assigned to a certain owner’s digital address

(similar to an email address).

It can only be moved with special permission.

It also keeps a record of every place, or address, where it has ever been. That means it carries the history of every transaction in its existence.

But even that definition doesn’t go far enough.

At a more fundamental level, bitcoins appear as a section of data in a massive database.

It’s like a tally.

There are entries on a public ledger.

Any bitcoin that you “own” is really on that ledger. When you swap ownership, you hand over rights to that bitcoin your address merely points to that bitcoin, which remains on the block chain.

 

Bitcoin is a digital, decentralized, peer to peer, pseudonymous currency based on cryptography.

If that sentence made no sense to you, don’t worry  I’ll break it down for you.


         Digital – Bitcoins exist only as code, they do not exist as anything physical. People can (and have) made physical representations of Bitcoin, but ultimately they are based in the digital world.


         Decentralized – There is no central bank or institution that issues or controls Bitcoin.

It is a group of individuals all over the world who run the program that keeps the monetary system running.


         Peer to Peer – You control your own Bitcoin, and when you send Bitcoin to someone else, it goes directly to them.

There are no banks or middlemen.
         Pseudonymous – While all Bitcoin transactions are publically viewable in an edger called the Blockchain (we’ll get to that later), the sender and receiver are only known as a string of numbers and letters.

If you’re careful about your identity, using Bitcoins can be done anonymously.


         Based on Cryptography – The strength of Bitcoin as a digital currency lies in the code, which uses strong cryptography to ensure that the coins cannot be accessed without proper permission.


Bitcoin is the first digital currency that has these characteristics, and as a result it is the first digital currency to become widely adopted on the internet.

As of June 2013, it is handling nearly 60,000 transactions each day, and this number is accelerating quickly.